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Unformatted text preview: VIETNAM Population 86.2 million Population growth 1.2 percent Surface area 329,310 sq.km. Capital Hanoi Source: World Development Indicators. Vietnam’s economy continues to recover rapidly from the global crisis. After growing 5.3 percent in 2009, the economy expanded 6.8 percent in 2010—the fastest pace in 3 years. The rapid recovery has been bolstered by robust domestic demand, higher level of investment and strong revival in exports. Foreign direct investments have continued to remain buoyant and remittances have grown at a healthy rate. Exports are growing at 25.5 percent, with export of non-oil sector doing particularly well, having registered 31.5 percent growth in 2010. Improved trade balance and strong private remittance has helped to reduce the current account deficit from 8 percent in 2009 to around 4 percent in 2010. Strong FDI inflow, ODA disbursement and portfolio investment have also helped the capital account to ensure a surplus of about 12 percent of GDP in 2010. The delayed withdrawal of the fiscal and monetary stimulus despite a robust recovery proved costly for Vietnam. By the third quarter of 2010, inflation started to accelerate, exchange rate premium in the parallel market widened and financial problems in Vinashin, a large, diversified state-owned enterprise with business interest ranging from ship building to security market, came to light. The prices continued to surge through the last quarter of 2010, buoyed by strong domestic demand, knock-on effects of increased global commodity prices, and weather- and disease-related domestic supply shocks. Sentiment in international capital markets turned particularly bearish after Vinashin defaulted on the first payment of $60 million on a syndicated loan of $600 million. The authorities did make a number of efforts to regain macroeconomic stability (see below), but these measures could not be sustained as the country approached some important political milestones including the XIth Party Congress. By the time the 2011 Lunar New Year arrived, inflation had climbed to a two year high of 12.2 percent and the dong was under intense pressure, with parallel market rate exceeding 10 percent. Despite improvement in the current account deficit and continued large surplus in the capital account, the level of foreign exchange reserves declined during 2010. Much of the surplus in the balance of payments found its way out of the banking system in the form of errors and omissions, which for the second year in running exceeded $10 billion. A macroeconomic problem had over time turned into a crisis of confidence, with Vietnamese households and firms moving out of dong into U.S. dollars and gold in fear of rising inflation and considerable policy uncertainty. The time had come for the government to take some decisive actions or yield to the self-fulfilling...
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This note was uploaded on 01/10/2012 for the course FIN 100 taught by Professor Fro during the Spring '11 term at Aarhus Universitet, Aarhus.
- Spring '11