Vietnam’s Plodding Pilot Pileups

Vietnamese stocks, which lagged East Asiain 2010, continued to wheeze after the five year Communist Party Congress granted Premier Dung another term, and despite denials the dong was again devalued and then interest rates raised to confront trade and inflation headaches. The currency was officially brought below the 20,500 to the dollar level to alter the import-export mix, which may enable the country to surpass next-door Thailand in rice sales after a record $3.25 billion performance last year. Against reported 7 percent GDP growth, inflation was 12 percent as credit mainly to state-owned borrowers leapt at over double that clip. These companies, after resisting reform and re-establishing their critical role post-crisis, came under attack in recent months with the implosion of shipbuilding empire Vinashin, which defaulted on a $600 million international loan as the sovereign credit rating was further sapped into the junk realm. The government, vowing to assert discipline especially as losses brought the budget deficit to 7.5 percent of GDP, announced resumption of its partial equitization- privatization program with a handful of offerings scheduled across a range of industries. The airline is up first despite the absence of public accounts and murky leasing relationships, as executives claim consistent double-digit revenue gains. The Garuda divestiture in neighboring Indonesia has likewise met a lukewarm response, but local backers argue that discount valuations in Ho Chi Minh City are more compelling. Fuel, phone, steel and banking selloffs have also been previewed, and foreign strategic investors may be invited to take larger minority stakes provided they commit to capital lockups and management and technology transfers. However international financial groups are likely to remain wary given the experience of predecessors in previous deals and the recent flap with Credit Suisse, which signed an advisory contract with economic officials just before they refused to honor Vinashin’s debts.

Thailand’s central bank head has complained that dong depreciation will hurt cross-border ties even as baht strength against the dollar has flagged since the start of 2011. An inflow tax was reapplied last year, and with inflation sneaking to 3 percent the benchmark interest rate increased 25 basis points in February. The fiscal gap in turn is to shrink to 3 percent of output as Prime Minister Abhisit signals his desire for second half early elections that can proceed peacefully in contrast with the bloody street battles between Thaksin supporters and the military which closed the capital in mid-2010. Reconciliation was promised between the ruling coalition and “red shirt” activists in the aftermath, but both on the political and economic fronts a divide and conquer strategy may better suit flashpoint scale.

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