Connect to share and comment
This week’s Lunar New Year will be a somber one in Vietnam, thanks to a rocky economy.
HO CHI MINH CITY, Vietnam — On the surface, it seems like any other holiday. Revelers will bedeck their homes and cities with apricot blossoms, and will wedge opulent flower mosaics through the central streets of Ho Chi Minh City. Migrant workers will visit their families in the countryside, causing parts of cities to empty out.
But this week’s Lunar New Year will be a somber one, partially thanks to a rocky economy. Underneath the veil, economic pressures have marked the Year of the Cat — an astrological sign that is often associated with comfort and peace — with financial uncertainty. Unlike in China, which will celebrate 2011 as the Year of the Rabbit, Vietnam marks this year as that of the cat — a tradition rooted in the different animal legends of the two countries.
Around this time, Vietnamese traditionally flock to markets to purchase food, decorations and traditional outfits for the festivities, spending four times more than other times of the year.
But this year, one of Asia’s highest levels of inflation means many Vietnamese are spending more frugally, thanks to instability that is the side effect of a brusque economic rebound. In January, inflation rose 12 percent from a year earlier, the fastest level since December 2009. That comes the same year growth rebounded to almost 7 percent, the highest level since 2007.
The problems follow a recent trend in many Asian countries, including India and China. Last year, some countries saw the widest price swings since the 1997 Asian financial crisis, a time when regional currencies collapsed.
Despite Vietnam’s brash growth for the past two decades, those afflictions are worrisome in a poor country where per capita GDP is just above $3,000 — meaning many people struggle to afford basic amenities such as food on bolstering prices. And as concerns mount that the government will devalue the currency in coming weeks, faith in the system is being weakened further. Left unchecked, inflation will throw off hopes for stable, long-term economic growth, analysts said.
Policymakers appear to be set on dreamy goals. This year, the government hopes to limit inflation to 7 percent, compared to 11.75 percent last year. Many economists agree the government should tame inflation by also cooling growth, a strategy that authorities have side-stepped for a model that focuses on faster growth. At a communist party congress two weeks ago, political elites agreed to a yearly growth rate of around 7 percent until 2015.
The weakened currency is poorly timed with Tet. Still, many Vietnamese are accustomed to toil and trouble in their currency, the dong, which has faced problem after problem in the past few years. In the summer of 2008, annual inflation hit 28 percent, almost pushing the country into financial meltdown.
So villagers have adapted appropriately to the dubiety. Running up to the Year of the Cat, they’re coping with inflation by, among other things, purchasing the black market currency from neighboring Cambodia.
That scheme, revealed on Thursday by the Phnom Penh Post, a daily newspaper in the capital of that country, exploits the difference between the black market rate and the official exchange rate for the dong — pegged at 19,500 dong per U.S. dollar. Profiteers venture across the Cambodian border, where they withdraw U.S. dollars from ATMs at the official exchange rate. (Even though Cambodia has its own currency called the riel, the dollar is used in most transactions.)
From there, cash materializes quickly. They bring their U.S. dollars to black market vendors in Cambodia, who exchange funds at about 21,000 dong per dollar. That’s an 8 percent difference from the official one, and a slick profit.
One bank official in Cambodia told the Post that one Vietnamese bank, Techcombank, likely lost about $1.5 million in recent weeks owing to the wile.
Villagers are also reducing their expenditures and feeding their families with private gardens and fish ponds, says Ben Kerkvliet, a Vietnam expert at The Australian National University in Canberra. “[Youngsters] may have to quit school all together,” he said.
Kerkvliet adds that economic woes won’t lead to political unrest, the sort that rocked Tunisia and Egypt in recent weeks. “Should inflation skyrocket,” he said, “villagers are likely to protest in various parts of the country.” But, he concedes, changes will likely take place in economic policies rather than in political disturbances.
Even if policymakers subdue the currency problems, economists are wary about the recent default of Vietnam’s flagship state-owned shipbuilder, Vinashin. The company amassed debt of $4.4 billion dollars, equivalent to 5 percent of the GDP, and defaulted on a large payment to international creditors in December.
The company’s collapse not only led to Moody’s to downgrade Vietnam’s credit rating, but signaled the need to reform the domineering and inefficient companies that comprise 40 percent of GDP, say analysts.
“A Vinashin default is going to hurt the ability of other Vietnamese companies to secure long-term lending on international markets,” said Eddy Malesky, a political economist at the University of California at San Diego. On the other hand, he said, bailing out Vinashin will create a risk of “moral hazard,” sending a message to other conglomerates that they can behave irresponsibly without consequence.