Many people snicker when they discover that the Vietnamese currency is called the Dong. First of all, the pronunciation of đồng is different from the English which literally translates to bronze or brass. More importantly in the context of global economics the Vietnamese dong is the 2nd least valued currency in the world falling short the Somali Schilling. It is consistently rated one of the least valued currencies in the world since its existence in 1978 when the currency was unified with the transitional dong in the south. As of this week the dong is valued 20,950.00 for every dollar. In other words, a traveler could bring about 50 USD and be considered a millionaire in Vietnam. The Vietnamese government is concerned about the "black market" where the currency is traded as low as 21,410. This is done not in the back alleys but at local jewelry stores. The government has devalued the currency three times over the last two years. When there is less confidence in the currency, the people will look towards gold or the US dollar for better stability. A tael of gold (37.5 grams) in Vietnam is worth 44 million dong.
Vietnam is still a one party state with the communist party in power. Every year the party sets a goal of GDP growth. Over the past few years the the GDP growth rate was around 8 percent. However beginning in 2009 it dropped to 5.3 percent. This year the government has set a lower goal of 5.8 percent. Vietnam’s real-estate market has stalled, by soaring inflation, sky-high interest rates and sharp lending curbs. Developers are halting projects or delaying new ones. The uneasiness is relfected in Vietnamese businessmen. Doan Nguyen Duc, chairman of Hoang Anh Gia Lai Joint Stock Co said, “The real estate market is at its ugliest ever. I expect the market to continue to fall much deeper.” Inflation has been rising to very high levels affecting the price commodities and more importantly food. Standard and Poor, a financial company that evaluates credit ratings around the world, lowered Vietnam's foreign currency rating to BB- from BB and the local currency rating to BB from BB+ last year.When Vietnam somewhat opened its doors for foreign investment, it was labeled as the "New Asian Tiger." Is this situation now simply a part of the downturn in the economy across of the world and how will it last?
Dan,
ReplyDeleteAn interesting account of the economic and financial challenges facing Vietnam. Can you give us more of a sense of what this means politically for the country?
Going Going Dong!
ReplyDeleteI think this might be due to the overheating of the economy and the government or rather leaderships inability to balance the books, and staying fixated on meeting their high targets for growth.