It might be surprising to some, because Vietnam is a communist country, and communist countries arenÆt known for embracing public relations efforts. During the past few years, however, Vietnam has taken a far more progressive attitude towards presenting itself to the world. It has often paired with Credit Suisse to reach out to investors û consider its inaugural sovereign bond in 2005, which Credit Suisse helped make happen.
Late last week, it once again turned to Credit Suisse for assistance in reaching out to investors û this time, not to get them to invest in any one product, but rather to abate fears and hopefully keep them from running away.
The minister of finance Vu Van Ninh, who openly said the meeting was ôupon the instruction of the prime ministerö, led an economic update on Vietnam for international investors delivered via a videoconference connecting Hanoi, Ho Chi Minh City, Hong Kong and Singapore and by an audio conference call for global investors and analysts.
The meeting included several key heavy hitters: the governor of the state bank of Vietnam, the deputy minister of industry and trade, senior officials from the ministry of planning and investment, as well as country representatives of the World Bank, the International Monetary Fund, the Asian Development Bank and the International Finance Corporation, and senior representatives of Credit Suisse.
The minister underscored the points that have been driving pundits to call Vietnam a tiger in the first place: ôDoi Moiö, which is the process of economic reform that has occurred during the past 20 years, says Ninh, has delivered positive results for Vietnam. Gross domestic product growth has averaged 7.5% annually and reached 8.5% in 2007. ItÆll slow this year, but the minister pointed out the global volatility impacting VietnamÆs GDP growth isnÆt solely down to Vietnam doing anything wrong û the problems are a result of a poorer US economy caused by the subprime crisis, soaring oil, energy and food prices, and the rise in global inflation.
Now thatÆs not news to anyone. But the message was: DonÆt run from Vietnam because itÆs got inflation. That inflation is a result of Vietnam becoming broadly integrated with the global market, and it will see its way through.
ItÆs a fair point û investors have begged the nation to open up. It did; and the result is that it is now being impacted by a global downturn (and arguably wouldnÆt have been had it not opened up) so donÆt abandon Vietnam now for doing precisely what investors asked it to do in the first place.
The minister went on to note that amid many problems, VietnamÆs economy grew by 7.4% in the first quarter of 2008. Agricultural production has been growing in terms of productivity as well as output. After meeting domestic demand in full, Vietnam plans to export more than 4 million tonnes of rice during 2008, while neighbouring countries are struggling to produce enough to feed themselves. Similarly, industrial output has grown by 16.4%.
During the first five months of 2008, there was also strong growth in foreign direct investment with registered capital (new and extension) at a record level of $15.3 billion, reflecting an increase of 2.3 times over the same period last year. Now much of that money was already committed û but itÆs clear the government doesnÆt want to see the taps shut off.
The value of exports during the first five months of 2008 also increased for most strategic items, reaching a total of $24 billion û equivalent to a 30.5% increase. National external debt at the end of 2007 stood at $23.2 billion, or 32.7% of GDP, of which $206 million was short-term debt.
In the context of this otherwise positive outlook for the Vietnam economy, two serious challenges have emerged. The first is pressure on consumer prices, for which a record increase of 15.96% was recorded in the first five months of 2008, over December 2007 levels. The second is a large trade deficit of $14.4 billion at the end of the same period. These two factors are affecting the financial sector, while hurting the living standard of the population which has found everything from groceries to rent becoming more expensive.
The minister said the government has been attempting to curb inflation and ensure an effective social safety net, thus laying the foundation for sustainable growth. And, to be fair, Vietnam isnÆt witnessing any protests or other signs of social discontent regarding the economy. Times may be tough, but the average man on the street, who over the past few years has been an active retail investor and paying attention to the macro economy, seems to understand that heÆs not alone and the government is trying to fix the problems.
The minister, therefore, reiterated what the governmentÆs plans are for handling inflation û the so-called eight-measure plan. This, the minister said, ôincludes: monetary tightening policies; tighter control of public expenditure to promote efficient spending; the promotion of industrial, agricultural and services output to ensure balance between supply and demand; the promotion of exports while exercising tight control of imports in order to rein in the trade deficit; the exercise of thrift in production and consumption; enhanced market surveillance against smuggling and trade fraud; ensuring compliance with price regulations; the enhancement of the social safety net, which aims to stabilise peopleÆs daily life and business operations; the expansion of the social safety net; and the effective communication and dissemination of information.ö
On some level, these are lofty words. For example, will ôenhanced market surveillance against smuggling and trade fraudö really bring down the price of a motorcycle, which remains a major form of transportation in the nation? Probably not, but given that trade fraud is an issue that concerns international investors, itÆs not a bad addition to the list. While headline numbers on inflation have been record breaking, the June data shows inflation and the trade deficit starting to recede û so perhaps (though itÆs early days) the monetary tightening efforts are working.
Ninh concluded the conference by underscoring the Vietnam governmentÆs view that the nationÆs problems are temporary, and that the medium- and long-term prospects of the country are positive. Many foreign investors, as well as local ones, have abandoned the two bourses in Vietnam. Time will tell if they come back to buy into the governmentÆs medium- and long-term viewpoint as well.
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