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Page history last edited by Brian D Butler 9 years, 11 months ago









General Info:

  • 85 million people
  • most in countryside
  • large exporter of farm produce
  • moving toward high-tech (new Intel plant announced)
  • big tourism market
  • stock market created in 2000 (new)
  • one of the worlds most "open" economies
  • read more:  MSU Global Edge report on Vietnam (see other links below)


Table of Contents




Macro Economy 2010


"The currency, the dong, has been devalued three times since November 2009. Fiscal weakness and policy flip-flops led Fitch, a credit-rating agency, to cut Vietnam’s sovereign rating in July. Foreign reserves have been run down. Many Vietnamese opt to hoard dollars, not bank them. Inflation, at 8.2%, is a worry."  Read more from the Economist.com


"Cheap Labor"

Due to devaluations:


Read more from the Economist.com




Challenges for 2008:


Inflation fears:


Over the past year (as of June 2008), Vietnam has experienced double digit inflation, which has been causing major disruptions in the Vietnamese stock, housing and banking markets.  


As you can see from the chart below (Economist.com) there is a negative correlation between surging inflation rates and a falling stock market.  But, why is this?  Is inflation really strong enough all by itself to cause the stock market to fall? 


The key is that rising inflation (over 25%), has led to a notable downtick in confidence among Vietnamese investors.   With a history of hyperinflation, there is the fear that expectations of future inflation could undo any "anchors" of inflation expectations that have been set.  On one hand, most experts expect that inflation could "peak" later in 2008 (based on the fundamentals of supply and demand)...but this depends on a rational readjustment of prices to the new higher level.  The fear, on the other hand, is that people's expectations about further price increases gets built into wage and material contracts, and that inflation could spiral out of control.  


As we will outline below...the initial result of high inflation (and current account deficits) can lead to an economic crisis in a country... leading to banking , currency, housing and stock market crisis'...see below for more discussion....




Currency crisis?

In recent months, there has been a fundamental shift away from calls of an "under-valued" currency (that needed to appreciate), to one that is widely considered "over-valued"  and in need of depreciation.   In response (June '08), the Vietnamese (communist) government has devalued the currency by 2%, but further devaluations are widely expected (as indicated in offshore trading in currency futures which indicates further expectations of devaluation up to 30%). 







Rising interest rates

Needing to fight inflation....the Vietnamese government raised interest rates in June '08 from 12% to 14%.  But, even with this increase, the nominal interest rates are too low compared to inflation, and so "real interest" rates are in fact negative.  This means that people are better off spending than saving because the money in the bank grows slower than inflation.  But the pressure to spend rather than save is only fueling further inflationary pressures.


Bank lending troubles

With nominal interest rates too low compared to inflation, banks are not interested in lending money at these "low"  rates, but Vietnam has regulations that limit banks from lending any higher than 150% above this base rate, which they would need to do if they were to make money on the loans in real terms.  So, in response, the banks have basically stopped lending money.   This has very bad implications for small business and entrepreneurs in Vietnam.


Trade gap (deficits)

The Vietnamese economy was overheating, and importing too much.  The trade deficit in the first 1/2 of 2008 was equal to the total from all of 2007 at approximately $14 billion.


Housing market troubles

Property prices have fallen dramatically recently


Banking fears

 With the fall in asset prices (stock and real estate) there are sudden fears of a banking crisis due to the heavy lending that occurred previously.  Will the government step in to support local banks?  What will be the impact (policy and financial) if one of these banks were to suddenly fail?  Would there be a reaction against the free market policies of the past?


Hoarding gold

In June '08, there were signs that Vietnamese were hoarding gold as a hedge against fears of a banking/ stock market / real estate collapse.  While the fears were probably overdone, it is clear that trading in Gold in Vietnam is reaching all time highs.


New Government regulations

In an effort to stop a crisis before it happens, the communist government is stepping up currency control efforts, and is trying to limit imports and US dollar purchases to try an ease the currency crisis.  But the fear is that by stepping up regulations like this, the government may encourage a black market to flourish, undermining the official exchange rates.


A lessson for other countries:

This story is far from over, and only time will tell how Vietnam deals with this crisis.  Will the country take adequate steps to cut inflation and to also reduce the current account deficit.  Common economic judgment says that inflation could be cut by seriously raising interest rates, but common wisdom says that big hikes in interest rates will only put upward pressure on the exchange rates (at least in the short term).  With these conflicting desires, the communist government has taken unpopular steps to control the currency and to limit imports by instituting controls.  Only time will tell how successful the Vietnamese government will be at navigating this crisis.  But, as a warning to other countries in the region, the message is clear.  It doesnt take much time for inflation to wreck havoc on the economy, on the stock market, and on investor confidence.  Taking adequate steps ahead of time to properly fight the inflation buy (by raising interest rates and targeting inflation), while it may seem painful in the short term, is actually less painful than the ugly alternatives.  If you have any doubts, then tune in to Vietnam.  Pay attention, and take warning.


Brief Economic History


Mixed history of many cultures:  French influence from colonial past.  China & Russia from communist days...and market oriented pragmatism from US, China, Singapore, SKorea, and others.



After the war ended, the country embraced communism with collective land ownership, and no private business.  This pushed the country towards famine, but was supported by Russia. After the Soviet Union collapsed, Vietnam went into deep isolation.  Economic crisis led to a mass exodus of Vietnamese "boat people"  to its neighbors shores.


Recovery & Growth

Since then, Vietnam has reformed, and embraced open markets, liberalizing its economy.   They followed the lead of Deng Xiaoping in China, and embraced free markets.  


Since the enactment of Vietnam's "doi moi" (renovation) policy in 1986, Vietnamese authorities have committed to increased economic liberalization and enacted structural reforms needed to modernize the economy and to produce more competitive, export-driven industries.


"Poster Child" for liberal economic reforms

Vietnam has shown the ability to significantly reduce poverty by embracing open markets, reducing trade barriers, and other liberal reforms recommended by the Washington Consensus.   It also follows all guideline of the "Millennium Development Goals"  from the UN anti-poverty blueprint.  Over the past decades, Vietnam has been a model for success, with annual growth rates of 8-9%, and great work to reduce poverty.  Moving from isolation and a closed economy to the level at early 2008, was seen as a model to follow by many African countries, as well as N.Korea, Myanmar, etc...


While growth has been slightly slower than in China for the past decade, Vietnam has made more improvements at reducing poverty. 



Agricultural "Miracle"

Since then, there has been an "agricultural miracle", changing the starving nation to one of the worlds largest exporters of farm produce.   Since then, it has also moved up stream to manufacturing clothes, furniture, and even into high tech.  Intel is opening a micro processor plant there, and as we saw in Costa Rica, a new Intel processing plant can be a spur for further innovation and investment in high tech.


Magnet for FDI


Vietnam has recently been a magnet for Foreign direct investment (see chart from the Economist.com)





Trading with Vietnam



Vietnam joined the WTO in 2007.  What are the impacts for further reform?  Prediction from EIU (06/2008): " Vietnam's membership of the World Trade Organisation (WTO) will help to improve the business operating environment. The government will also push ahead with its plans to reform state-owned enterprises, and there will be progress in fulfilling its WTO commitment to liberalise trade.  WTO entry will support continued strong growth in merchandise exports. However, Vietnam will be designated a "non-market economy" for up to 12 years from accession, making it easier for other WTO members to bring anti-dumping cases against it in an attempt to limit its exports."



"China plus one"  strategy for multinationals

Many multinational corporations that enter China as an export operation....they hedge their bets that China might implode by also investing in Vietnam, which they see as the "new China", or another low cost producer with market favorible policies and business climate.


Similarities with China:  both countries are run by "capitalist communists" ....but there are differences...especially since China is the "ancient foe" of Vietnam, so they are not loyal followers of everything China, but instead look to other leaders for examples (such as Singapore?).


Lower cost of Labor than China

see our discussion about the Changes that are occurring in China




Economic Development

Official statistics of "Poverty" may be misleading

While the official GDP of only $830 per person sounds very low, at PPP, the $3300 is not much better...so Vietnam still sounds like a very poor place.  But, around the major cities, you hardly ever find a shanty town, and out in the country side, the level of poverty is hardly visible.  Magazines such as the Economist have called into question the official numbers, siting the age-old tradition in Vietnam of hiding wealth from authorities.


Benefit programs like Europe?

Hard to believe, but Vietnam is planning to cover sickness and work accidents as well as pensions for all public and extending to private sector employees.  In addition, they are launching a unemployment insurance plan soon.  Sounds expensive, how will it be paid for?  Will this lead to Latin-America style budget deficits (from the 80's?)






Map of Vietnam


The main city in the South used to be called "Saigon", but was renamed "Ho Chi Minh"  City after the fall of Saigon in 1975.


External Links



Vietnam: VVG Economic Indicators

VVG Economic Indicators lists key financial indicators that portray the economic climate in Vietnam. An archive and an overview of the Vietnamese economy are also provided. The site also includes a section with business and investment articles.
Vietnam: Vietnam Economy
A vast amount of information from the Vietnam Economic Times. Provides political views, economic data, maps, current news, stock market news and events and financial information. Updated daily. (In English and Vietnamese).
Vietnam: Vietnam Investment Review
The Vietnam Investment Review is Vietnam's leading international business newspaper. It was created by the Ministry of Planning and Investment to inform potential investors about the opportunities that Vietnam has to offer. The Review is circulated in 36 nations in Europe, Asia, and the Americas. The website is free and does not require registration.




Key indicators                                 2007     2008    

Real GDP growth (%)                              8.5        6.9    

Consumer price inflation (av; %)              8.3       23.3    

Budget balance (% of GDP)                    -1.8     -1.8    

Current-account balance (% of GDP)       -1.8     -9.1   

Commercial banks' prime rate (av; %)     11.4     20.8    


Major exports, 2007      

Crude oil     16.7    

Textiles & garments     16.4    

Footwear     8.3    

Fisheries products     7.8    


Major imports, 2007

Machinery, equipment & parts     16.3

Refined petroleum     11.6

Steel     7.9

Material for textile industry     3.7


Leading markets 2006       

US     21.5    

Japan     12.4    

Australia     9.5    

China     5.8    


Leading suppliers 2006   

China     18.6

Singapore     13.6

Japan     10.3

South Korea     10.1








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