Vietnam struggles to boost economy

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Saigon town hall_Arno Maierbrugger
Ho Chi Minh City town hall (Photo © Arno Maierbrugger)

Facing a stubbornly slow transition from a state-dominated to a market-oriented economy, Vietnam has now approved a master plan focusing on restructuring public investment, banks and state-owned enterprises while controlling inflation and maintaining growth.

The country’s economic growth fell to a 13-year low of 5.03 per cent in 2012 as reduced consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks’ bad debt problems. Inflation is still high, although it eased to around 7 per cent in February 2013, below the double-digit range it held at throughout 2011 and into early 2012.

The master plan aims at a prudent monetary policy while ensuring “reasonable growth”, said Prime Minister Nguyen Tan Dung. It sets a road map to restructure financial markets and consolidate state-owned businesses and investment.

However, the initiative won’t be easy. Moody’s downgraded Vietnam to its lowest rating ever in September 2012, citing a weak banking sector likely in need of “extraordinary support”, dealing another blow to a country once tipped as Southeast Asia’s next emerging market star.

The government needs to deal urgently with stagnant state-owned enterprises by solving inventory issues, supporting the market, applying tax reduction policies and encouraging domestic consumption. It is also necessary to develop the infrastructure system and intensify human resource training.

Vietnam’s banking system is grappling with one of the region’s highest bad debt ratios, which rose to 8.82 per cent of loans in September 2012 from 3.07 per cent at the end of 2011, central bank data showed.

The government directive said bad debt should be cut to below 3 per cent of loans by 2015, stricter than a previous statement by the prime minister that the bad debt ratio be cut to 3-4 per cent of loans by the end of 2015.

 

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Reading Time: 1 minute

Ho Chi Minh City town hall (Photo © Arno Maierbrugger)

Facing a stubbornly slow transition from a state-dominated to a market-oriented economy, Vietnam has now approved a master plan focusing on restructuring public investment, banks and state-owned enterprises while controlling inflation and maintaining growth.

Reading Time: 1 minute

Saigon town hall_Arno Maierbrugger
Ho Chi Minh City town hall (Photo © Arno Maierbrugger)

Facing a stubbornly slow transition from a state-dominated to a market-oriented economy, Vietnam has now approved a master plan focusing on restructuring public investment, banks and state-owned enterprises while controlling inflation and maintaining growth.

The country’s economic growth fell to a 13-year low of 5.03 per cent in 2012 as reduced consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks’ bad debt problems. Inflation is still high, although it eased to around 7 per cent in February 2013, below the double-digit range it held at throughout 2011 and into early 2012.

The master plan aims at a prudent monetary policy while ensuring “reasonable growth”, said Prime Minister Nguyen Tan Dung. It sets a road map to restructure financial markets and consolidate state-owned businesses and investment.

However, the initiative won’t be easy. Moody’s downgraded Vietnam to its lowest rating ever in September 2012, citing a weak banking sector likely in need of “extraordinary support”, dealing another blow to a country once tipped as Southeast Asia’s next emerging market star.

The government needs to deal urgently with stagnant state-owned enterprises by solving inventory issues, supporting the market, applying tax reduction policies and encouraging domestic consumption. It is also necessary to develop the infrastructure system and intensify human resource training.

Vietnam’s banking system is grappling with one of the region’s highest bad debt ratios, which rose to 8.82 per cent of loans in September 2012 from 3.07 per cent at the end of 2011, central bank data showed.

The government directive said bad debt should be cut to below 3 per cent of loans by 2015, stricter than a previous statement by the prime minister that the bad debt ratio be cut to 3-4 per cent of loans by the end of 2015.

 

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