Global speculative capital inflow partly to blame for Vietnamese economic difficulty

By Huang Haimin, Han Qiao

HANOI, Aug. 18 (Chinese media) -- Global speculative capital inflow pushed up

inflation in Vietnam, added to economic difficulties and put pressure on

Vietnam's macro-economic policy, said economists here.

Vietnamese economy has experienced great difficulties since the beginning

of this year, with the VN-Index falling sharply, a record high inflation, an

expanding trade deficit and a depreciating Vietnamese currency.

There are many factors behind the economic difficulties, but global

speculative capital, or hot money, is one of them, believed economists.

Over the past years, the Vietnamese government has been enthusiastic in

attracting foreign capital. The foreign investment on fixed assets went up each

year by impressive figures, contributing greatly to the country's annual average

7.5 percent economic growth in the past decade. However, the speculative

investment fund also sneaked in.

Incentive for speculative fund was the chance to profit from Vietnam's

stock and real estate markets. The VN-Index rose by about 144 percent in 2007,

with the peak hitting above 1,100 points.

The problem with speculative fund is, said experts, their projects either

do not generate goods for the economy, or will not do so for many years.

Meanwhile, the foreign speculative capital expanded the money supply in Vietnam

and the government has to put more Vietnamese Dong in circulation, pushing up

the inflation.

The Consumer Price Index (CPI), a major inflation gauge, went up by 19.1

percent year-on-year in the first five months of 2008.

"Expanding credit and foreign investment over the past few years has

expanded the money supply and led to the high inflation," said Tran Dinh Thien,

vice director of the Vietnam Economic Institute of the Vietnamese Academy of

Social Science.

This year, with the worsening economic situation in Vietnam and a

depreciating local currency, the global speculative capital started to flow out

of Vietnam. The stock market fell even sharply.

To deal with the economic difficulties, the Vietnamese government adopted a

package of measures, including tightening the credit by raising the benchmark

interest rate, reducing the economic target for 2008 to lessen the pressure on

inflation and cutting down on public expenses.

The measures have started to pay off as Vietnam entered the second half of

the year. CPI in July went up a modest 1.13 percent month-on-month over June,

the lowest level since the begging of this year.

Vietnamese Prime Minister Nguyen Tan Dung said recently that the Vietnamese

government vowed to keep the inflation below 10 percent by the end of next year

and realize the economic growth of between seven and eight percent for 2009.