News / Asia

Vietnam's Economic Problems Driven by Unchecked Growth

A mechanic sits working at a roadside motorcycle repair shop in downtown Hanoi, 28 Dec 2010
A mechanic sits working at a roadside motorcycle repair shop in downtown Hanoi, 28 Dec 2010

The stability of Vietnam's economy is under scrutiny as the country confronts soaring inflation, a growing deficit, a weakening currency and falling foreign exchange reserves.  Financial and political analysts say the problems are symptomatic of Vietnam's rapid growth. 

Vietnam's economy is often cited as one of the most promising emerging economies in Asia. The economy expanded by about 6.5 percent in 2010, continuing a decade of strong growth.

But the country finds itself grappling with serious problems, including a trade deficit this year that topped $12 billion.  

The trade deficit and inflation fueled by the economic growth have put pressure on the country's currency, the dong. The government, which tightly control's the dong's movement, has devalued it three times in the past 13 months.

Yet inflation continues, with consumer prices jumping 11 percent this year.

Partly to prop up the currency, Vietnam has spent its foreign exchange reserves, dropping them from a peak of $24 billion in 2008 to $14 billion in September.

Tom Byrne is senior vice president of ratings agency Moodys Investors Service in Singapore.  He says there is increasing downward pressure on the dong and if reserves drop further, the risk of a debt repayment crisis will increase.

"If the exchange rate does weaken further, of course it leads to short-term ramifications on inflation, maybe even more capital flight," Byrne said. "But, over the long term it would help Vietnam's exports gain some competitiveness.  But, the key thing is that whatever the authorities do, what we think would support the rating would be greater macroeconomic stability.  Strong growth, yes, but probably not so strong that it leads to high inflation."

Byrne says government policies favor fast growth, which is good for employment and short-term economic development but not sustainability.  

Many people fear the dong could weaken further, and they are investing in gold and U.S. dollars - which also adds to the pressure on the dong.

Moodys and other rating agencies downgraded Vietnam's credit rating this month because of the unbalanced economic data and an announcement that a state-owned ship building company defaulted on a foreign loan.

Vinashin, one of Vietnam's largest employers, failed to make a payment on a $600 million loan. The Communist Party Politburo has told the company to restructure.  

The default raises concerns the government may now be less able to offer financial support to other state-owned enterprises with heavy debts.

But Carl Thayer, a professor of politics at the Australian Defense Force Academy, says the decision was likely a political rather than economic one.  He says senior leaders probably decided to restructure Vinashin as a show of displeasure with Prime Minister Nguyen Tan Dung's fast growth economic policies.

"Vinashin was a showcase of the prime minister. So, it's hard for me not to see this as being political. I don't really think the Vietnamese leadership has made a moral-hazard stance and said 'state-owned enterprises you've got to fend for yourselves'. I mean, there is that sentiment but it isn't dominant because that's shooting yourself in the foot because that's what the government depends on," Thayer said. "They want state enterprises to be effective and they've coddled them. But, Vinishin is just too big to be allowed to go."

Last month the prime minister accepted responsibility for Vinashin's problems - its debts are estimated at $4.5 billion.

Thayer says the Communist Party Congress in January is unlikely to make any major pronouncements on the economy.

And, he says, despite criticism over the economy, the prime minister is likely to retain his position as he has few eligible rivals.

"Even when they faced the donor's meeting this year, the prime minister, despite their criticism, and I'm mirroring some of that, was basically saying we can do growth, have macroeconomic stability, and maintain political stability all at the same time. So, he's juggling three balls and the odds are that it looks like one might be dropped. And, that could be the macroeconomic stability," Thayer stated.

Financial and regional analysts say that Vietnam's recent problems, including the Vinashin default, may scare off some foreign investors. But Byrne at Moody's says Vietnam's long-term economic outlook is still positive.

"Vietnam has made measures, has taken steps to welcome foreign direct investment, and therefore, I think, boost the long-term growth potential.  What really gave Vietnam a shot in the arm was the bilateral trade agreement with the U.S. that was signed some years ago, giving Vietnam access to the U.S. market," he said.

Byrne says aside from balancing payments, Vietnam needs to improve transparency on economic data and policies.  

For instance, he says updates on foreign exchange reserves are released much later than other countries at similar stages of development.  

More information on debt distress and support for state-owned companies, he says, would also improve the investment environment.

You May Like

Mali's Female Basketball Players Rebound After Islamist Occupation

Islamist extremists ruled northern Mali for most of 2012, imposing strict Sharia law, and now some 18 months later, the region is slowly getting back on its feet More

Video Vietnamese Staging Chinese Product Boycott After Oil Rig Spat

Many Chinese-made products go unsold, for now, with numerous Vietnamese consumers still angry over recent dispute More

Koreas Mark 61st Anniversary of War Armistice

Muted observances on both sides of heavily-armed Demilitarized Zone that separates two decades-long enemies More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Students in Business for Themselvesi
X
Mike O'Sullivan
July 26, 2014 11:04 AM
They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Students in Business for Themselves

They're only high school students, but they are making accessories for shoes, fabricating backpacks and doing product photography - all through their own businesses. It's the result of a partnership between a non-profit organization that teaches entrepreneurship and their schools. VOA's Mike O'Sullivan and Deyane Moses met the budding entrepreneurs near Los Angeles.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid