“Looking at the measures taken by the government, I can see that they want to control inflation,” Hung said.

“Even if the growth rate cannot be achieved as targeted, 9 percent, it can be lower.” Vietnam’s economy expanded 8.5 percent in 2007, the fastest pace since 1996.

After consumer prices rose 15.7 percent in February from a year earlier, Prime Minister Nguyen Tan Dung said the government was seeking a balance between promoting growth and controlling inflation,

The government has raisedinterest rates, increased compulsory bank reserves and allowed the dong to strengthen by 1 percent in a bid to cut money supply and slow the pace of price increases.

The moves have contributed to a tumbling stock market, with the Ho Chi Minh Stock Exchange’s VNIndex dropping 41 percent this year.

Some panic

“The government is trying to tighten money control in order to fight inflation,” Hung said.

“It affects business in general, so now companies are facing a very hard time. They cannot borrow from the banks (and) input costs are higher.

It has led to some panic on the market, among domestic investors.”

The International Monetary Fund said last week Vietnam’s economy was showing signs of overheating and that tightened monetary conditions would be needed to slow credit growth that reached about 50 percent last year.

Vietnam is facing a choice between “high growth in the short run versus financial stability,” and the country’s economic growth rate may slip to as low as 6.5 percent this year if the government focuses on fighting inflation, Ho Chi Minh City-based fund manager Vinacapital Investment Management Ltd. said last month.

The country must address inflation “before it has an adverse effect on the economy,” fund manager Vietnam Holding Ltd. told investors this week.

The UK-listed fund said it expects a “slowdown” in the country’s economy, without giving a figure.

“Inflation-fighting policies are a harsh necessity,” DWS Vietnam Fund Ltd. said in a note this week.

“The short-term issue with liquidity will continue to affect equity prices, but in the medium- to long-term, the inflation-fighting policies should be expected to be beneficial to both the economy and the market.”

Source: Bloomberg