Special Report:Global Financial Crisis
By Han Qiao, Huang Haimin
HANOI, Oct. 27 (Xinhua) -- Vietnamese economy, which has just shown signs of recovery from domestic financial difficulty earlier this year, was caught up in a grave situation again due to global credit turmoil.
Vietnamese economy is faced with risks for sustainable growth from within and outside, said officials and experts here.
Vietnamese economy has made remarkable progress in the past decade, registering one of the fastest growth rate in the world. The stable political environment and fast economic reform process have made it a favorable destination for foreign investment. It joined the World Trade Organization last year to further integrate itself to the outside world.
However, the rapid economic expansion started to be a headache from the end of last year, as the investment has grown too fast, credit supply swollen and inflation rocketed. All of this pointed to the sign of overheating.
The Gross Domestic Product (GDP) of Vietnam grew 7.4 percent year-on-year in the first quarter of this year, according to the General Statistics Office of Vietnam (GSO). Consumer Price Index (CPI) in March rose 19.39 percent over last March. The trade deficit stood at 7.4 billion U.S. dollars in the first quarter, equaling 56.5% of export value,
Meanwhile, the stock market experienced steep fall in the first half of this year, with the VN-Index losing more than 700 points, and the Vietnamese Dong depreciated fast against U.S. dollars in early June.
Some international financial institutions at that point made the assumption that the financial difficulty in Vietnam may ignite a new round of financial crisis in Asia, like what happened in 1997.
In face of the overheating economy, mounting inflation and stress from international payment balance, the Vietnamese government launched a number of measures to stabilize the economy in the second quarter, including lowering the economic target, reducing public investment, raising interest rates three times to tighten credit, and promoting exports while strictly supervising imports.
The measures have proved to be effective and the assumption on Asia financial crisis does not become reality. Vietnamese economy started to show signs of improvement in the recent months. Inflation was reduced from the monthly average of 2.9 percent for the first six months to less than one percent for July, August and September. It is expected to experience the first decrease since the beginning of this year in October, of a 0.19 percent drop compared with September, GSO predicts.
Trade deficit narrowed from the monthly average of 2.3 billion U.S. dollars in the first six months to the level of less than 1 billion dollars in July, August and September. Newly granted and added FDI for the first nine months reached 57.1 billion dollars, compared with 8.29 billion dollars in the first nine months of last year.
Although Vietnamese economy has shown signs of recovery, it is still faced with a lot of problems, said experts.
CPI for the first nine months grew by 22.76 percent compared with the same period last year, still at a high level. The aggregated trade deficit for the first nine months stood at 15.8 billion dollars and remained still huge. The problems left from overheating were not easy to handle.
The global financial turmoil has affected almost every country in the world and Vietnam cannot escape from it, with export and investment hardest hit.
Vietnam depends on the U.S. and European Union (EU) markets for more than one-third of its export, according to GSO. In the first nine months this year, the United States remained the biggest export market for Vietnam.
Vietnam's major foreign currency earners like crude oil, rubber and coal have all seen declining prices recently due to lower forecast for global economic growth next year and consequently lower demand.
Consumers in financially-stricken countries are also expected to slash spending in non-essential goods such as clothes, coffee, cashew and wooden furniture, which are all among top exporting items of Vietnam.
Vietnamese export is forecast to rake in 65 billion U.S. dollars in value this year, a leap of 33.9 percent year-on-year, said Vietnamese Prime Minister Nguyen Tan Dung recently. But he made a modest target of 18 percent growth in export value for 2009.
Vietnamese exporting companies are calling for more government support on tapping new markets, while reducing cost of loans as the lending interest rate went up to about 20 percent annually earlier this year.
Besides export, experts believed that lower world economic growth for next year will also lead to slower disbursement of FDI in Vietnam.
According to official figures, nearly 30 billion of the total 32.2 billion dollars of FDI invested in the industrial sector in the first nine month has been for petrochemicals and steel. Declining demand for industrial materials on a worldwide scale will force foreign investors to reconsider their investment plans.
In response to the global credit crunch, Vietnamese government recently reduce the benchmark interest rate by one percentage points to reduce cost of loans for domestic companies. It also encourages preferential policies of commercial banks to exporting companies.
Vietnamese economy, with new and old, internal and external challenges, is under a lot of pressure. It has a long way to go before it could resume sustainable and rapid growth, said experts.
