Vietnam economy growing too fast: analyst

Updated June 16, 2008 11:14:13

Vietnam's free market advocate Vo Van Kiet was frustrated by economic inaction by recent Vietnamese governments. [AFP]

Vietnam lost one of its greatest free market champions this week with the death of Vo Van Kiet.

Mr Kiet was prime minister during the 1990s, pursuing a policy of 'doi moi' or 'open markets'.

He watched as his country's economy grew an average of seven to eight per cent a year.

But, as our Southeast Asia correspondent, Karen Percy reports, in recent years he grew frustrated at the Government's failure to open further and to act to prevent problems.

James McCormack, the head of sovereign ratings for Asia-Pacific with Fitch Ratings, says the government of Vietnam is now well behind.

"It's running to catch up where inflation is accelerating," Mr McCormack said.

"It's characteristic of an economy that's simply growing too fast.

"When an economy grows too quickly, demand outstrips supply and that puts upward pressure on prices.

"It also means that imports tend to grow much faster than exports so you get a deterioration in the trade balance and a deterioration of the current account balance," he said.

Government action needed

Mr McCormack says the government needs to raise interest rates, slow growth, reduce inflation and reduce the current account surplus.

Inflation is at more than 25 per cent in Vietnam.

Over the past six months the stock market has slumped close to 60 per cent and there are fears that the real estate sector could crash.

James McCormack says inflation is still the biggest problem.

Agencies like Fitch Ratings are keeping a close eye on the currency, the dong and what it reveals about local confidence.

For the Government, it seems to be a policy tug-of-war between appeasing foreign investors who are keeping the economy afloat and Vietnam's poor who are most affected by it.

You can find the full story at the Connect Asia website: http://radioaustralia.net.au/connectasia