Vietnam’s economy grew by 8.5% last year, the fastest pace in more than a decade. That rate will decrease this year, however, due to the global financial crisis.

“Vietnam may not be able to reach economic growth of 6.5 percent this year and a forecast of 6% next year is not too pessimistic,” said Le Duc Thuy, chairman of the National Financial Supervisory Commission. The slowdown can be attributed to declining exports and a slowdown in foreign investment, added Truong Dinh Tuyen, a member of the National Currency Policy Council, explaining that the demand for many Vietnamese products has decreased in major markets like the US and EU and that the credit crunch also makes it difficult for importers in these markets to buy from other countries. “The crisis hasn’t reached the extent of making Americans unable to afford coffee every day,” he said. “But because businesses there can’t apply for loans to import coffee, Vietnam’s coffee industry is affected.”

Pundits also note that the global slowdown will likely suppress demand for rubber in the auto industries and will thus affect the Vietnamese rubber industry. Local businesses will have to cut prices so that their products remain competitive, Tuyen surmised. He also predicted that the impact of the global financial crisis could be immediate. The country’s export revenue in October is estimated to be around USD $5.1 billion, for example, a decrease from the average of $5.4 billion this year. This is despite the fact that export revenues often surge at the end of the year. In addition to falling exports, Vu Thanh Tu Anh, director of the Fulbright Economics Teaching Program, said that the nation’s foreign direct investment (FDI) inflows would be hit. Difficulties in obtaining loans would slow down many FDI projects and even put an end to some, he said. Vietnam has already received FDI commitments of around $60 billion this year, and full-year disbursements are expected to be $12 billion.

One factor that will determine the extent and rate of the nation’s slowdown will be business’ access to credit, commented Le Xuan Nghia, director of the central bank’s Banking Development Strategy Department. To that extent, Thuy said the country should let banks negotiate interest rates with their clients. “Banks with strong liquidity can decide what deposit rates they can offer and which interest rates and how much money they can lend, depending on the client’s credibility.” He said the central bank should also remove the cap it has set on credit expansion of 30% to ensure funds for sectors that need money for growth. “Production has stagnated since many companies can’t borrow money because of high interest,” lamented Tuyen.

Two weeks ago, the State Bank of Vietnam cut its key rate to 13% (from 14%) in order to ease a cash shortage that is affecting production. Vietnam’s benchmark rates are still the highest in Asia, along with Pakistan’s, as the government tries to slow inflation.