Wait-and-See policy in Vietnam
2008-07-31

In July alone, food and beverage costs rose in Vietnam by 44.7 per cent year-on-year, while the price of the staple food rice and other grains was up 72.7 per cent, the state-run General Statistics Office said in a preliminary report. Vietnam’s annual inflation rate accelerated to 25.2 per cent in May, the fastest since 1992, highlighting the challenge facing the country’s Communist authorities as they seek to cool the overheated economy. The surge in prices, up from 21 per cent in April, was driven by a 67.8 per cent year-on-year increase in the price of grain – the staple food, which accounts for 42.8 per cent of the basket of goods and services Hanoi uses to calculate its inflation rates. Prices for housing and construction materials were up by 24.9 per cent, clothing and footwear was up 10.9 per cent and pharmaceuticals and health care costs rose by 9.5 per cent for the month.
To fight against the tough situation home and abroad, the State Bank of Vietnam has been taking a lot of measures to tighten monetary policies in order to curb inflation. It has issued VND20, 300bil worth of compulsory bonds, raised state banks’ basic interest rates, raised the compulsory reserve ratio, and has been purchasing foreign currencies at a moderate level.

"The government's measures to contain inflation have not proved to be effective," said Le Dang Doanh, a senior Vietnamese economist and former adviser to the Prime Minister's office. "I think the situation will remain very complicated in the coming months."
Vietnam – one of Asia’s fastest growing economies in recent years is once widely hailed as Asia's next economic tiger, but has been battered by double-digit inflation, a ballooning trade gap, tumbling share prices and worries about the banking sector and its currency, the dong.
Some Chinese fastener investors in Vietnam are facing troubles amid the market turmoil in that country. Fastener enterprises there are having problems getting loans. Raw material and labor costs have also been rising. They have also been suffering income losses as the dong has been depreciating. "If you go to the bank and exchange dong to U.S. dollar today, you have to wait for your turn for 15 days because so many people want to do the same," National Business Daily quoted a Chinese car parts seller in Vietnam as saying. "By the time the conversion is made, the dong will have depreciated even more." Many of them have had to convert their dong holdings into US dollars for fears of further depreciation.
As the largest fastener manufacturer in the world, China fastener industry has ample space to develop though, it has been involving in dramatic changes of both macro and micro economy, for instance, implementation of labor law, increase of land cost and material price, appreciation of RMB, strengthening protection of environment, frequent antidumping cases and the problems in Vietnam. The impact on the whole industry so far has been relatively small and in my opinion, the enterprises should adopt a wait-and-see policy for a while before adjusting its policies in Vietnam.