HO-CHI-MINH CITY, Oct 30, 2011. As Vietnam battles galloping inflation and a plummeting currency, a new challenge has emerged – a general collapse of confidence in the state’s ability to heal the ailing economy.
“What is happening in Vietnam is a crisis of confidence,” a foreign investor in the southern business hub Ho Chi Minh City told AFP.
In 2008, as financial turmoil swept the globe, Vietnamese authorities responded by injecting massive liquidity into the economy, and speculative bubbles multiplied.
State-owned shipbuilder Vinashin embarked on a flurry of investments, racking up debts of US$4.4 billion (S$5.5 billion) that eventually saw it plunge into quasi-bankruptcy.
Now Vietnam is trying to bring down Asia’s highest rate of inflation – nearly 22 per cent year-on-year in October – trim its trade deficit and strengthen the dong, which has seen four devaluations in 15 months.
When even the official picture is far from rosy, with barely eight weeks worth of foreign exchange reserves and fears over the level of bad debts held by public banks, the lack of visibility is worrying.
The benchmark VN-Index at the Ho Chi Minh City stock exchange, opened with great fanfare in 2000, slumped to just 383 points in August this year, barely a third of its peak in 2007 after Vietnam joined the World Trade Organisation.
Jonathan Pincus, an economist and dean of the Fulbright School in Ho Chi Minh City, said the country’s large trade deficit – US$12.4 billion in 2010 – is a sign that the previous growth strategy was past its sell-by date.
“Vietnam is kind of stuck producing the same sort of things… more and more coffee, rice, cashew, paper, shirts and shoes – and is having trouble moving into higher value-added production, a lot of which is therefore imported from China,” he said.
The country’s institutions have failed to endorse major reforms, he added. “Everyone knows it’s time for another strategy.”