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

Video Migrants Caught in No-Man's Land In French Port

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching 'Fortress Europe' More

Video Westgate Mall Attack Survivors Confront Painful Memories

On anniversary of terror attack, survivors discuss how they have coped with trauma they experienced that day More

New Hints That Dark Matter Exists

New evidence from International Space Station hints at existence of dark matter and dark energy 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.
Migrants Caught in No-Man's Land Called Calaisi
X
Lisa Bryant
September 19, 2014 5:04 PM
The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video CERN Accelerator Back in Business

The long upgrade of the Large Hadron Collider is over. The scientific instrument responsible for the discovery of the Higgs boson -- the so-called "God particle" -- is being brought up to speed in time for this month's 60th anniversary of the European Organization for Nuclear Research, known by its French acronym CERN. Physicists hope the accelerator will help them uncover more secrets about the origins of the universe. VOA’s George Putic reports.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video Russian Economy Reeling After New Western Sanctions

A new wave of Western sanctions is hitting Russia’s economy hard. State-owned energy firms continue to bleed profits and Russia’s national currency plunged to a new low this week after the U.S. and the European Union announced new sanctions to punish Russia's aggressive stance in eastern Ukraine. But as Mil Arcega reports, the sanctions could also prove costly for European and American companies.
Video

Video Belgian Researchers Discover Way to Block Cancer Metastasis

Cancer remains one of the deadliest diseases, despite many new methods to combat it. Modern medicine has treatments to prevent the growth of primary tumor cells. But most cancer deaths are caused by metastasis, the stage when primary tumor cells change and move to other parts of the body. A team of Belgian scientists says it has found a way to prevent that process. Zlatica Hoke has more.
Video

Video Mogadishu's Flood of Foreign Workers Leaves Somalis Out of Work

Unemployment and conflict has forced many young Somalians out of the country in search of a better life. But a newfound stability in the once-lawless nation has created hope — and jobs — which, some say, are too often being filled by foreigners. Abdulaziz Billow reports from Mogadishu.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.
Video

Video NASA Picks Boeing, SpaceX to Carry Astronauts Into Space

The U.S. space agency, NASA, has chosen Boeing and SpaceX companies to build the next generation of spacecraft that will carry U.S. astronauts to the International Space Station by the year 2017. The deal with private industry enables NASA to end its dependence on Russia to send space crews into low Earth orbit and back. Zlatica Hoke has more.
Video

Video Future of Ukrainian Former President's Estate Uncertain

More than six months after Ukraine's former President Viktor Yanukovych fled revolution to Russia, authorities have yet to gain control of his palatial estate. Protesters occupy the grounds and opened it to tourists but they are also refusing to turn it over to the state. VOA's Daniel Schearf reports from Mezhigirya, just north of Kyiv.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid