Vietnam

[millionairemind]

VIETNAM
Vietnam faces tough inflation fight

However, medium term prospects are good if govt measures to restore macroeconomic stability work, says OMKAR SHRESTHA

AFTER almost two decades of successful development, Vietnam's economy is being ravaged by inflation and macroeconomic instability as never before. How did this happen and what remedies are available to deal with it?

Pausing for a break: Vietnam has stopped pursuing growth in favour of macroeconomic stability as the CPI reached a record 26 per cent in June The country's successes are well documented. Vietnam's sizzling growth over the past 15 years has brought its poverty rate down from 58 per cent in 1993 to around 15 per cent last year. Thanks to political stability and prudent macroeconomic management, it has also managed to lure foreign investors. Foreign direct investment (FDI) approvals have increased impressively over recent years reaching US$20.3 billion last year.

However, the recent surge in inflation to double digit levels over the past several months - and still rising - could unsettle foreign investors and threaten the development gains made to date if not contained. Thus for Vietnam, the choice is clear: it should restore macroeconomic stability rather than try to pursue high growth.

While many countries in the region are also experiencing high inflation rates, the increase has been abnormally high in the case of Vietnam. The year-on-year (YOY) consumer price index (CPI) reached a record 26 per cent last month. This is mainly due to the rapid rise in food prices, but even core inflation (which excludes food and fuel) is estimated to have increased 15 per cent. While the CPI had started hitting double digit levels in the last quarter of last year, it showed sharp acceleration in the second quarter of this year.

Some of the causes of Vietnam's high inflation are externally-induced, but others are home-made. For an open economy like Vietnam, the dramatic increases in the international prices of food, fuel and construction materials have a large impact on domestic prices. For instance, the export price of Vietnamese rice more than doubled within just three months, to around US$700 per tonne in March this year. This helped to push domestic rice prices upwards as well. Food prices were also adversely affected by a severe winter, avian flu and livestock diseases. Food inflation quickly permeated into non-food areas as well. The prices of housing and construction materials increased as demand for houses, industrial and commercial complexes remained strong as a result of high rates of investment and growth.

Vietnam's exchange rate system, which is a de facto peg to the US dollar (within a narrow band), compounded the inflationary problem. Preserving the country's export competitiveness required that the booming foreign investment inflows last year be sterilised to prevent dong appreciation. Accordingly, the central bank - State Bank of Vietnam (SBV) - purchased large amounts of foreign currency from the banking system. The move, however, was not enough to fully sterilise the liquidity inflows to the economy, leading to a large monetary expansion. The excess liquidity in the system combined with the rapid expansion of the joint stock banks, resulting in a sharp acceleration in domestic credit (by 54 per cent last year compared to 29 per cent in 2006) mostly to the real estate and securities sectors. Such a pace of credit expansion compromised banks' loan appraisal procedures as well as their credit quality.

Home-made inflation

Thus, the unsterilised liquidity inflows, the unusually high domestic credit growth, expansionary fiscal policy, and aggressive public investment were the principal home-made causes of Vietnam's high inflation.

The signs of overheating of the economy are evident in infrastructure bottlenecks (such as severe electricity shortage and congested roads and ports), a tight labour market - with skilled and semi-skilled labour supply falling far behind demand - and a sharp widening of the trade and current account deficit. The trade deficit in the first half of this year (around US$15 billion) was already higher than for the whole of last year (US$12 billion), while the current account deficit is running at an alarming level of around 10 per cent of GDP.

Little surprise therefore that the non-deliverable forward rate of the dong in offshore markets is considerably more depreciated than the official spot rate, indicating that the dong is under heavy downward pressure. As people hedge against high inflation, there are indications of liquidity being converted into gold.

Under such circumstances, curbing inflation, restoring macroeconomic stability and engineering a soft landing of the economy have become the most important tasks facing Vietnam's government.

Government response

Appropriately, the government in February/March 2008, switched its priority from pursuing high growth to macroeconomic stability with a downward adjustment of growth target from 8.5-9 per cent to 7 per cent for this year. The government also announced its plan to pursue tight monetary and fiscal policies, cutting back government expenditures and public investment projects with a view to reducing trade deficits.

The prime interest rate has been raised thrice to reach 14 per cent on 11 June. The credit growth ceiling for the commercial banks has been set at below 30 per cent for the year and their credit for real estate and stocks has been restricted to 3 per cent of their total loans outstanding.

The reserve requirement ratio (the proportion of deposits that banks hold in the form of cash reserves) has been increased significantly from 5 per cent to 12 per cent effective from 27 June. The commercial banks have been required to purchase SBV bills worth about US$1.3 billion in a move to mop up cash from the banking system.

By way of maintaining exchange rate flexibility, the daily US dollar/dong trading band has been widened from +/- one per cent to +/- 2 per cent from the prevailing official rate.

Administratively, the price freeze on several essential goods and services have been extended to the end of the year.

Thanks to all these measures, there have been some signs of inflation easing. The credit controls and cut in investment projects have also brought imports down, helping to reduce the trade deficit from nearly US$3 billion in May to US$1.3 billion last month.

But concerns remain about whether these measures will be adequate to bring inflation to a manageable level. For instance, sales of SBV bills have been insufficient to slow down credit growth. There may therefore be a need for further interest rate hikes.

Considering that the pegged exchange rate has limited the SBV's degree of monetary management, a greater degree of exchange rate flexibility (with due consideration for export competitiveness) could be an option to improve the effectiveness of monetary policy and neutralise the inflationary impact of capital inflows. On the fiscal side, more cuts in public investment projects (on top of those already announced) may be needed. Off-budget investment projects also need to be reined in. And portfolio capital flows and interbank transactions may need to be closely monitored through strong coordination and information sharing among the Ministry of Finance, the SBV and other critical agencies.

Good medium term prospects

Exposure to global markets has inevitably complicated Vietnam's macroeconomic management. Notwithstanding the tightened monetary and fiscal policies, its inflation rate this year is expected to remain high. While it may slow down next year, it will still be at double-digit levels. Thus Vietnam's immediate economic outlook is volatile.

However, healthy FDI inflows during the first quarter of this year and unabated inflows of remittances (expected at around US$8 billion this year) are signs that investors are giving the government's anti-inflationary policies the thumbs up. If these policies are strongly enforced, and demand pressures and the inflation brought under control, Vietnam's prospects for sustained growth in the medium term will remain good.

The author is visiting senior research fellow at the Institute of Southeast Asian Studies. The views in this article are his personal observations.

[futuresasia]

Vietnam's prospects seem to be getting slightly better... with the oil price reduction, inflation may finally come down.

Recently, Vietnam market received 2 pieces of good news
1. Government reduced oil price by 1000 vnd/litter
2. Trading band is widen to improve the liquidity of the market (from +/-4% to +/-7% for Hanoi and from +/-3% to +/-5% for HOSE This will take effect on 18 August 2008 (this coming monday)

http://vnmoney.wordpress.com/2008/08/15 ... gust-2008/

[winston]

Vietnam's Stock Market Attractive for Investors, Mobius Says
By Van Nguyen

Aug. 22 (Bloomberg) -- Vietnam's stock market offers investment opportunities after a 45 percent slump this year, said Mark Mobius, executive chairman of Templeton Asset Management Ltd.

``Vietnam's stock market now is down, so there are more opportunities,'' Mobius said in an interview in Ho Chi Minh City, where Templeton opened its Vietnam representative office today. ``The market will go up and will be much more valuable in about three years.''

Mobius, who oversees about $40 billion in emerging-market equities, is increasing Templeton's investments in Vietnam after it bought a 49 percent stake in the fund management unit of Joint-Stock Commercial Bank for Foreign Trade of Vietnam, known as Vietcombank Fund Management, earlier this year.

Templeton is turning to emerging markets as it said earlier this month stocks tumbled more than justified because demand for raw materials continues to boost economic growth in those nations. The MSCI Emerging Markets Index has plunged 29 percent since reaching a record in October.

In Vietnam, Templeton will invest in retail banking, manufacturing and agriculture companies on Ho Chi Minh City's stock exchange, Mobuis said. He expects the country's economy to expand about 6 percent this year.

The VN Index has fallen 45 percent this year, the world's fourth-worst performing benchmark index tracked by Bloomberg, on investor concern that the fastest inflation in 16 years dimmed Vietnam's growth prospects. The country also reduced its economic growth forecast to 7 percent from 9 percent in April.

Vietnam's central bank has raised interest rates three times this year to ease inflation.

``Inflation is high, but we are happy to see the government is acting rapidly and very strongly to beat inflation,'' Mobius said. ``But that's also why the stock market looks attractive.''

[ishak]

Vietnam allows HSBC, Stanchart to set up local banks
AFP, 09 Sep 2008

Vietnam has given European banking giants HSBC and Standard Chartered the green light to set up wholly-owned subsidiaries in the country, an official statement said.

The two firms can operate locally as commercial banks for 99 years, a State Bank of Vietnam statement said, adding the move expressed the country's 'strong commitment to the World Trade Organisation'.

Vietnam pledged to gradually open its banking sector when it joined the WTO in 2007, but foreign banks have often complained it was doing so too slowly.

HSBC's Vietnam chief executive Thomas Tobin said in a statement that the decision over wholly-owned subsidiaries would help consolidate his bank's position in the local market.

'We continue to increase our participation in Vietnam's economy and financial markets. This is a clear sign of the Government's ... recognition of the importance of a strong financial sector,' he said.

HSBC already operates in Vietnam, but setting up a fully owned local bank will allow it to open more branches and offer more products, a spokesman for the bank said.

HSBC recently received permission to increase its stake in one of Vietnam's largest private banks, Techcombank, from 14.4 per cent to 20 per cent.

Standard Chartered Bank is already a strategic partner of Vietnam's Asia Commercial Bank (ACB) and recently increased its stake in the firm to 15 per cent, the European bank said.

Vietnam was once widely hailed as Asia's next economic tiger, but has been battered by a surge in inflation, a ballooning trade gap, tumbling share prices and worries about the banking sector and its currency, the dong.

[millionairemind]

Vietnam cuts prime rate
HANOI - VIETNAM'S central bank on Tuesday cut the benchmark interest rate by one percentage point to 13 per cent in a bid to free up credit for enterprises amid the global financial crisis.

The monetary loosening reverses a series of three hikes this year, from 8.25 per cent to 14 per cent, which had aimed to reduce liquidity and curb the country's double-digit inflation.

[millionairemind]

This is hilarious..

Yes to flat-chested motorists?

HANOI - COMMUNIST Vietnam has suspended a much-criticised plan to ban very short, thin and flat-chested people from driving, state media reported on Wednesday.

The new draft guidelines on motorcycle and car drivers had drawn widespread criticism and ridicule from motorists, newspaper readers and bloggers since they were published by the health ministry two weeks ago.

Under the 83-point plan, people shorter than 1.5 metres, lighter than 40 kilogrammes or with a chest circumference of less than 72 centimetres would no longer qualify for new drivers' licences.

The proposal worried many in this nation of slender people and spurned jokes about traffic police with tape measures enthusiastically flagging down female motorcyclists, and predictions of a run on padded bras.

The justice ministry has asked the health ministry to temporarily suspend and review the plan, the Vietnam News daily reported.

'After receiving public opinion about the decision, the health and transport ministries agreed there had to be changes,' senior health department official Tran Quy Tuong was quoted as saying by the state-run daily. -- AFP

[millionairemind]

December 11, 2008, 7.59 pm (Singapore time)

Standard and Poor's warns Vietnam's economy vulnerable

HANOI - Credit rating agency Standard and Poor's warned Vietnam's economy was vulnerable to 'severe shocks' amid the global downturn, downgrading its outlook for the country to negative on Thursday.

The negative outlook 'reflects the risks to financial stability as banks face near-term asset quality deterioration with weakened balance sheets', the agency said in a statement from Singapore.

It affirmed its BB/B foreign currency and BB+/B local currency sovereign credit ratings for Vietnam where economic growth is expected to slip to about 6.5 per cent for this year from 8.5 per cent in 2007.

'The ratings on Vietnam reflect the country's low-income economy and developing financial system,' the agency said.

'These weaknesses increase the vulnerability of the economy to severe shocks that could significantly increase the public financial burden.'

The agency said that the 'hectic investment activity of recent years, fuelled in part by strong credit growth, appears to have pushed the economy to the limits.'

A Standard and Poor's analyst said Vietnam's banking sector 'now faces a global economic slowdown with its balance sheet weakened by excessive credit growth', according to the statement.

'If the economy suffers a prolonged downturn, financial pressure on the banking sector will mount to exacerbate asset quality deterioration. The government may have to support the banks to preserve financial stability.'

In the longer term, the agency said, Vietnam has 'good prospects for sustained economic growth' of around 7 per cent a year, however.

'Ongoing structural reforms have led to a resurgence of investor confidence.' -- AFP

[kennynah]

gfood chance to put vietnam in WL for investment purposes....i suppose land parcels would be one such possibility

[financecaptain]

Be careful if you are doing business in Vietnam.

HANOI - VIETNAM'S main business centre, Ho Chi Minh City, will block foreign investors or company directors from leaving the country if their firms owe taxes, workers' salaries or social insurance payments, a newspaper reported on Thursday.
The city government asked the immigration department and police on Wednesday to prevent a Korean businessman from leaving Vietnam because his company still owed some US$14,300 (S$21,600) in salaries for December to 97 workers, Thanh Nien daily said.

It did not name the company but said police had impounded the sewing machines at the firm. -- REUTERS

[kennynah]

thanks...i am not worried becos i am going there to be a seamstress to that company that is buying up this korean's sewing machines...haha..