Vietnam walks tightrope between inflation and downturn

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HANOI, Nov 16 (AFP): Vietnam, like much of the world, is trying to stimulate its economy amid the global downturn, but it is in a quandary because it must also keep rampant inflation from flaring up again, say experts.
With a small and relatively insulated banking sector, Vietnam was not directly exposed to the subprime crisis that sparked the Wall Street meltdown and the subsequent worldwide credit crunch and turmoil on global financial markets.
But the wider economic repercussions of what has been called the worst global economic crisis since the Great Depression are already being felt in this developing economy, especially in the crucial export sector.
Amid slackening overseas demand, Vietnam's monthly exports have steadily fallen from 6.5 billion dollars in July, to 6 billion dollars in August, to 5.3 billion dollars in September, to 5.1 billion dollars in October.
And, although it's too early to say foreigners are pulling out of financial markets, in the past month they have been net sellers of bonds and stocks.
Inflation has been in double digits all year and stood at 26.7 per cent in October, a slight fall after a drop in global energy and commodity prices.
Aiming to reduce liquidity to fight inflation, the government had raised interest rates and bank reserve requirements several times this year.
But this has also starved businesses of credit for investment and working capital, forcing the central bank to reverse its monetary policy as both local and international factors have slowed economic growth in Vietnam.
Since late October, the State Bank of Vietnam has twice lowered its benchmark rate. It now stands at 12 per cent and Prime Minister Nguyen Tan Dung last week said more rate cuts could be expected to free up credit next year.
Pham Do Chi, chief economist at investment fund VinaCapital Group, agreed that "the government can further reduce interest rates to help stimulate the economy through the domestic private sector and the foreign-invested sector."