ADB warns Vietnam must prevent economic meltdown
24-JUL-2008 Intellasia | AFP
Jul 24, 2008 - 7:00:00 AM
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Vietnam must act decisively to avoid the kind of economic meltdown suffered by Thailand in 1997 which triggered the Asian financial crisis, the Asian Development Bank warned Tuesday.
As Vietnamese inflation rockets towards an annual rate of 30% and the nation's trade deficit balloons, the Manila-based agency said there were growing worries that the country's economy could face major problems.
"A question increasingly being asked is whether Vietnam is on the verge of a financial disruption, perhaps similar to the 1997 collapse in Thailand, which ignited the Asian financial crisis," the ADB said in its biannual Asia Economic Monitor.
Hanoi's loose monetary and fiscal policy helped to explain surging inflation and the rising trade deficit, it said, leading to an economic dilemma similar to Thailand's in the 1990s, although Vietnam's "fundamentals appear stronger."
But while "there are encouraging signs that the authorities' tightening policies are starting to work," the Thai experience "shows that if policy responses are weak or insufficient, a crisis could easily follow."
The bank urged Hanoi to "continue to closely monitor the situation and act decisively and swiftly to prevent the economy from deteriorating further."
Vietnamese inflation hit 26.8% in June compared with a year earlier, one of the highest rates in Asia as oil and food prices soar. The country's trade deficit more than tripled to US$16.9 billion in the first half.
The ADB forecast Vietnam's economic growth would slow to 6.5% this year and then hit 6.8% in 2009, from 8.5% last year and 7.3% annually in the previous decade.
Inflation should average 19.4% for the whole of 2008, falling to 10.2% next year, compared to 8.3% in 2007, it said.
The bank said Vietnam had already taken steps to cool its economy, whereas Thailand acted after it was engulfed by crisis.
It also cited reduced government spending, continued strong foreign direct investment flows, a stabilising local currency and a projected 14.4% yield gain in this year's rice harvest.
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