Posted: 13 Jan, 2011
By Bloomberg News
(Adds stock exchange close in fifth paragraph.)
Jan. 13 (Bloomberg) -- Vietnam’s ruling party set economic growth targets for the next decade at the National Congress to choose top leaders as members warned about the need to curb inflation and address mismanagement among state-owned firms.
“We must pay attention to the quality and efficiency of growth and sustainable development,” Communist Party Chief Nong Duc Manh said in opening remarks in Hanoi yesterday, where the eight days of meetings are being held. “We must combine economic growth with social progress and equality.”
Vietnam seeks growth of 7 percent to 8 percent until the year 2020 and wants to almost triple per capita income to $3,000 in that time, Manh said. Investors are scrutinizing the remarks for clues on whether new leaders are prepared to damp a credit boom and elevate price stabilization over growth, which averaged 7.2 percent over the past decade.
“The growth target is perfectly reasonable,” Yougesh Khatri, a senior economist at Nomura Holdings Inc. in Singapore, said by phone. “If they do enough to curb inflation expectations, they can create a virtuous cycle.”
The VN Index, Asia’s second-worst performer in 2010 after Shanghai, gained 1.2 percent today, the biggest rise since Dec. 28. The dong, which fell the most among Asian currencies last year, was little changed.
Prime Minister Nguyen Tan Dung’s government has lagged behind nations from Thailand to Malaysia in raising rates to tackle inflation, which was at a 22-month high of 11.75 percent in December. A lending surge of 28 percent last year fueled concern of rising prices and an eventual jump in defaults.
‘Relapsed Inflation’
“Foreign debt is increasing fast, affecting macroeconomic stability,” Truong Tan Sang, a member of the country’s 15- member Politburo, told delegates. “The risk of relapsed inflation is still high.”
Dang Ngoc Tung, a member of the Party’s central committee, also urged colleagues to take action against rising prices.
The past decade has “made the lives of the majority of people very difficult with big price increases, while workers’ wages remained low,” he told reporters during a break. “Hopefully the Congress will see clearer what ordinary, working people are desiring.”
The Congress follows a year that saw three ratings downgrades, two currency devaluations and a 2 percent slump in the benchmark stock index, Asia’s second-worst performer after Shanghai. The government aims to cut the budget deficit to 4.5% of gross domestic product and create 8 million jobs by 2015, Manh said.
Dung’s Fate
About 1,400 delegates participating in the 11th National Congress in Hanoi will select the committee that appoints the Politburo, Vietnam’s most powerful body. Dung, dressed in a suit and bright red tie, introduced speakers and oversaw the proceedings, which were broadcast live throughout the country.
Dung’s role at the Party Congress “signals to all the delegates that he’s returning to his position,” said Carlyle A. Thayer, a professor at the Australian Defence Force Academy in Canberra. “There may be some challenges but it’s clear who’s going to be picked.”
Party delegates this week will decide whether Dung, 61, is reappointed to the Politburo, a move that would secure his return as premier when the National Assembly chooses government officials in May. Opposition parties are illegal and Vietnamese authorities have convicted or arrested 39 political dissidents since October 2009, according to the U.S. State Department.
Stated-Owned Firms
Dung, the ex-central bank chief, faced criticism before the Congress began over his management of debt-ridden, state-owned Vietnam Shipbuilding Industry Group, known as Vinashin.
“Operating results of some state-owned corporations are still low compared with their potential,” the Politburo’s Sang said. “There is a group that was on the edge of bankruptcy, causing large economic damage and social discontent.”
State-owned enterprises account for 40 percent of gross domestic product, according to the government. Vinashin had amassed a total debt of about 86 trillion dong ($4.4 billion) as of June, according to government figures, equivalent to about 4.8 percent of the $102 billion economy.
Dung’s return would indicate stability, said Than Trong Phuc, managing director of investment fund DFJ VinaCapital LP in Ho Chi Minh City. He recommended buying Vietnamese stocks, which trade at 10.1 times estimated 2011 earnings, the second-cheapest in Asia after Pakistan, according to data compiled by Bloomberg.
“Vietnam’s at a discount right now,” Phuc said. “There’s no reason to hold back. If I’m an investor, I would buy into Vietnam before prices go up.”
Ratings Cut
Standard & Poor’s Rating Services cited a lack of transparency when it cut Vietnam’s credit rating on Dec. 23, a week after a similar move by Moody’s Investors Services. Both expressed concern that strong lending growth had weakened the balance sheets of the country’s banks and raised questions about the solvency of the country’s state enterprises.
The VN Index slumped 2 percent in 2010 compared with a 14 percent gain for the MSCI Asia Pacific Index. The dong fell 5.2 percent in that time, the biggest drop among Asian currencies.
Vietnam’s economy expanded 6.8 percent last year, the fastest pace since 2007, fueling prices as a weakening currency increases the cost of imported goods. Dung’s government has devalued the dong three times in the past 14 months to cut the trade deficit, which totaled $12.4 billion last year, amid concern Vietnam may run short of capital to offset the gap.
--K. Oanh Ha, Nicholas Heath, Daniel Ten Kate. Editor: Patrick Harrington, John Brinsley.
%VND
To contact the reporter on this story: K. Oanh Ha in Hanoi at oha3@bloomberg.net; Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net
To contact the editors responsible for this story: Peter Hirschberg in Hong Kong at phirschberg@bloomberg.net; K. Oanh Ha in Hanoi at oha3@bloomberg.net
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