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Asia-PacificMay 4 2010

Is Vietnam cultivating another asset bubble?

Index on the up: Ho Chi Minh Stock Exchange, VietnamBank lending is being used as a direct and often blunt lever by which to manage Vietnam's economy, proving a critical first defence against the global economic slump. But the medium-term consequences of over-interference may be another bubble, warn analysts. Writer Michelle Price
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Is Vietnam cultivating another asset bubble?

The Vietnamese economy has endured a fast-paced if jerky ride in recent years. Boasting gross domestic product (GDP) growth rates in excess of 8% for both 2006 and 2007, driven in large part by thumping credit growth, which reached a whopping 54% in 2007, Vietnam's recent economic history has been characterised by both extraordinary exuberance and nerve-wracking volatility.

Indeed, a year before the turmoil of September 2008 descended upon the global financial markets, Vietnam's government was wrestling with its own expanding bubble: fuelled by rampaging food and commodity prices, inflows of foreign direct investment dollars and a surge in dong liquidity supply, headline inflation rose rapidly towards the end of 2007, reaching a 17-year high of 28.3% in August 2008. Urged on by the International Monetary Fund (IMF), the Communist Party government in conjunction with the State Bank of Vietnam (SBV) slammed on the breaks, hiking rates and capping lending. By mid-2008, property prices had slumped, while the Ho Chi Minh Stock Exchange (HOSE) Index tumbled some 56% during the first half of the year.

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