Vietnam's worsening inflation, even has the potential to escalate into a full-blown crisis, other Asian countries that are trying to control inflation has sounded the alarm.
Economists said, so far, the Vietnam problem to other Asian economies of scope is limited. But in the economy is still showing strong growth (this is different from Americaand Western European cases), if Asian central banks failed to rapid price action,inhibition of rising, the consequences will be unbearable to contemplate, Vietnam is a lesson.
Vietnam to implement low interest rates led to the real estate fever, and pegged to the dollar and local currency weakness led to substantial growth in exports, but since thenthe country has a sudden turn for the worse. Since the beginning of this year,Vietnam's main stock index has dropped by 55%, but prices are still soaring. The government said earlier this week, May inflation at an annualised rate slightly higher than 25%.
Morgan Stanley (Morgan Stanley) in a report Wednesday warned that lending standards, not strictly lead to banking crisis. It also forecast that the Vietnamese local currency, the Dong against the dollar may decline in the next year.
Fitch Ratings (Fitch Ratings) Thursday Vietnam sovereign bond rating from stabledown to negative. The agency said, Vietnam in response to the inflation acceleratedreaction rate policy is too slow, too small.
In recent years, many Asian central banks have adopted the main policy objective isto control inflation. But relatively few central banks are truly independent, they are easy to maintain economic growth by political pressure.
Some countries such as India and Chinese is selected to control excess liquidity by raising bank reserve ratio -- rather than the interest rates --, although the interest ratemay be more effective in curbing inflation. Others are waiting, have a look the grain harvest could ease food prices. In Indonesia and Philippines and other countries, foodexpenditure in the consumer price index (CPI) in the proportion as high as 40% or more.
Advertising Vietnam's experience shows, in curbing inflation irresolute and hesitant will produce how serious consequences.
Hu Zhiming city, Than Viet Securities, director of Co. strategist Spencer White(Spencer White) said, Vietnam now and ten years, twenty years ago in Asia; at present, Vietnam and other Asian markets there's not much financial integration, but this may damage the investors on the investment enthusiasm of those developing economies that are viewed as the biggest the risk of.
A year ago, Vietnam was the darling of global investors. At that time, like HSBC Holdings (HSBC Holdings PCL) so that multinational banks are buying local banks.From South Korea and Taiwan, developers have begun large-scale satellite towndevelopment projects, in order to provide facilities for Hanoi and Hu Zhiming city in the main urban area of thousands of square meters of new office building.
The country's biggest state-run enterprises began the implementation of diversification, the purpose is to become a powerful enterprise groups, in order toVietnam to join the World Trade Organization (WTO) and more Foreign Companycompetition.
Some Vietnamese leaders of prime minister Ranjig (Nguyen Tan Dung) the establishment of large enterprise groups to doubt, these enterprises are often funded by state-owned banks to provide low interest loans. Vietnam's former Prime Minister Wu Wenjie (Vo Van Kiet) a letter written to Ranjig last year, the letter said thatVietnam is wrong and the last century 90's before the Asian financial crisis of South Korea, Malaysia and other countries made a mistake as like as two peas.
By the end of 2007 when oil and food prices began to rise, the central bank did notquickly respond, the resulting control inflation pressure. Some economists said the government, the central bank does not want to cancel low interest loans.
Economists said the central bank's policy of Vietnam, to a large extent is the government's willingness to promote the results as much as possible, the government hopes to promote economic growth, at the same time, but also to ensure the futurecan occupy a space for one person in the state-owned enterprises in the economy.Because of the sensitivity of the issue, the Economist asked not to be named.
According to informed sources, earlier this year, as prices rise caused protests and strikes, Ranjig instructed the central bank governor Ruan Wenrao (Nguyen Van Giau)to take more active measures to curb inflation.
The central bank widened the Vietnamese Dong against the dollar exchange rateinterval, the purpose is to make the local currency and the weakening dollar peg, andVietnam to better absorb rising oil costs.
But get the opposite of what one wants, in Vietnam's local currency flexibility weaker countries, people have for many years been the dollar as a convenient alternativecurrencies, the exchange rate adjustment caused widespread public alarm. Vietnamlargest banknote paper money is 500000 vnd, $30, such a large denomination notesare rare in the world.
Some local banks refused to exchange dollars. Because banks tightening credit,refused to grant vnd loans to customers to buy shares, the stock price plummeted.Ranjig March 2008 Vietnam economic growth target from 8.5% down to a relatively modest 7%, in order to concentrate on the fight against inflation.
Since then, global food price inflation and rice crop failure makes the further deterioration of the situation. The central bank is expected this year, the country'scurrent-account deficit (i.e. service a country's import and export product balance) togross domestic product (GDP) of 5%, in 2009 will reach 7.5%. In 1997, Thailand was forced to let the local currency devaluation of the baht, which led to the Asian financial crisis, when the country's current account deficit of 6.5% of GDP.
At the same time, the Vietnamese people have been to withdraw money from bank accounts to buy gold. Some people have started hoarding dollars, as a hedge against inflation.
According to local media reports, in Vietnam, Hu Zhiming city commercial center, house prices this year has fallen by half. Morgan Stanley estimates, the loan has been growing at an annual rate of more than 35%, about 10% of real estate loans to total loans.