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Now the real pain of global financial meltdown begins
The US financial crisis is having a domino effect on many countries around the world. Even though Vietnam is not directly affected, the open question remains if its businesses can weather a downturn.
This topic dominated a workshop that opened in Ho Chi Minh City on October 28, involving many leading Vietnamese economists, consultants and businesses.
According to Prof. Dao Nguyen Cat, Vice President of the Vietnam Economic Association, the impact of the global financial crisis on Vietnam is unavoidable as the country is integrating into the world economy and it has been a member of the World Trade Organisation for nearly two years. The impact is forecast to be even bigger than the 1997-1998 Southeast Asian financial crisis.
Mr Cat said that Vietnam will bear the brunt of the crisis as 60 percent of the country’s GDP is driven by exports. In particular, the US, which is one of Vietnam’s leading importers, will no longer be a lucrative market for Vietnamese export staples, including garments, leather and seafood. In addition, as foreign direct investment continues to flow into Vietnam, its stock market will experience unexpected fluctuations.
Meanwhile, financial expert Bui Kien Thanh said that an increase in the London Interbank Offered Rate (LIBOR) and the Singapore Interbank Offered Rate (SIBOR) will affect the volume of short-term debts at commercial banks. Even though their total debts currently remain at around US$2 billion, Vietnamese businesses will need banks to restructure loan terms and interest rates. In addition, when the US dollar is depreciated, people will withdraw their savings in foreign currencies and re-open their deposits in the Vietnamese dong, putting banks at a disadvantage.
Another risk comes from the real estate market. A sharp fall in land prices will increase the amount of bad debt at commercial banks. The State Bank of Vietnam reported that by the end of September 2008, the debt balance for property projects had reached VND115 trillion, making up 9.15 percent of the total debt balance of the entire banking sector.
Mr Thanh also said that the volatility of stock markets around the globe will affect the domestic stock market. He expressed concerns that foreign investors will withdraw from the Vietnamese stock market to maintain their capital. This means a large amount of US dollars will flow out of Vietnam.
According to Le Xuan Nghia, head of the banking strategic development department, many businesses still find it difficult to access bank loans.
“Banks and businesses should work closely together to iron out the snags,” said Mr Nghia. “If businesses prove that their bad debts are caused by objective factors, market fluctuations for instance, banks will consider the possibility of writing off the debts.”
Concluding the workshop, experts proposed that the State continue to create a transparent business environment to attract foreign investment. They said that businesses should seek ways to expand export markets, diversify products, reduce production costs and better exploit the domestic market.
VOV
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