Vietnam’s Economy: Growing Pains

From The American, a detailed look at how – despite rapid economic growth in the past few years - the past several months have offered a reality check for Vietnam, as inflation has spiked and concerns have mounted over currency depreciation and macroeconomic stability.  As the article reports:

“…In June, the consumer price index inflation rate jumped to 26.8 percent (year-on-year). Vietnam’s benchmark stock index, the VN Index, has declined dramatically. Meanwhile, the country’s trade deficit has ballooned, and analysts have warned that a banking crisis is possible. Vietnam clearly has hit a rough patch, and foreign investors are eager to know how the government will respond.

…Thuy Dam, general manager of ANZ Bank Vietnam, agrees. “It is a lesson for everybody,” she says. Rising inflation was to be expected: Vietnam’s capital inflows were exceeding the absorptive capacity of the economy. The fact that these problems emerged relatively early in the Vietnamese reform process means that the country will have an easier time recovering, Dam argues.

…Maybe so. But in the near term, Vietnam faces many challenges. “I think this will be regarded as a bump in the road—but it’s a big bump,” says Donald Straszheim, a former chief economist at Merrill Lynch who now serves as vice chairman of Roth Capital Partners. “I think Vietnam is an economy that’s going to have a hard landing.” It is “quite likely,” he reckons, that annual GDP growth will be below 5 percent “for the next year or two.”

Vietnam is partly a victim of its own rapid growth and partly a victim of global inflationary trends (namely, soaring food and fuel prices). But now the government must act to reassure the investment community. “I think that the benefits of this prosperity have spread wide and far enough that…the reform-minded are ultimately going to carry the day,” Straszheim says. Some of the most prominent economic reformers include Vietnamese President Nguyen Minh Triet, Prime Minister Nguyen Tan Dung, and Permanent Deputy Prime Minister Nguyen Sinh Hung. (Prime Minister Dung visited the United States in mid-June and met with President Bush and former Federal Reserve Chairman Alan Greenspan.)

…Regina Abrami, a Vietnam expert at Harvard Business School, makes the same point. The recent difficulties do not imply that Vietnam’s economic miracle is unraveling, she says. “These are all very normal, cyclical things you see in emerging economies.” Moreover, inflation “is not a unique Vietnamese problem,” but rather a global problem that has hit Vietnam especially hard…”

This entry was posted on Friday, August 1st, 2008 at 10:40 am and is filed under Vietnam.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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