Vietnam reins in growth

via CAAI

Thursday, 24 February 2011 20:21 BLOOMBERG and JEREMY MULLINS

Vietnam will restrain lending growth and narrow the budget deficit as Prime Minister Nguyen Tan Dung seeks to curb inflation and revive investor confidence in an economy that has devalued its currency four times in 15 months.

The move was touted by the World Bank today as a “clear shift in policy stance from over-emphasis on growth towards stabilising the economy”, while a Cambodian economist welcomed it as a positive step to help stem inflation.

According to a resolution presented to officials in Hanoi today, Dung cut the credit-growth target to below 20 percent from 23 percent for 2011.

He also asked the central bank to slow the growth of lending in non-productive sectors, especially property and stock trading, while the central bank “gradually” restricted and abolished trading of gold in non-jewellery form in the “free market”.

State-owned companies will be ordered to focus their capital on their main businesses, and the Ministry of Industry and Trade will consider reducing and exempting import tax on raw materials for industries, including garment, seafood and medical sectors.

Dung told ministries to narrow the budget deficit to less than 5 percent of GDP this year and ordered a “cautious and tight” monetary policy.

Ministries and provinces will be ordered to reduce public spending by 10 percent for the next nine months.

The move comes after Vietnam’s benchmark stock index slid 6.7 percent in the past year while inflation accelerated to a two-year high of 12.31 percent this month, adding to signs of an overheating economy.

Today, president of the Cambodia Institute for Development studies, Kang Chandararot, said the moves to stem Vietnamese inflation were “good for Cambodia”, pointing out that rising prices in Vietnam created higher prices for Cambodian imports.

“But [Vietnamese inflation] is still a concern.”

Deepak Mishra, the World Bank’s lead economist in Vietnam, said: “This augurs well for Vietnam’s economy as it shows a strong resolve on the part of the government to address the macroeconomic vulnerabilities that have plagued the country for some time.”

Links between Cambodia’s and Vietnam’s economic policies have been evident this year, after a gap between Vietnam’s official and black-market exchange rates spurred an arbitrage scheme at Cambodian ATMs.

Vietnamese citizens rushed across the border to withdraw dollars from their home accounts at the official dollar-to-dong exchange rate, later changing them back to dong at the black market rate for a healthy profit.

Vietnamese cardholders withdrew more than US$30 million in cash from ATMs in the space of just a few weeks.

The central bank devalued the dong on February 11 to narrow the gap.