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Economic mismanagement

vietnam GDP inflation economic performanceVietnam (pop. 89.3 million) is one of south-east Asia’s fastest growing economies. The country’s average economic growth was 7.2% from 2000 to 2010, according to the IMF. In 2011, GDP growth slightly slowed to 5.9%.

While the economy is growing fast, consumer prices are rising much faster. Overall inflation for 2010 was 18.7%, much higher than the government target of 8%, according to the General Statistics Office (GSO).

To combat inflation, the government imposed price controls on key commodities such as electricity, coal, cement, fertilizer and other goods - to no avail. In addition, the State Bank of Vietnam (SBV), the country’s central bank, repeatedly hiked interest rates last year. In June 2012, consumer prices rose by just 6.9% from a year earlier, the lowest rate in three years.

The country’s economic growth slowed to 4.38% in the first half of 2012, its most sluggish rate in three years, according to the GSO. Real GDP growth is expected to slow to 5.1% in 2012, from 5.9% in the previous year, according to the IMF.

Vietnam’s banking system is now facing a large amount of bad debt. Much of the money lent during the credit boom (2009-2010) is now considered bad debt, much owed by the huge state enterprises. Non-performing loans may be 8.82% of banks’ outstanding debt as of June 2012, according to Giau, the head of the National Assembly’s Economic Committee. Most banks are now unwilling to lend money.

In September 2012, Moody’s Investors Service downgraded the country’s credit rating, as well as that of eight Vietnamese banks.

Prime Minister Nguyen Tan Dung, who has been in power since 2006, has relied on state-owned companies to spark economic growth. State-owned Vinashin, originally a shipbuilder,  expanded to a wide array of industries including tourism and animal feeds. However, it almost collapsed in 2012, with its total debt reaching US$4.5billion, roughly 4.5% of Vietnam’s GDP. The government said that it will not bail out the company but provided zero-interest loans for the salary of its employees.

PM Dung is now facing questions in parliament. During the National Assembly address held last October 22, 2012, PM Dung apologized to the public for government’s mistakes in managing state-owned firms.

“I seriously recognize my great political responsibilities as head of the government and sincerely admit mistakes to the National Assembly, the Party, and the people for shortcomings and weaknesses of the government in management and regulation, particularly in checking and monitoring operations of state- owned conglomerates and corporations,” Dung said.

In an effort to boost the economy, SBV slashed its key interest rates in July 1, 2012 for the fifth consecutive month this year.  The refinance rate was lowered from 11% to 10%, the discount rate from 9% to 8% and the overnight inter-bank lending rate from 12% to 11%.

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