Vietnam Confronts Economic Quagmire
Comment of the Day

January 10 2011

Commentary by Eoin Treacy

Vietnam Confronts Economic Quagmire

Thanks to a subscriber for this article from The New York Times. Here is a section:

Mr. Burke, who is part of a government advisory panel on cutting red tape, says there has been "backsliding on reform" in recent years and describes the management of Vietnam's currency as "dysfunctional." But he sees signs that the government is trying to reduce paperwork. He also sees higher-end manufacturers' coming to invest in the country.

"Our business has never been better in terms of quality inbound investment," Mr. Burke said.

Indeed, the economy has grown an average of 7 percent a year over the past five years and has grown at a similarly fast clip since the 1980s.
That growth has helped deliver unprecedented increases in material well-being: workers earning minimum wage now have motorcycles, television sets, rice cookers and cellphones. But inflation, which is running at about 12 percent, has become a major preoccupation, especially among the poor.

"How could people be happy?" asked Pham Thi Ngoc, a fruit seller on the outskirts of Ho Chi Minh City. "Money is losing its value."

Those worries have extended well beyond the country's shores. Moody's, the credit rating agency, downgraded Vietnam's sovereign debt last month because of what it described as "shortcomings in economic policies," including an inability to tackle inflation. As a result of the downgrade, borrowing has become more expensive. PetroVietnam, the state-owned oil producer, announced last Wednesday that it would postpone a planned $1 billion bond sale because of "unfavorable" market conditions.

Eoin Treacy's view

The Communist Party Congress meets this week and will be closely watched by potential investors in Vietnam for signs that problems stemming from inflationary pressures, lack of oversight in government owned businesses and the depreciation of the Dong are going to be tackled. (Also Comment of the Day on December 10th and on subsequent occasions)

The Dong has fallen by more that 20% against the Dollar since early 2008 and any corroboration that this depreciation is near an end is likely to be welcomed by investors. A sustained break of the progression of higher reaction lows on this chart would be required to indicate a return to medium-term dominance for the Dong.

The Vietnam Index found support near the lower side of the 20-month range from November and has rallied to test the 200-day MA and the medium-term progression of lower rally highs. A sustained move below 400 would be required to question scope for continued higher to lateral ranging.

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