Vietnam’s economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, analysts say.
The economy widely hailed last year as Asia’s next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.
Credit rating agencies Standard & Poor’s, Fitch and Moody’s and several investment banks have revised downward their outlooks for Vietnam at a time when the specter of a US recession could spell global trouble.
PHOTO: AFP
Aseambankers Research said: “The worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund for help.”
Analyst Adam Le Mesurier wrote for consultancy DSG Asia that “an ‘IMF-program- style’ policy response will be needed within six months,” including monetary and fiscal tightening and a dong currency devaluation.”
Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports — including food and oil — investment inflows, growing tourism and the potential of its young workforce.
“It’s too easy to get excited and claim that Vietnam has gone from poster child to problem child,” EU chief country representative Sean Doyle said. “But I’m not sure it’s very wise and very balanced ... Vietnam, if it can keep steady, stick with the right policies, will be attractive.”
Nonetheless, the turnaround in investor perception has been stunning.
Communist Vietnam’s entry into the WTO last year fuelled enthusiasm for the low-wage “mini-China,” bringing an influx of foreign cash.
Domestic investors gambled on a sky-rocketing stock exchange, the government went on a spending spree and banks lent freely, fuelling rapid credit growth.
The wheels started to come off about half a year ago, when inflation hit double digits as the economy tried to digest US$6 billion in foreign direct investment (FDI) disbursed last year, or 8.4 percent of GDP.
Since the start of the year, prices have galloped, driven by global food and energy costs, to 25 percent year-on-year inflation last month. Wage demands sparked 300 labor strikes in the first quarter alone.
“The wage-price spiral that appears to be beginning, if it becomes embedded, could make matters much worse,” said an HSBC report that predicted a rise to 30 percent inflation amid hoarding of commodities.
Another alarm bell sounded when surging imports drove the trade deficit to US$14.4 billion last month, compared to US$12 billion for all of last year.
The stock market has tumbled amid tighter credit and falling investor confidence, turning from the world’s best to worst performing bourse. Last week it crashed below 400 points, from its high of over 1,100 last March.
Many investors have bought gold or offloaded value-losing dong for greenbacks, briefly sending the black market rate in Vietnam to 18,500 to the dollar last week, against the official rate of around 16,000.
Standard Chartered Bank said recently that the “Vietnamese dong has come under downward pressure, and such pressure is likely to persist until solid improvement is seen in the trade balance.”
Some observers now fear a banking crisis amid tighter liquidity, depositor-flight and non-performing loans.
“Urgent action is required in the financial sector,” said Michael Pease, chairman of the Vietnam Business Forum. “Vulnerability of some financial institutions threatens not just the domestic financial sector but also the confidence of foreign investors.”
Vietnam’s government — which has adopted a fight-inflation-first strategy and pledged other economic fixes — has lowered its economic growth target for this year to 7 percent from last year’s blistering 8.5 percent.
IMF country chief Benedict Bingham has suggested Vietnam cool its “overheated” economy with higher interest rates and public spending cuts, freeing up of the exchange rate and accelerated reforms of its state-owned enterprises.
While Bingham said the IMF was “encouraged” by government plans to fix the economy, he called for “a concrete and convincing policy package that will bolster investor confidence and restore macroeconomic stability.”
MORE VISITORS: The Tourism Administration said that it is seeing positive prospects in its efforts to expand the tourism market in North America and Europe Taiwan has been ranked as the cheapest place in the world to travel to this year, based on a list recommended by NerdWallet. The San Francisco-based personal finance company said that Taiwan topped the list of 16 nations it chose for budget travelers because US tourists do not need visas and travelers can easily have a good meal for less than US$10. A bus ride in Taipei costs just under US$0.50, while subway rides start at US$0.60, the firm said, adding that public transportation in Taiwan is easy to navigate. The firm also called Taiwan a “food lover’s paradise,” citing inexpensive breakfast stalls
TRADE: A mandatory declaration of origin for manufactured goods bound for the US is to take effect on May 7 to block China from exploiting Taiwan’s trade channels All products manufactured in Taiwan and exported to the US must include a signed declaration of origin starting on May 7, the Bureau of Foreign Trade announced yesterday. US President Donald Trump on April 2 imposed a 32 percent tariff on imports from Taiwan, but one week later announced a 90-day pause on its implementation. However, a universal 10 percent tariff was immediately applied to most imports from around the world. On April 12, the Trump administration further exempted computers, smartphones and semiconductors from the new tariffs. In response, President William Lai’s (賴清德) administration has introduced a series of countermeasures to support affected
CROSS-STRAIT: The vast majority of Taiwanese support maintaining the ‘status quo,’ while concern is rising about Beijing’s influence operations More than eight out of 10 Taiwanese reject Beijing’s “one country, two systems” framework for cross-strait relations, according to a survey released by the Mainland Affairs Council (MAC) on Thursday. The MAC’s latest quarterly survey found that 84.4 percent of respondents opposed Beijing’s “one country, two systems” formula for handling cross-strait relations — a figure consistent with past polling. Over the past three years, opposition to the framework has remained high, ranging from a low of 83.6 percent in April 2023 to a peak of 89.6 percent in April last year. In the most recent poll, 82.5 percent also rejected China’s
PLUGGING HOLES: The amendments would bring the legislation in line with systems found in other countries such as Japan and the US, Legislator Chen Kuan-ting said Democratic Progressive Party (DPP) Legislator Chen Kuan-ting (陳冠廷) has proposed amending national security legislation amid a spate of espionage cases. Potential gaps in security vetting procedures for personnel with access to sensitive information prompted him to propose the amendments, which would introduce changes to Article 14 of the Classified National Security Information Protection Act (國家機密保護法), Chen said yesterday. The proposal, which aims to enhance interagency vetting procedures and reduce the risk of classified information leaks, would establish a comprehensive security clearance system in Taiwan, he said. The amendment would require character and loyalty checks for civil servants and intelligence personnel prior to
RSS