News Room - Business/Economics

Posted on 14 Oct 2008

US recession will hit Vietnam: analysts

        

Things are only likely to worsen from here, they said at a seminar held by Doanh Nhan Saigon magazine.

 

Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Program, said the US recession would cause pressure on financial markets, leading to a capital scarcity worldwide and bad debts and tightened credit.

 

Investors would be wary of putting money in foreign countries, hitting FDI inflows into Vietnam in 2009, Anh said.

 

The country has already seen FDI commitments of around US$60 billion so far this year, and full-year disbursements are expected to be $12 billion.

 

Huynh Buu Son, a finance and banking analyst, said the flows of official development assistance (ODA) too would dry up since other countries would need all the money they can lay their hands on to stabilize their own economies.

 

Governments around the world have promised $5.4 billion in ODA to Vietnam this year ($4.4 billion in 2007). Vietnam gets the highest ODA among developing and least developed countries.

 

Remittances by Overseas Vietnamese would fall too, he said. They sent $5.5 billion in 2007.

 

Dr. Nguyen Quang A, head of the Hanoi-based Institute of Development Studies, said Vietnam’s exports would be badly affected since the US, EU and Japan buy 50 percent of them.

 

Consumers in these markets are likely to spend less because of the recession, he said.

 

Vietnamese businesses are not very competitive globally and would face a hard time next year, he warned.

 

Delegates told the seminar they are not optimistic Vietnam can maintain its high growth rate next year.

 

They predicted it to fall to 4.1 percent.

 

Tran Sy Chuong, a former member of the US Congress, said many US state-owned firms invested imprudently in certain asset classes, creating bubbles that eventually burst. He drew a parallel between them and their Vietnamese counterparts.

 

State firms Fannie Mae and Freddie Mac – who buy home mortgages from the secondary market – are similar to Vietnamese state-owned firms who invested in properties and stocks in violation of their mandate.

 

The Vietnamese economy paid a price for their violations and the government ordered a ban on such investments.

 

Just like in the US, Vietnamese banks lent a huge amount of money to borrowers in the property and stock markets, Anh said.

 

The government should stick to the policies it announced in the second quarter to curb the high inflation, he advised.

 

Analysts have said it is difficult to assess banks’ bad debts but estimated it at tens of billions of dollars.