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Growing pains of the “tiger”….

Vietnam Needs Stable Economy, Better Dong Sentiment, IMF Says

January 11, 2010, 10:24 PM EST

By Jason Folkmanis

Jan. 12 (Bloomberg) — Vietnam needs to improve its balance of payments and increase confidence in the dong to strengthen economic growth to at least 6 percent this year, the International Monetary Fund said.

The economy grew at a decade-low pace of 5.3 percent last year. The country recorded a trade deficit of $12.25 billion in 2009 after posting a surplus in the first quarter, and was forced to devalue the dong as Vietnamese increased buying of dollars and gold.

Growth this year will be partly determined by Vietnam’s balance of payments, Benedict Bingham, the IMF’s Hanoi-based senior resident representative in Vietnam, said in an interview today.

“If they re-establish stable macroeconomic conditions, and generate more positive sentiment towards the dong, then I think they can certainly achieve 6 percent growth,” he said.

A government stimulus package hurt Vietnam’s balance of payments last year, threatening the country’s economic stability, the Washington-based IMF said last month.

“What was causing pressure on the balance of payments was a combination of a widening trade deficit and weak sentiment towards the dong, especially by Vietnamese investors,” Bingham said.

The dong traded at 18,474 against the dollar as of 10 a.m. in Hanoi, compared with about 19,280 in the black market. The government only allows the dong to fluctuate 3 percent on either side of the official reference rate that it sets daily.

Dong, Exports

The central bank devalued the dong in November after the gap between official and black-market rates increased ten-fold to more than 11 percent.

Vietnam’s exports should strengthen this year, in part because of a more competitive exchange rate, Johanna Chua, head of Asia economic research at Citigroup Inc., said in a note to investors this month.

Overseas shipments rose 12 percent in December to $5.25 billion from $4.69 billion in November. Garment exports gained 12 percent to $820 million, while shipments of shoes jumped 22 percent to $420 million.

Exports performed “reasonably well” in December, and imports were lower than anticipated, helping to improve the trade gap, the IMF’s Bingham said. December’s shortfall narrowed 38 percent from November to $1.3 billion, according to preliminary figures from the government statistics office.

Deficit Moderates

Last month’s export gains were “due in part to rice and coffee, but encouragingly non-commodity exports also seem to be recovering,” Bingham said. “We will have to see whether this moderation in the trade deficit will be sustained.”

Inflation in Vietnam accelerated to 6.52 percent in December, from 4.35 percent the prior month, as economic growth quickened to 6.9 percent in the fourth quarter, from 6.04 percent in the previous three months.

“The authorities need to keep a close eye on inflation, especially if commodity prices continue to firm this year,” Bingham said. “Although much of the recent increase in the consumer price index is due to rice and fuel prices, the seasonally adjusted three-month rate of inflation is currently running at an annual rate of over 10 percent, which is high.”

Vietnam Needs Stable Economy, Better Dong Sentiment, IMF Says – BusinessWeek

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