Thursday, 20 January, 2011
Source: gulf-times
Vietnamese Prime Minister Nguyen Tan Dung was reappointed to the ruling Communist Party’s Politburo yesterday, paving the way for him to serve a second term and make good on his pledge to stabilise the economy.
Dung has presided over five years of robust economic expansion that averaged at 7% a year, but the Vietnamese leaders came under criticism that they allowed big imbalances to build up in the $100bn economy in their pursuit of rapid growth.
Inflation hit a 22-month high of nearly 12% in December, the trade and fiscal deficits are large, the currency is under pressure and may have to be devalued again and foreign exchange reserves are disturbingly low.
Yet investors welcomed the outcome of a five-yearly party congress that ended yesterday, noting that Dung was a known quantity and someone who sounded like he has learned his lessons and was truly committed to tackling the economy’s weaknesses.
“I think it’s good if you have somebody there already that understands what’s happening, understands the key issues and the lessons learned,” said Andy Ho, managing director and head of investment at VinaCapital, the country’s biggest private equity firm with $2bn in investments.
“The key is if he wants to make changes, and I think that he does,” Ho said.
At the end of last year, Dung said controlling imbalances and prices was “the number one mission”.
The benchmark index on the Ho Chi Minh Stock Exchange ended the day up 1.7%, reflecting better sentiment across Asian stock markets yesterday.
Some economists say the first test of government’s determination to rebalance the economy and curb inflation will be whether it will cool hefty credit growth. This year’s target is 23%. Last year Vietnam exceeded its target of 25% credit growth, a number the International Monetary Fund and others have said is far too high.
Another test of Dung’s reform credentials, if he gets confirmed as prime minister, will be the government’s policy towards state firms.
Le Dang Doanh, a former government advisor who is now an independent economist, said inefficient state firms were a drain on capital and resources and the authorities needed to leave more to markets and speed up reform of the state sector.
“The government should not tell enterprises in detail what to do, such as make this investment or not,” he said.
The near-bankruptcy last year of shipbuilder Vinashin, a company that had been lavished with political and financial support over the years, highlighted the perils of maintaining the status quo.
Vinashin’s troubles played a part in the downgrading of Vietnam’s sovereign debt by Standard & Poor’s in December, which followed similar downgrades last year by Moody’s and Fitch.
Mark Mobius, head of emerging markets at Franklin Templeton, which has investments in Vietnam, told Reuters in an e-mailed response that sales of state firms would make Vietnam more attractive to investors and its economy more vibrant.
Some currency traders and economists say another devaluation of the dong may also end up high on Dung’s to-do list, given that the unofficial exchange rate has languished below the official trading band since September and was about 7% outside it on Wednesday.
Observers warned that it was far from clear yet how much power Dung would have in the new leadership line-up and much would depend on who he could appoint as his deputies.
While some interpreted the choice of Nguyen Phu Trong, head of parliament considered a compromise candidate, as party general secretary as a boon for the prime minister, others saw Dung’s influence limited by party heavyweights in the Politburo.
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