Country Report Vietnam

Outlook for 2008-09

• The Communist Party will continue to reject demands for major political reform and will remain indifferent to calls for political pluralism in 2008-09.
• Vietnam's leadership is plagued by endemic corruption and will need to prove that progress is being made in order to maintain its authority.
• The government is set to face a number of challenging policy issues in 2008-09, most notably the need to control inflation and to reduce downward pressure on the currency.
• The Economist Intelligence Unit has revised downwards its real GDP growth forecast to 6.9% in 2008, from 7.3% previously, owing to lower credit expansion and dampened consumption growth.
• We forecast that inflation will average 23.3% this year before dropping back to an average of 12% in 2009.
• The dong is set to depreciate slightly in 2008 on an annual average basis to reach D17,440:US$1 at the end of the period. The dong will remain volatile in 2008-09.
• Owing to the large deficit on the merchandise trade account in 2008-09, the current account will remain in negative territory, with the deficit standing at the equivalent of 9.2% of GDP in 2008.

Monthly review

• Two reporters were arrested in May and charged with “abusing their position and power while discharging public duty”, which has raised doubts about the government’s tolerance for criticism.
• The National Assembly (the legislature) has approved a government proposal to expand the capital, Hanoi.
• On June 10th the State Bank of Vietnam (the central bank) raised the base interest rate to 14%, from 12% previously.
• The government has made reducing inflation its number one priority.
• The government recently limited exports of rice, but buoyed by a strong harvest, has now announced a relaxation of the restrictions.
• Consumer prices rose by 25.2% year on year in May. The most immediate cause of the increase was a 42.4% rise in the price of food and foodstuffs in the same period, which in turn was driven by a 67.8% jump in food prices.
• The tightening of bank credit has punctured the real estate bubble.
• The Vietnam Index of stock prices fell on every day of trading in May and as of June 3rd stood at 401, far below the high of 1,170 that it hit in March 2007.

SOURCE: Country Report