Foreign Policy Blogs

Vietnese, Laos, and Indonesia in the news

Vietnamese Dong Bills

Vietnamese Dong Bills

Asia Times Online has several great articles out this week on Southeast Asia:

Vietnam could be facing another currency crisis.  The  Vietnamese Dong may crash due to the governments unsustainable trade and spending deficits.   Apparently, things got out of hand as early as late 2007, when Vietnam started printing Dong based off of the massive influx of U.S. dollars into its economy.  The government failed to deal with the resulting liquidity issues, which lead to a  30% increase in inflation by the middle of 2008.  Hanoi’s  response has been to increase interest rates, implement price controls, and reign in government spending.

Last falls  global economic slow down helped the Vietnamese control inflation, but now the economy has slowed too much.  The government has tried to compensate by returning to spending on large public projects, but with investors pessimistic about Vietnam’s long term prospects, the government has failed to raise adequate funds through the bonds market.  This seems looks like a good recipe for stagflation.  “Looks like” is appropriate, because the general lack of transparency makes it hard to gauge what the government financial accounts actually look like.  That being said, no one believes they are good.  Even information about the amount of foreigner reserves held by Vietnam are considered a state secret.  Meanwhile, the Dong is dropping in value as the government is losing its ability to maintain its peg to the U.S. Dollar.  The Central Bank is spending massive amounts to keep the currency stable, at a rate it can not sustain.

Somewhat ominous:

To compound those suspicions, the government has effectively banned groups in Vietnam from publishing research on economic issues. A new decree from the prime minister came into effect on September 15 limiting scientific and technical research to 317 specifically approved topics; macroeconomics is glaringly one of the subjects omitted from the list.

This article is a good explanation as to why the Vietnamese government has cracked down so harshly on anti-Chinese nationalism in order to secure a loan from the Chinese government.

Laos struggles in the Shadow of the Dragon. A recent wave of Chinese from Yunnan Province have come across the border into northern Lao looking for business opportunities.  After years of hostility, by 2007, China contributed an astonishing 40% of the FDI into Laos, totaling some US$1.1 billion.  Further, the Chinese currently dominate the following industries: mining, hydro-power, retail, rubber, and hospitality.  Trade between the two nations is expected to increase by 4X over the next few years, since 2007, to nearly US$ 1 billion.  Despite the economic benefit, many are concerned with the environmental impact and the effect this will have on the average Laotian.  The latter is especially concerning as there are some early indicators that Laotian people are largely being excluded from any economic benefit, and even being displaced by Chinese immigrant workers.

Indonesia is having its own bailout problems. The medium sized bank, Century Bank, was declared insolvent in November of 2008.  The Yudhoyono Administration shored it up with a 700 billion rupiah (US$70.9 million) infusion.  Many, especially the political opposition, are questioning why such a disproportionate amount was given to a Century Bank.    “The accusations claim there was a behind-the-scenes collusion agreement for the government to pump enough cash into the institution so that politically connected depositors could recover their funds before the wider depositor base.” Ironically, those most under fire in the Yudhoyono government are some of the lead anti-corruption champions.  The author seems to believe this is an issue of bad regulation and oversight that has led to confusion.

– This blog has discussed Malay-Indonesian relations a few times over the last month; however, I have come across a great synopsis of the situation by an Indonesian national.