Vietnam's economic turbulence in early 2008 : causes, consequences and lessons.

• Main Authors: Huang, Shiyun., Nguyen, Dinh Long., Ngo, Dieu Thuy Trang.
• Other Authors: Yip Sau Leung
• Format: Final Year Project
• Language: English
• Published: 2010
• Subjects: DRNTU::Social sciences::Economic development
• Online Access: http://hdl.handle.net/10356/35275
• Institution: Nanyang Technological University

Vietnam‘s economy boomed in 2007— economic growth reached over 8%; foreign capital inflows doubled as FDI, FPI, and remittances surged; the stock market, property values and credit growth strengthened; exports grew strongly while import growth jumped to even higher levels. At the same time, inflation began to accelerate, and trade as well as current account deficit soared to unprecedented levels. The economic situation turned dire in May 2008 as price inflation climbed up to over 25%, and trade deficit during the first five months reached USD14.4 billion (20% of GDP in 2007) despite a comprehensive stabilization package adopted by the government in March. In response, market sentiment started to change rapidly and put Vietnam on the brink of currency crisis. Fortunately, the country was saved from a free fall thanks to several factors such as controls on domestic currency, an underdeveloped forward market, manageable foreign debt obligations and decisive government policy responses. The main lessons that can be drawn from this experience are the management of short term capital flows and the use of fiscal policy to reconcile the country‘s long-term investment need with fluctuations in capital flows in the future.