Per Robert Hormats, under U.S. Secretary of State for economic, energy and agriculture affairs, Vietnam remains “the key pillar” in America’s growth in the Asia-Pacific region, a sentiment that followed the Obama administration’s recent acknowledgement that the country was one of six ‘next tier markets’ under America’s new National Export Initiative that seeks to double the U.S’s exports over the next five years by targeting export dominant regions abroad.  Since the two countries first signed a  bilateral trade agreement nearly a decade ago, two-way trade has increased more than 700% from just over $2 billion in 2001 to approximately $16 billion last year (including an 11% increase in 2009 in the face of global asset and credit contraction), solidifying the U.S as one of Vietnam’s most strategic trade partners and export markets.

A recent Bloomberg piece touched on one of the central facets underpinning the economy’s potential growth.  Aside from the favorable demographics (see chart below), Vietnam is widely recognized by multinationals looking to invest and expand further abroad for its commitment to education.  For instance, while commenting on the scheduled opening later this year of a $1bn USD testing facility in Ho Chi Minh City, Nick Jacobs, Intel’s regional spokesman, said that the firm choose Vietnam because of its proximity to customers, reliable power, water supply and skilled workers.  “Vietnam is a country which is very committed to education, and that gives us confidence we will continue to attract the talent we need for long-term success,” Jacobs said. 

That said, The Economist noted in early March that last year saw some “worrying signs” against a backdrop of 5.3% GDP growth, namely continual dong devaluation by the central bank in an effort to combat dollar hoarding and thereby help exporters (still the economy’s lifeblood) get “the currency they need to purchase imported parts and materials.”  Yet as the newspaper duly noted, the prime cause of such hoarding was likely the government’s own loose fiscal policy–it expanded credit by 37% in 2009, namely via bank loans, in order to prop up the economy–which targeted “inefficient state-owned enterprises (SOEs)” rather than labor-intensive, small businesses.  The possibility (probability?) of impending inflation now has foreign and domestic actors alike worried about price controls, which leaders on both sides of the Atlantic (rightly) warn could lead to long-term distortions that would undo much of the international business community’s hitherto largesse and warm sentiment. 

For those interested in further analysis of Vietnam’s economy, economist Jonathan Pincus published a report last April (click for PDF) in the ASEAN Economic Bulletin that examines the central bank’s current monetary and fiscal predicament.  He concludes:

 “The most pragmatic response [to its overvalued exchange rate and burgeoning trade deficit]  would be to gradually move the dong lower against the currencies of the Vietnam’s main trading partners to reclaim some of the export competitiveness lost during the recent real appreciation of the VND.  A weaker dong would also prove some protection from the flood of imports from China and other countries in the region attempting to cope with demand contraction in the United States and the euro zone.  {The State Bank of Vietnam] needs to monitor interest rates spreads between dong and dollar deposits to ensure that savers still have an incentive to hold dong balances despite the gradual depreciation ofthe domestic currency.  On the fiscal side, the government can maximize the impact of existing spending levels by cancelling or postponing import and capital intensive projects in favour of labour-intensive projects that rely on domestically produced inputs.”

 

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