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Sunday, August 25, 2019

Is Vietnam safe from crisis on Wall Street?

Updated: 10:12’ - 26/09/2008

Le Thanh

The US financial sector is deteriorating swiftly. There have been a number of major casualties: Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, and American International Group (AIG). Earlier, the question was, how can we save these financial institutions. The question today is, who’s next?

Will Vietnam be affected?

The US, a super economy, accounts for a quarter of the world’s gross domestic product and 15 per cent of the world’s combined import value, so its impacts are felt everywhere in trade, investment and finance.

The US is Vietnam’s largest export market, representing nearly 20 per cent of the country’s export value.

The US has been Vietnam’s largest investor for many years - including investments through third-party countries. So the US economic crisis directly and indirectly impacts on the global economy in general and Vietnam in particular.

Foreign direct investment in Vietnam is large and long-term. Therefore, it will only minimally affected by the US financial crisis, according to Vo Tri Thanh, director of the Central Institute for Economic Management’s Department for International Integration Studies.

The recession is spreading globally, financial institutions should reconsider their investment strategies. This could lead to some adjustment in the capital market (equities and bonds) in Vietnam. Foreign investors account for 40-50 per cent of transaction value and 25-30 per cent of equities on the Vietnam stock market, Mr. Thanh said.

However, the impact is not as serious as in European countries. Economic growth will be slower in Vietnam and in other East Asian countries, but still higher than countries in other regions. The consequences will be felt this year or next year, he said.

Vietnam’s national economy has improved to some extent, as evidenced by the smaller consumer price index, the reduced trade deficit, the easing of pressure on the international balance of payments and the foreign exchange market. In addition, there has been a rising influx of foreign direct investment, while commercial banks are stable liquidity wise.

However, instability in the macro economy is still a great concern. Inflation reached 22.14 per cent year-on-year in August and is forecast to remain at 26-29 per cent this year - higher than other countries in the region, Mr. Thanh said.

Unless drastic measures are taken to settle the micro problems, they will affect the macro issues, he said.

World economies, including the US, will grow even slower next year. Many more top financial establishments in North America will go bankrupt or merge.

The US could only limit the financial storm by no more than 50 per cent, said former Fed Chairman Alan Greenspan.

Unstable markets have forced consumers, investors and policymakers alike to be flexible. Vietnam is no exception.

Focus on stabilization

Vietnam has effectively managed this year’s economic turbulence, but its difficulties are not over and with the uncertain global economic outlook, the country should continue to focus on stabilizing the economy, said the Asian Development Outlook 2008 Update issued on September 16.

The Asian Development Bank advised the Government to concentrate on reducing inflation to single-digit levels rather than try to stimulate growth.

The ADB believes that aiming for a lower growth rate will put the country in a better position to resume strong economic growth in 2010-2011.

Mr. Thanh agreed with the ADB that Vietnam should concentrate on stabilizing the macroeconomy.

In addition, measures should be mapped out to settle social issues and difficulties encountered by small- and medium-sized enterprises, as well as non-performing loans, he said.

Although US financial havoc has not noticeably affected Vietnam, the country should stand ready to cope with any future problems, said Cao Sy Kiem, former Governor of the State Bank of Vietnam.

Public confidence

Mr. Thanh emphasized that it was important to build and strengthen public and investor confidence. For example, he said the public should be made to understand CPI would decrease and that stability in the national economy would gradually return.

He said groundless rumors were responsible for price fluctuations in rice, the US dollar, gold and petroleum over the past months.

The ADB also said the Government should ensure that economic data is made available as quickly as possible to reduce rumor-mongering in the financial and commodity markets.

Transparency and better and timely economic data would allow investors to make accurate decisions, said an investor from the Hanoi Securities Trading Center.

Minor impact

Vietnam will be affected by the US financial crisis but the impact will be minor, according to Ayumi Konishi, the Asian Development Bank Country Director for Vietnam.

Mr. Konishi said the banking system was only in the initial stage of development and the financial upheaval in the US did not have a great affect on the development of Vietnam’s banking system.

The risk for the whole banking system is very low, with small banks feeling the pinch the most, said Mr. Konishi, adding that the vulnerability of small banks was something the State Bank of Vietnam is already attempting to mitigate.

However, Mr. Konishi said the crisis will have a negative impact on financial investors in real estate.

“As prices of a number of goods are falling, so does the price of real estate, and as a result non-performance loan rates will increase at some banks,” he said.

Private Enterprises Joint-Stock Commercial Bank general director Le Dac Son said the US financial havoc was still very far from the banking system in Vietnam.

“Vietnam is just a new comer in the US market so its impact could be very little compared with other countries,” said Mr. Son.

According to Mr. Son, it will become difficult for enterprises to export to the US, and remittances coming home will decrease.

Asia Commercial Bank deputy general director Nguyen Thanh Toai said there has not been any direct impact caused by the US financial crisis because Vietnam has not yet totally integrated into the world economy.

He said his bank had established good systems of risk management, while technical assistance had been provided by its strategic investor Standard Chartered Bank.

Unavoidable

Fluctuations in Vietnam’s stock market caused by the financial crisis was unavoidable because it is a young market, Mr. Thanh said.

The developments in the stock market would be complicated and that investors should exercise caution, he said.

Vietnam should continue focus on stabilizing the macroeconomy, while putting in place systems that would lead to the stable development of markets, such as a sound legal system, and a standardized system of communications and accounting.

He also said securities trading centers should be reorganized, and a system of creditworthiness established.

Investors should know when to cut their losses or aim for modest returns. When necessary, investors should change their strategic plans and investment lists.

Mr. Thanh said the world economic picture would be brighter in 2010 in terms of economic growth and macro stability.

Rapid equitization of state enterprises and improved market fundamentals would warm up the stock market in Vietnam by that time, Mr. Thanh said. (VNS).-

VNL_KH1 

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