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VN needs to prepare for impacts of US financial crisis
It would be very naive to think that the US financial crisis will not affect Vietnam’s economy. Nobody can know for sure what will happen next and the world is still watching over the happenings in the global market.
Capital decrease, the biggest threat
Vietnamese businesses should be well prepared for possible negative impacts of the financial crisis, experts said at the working session of the Leading Business Club (LBC) yesterday.
Dr Nguyen Quang A, Head of the Institute for Development Studies (IDS), said that the US financial crisis will certainly have impacts on Vietnam and the impacts won’t be small.
Vietnam’s stock market last week responded immediately to the happenings in the US and the world’s market. The VN Index dropped dramatically and it has only recovered a little since the world’s markets increased again on the news about the US’ $700bil bailout to rescue the financial market. Meanwhile, the domestic gold market has also been going up and down continuously in accordance with the ups and downs in the US market.
In fact, Vietnam’s financial system remains a fledgling market. It still does not have many financial derivatives like the US’ and other markets in the world; therefore, it would not suffer too terribly from a massive collapse of financial institutions. A said that this is a ‘lucky thing’ for Vietnam. However, he stressed that Vietnam, to some extent, will suffer from the US financial crisis.
A said that like other countries, Vietnam also purchased US treasury bonds with the low interest rates of 1-2%.
Truong Van Phuoc, General Director of Eximbank, said that the total value of US treasury bonds the government of Vietnam purchased is equal to 30-40% of GDP. Vietnam also purchased shares of Fannie Mae and Freddie Mac, two troubled mortgage giants.
If the credit capital source from the US is tightened, which the US is fearing, Vietnam will suffer as banks will find it more difficult to access commercial loans. Capital under official development assistance (ODA) may also be cut. It is also likely that foreign direct investment (FDI) would decrease as investors cannot arrange capital. Overseas remittance, one of the important sources of money, which helps balance payment, may also decrease.
Exports will be the direct sufferer
It is clear that Vietnam’s exports will be the direct sufferer of the US financial crisis as the crisis will lead to consumption decreases.
Seafood companies had a meeting right after they heard about the crisis to discuss how to deal with any problems caused by possible decreases. The US, Europe and Japan, which are bearing severe impacts of the US crisis, are all main export markets for Vietnam. A said that export companies need to save themselves by conquering the domestic market with 80mil consumers, while trying to seek new export markets.
Participants at LBC’s meeting also expressed concerns about having to compete with Chinese products. China, which has been relying heavily on the US as a big export market, may consider selling products to other markets, including Vietnam, once its main market decreases imports.
A has called on the state to strengthen the management of the finance, stock, and real estate markets and banks. However, A said that stricter management does not mean tightening.
VNN
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