Hanoi - Vietnam's stock market fell 4.15 per cent Tuesday, continuing a prolonged slide amid a global bear market and worries about the country's rising inflation rate and monetary problems. The Vietnam Index ended Tuesday at 608.08, off more than 25 per cent since February 1 and over 45 per cent year-on-year. The market has dropped sharply since last week's announcement that Vietnam's annualized inflation rate in February topped 15 per cent.
The government has moved to control inflation, but its measures have made it hard for investors to obtain credit, contributing to the falling market, according to Jonathan Pincus, lead economist at the United Nations Development Program in Hanoi.
"The Central Bank has tightened credit, or is trying to, which always makes it difficult for equity markets," Pincus said.
Last month the State Bank required all banks to raise their reserves from 10 per cent to 11 per cent of obligations, and raised its interbank lending fees for the first time in years. It also announced it would obligate banks to buy more than 1.25 billion dollars in government bonds, denominated in Vietnamese dong, to reduce the money supply.
Such tight credit has hurt stock prices, but has yet to convince investors that inflation will return to normal, according to Nguyen Duy Hung, director of Saigon Securities Company.
"People in the market think it will be hard to cut inflation over the next few months," Hung said. "I think it will stay high and even rise further."
Vietnam's economy has grown at over 8 per cent in recent years, but its inflation rate is now twice neighboring China's and far higher than rates in Thailand and the Philippines. The chief culprit is the rapidly falling US dollar, and the Vietnamese government's policy of pegging the dong to it in order to promote exports.
The US is Vietnam's largest export market, driving much of Vietnam's economic growth over the past eight years. Influxes of billions of dollars in foreign direct investment and remittances from Vietnamese working abroad also threaten to drive up the dong.
In order to keep the dong from appreciating, the State Bank must buy large quantities of dollars. That increases the supply of dong in the economy, leading to inflation.
Experts have advised Vietnam to let the dong appreciate further to curb inflation, but the government has been reluctant to take actions that might harm the country's exports, or increase its imports.
"Vietnam doesn't let the dong float," said Ngo Quang Luong, a senior official at the State Bank. He blamed the US for Vietnam's monetary predicament.
"The depreciation of the dollar against the Vietnam dong results from the US government's policies to encourage American exports as the US economy is going down," Luong said.
Vietnam's market woes are hardly unique. Indexes have fallen all across East Asia as the falling dollar has been accompanied by warnings that the US's economy is headed into a recession.
But analysts in Vietnam say the country's internal credit crunch is more important.
"I think the impact of global recession on liquidity doesn't have a lot of impact into the Vietnamese market," said Nguyen Xuan Minh of Vietnam Asset Management. "It's more the liquidity problem within Vietnam, especially for margin traders. And there is also certain degree of panic selling."
Pincus said Vietnam would continue to find it difficult to fight inflation without letting the dong rise significantly against the dollar. It would mean continuing tight monetary policy and imposing tighter fiscal restraints on government, both of which will lead to slower economic growth.
"Anything is possible, it just depends how much you are willing to pay," Pincus said. "I think most people are arguing that it's too expensive a policy to try to maintain parity with the dollar. But that's a policy choice that they need to make."
