Wall Street Journal
March 24, 1999Vietnam's Sharp Drop in Exports
By ANYA SCHIFFRIN
Hints at Trouble for the Future
Dow Jones NewswiresHANOI, Vietnam -- First-quarter economic data for Vietnam spell trouble ahead, economists said, with exports predicted to fall and inflation in danger of rising above the 9% rate posted for the first three months of this year. A drop in foreign investment may add to the trouble, the analysts said.
On Tuesday the General Statistics Office released preliminary data showing first-quarter exports were down 11.8% from the first three months of 1998, while industrial production was up 10.3% from the year-ago period.
Exports were unusually high early last year partly because of strong Indonesian demand for Vietnamese rice. But even so economists said that this quarter's fall in exports is a sign of a continued contraction. The preliminary first-quarter trade deficit came in at $176 million, narrower than the $451 million reported in the year-earlier period.
Lack of Demand
"The decline in exports reflects both a cyclical lack of demand in the region and deflation in the Western world," said Thierry Apoteker, a France-based economist who writes frequently on Vietnam. "Export prices for developing countries are declining."
Some 20% of the goods exported by Vietnam are produced by companies in which foreigners have a stake. And with foreign investment plummeting, exports are likely to continue to drop, analysts said. This will also eat into industrial production as growth in the foreign-invested sector usually outstrips growth at state-owned and private-sector companies. In the first quarter of 1999, industrial production was up 22.6% in the foreign-invested sector from a year earlier, but rose only 4.3% at government-run companies and 5.8% in the private sector. Industrial production rose 12.1% for 1998.
The Ministry of Planning and Investment refuses to release this year's investment figures but official media reported recently that, as of Feb. 20, only 22 projects totaling $291.6 million were licensed for foreign investment. The figure was down 70% from the year-ago period, the Youth newspaper reported, but the amount likely to be paid out will probably be only about $70 million, because disbursements rarely rise above 30% of approvals. The Asian Development Bank last year predicted Vietnam would receive some $500 million in paid-out foreign investment in 1999 but has since said this figure was too optimistic. While government data for 1998 are contradictory, foreign analysts believe paid-out foreign investment last year was around $1 billion.
Reducing Imports
Economists say the government is likely to continue its campaign of reducing imports so as to avoid a balance-of-payments crisis. This in turn will reduce growth, and most foreign economists believe gross domestic product will rise this year by only around 4%. Hanoi claims that GDP rose 5.8% in 1998, although most economists put the figure at around 5%.
"Constraining imports in the context of currency depreciation could both fuel inflation and hamper growth because Vietnam will be switching to higher cost inputs and/or to lower quality products," predicted Mr. Apoteker, the director of consultancy group TAC.
The central bank has allowed the dong to gradually depreciate by about 20% in the last two years but has held off from a major devaluation partly because of fears of fueling inflation.
For the moment, Vietnam's inflation rate is manageable, a Vietnamese economist said. The consumer price index is heavily weighted toward foodstuffs. The rice and cereals component was up 11.3% in the first quarter of 1999, despite a drop in rice prices in the Mekong Delta -- Vietnam's rice bowl -- due to global oversupply and world price declines.
Drought Conditions
The Vietnamese economist, speaking on condition of anonymity, noted that drought conditions in the central provinces and resulting food shortages may have buoyed the price of rice in the north of the country and so boosted Vietnam's CPI.
Inflation in 1998 came in at 9.2%, sharply higher than the 3.6% seen in 1997.
Separately, Moody's Investors Service Inc. said Tuesday it has changed its outlook to negative from stable for Vietnam's B1 foreign-currency country ceiling for bonds and notes.
The ratings agency noted that pressures on the rating include a lack of progress in advancing structural reforms in the financial sector, in state enterprises, and in the external trade regime, which have become obstacles to renewed support from the International Monetary Fund.
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