Vietnam seeks to cure growth “addiction”

HANOI — Vietnam is looking to balance its long-standing “addiction” to growth with measures to stabilise the troubled economy, but its success depends on restoring public confidence, analysts say.

The moves follow months of concern from investors and economists over the Southeast Asian nation’s rising inflation, struggling currency and other economic woes that accompanied the high growth rate.

Strong action began only in February when the State Bank of Vietnam announced the country’s largest currency devaluation in years, a 9.3 percent adjustment whose scale surprised experts.

The government then proclaimed fighting inflation to be its number one priority, raising key interest rates and setting a series of targets to help stabilise the economy.

“I think the government’s now sending a much more clear message about giving stability a higher priority compared to growth,” said Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Program in Ho Chi Minh City.

Authorities have directed commercial banks to keep growth in credit, or loans, to below 20 percent this year, with the proportion lent to the “non-productive” property and stocks sectors particularly restrained.

State spending is to be cut by 10 percent, and the budget deficit reduced to below five percent. State-owned enterprises, which comprise a key part of the economy but are known for their inefficiency, have been ordered to sell foreign exchange to the banks.

And in a bid to reduce traditional reliance on gold, the government is planning to ban unofficial trade in gold bars and has proposed hefty new fines for black market foreign exchange trading.

Benedict Bingham, country representative for the International Monetary Fund, welcomed the measures, which he said are seen as “a fairly decisive shift”, with growth now seemingly “subordinated to a focus on macro-stability”.

He said the key would now be convincing foreign exchange markets—which include Vietnamese residents who hold dollars—that the policy would be implemented in a decisive and sustained way.

“It’s not so much a discipline issue. It’s a confidence issue.”

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