Posted on 06/04/2008 6:12:32 AM PDT by TigerLikesRooster
Strained Vietnam economy hit by fresh ratings blow
Reuters - 2 hours 12 minutes ago
OTHER STORIES > Moody's statement..[ID:nWLA318] > Fitch statement................[ID:nHKG200860] (Additional reporting by Nguyen Nhat Lam; editing by Neil Fullick) - HANOI, June 4 - Moody's downgraded its ratings outlook on Vietnam to negative from positive on Wednesday, the second outlook cut in a week as the economy grapples with 25 percent inflation and rising trade and current account deficits.
ADVERTISEMENT v Moody's Investors Service said the swing in ratings outlook reflected its view that Vietnam's economic imbalances were greater than anticipated, but it also noted strengths in its trade opening policies and foreign direct investment having offset the current account deficit last year.
A Vietnamese finance ministry official said the rating was "not conducive to the economic situation here now" and that there was "a lot of work to do from the government side to restore confidence".
Following a year of overheating and high credit growth, 2008 has been strained for Communist Party-ruled Vietnam, which is chafing like other countries under high prices of food and energy and liquidity problems.
But in a place where macroeconomic stability has been taken for granted with growth averaging 7.5 percent a year since 2000, seven consecutive months of double-digit inflation rippling through the economy has raised alarm.
"For the authorities, the dilemma now is how to dampen growth without throwing the economy into recession or damaging the environment for FDI," said Tom Byrne, a senior vice president at Moody's, referring to foreign direct investment.
The report was published less than a week after Fitch Ratings cut its outlook on Vietnam's sovereign rating to negative from stable. Fitch said policies had not dealt quickly or strongly enough with inflation, potentially posing risks to banking.
Analyst Matt Hildebrandt of JP Morgan in Hong Kong said Wednesday's move "is not surprising" as Fitch and Standard & Poor's have taken similar steps.
"Moreover, none of the agencies have made larger moves... a downgrade in the credit rating level would be a much larger concern," Hildebrandt said.
Government ministers and the central bank have been working on packages of measures to restore confidence, although growth projections remain high at 7 percent for 2008 and the first five months saw record FDI pledges of more than $14 billion.
Investment disbursement is lagging the sharper rises in the trade and current account deficits, Moody's and other economic analysts said.
"It would get really disastrous if June figures, especially those for inflation and trade deficit, showed no big improvement to prove government's measures are working," an analyst at Habubank Securities in Hanoi said.
Byrne also said that "the unusual secrecy prevalent in the release on a timely basis of the international liquidity position of the State Bank of Vietnam adds difficulty in the assessment of Vietnam's external payments position, and undermines confidence in analyzing current credit conditions".
The central bank last published its foreign currency reserves in 2007 at $20 billion with the International Monetary Fund estimating 2008 levels of $23.66 billion [ID:nHAN208152].
Inflation hit 25.2 percent in May, sapping domestic investor confidence as imports have soared and more than trebled the trade deficit in the first five months of 2008.
Offshore forwards markets are pricing in a nearly 30 percent fall in the Vietnamese dong in a year.
In recent months, equity investors have swapped shares for gold, consumers hoarded rice as prices leapt, workers went on strike for higher wages and people rushed to buy dollars in the black market to pay off dollar-denominated debts.
Ping!
Ping.
LOL! Good one!
We finally got our revenge on Hanoi. Bush is crashing their 401k accounts.
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