Vietnam: Too Fast, Too Soon  
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Market Watch - Page 19:

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Vietnam: Too Fast, Too Soon.

 

 

 

 

One of the region's emerging tigers, Vietnam, is learning the hard way on the journey to a free market economy. With its currency, the dong, currently trading above 16,000 to the US dollar, all signs point to possible devaluation in the near future.

Also, inflation has breached 25% and the national trade deficit is approaching US$15 billion. How fast the tide turns in what has been hailed as one of Asia's fastest growing economies in the past year.

In its accelerated march to attract overseas investment and open its doors to trade, the country adopted a much more aggressive liberalization program over the past decade than, for example, China.

China has repeatedly initiated measures to cool down its overheated economy over the years and taken considerably more pragmatic steps on the road from a bleak communist machine to liberalization.

Despite some historic benchmarks to learn from China, Vietnam is now poised on the edge of an economic situation that may have serious consequences for its neighboring Asian economies.

Not since the 1997 regional currency crisis has there been a large-scale devaluation. Already, over the past month, the baht has depreciated against major currencies.

A downturn in the Vietnamese economy would certainly create a larger downturn not only in Thailand but ripples would be felt throughout Asia.

On a global level, inflation combined with the sub-prime problem and rising oil prices is resulting in a slowdown in economic growth with the cost of living everywhere continually on the rise.

For businessmen and property developers in Vietnam, there has been an abundance of US dollar-denominated debt over the past 12 to 18 months. Now, all of a sudden, in cases where loans have been based in US dollars, say at 7.5% interest, banks are converting loans to Vietnamese dong denominations and quoting interest at hyper-inflationary rates of 15% to 16%.

For any business, this creates a sudden vacuum as the cost of investment is doubled overnight and the possibility of

 

 

 

currency devaluation adds further downside risk on interest rates.

In Thailand, while local banks do not have substantial exposure to Vietnamese investment, there are troubling signs of large scale inflation. Counties such as Indonesia, Malaysia and the Philippines are seeing signs of this worsening.

Vietnam as of today is a stand-alone issue, but certainly the impact of the economic uncertainty will see knock-on effects here and aboard. Lessons learned from 1997 are that the property market was one of the worst-hit sectors and that recovery took several years.

Meanwhile, in Vietnam, several high-profile projects have been launched in markets such as Danang. The mixed-use Laguna Hu with its mix of high-end luxury resorts, golf course and residential development has created considerable interest in the emerging market.

Middle East group Kingdom Hotel Investments, which owns the Movenpick Resort & Spa in Karon, are launching the upper tier Raffles Resort and Residences, which are aimed directly at the lifestyle-investment market in which Phuket has dominated for the past few years.

Along Danang's China Beach coastline are no fewer then 15 large international hotels under development. While it's yet to be seen what fallout the current investment climate will create, in the long term this type of investor bodes well for longer term development success.

It's been said that no man is an island, and though Phuket indeed is one, it's not immune to the market ups and downs of Asia. In a real estate industry that thrives on overseas buyers, a moderate depreciation of the baht and opportunities here.

For the growing overseas retirement market, it also leads to a lower cost of living, hence attracting more part- and full-time residents that favorably impacts a service economy such as ours.

In a nutshell, with risk comes reward and with threats come opportunity. The impact of Vietnam's worsening problems will no doubt be felt on these shores, but for the moment it seems that we are continuing to follow global issues more closely then ever before.

 

 

 

   

Bill Bamett is Managing Director of C9 Hotelworks a Phuket hotel and residential consulting firm With more 20 years experience in the region, he has played an active role in some of the island biggest develovments.

       
       
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