Economies: Vietnam’s Problems Continue

Updated On: Jul 28, 2008

Despite recent measures to deal with inflation and reduce its trade deficit, Vietnam continues to face its biggest economic test since market liberalization began in earnest in the mid-1990s. Inflation has been in double digits every month since November 2007 while the trade deficit has tripled.

While aiming to boost exports and local production, its trade deficit in the first seven months is estimated to increase to US$15.01 billion. This surpasses the country’s trade deficit for all of 2007, which was $14.12 billion. The trade deficit grew despite export growth of some 37.7 per cent year on year, because imports in that period grew more than 56.8 per cent.

One factor has been higher import revenues caused by global fuel price increases. For petroleum products, imports went up 90.7 percent to over $7.75 billion. While crude oil exports also rose, by some 52.2 percent, to $6.8 billion, this still meant that Vietnam spent more than it earned in this sector, despite its oil reserves.

Other expensive import items increased, including automobiles and their spare parts, fertilizers and steel, which surged from 100 to almost 200 per cent (for automobiles).
Export growth was more modest, with textiles and garments, footwear, seafood and woodwork all growing but slower rates of between 17.7 to 21.3 percent. Rice exports, at $1.81 billion, were also up by 87.6 percent.

Efforts to improve export quality, especially in agricultural, forestry and fishery products, are being proposed. The export of services is also being considered. Additionally, Vietnam is encouraging smaller businesses to broaden traditional and major export markets, and reach more into neighboring markets in Asia.

Meanwhile, financial and monetary policies have been introduced to stabilize the macro-economy. Vietnam is trying to rein in input material prices for producers and has asked commercial banks to maintain loan interest rates for suppliers and exporters below 150 percent of the prime rate.

Despite measures, Vietnam's consumer prices are forecasted by government to rise 25 percent this year. This is nearly double last year's rate of inflation and the highest since 1991, when prices jumped 67.5 percent.

The forecast underlines market apprehensions over the dong and whether Vietnam can slow an overheated economy sufficiently to rein in prices.

Forecasts also show that Vietnam's industrial output growth this year will slow to 16.5 percent, compared with 17.1 percent growth last year.The government did not give a specific reason for the slowdown in Vietnam's industrial sector but its policy to curb lending to meet a credit growth target of 30 percent, following a surge of 54 percent last year, has hurt business expansion.

Vietnam has cut its annual economic growth target to 7 percent and raised interest rates three times this year among other measures to fight inflation. Last year, Vietnam achieved one of Asia's fastest economic growth rates, with GDP rising 8.48 percent from 2006.

Source: Thanh Nien News, 25 July, http://www.thanhniennews.com/business/?catid=2&newsid=40568
Vietnam forecasts 2008 inflation at 25 pct: paper

Related Article