Siam News Network

Vietnam recently devalued its currency, the dong, by 9.3 percent against the dollar. Analysts say soaring inflation here makes life harder for many Vietnamese workers.

Consumer prices in Vietnam this January were more than 12 percent higher than they were a year ago, reflecting rising costs of food, fuel and household goods.

High inflation is putting pressure on workers.

Nguyen Huy Thinh drives a bus in downtown Hanoi. He says he has trouble getting by on his $250 monthly salary. He says that while prices for gasoline and electricity are increasing, his salary stays the same. That makes it hard to support his family.

Despite a decade of strong growth, Vietnam had a $12.4 billion trade deficit last year, and inflation surpassed 11 percent for the year, despite the government’s attempt to limit it to 8 percent.

To contain inflation and cut the trade deficit, Vietnam devalued its currency, the dong, by 9.3 percent against the dollar earlier this month. The devaluation was the fourth since 2009.

Both Moody’s Investors Service and Standard & Poor’s downgraded Vietnam’s sovereign debt rating in December after state-owned shipbuilding conglomerate Vinashin defaulted on payment for a $600 million.

Having a lower rating makes it harder for Vietnam to borrow money abroad.

Adam McCarty is the chief economist for the consulting firm Mekong Economics, in Vietnam. He says the economy is not in crisis, but inflation is taking a toll on average workers.

“Normally poorer-than-average people on salaries or pensions are the ones who lose when inflation is high, and then more broadly, the pace of generating new jobs slows down somewhat if the economy’s got trouble,” McCarty said.

McCarty said inflation also makes it harder for middle-class Vietnamese to buy property.

Some financial market analysts praise Vietnam for devaluing the dong, saying the new value better reflects prices on the black market, where traders exchange dong for gold and dollars. But other economists have warned that the government may need to do more to cap inflation and protect the economy.

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Inflation Squeezes Vietnamese Workers

Tran Quang Vu, chief executive officer of Vinashin Group, is suspended as his company is being investigated for wrongdoings.

See more here:
Vietnam suspends Vinashin board members amid probe

Vietnam’s $96 billion economy is far less centrally controlled than last decade, and the country, which boasts one of the youngest workforces in the world, managed to gain membership in the World Trade Organization in 2007. The country last year exported $12.3 billion of goods to the U.S., its biggest overseas market. Foreign direct investment is on the rise and could double, to $15 billion this year according to a May 31, report analysts at Standard Chartered Bank.

However, between 2003 and 2005 Vietnam fell dramatically in the World Economic Forum’s Global Competitiveness Report rankings, largely due to negative perceptions of the effectiveness of government institutions. Official corruption is endemic, and Vietnam lags in property rights, the efficient regulation of markets, and labor and financial market reforms.

The 18th International Business Report (IBR) survey by the auditing and consultancy firm Grant Thornton surveyed over 7,400 privately held businesses across 36 nations, finding ten countries where businesses were more optimistic about their economic outlooks, including Vietnam. The survey found that expectations of increased revenues in 2010 for Vietnam is the most optimistic, with 95 percent of respondents forecasting an increase in revenue and 91 percent, an increase in profitability, in 2010. However, according to the survey, due to the global recession, average selling prices in Vietnam are expected to decrease by 13 percent. This means total sales may increase but profitability per unit may fall.

With a country with over 86 million people and with more than 60% under the age of 35 (Source: General Department of Statistics of Vietnam, 2009), Vietnam’s education needs for this young population are huge. Despite attention by the government only about 1.6 million (about 2%) actually are now at higher education institutions. Each year approximately 1.2 million students graduate from secondary education but the enrollment to higher education is only around 300 thousand (Source: Department of Higher Education, MOET).