Vietnam’s Wavering Resolution

Vietnamese stocks deepened their loss string despite Hanoi’s hosting of the annual Asian Development Bank gathering as inflation burst past 20 percent to challenge the recent “resolution 11” fiscal and monetary tightening package. The measures originally triggered brief equity and bond rallies as the benchmark interest rate was taken to almost 15 percent and officials vowed otherwise to throttle runaway credit at 120 percent of GDP. At the same time to revive currency confidence, they suspended further devaluation while cracking down on informal dollar and gold trading. However ADB participants were told that economic growth would likely slow to 5 percent as the trade deficit continued to widen to 15 percent of output, with international reserves not reported but estimated at around $12 billion. To cut the budget deficit, fuel and electricity prices were lifted, and food also jumped on anxiety ahead of the spring harvest season. Ratings agencies, after pausing from last year’s downgrades, reinforced jitters with calculations that sovereign contingent liabilities could hit 60 percent of GDP under the weight of state bank recapitalization and bad loan coverage. NPLs using local standards are under 5 percent, and after repeated criticism of data and transparency the central bank has agreed to a formal IMF-World Bank comprehensive financial sector assessment to identify prevailing conditions. The default by shipbuilder Vinashin has not been addressed despite a stream of creditor requests for meetings and negotiations. Companies have been unable to tap the external debt market despite the success of neighboring high-yield borrowers such as Chinese property developers. Regional and US-European individuals and institutions have heavily subscribed these double-digit return issues which increasingly feature “perpetual” structures. In a much-noticed example, unrated Sino-Ocean Land completed a $400 million 10 percent deal in the wake of fraud found at other lesser-known mainland placements like China Forestry, which had partnered with the Washington, DC-based Carlyle buyout firm. Asia dollar-denominated activity was at $35 billion in May, with medium-term projections by underwriters for $100 billion annually.

The Philippines exchange has also been floundering after the central bank raised rates on consecutive occasions to keep inflation below 5 percent, despite fiscal improvement which may limit the deficit to 2 percent of GDP should current patterns hold, even with a new public transport cash transfer program for operators and riders. Remittances which undergird the balance of payments have dropped on troubles in Japan and the Middle East, and should they spread to core Gulf locations Manila may have to form its own resolution stance.