• Sun
  • Dec 28, 2014
  • Updated: 10:41am

Moody's cuts Vietnam rating amid warning of instability

PUBLISHED : Friday, 10 July, 1998, 12:00am
UPDATED : Friday, 10 July, 1998, 12:00am

Moody's Investors Service yesterday warned of threats to Vietnam's economic stability as it downgraded long-term foreign-currency ratings in the latest strike against an increasingly moribund economy.


Moody's said it had lowered foreign-currency country ceilings for long-term bonds and notes of Vietnam from B1 to Ba3 and for bank deposits to B3 from B1.


Foreign bankers last night warned the move could effectively make it more expensive for foreign banks to lend to Vietnamese enterprises - costs that would be passed on to domestic commerce.


'It's not the best news but not entirely unexpected,' one banker said. 'Vietnam is finally starting to feel the full brunt of the regional crisis and its economy seems less insulated by the day.' Moody's pointed to a string of burgeoning troubles, warning that the gains made during the boom of the past 10 years' reform and recent debt-rescheduling efforts were 'dissipating'.


'The stalled pace of reform will eventually weaken the balance of payments and banking, increasing vulnerability to shocks emanating from the regional financial and economic crisis,' it said.


'The maintenance of macroeconomic stability cannot be assured over the medium term.' Moody's said export competitiveness was already eroding because of adverse currency movements in other East Asian countries and past large inflows of foreign direct investment were receding.


Private-sector economists fear Vietnam is increasingly trapped by the Asian contagion, as three-quarters of its inbound investment has been sourced to East and Southeast Asia and both areas take most of its exports.


Investors from the United States and Europe, meanwhile, have warned reforms of a corrupt bureaucracy are not moving fast enough to entice them into filling the gaps.


The downgrade follows announcements late last month that the government's growth targets were now under review following worse than expected export and industrial output figures for the half year.


General Department of Statistics figures revealed that exports grew just 10.6 per cent - against 25 per cent during the same period last year - while industrial output grew only 12.6 per cent - more than three percentage points down.


Black-market trading in Vietnam's non-convertible currency, the dong, is now looming as a problem once again as the figures spark fears further devaluations could soon be needed.


The government had been seeking to maintain growth figures at about 8 to 9 per cent notched up during the past five years.


However, many Vietnamese officials now believe they will be lucky to hit 6.5 per cent - still a figure that would make it the fastest-growing economy in Southeast Asia.


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