In its report, the WB said that 2008 was a decent year for Vietnam though it faced numerous difficulties, including run-away inflation, asset price bubbles, an increased trade deficit and tight credit markets, as well as the negative effects from a fall in global commodity prices and trade. The government responded well by shifting its priorities from growth to stabilisation in March 2008 and then to economic support in November.

The WB said that although Vietnamese officials were not much experienced in coping with global fluctuations, they “climbed quickly the steep learning curve and did well in managing the economy”. They showed their ability to prioritise, postpone or cancel public investment projects. At the same time, they were well aware of the risks posed by large State-owned enterprises creating or controlling financial intermediaries, and willing to reconsider the governance, oversight and investments of economic groups and State corporations.

According to the report, there is low risk of a financial sector crisis in Vietnam. The direct impact of the global financial crisis on the country is minimal, as banks in Vietnam were not exposed to “toxic” products, nor were they owned to a large extent by exposed foreign banks. The larger joint stock banks increased shareholder capital, retained earnings and improved provisioning. State banks were restrained in their lending and made large profits by buying foreigner bonds. Even the smaller and weaker joint stock banks managed to increase their capital to the new legal minimum.

The risk of a balance-of-payment crisis is also low. The trade deficit during the last six months was around US$2.2 billion, while inflows of FDI, ODA and remittances in 2008 amounted to US$16 billion. Remittances and FDI disbursements held well during 2008.

The trade deficit declined and recently shifted to a small surplus, with exports declining due to a sharp drop in the price of major export staples since mid-2008. However, the WB forecast that Vietnam may suffer less than other countries because it remains competitive, as demonstrated  in  its growing market shares. In 2009, it may be granted the Generalised System of Preferences by the US. In addition, imports are declining even more rapidly than exports, partly because the import content of non-commodity related exports is high. Foreign-invested enterprises are large net importers, so the slowdown in FDI inflows will lead to a smaller trade deficit.

The WB said that the Vietnamese government introduced monetary policy in a timely manner to offset the turbulence stemming from fluctuations in world prices and export demand. Increased exchange rate flexibility and slower capital inflows made monetary policy more effective.

According to the WB, Vietnam is coping with weak global demand, leading to a decline in domestic demand, that has prompted enterprises to cut production and lay off workers. Meanwhile, bank loans with low interest rates won’t be able to encourage businesses to maintain production if there is insufficient market demand for their products. The WB recommended that the government directly support families and implement public investment projects.

(Source: VOVNews)