Hanoi - A report released Wednesday by investment bank
Goldman Sachs says Vietnam's rising inflation and trade deficits have
'aggravated international investors' fears' and 'raised systematic
risk in the short term,' but argued the country's economy will remain
healthy if the government takes needed measures.
The report came a day after businesses at the semi-annual Vietnam
Business Forum raised concerns that inflation, which hit 25 per cent
year-on-year in May, and related macroeconomic and social problems
could destabilize the country's economy.
In its statement to the forum, the American Chamber of Commerce of
Vietnam (AmCham) said the country's business environment faced
threats from a speculative real-estate bubble, wage inflation, labor
unrest, and corruption.
AmCham's statement singled out the arrests last month of two
anti-corruption reporters, Nguyen Viet Chien and Nguyen Van Hai, who
had aggressively investigated the 2006 corruption scandal in the
transportation ministry.
'It is critical that members of the public and officials who are
responsibly acting to remove corruption are not penalized,' the
statement said.
In his speech at the forum on Tuesday, Minister of Planning and
Investment Vo Hong Phuc responded that the two journalists had been
arrested for breaking the law and that AmCham was misinformed.
Phuc said the government had taken appropriate anti-inflationary
measures. The government said measures including restrictions on
credit growth, price controls on key goods, and lifting of caps on
interest rates will hold inflation under 20 percent for the year.
Other industry groups at the forum urged the government to move
faster. Private business groups pushed the government to prevent
state-owned businesses from making wasteful investments outside their
core areas of competency, such as government shipbuilding monopoly
Vinashin's ventures into hotels and tourism.
Western manufacturers asked for faster action on improving ports
and transportation infrastructure, which have seen long delays as
Vietnam's container ports have become stacked up in recent months.
Banking groups asked the central bank to allow the Vietnamese dong
to float more freely against foreign currencies in order to fight
inflation and reduce pressure on the country's foreign exchange
reserves, which have reportedly fallen from 24 billion to 20 billion
dollars since the start of the year.
Bankers also warned that small Vietnamese banks which have been
extending irresponsible loans should be closed down or absorbed into
larger banks. And manufacturers and exporters complained of rising
numbers of wildcat strikes as workers demand wages keep up with
prices.
Foreign business' concerns over macroeconomic problems appeared
to be tempering the enthusiasm investors had for Vietnam in late 2006
and 2007.
After joining the World Trade Organization at the start of 2007,
Vietnam saw its economy grow at a red-hot 8.5 per cent for the year,
and it became a darling of investors. The country attracted over 20
billion dollars in foreign direct investment in 2007 and has pulled
in over 14 billion dollars so far this year.
But the inflows have produced rising inflation and a trade deficit
that hit 14 billion dollars in the first five months of 2008,
exacerbated by worldwide hikes in food and energy prices. Last
week a report by an analyst at Merrill Lynch warned of the
possibility of a catastrophic devaluation of the dong that could
produce a currency and banking crisis.
Wednesday's Goldman Sachs report said such a replay of 1997's
Asian financial crisis was unlikely. The report pointed out that
Vietnam's short-term foreign debt is only 8.6 per cent of GDP, as
opposed to Thailand's 26.3 per cent in 1996, just before the Asian
financial crisis hit.
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