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March 17, 2008 Source: www.AsiaEcon.org The State Bank of Vietnam's Governor, Nguyen Van Giau, is currently tyring to deal with Vietnan's recent inflation crisis by limiting the annual interest rate on dong deposits to 12 percent.

March 17, 2008

Source:  www.AsiaEcon.org

 The State Bank of Vietnam’s Governor, Nguyen Van Giau, is currently trying to deal with Vietnam’s recent inflation crisis by limiting the annual interest rate on dong deposits to 12 percent.  Given the stable flow of Foreign Direct Investment (FDI) and the steady export market, inflation fears are expected to grow in the minds of the populace whom is currently is struggling with a 15.2 percent inflation rate at the end of February.  In response, commercial banks have been offering customers higher and higher interest rates to compete with other commercial banks.  A prime example is Techcombank, which has raised its annual interest rate to 14.2 percent in order to contend.  This could be a future problem for Vietnam because as the commercial banks are raising interest rates on deposits loans, these loans are becoming more expensive for small and medium businesses.  Sine the Vietnam economy is growing, small and medium businesses are finding it more difficult to secure funds, which in turn will affect the domestic market and actually create more barriers in fighting inflation. 

In a similar fashion to Vietnam’s recent economic success, China has been experiencing a sharp increase in the amount of foreign investment.  FDI has surged 75 percent in the first 2 months of this year, indicating strong foreign interest in the region, despite fears stemming from the US sub-prime crisis and its related affect on investor sentiment.  This could be a possible barrier to future growth, as energy and commodity prices are rising, China and its emerging markets are facing broad inflation issues. As the US dollar is depreciating, foreign investors are flocking to China in waves.  Recently China’s Consumer Product Index (CPI) hit record levels during January 2008, reaching 7.1 percent.  This represents the highest level of inflation since September 1996.    One possible way to deal with this problem is for China to improve its energy production to meet current domestic demand, instead of relying on imported commodities to sustain development. 

Recently, shares in Malaysia have tumbled 9.5 percent, which was the biggest decline in a decade.  This drop is reminiscent of the Asian financial crisis of 1998 when Malaysian stocks dropped 21 percent in a single session.  The majority of the drop has been attributed to the Barisan Nassional coalition losing its two-thirds majority in parliament. This is expected to hurt domestic demand, which has been underpinning the majority of growth in Malaysia.  In 2006, private investment had increased by 7.0 percent and was expected to rise this year. However, this stark drop in the market will negatively affect overall investment in Malaysia.  It is possible that the recent positive performance of the Malaysian ringgit could be negatively affected and this could further shy away potential investors.  On the other hand, the government instituted the launch of the Ninth Malaysian Plan (9MP) in 2006. The 9MP plan provides a framework for increasing public expenditures and, in turn, has attracted several Islamic Banks to invest in infrastructure (including the influential Islamic Development Bank).  If the Malaysian government opens up more doors in the public investment market, private investors could be expected to be attracted to emerging markets in the public sector.

Source:  www.AsiaEcon.org

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Source: www.asiaecon.org |

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