Investors kept on their toes

image source: satthep.net

During the Vietnam Business Forum in Hanoi last week, foreign-invested companies complained that high inflation and an unstable dong were threatening their business operations in Vietnam.

“Vietnam’s success in attracting foreign investment has largely been built on the expectation of economic and political stability. Unfortunately, the government’s approach to economic and monetary policy has raised credibility and confidence issues,” said Hank Tomlinson, chairman of American Chamber of Commerce in Vietnam.

Alex Loh, chief representative of Malaysia’s SP Setia, the developer of two property projects in southern Binh Duong province, agreed that the macroeconomy was currently not conductive for business in Vietnam.

“On the macro level, persisting high deficit ratio to gross domestic levels, inflationary pressures leading to a high interest rate regime prevailing and an unstable dong are some of the concerns,” he said.

Vietnam’s inflation since January to November was 9.58 per cent and is forecasted to reach double digits by the end of this month, according to the General Statistics Office.

Meanwhile, the dong is also weakening against other foreign currencies, especially the US dollar and the foreign business community is claiming Vietnam’s currency system has undermined local and foreign investors’ confidence.

Since early this year, the State Bank depreciated dong by 5.3 per cent against dollar. In the unofficial market the dong is even traded at around VND21,500 per dollar versus the official rate of VND19,500.

“Constant expectation of further devaluations gives people and companies little reason to want to hold onto dong, which day-by-day is becoming less attractive as a store of value. This problem does not just affect the banking system, it affects all of us,” said Tomlinson.

A weakened dong would affect the profits of foreign-invested enterprises, said Samsung Vina deputy general director Nguyen Van Dao.

Tomlinson said rising inflation and the lack of an effective inflation policy were pressuring the dong’s depreciation.

“We encourage and look to the government to communicate monetary policy clearly and transparently to help build up confidence in their macroeconomic management,” he said.

Being aware that an unstable economy could force foreign investors to leave Vietnam for other countries, the Vietnamese government has recently announced strong measures to curb inflation for ensuring growth and stabilising the economy.

Dominic Scriven, chief executive of Dragon Capital, which is managing a $1.5 billion fund in Vietnam, said the biggest issue at present was investors’ confidence in the economy.

“Among targets of growth, stabilisation and sustainability, the most important target is sustainability. I think it is better for Vietnam economy to grow less but safe,” said Scriven.