Robert Prior-Wandesforde, HSBC’s senior economist, said the main worry for Vietnam was the renewed and rapid trade position deterioration, as import growth had outpaced exports. “The trade shortfall is not too distant from the crisis levels of early 2008,” said Prior-Wandesforde.

The trade deficit in October reached its highest monthly total this year, widening to $1.9 billion from $1.8 billion in September and $1.3 billion in August. In the first quarter of 2009, the country had a quarterly trade surplus after three years. However, from April to October, the trade balance fell short again.

By the end of October, the aggregate trade deficit for 2009 stood at $8.78 billion and local financial experts predicted that it would hit $12.5 billion for the whole year. However, State Bank governor Nguyen Van Giau confirmed that the foreign exchange reserves were adequate to cover 12 weeks of imports and thus “the trade deficit is still under control”.

Tai Hui, the Singapore-based head of Standard Chartered’s South East Asian research, said the country’s trade deficit was “not particularly alarming” at current levels. “Oil and steel prices are unlikely to reach 2008 levels. This will help to contain imports of refined petroleum products and steel, which both contributed significantly to Vietnam’s import surge in the first half of 2008,” Hui explained.

“The newly-added refinery at Dung Quat will also help to reduce the country’s structural energy trade deficit, as it exports crude oil and imports refined products,” Hui added. Vietnam opened its first crude oil refinery this year in Dung Quat, central Vietnam.However, its operations, designed to meet 30 per cent of the country’s domestic fuel requirements, had to be halted in mid-August while repairs were undertaken.

But it had been up and running again since early October. Nguyen Thi Kim Thanh, head of the Banking Development Institute, said foreign exchange reserves were the most important factor to determine whether the deficit was “alarming” or not.

“The current level of foreign exchange reserves is okay and greenback supplies will increase in the last quarter of the year as is tradition,” said Thanh. Thanh said overseas remittances were an important supply source. Remittances were expected to reach $6.5 billion in 2009, with a large portion coming into the country in the last quarter of 2009 before Tet.

Looking at the country’s foreign direct investments, Prior-Wandesforde said the huge flows of foreign direct investments into the country during 2007 and 2008 had yet to turn into a structural shift in exports.
“The concern here is that the majority of investments found their way into asset markets, although there is plenty of anecdotal evidence to suggest otherwise,” he said.

“Our assumption is that it will take longer to reap the export benefits of the capital expenditure, while in the short-term imports are being boosted, as the companies get themselves established,” he added.

Source: VietNamNet/VIR