Vietnam passes policy test, fails credibility game (Reuters)

HANOI, July 24 (Reuters) – One of the final pieces of Vietnam’s policy puzzle fell into place this week when it jacked up fuel prices to cut the fiscal subsidy bill.

The hike came on top of the steep rises in policy rates, strong defence of a tumbling currency and curbs on bank lending, meaning Vietnam has done almost exactly what the textbooks prescribe for an overheated economy.

Only, that failed to impress financial markets.

A series of conflicting messages and blunders has shaken investors’ faith in the authorities’ ability to manage the economy.

One barometer of investor sentiment, the Vietnam stock market <.VNI> lost more than half of its value this year and nearly 10 percent so far this week.

Just two weeks before Monday’s steep 31 percent rise in fuel prices, Vietnam’s Deputy Industry and Trade Minister Bui Xuan Khu said the government would keep the prices of petrol, coal and power unchanged for the rest of this year.

“It does continually persist in the back of one’s mind that the government says one thing but then has a tendency to do another.”

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