, 3 March 2011
HSBC has stuck its head above the parapet to predict that Vietnam’s troubled economy will turn around this year and foreign investors will return after the government unveiled a raft of proposals to tighten monetary and fiscal policy. Economist Sherman Chan argued in a note on Friday that policy makers were heading in the right direction “after years of impressive but arguably unsustainable growth”, which have led to high inflation, a wide trade deficit and a persistently weak currency. Others, however, are less impressed. Chan said recent measures, such as a large devaluation of the currency, an increase in inter-bank lending rates, a lower target for credit growth and reductions in spending, showed the government’s belated determination to tackle fundamental economic imbalances.
“The economy should enter a new, more sustainable trajectory in 2011,” she wrote, predicting that foreign investors, some of whom have been scared away by ongoing turbulence, would return towards the end of this year: “Vietnam is now at a critical stage in terms of restoring confidence. Thankfully, the previously murky policy stance is gradually becoming clear after the National Congress in January. Although there were no substantial changes in the leadership, with the prime minister retaining his position, the reshuffle of other roles and confirmation of the nomination line-up seem to have helped on the policymaking front. The country has now taken welcome steps in improving economic stability and steering towards sustainable growth.” Chan predicted that monetary and fiscal tightening would have a minimal impact on growth, nudging down HSBC’s GDP forecast for 2011 to 7 per cent from 7.5 per cent and for 2012 to 7.4 per cent from 7.8 per cent. She forecast that annual inflation, currently at 12.3 per cent, would fall to single digits by the end of the year, averaging 9.9 per cent in 2011.
While investors and economists have welcomed the recent policy announcements, many are less enthusiastic about the government’s ability to follow through on its promises. “The government is making the right noises about stabilising the economy, but this seems more like crisis management than an attempt to seriously alter course,” said one foreign investor. Saigon Securities, a brokerage based in Ho Chi Minh City, is among those urging investors to remain on the sidelines “until we see signs of stabilization of inflation and effective results of recently announced government policies.” It argued in its latest strategy note that inflation would hit nearly 15 per cent this year and that higher interest rates and tighter monetary and fiscal policy would seriously dent Vietnam’s growth prospects.
The brokerage predicted that GDP growth would not exceed 5 per cent this year, way below the government’s target of 7 to 7.5 per cent, and approaching effective ‘recession’ territory. With around a million young people joining the work force each year, economists believe Vietnam needs to grow at a minimum of 4 to 5 per cent just to ensure there are enough jobs to go round. Vietnam is certainly facing a long list of challenges, as Chan acknowledges: “In a nutshell, Vietnam is experiencing double-digit inflation, a wide trade gap, lingering depreciation pressures, low foreign reserves, a large fiscal deficit, and an under-performing state-owned sector that is also consuming a disproportionately high share of resources. Many of these issues indeed reinforce each other.”
If the government is to succeed in tackling these issues, it will have to stick to its guns when the pain of borrowing rates of more than 20 per cent and possible spending cuts bite later in the year.
Vietnam, Laos Split Over Mekong Dam
IPS 2 march 2011
The first in a new series of 11 dams planned across the Mekong, Southeast Asia’s largest river, could break a special bond between two communist-ruled countries. Critics in Vietnam see red over a 1,260-megawatt hydropower project planned by their smaller, poorer, land-locked neighbour, Laos. They call it an environmental disaster. Laos, however, wants to be the powerhouse of the region—to sell power to its neighbours and earn enough to help the poor, that is a third of its population of 5.8 million.
The dam in an idyllic hill setting in the north Laos province of Xayab
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