Economic reform of Vietnam faces crisis of confidence

HO CHI MINH CITY, Oct 30 (AFP): As Vietnam battles galloping inflation and a plummeting currency, a new challenge has emerged - - a general collapse of confidence in the state's ability to heal the ailing economy. With an eye on the brash success of neighbouring China, Vietnam's obsessive pursuit of growth lasted for two decades until economic threats forced it to shift attention to stability this year. The ruling Communist Party, which has total control in the one-party nation, announced an overhaul of its economic model during a five-yearly congress in January and a slew of monetary and tax austerity measures have followed. But as pressure on the economy continues to mount, the political system itself has come into question from businesses and the Vietnamese people. "What is happening in Vietnam is a crisis of confidence," a foreign investor in the southern business hub Ho Chi Minh City told AFP. In 2008, as financial turmoil swept the globe, Vietnamese authorities responded by injecting massive liquidity into the economy, and speculative bubbles multiplied. State-owned shipbuilder Vinashin embarked on a flurry of investments, racking up debts of $4.4 billion that eventually saw it plunge into quasi- bankruptcy. Now Vietnam is trying to bring down Asia's highest rate of inflation-nearly 22 per cent year-on-year in October-trim its trade deficit and strengthen the dong, which has seen four devaluations in 15 months. The authorities have upped interest rates to try to cool the economy and choke off speculation, piling intense pressure on small- and medium-sized firms with lenders now charging upwards of 20 per cent. Experts predict the pain will continue for at least another 18 months. "The price to be paid is enormous. There are already a certain number of corpses on the pavement," said the investor. But while he said the measures were "necessary", others are wondering if they will be enough.