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Current account deficit alarming, says official
Vietnam’s large current account deficit could trigger an economic crisis, State Bank Development Strategy Department Director Le Xuan Nghia warned.
Nghia urged the government to pay more attention to the “dangerous” trade deficit, which reached a record US$7.4 billion in the first three months of this year.
The State Bank of Vietnam official said the trade deficit was being “sponsored” by short-term capital inflows.
If these inflows changed course, Vietnam would have to depreciate its currency to reduce the trade gap, Nghia said, thus destabilizing the economy.
Nghia said an increase in imports of consumer goods, as well as the higher price of imported raw materials were two key contributors to the widening trade gap.
Vietnam should learn from the 1997 Asian financial crisis, which caught out countries with large trade deficits and overheated real estate markets, he said.
At the moment, Vietnam was experiencing a high trade deficit, high inflation, a high ICOR index [ICOR measures production efficiency by dividing annual investment by annual increase in the gross domestic product], as well as a real estate “bubble”, he said.
Nghia said the trade deficit alone would not be too dangerous.
But when combined with a heating real estate market and an open capital market where capital flows in and out easily, the trade deficit needed more attention.
The Vietnamese government had sensed the danger and was trying to reduce imports.
This was a necessary response, he said.
At the same time, the central bank was also increasing its foreign currency reserves, which he said was an important safety tool to use in an emergency.
Nghia said indirect investment into the stock market was still too small to warrant concern.
But if Vietnam wanted to better control foreign investment, it should do so through taxes rather than limits on foreign indirect investment.
If indirect foreign investors withdrew their money, Vietnam could consider what other countries had tried, he said.
It could direct the central bank to increase interest rates, reduce foreign currency sales or offer exporters above-market rates for foreign currencies.
This would ensure an adequate supply of foreign currencies in the domestic economy.
Thanhnien
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