Country Report Vietnam November 2009

Outlook for 2010-11

• The ruling Communist Party is due to hold its next national congress in 2011, which means that there will be considerable jockeying for position within the current leadership from late 2010.
• Hardliners within the party will remain fearful that greater social freedoms will threaten the party's hold on power.
• The government will maintain its economic stimulus programme in 2010. However, there are concerns about how the government will finance the package while also funding a wide budget deficit.
• The State Bank of Vietnam (SBV, the central bank) will tighten monetary policy in 2010-11 as inflationary pressures build.
• The Economist Intelligence Unit expects real GDP growth to pick up in 2010-11, but we do not expect it to return to the heady rates that were recorded in the years that preceded the 2009 slowdown.
• Inflation is expected to accelerate to an annual average of 8.8% in 2010-11, from an estimated 7.5% in 2009.
• We expect the authorities to take action to engineer a drop in the value of the dong later this year or in early 2010. This will be done through widening the trading band or adjusting its central point.

Monthly review

• The Communist Party has stepped up efforts to quash political dissent. Conflicts with religious groups have also deepened.
• On October 28th the SBV said that it would keep its benchmark interest rate unchanged at 7% for the rest of year in an effort to boost economic activity.
• The government's current exchange rate policy is under scrutiny. There is uncertainty over how quickly and by how much the government may allow the currency to depreciate against the US dollar.
• The government is seeking to boost its foreign-exchange reserves. To this end it will borrow US$1bn a year in 2010-12 from Japan, on top of US$1bn from the World Bank and US$500m from the Asian Development Bank.
• According to the General Statistics Office (the national statistics office), in October consumer prices rose by 3% year on year, or by 0.3% in month-on-month terms.
• Vietnam's trade deficit widened in October, and it is increasingly seen as a cause for concern in foreign-exchange markets. The deficit totalled US$8.8bn in January-October, up from US$6.5bn in January-September.

This report covers the following industry codes:
SIC Code: 60;89
NAICS Code: 52;81