[Vnbiz] June trade deficit down

Sat Jun 28 20:37:22 PDT 2008

Dear anh Hoanh and CACC,

anh Hoanh, I totally agree with you about all immediate treatment for hot problem at hand. As I already said, I believe that the tighter measures applied are the right treatment methods. I am even arguing against buying $$ USD for speculation with my colleagues. However, please bear in mind that the treatment can be successful only when the dose is proper. 

Moreover, can the administrative tool be the good treatment for the next coming months? What is about the dose? High inflation seems just hit the poor and middle class thus it does not really waken up the managers of VN Corporate and Groups, that are very rich. As far as I know, just VND 5,000 billion ($USD 312m) was cut down from fiscal expenditure. It is too small to be a good treatment, comparing to a project of Hanoi museum which I heard of no delay will cost VND 2,100b or the amount of VND 21,000 billion that SBV could in one week withdraw from the banking system by selling compulsory note for banks.

The point here is that, the awareness of people who directly run the economy must be changed. Honestly, on the one hand, I hope that the situation should be worse for SOE Corporate & Groups and even Vietnam enterprises. On the other hand, I do expect the economy early recover because if it last longer I will be also financially hurt :(. My statement is quite a contradiction in terms. But it is true because I find the poor awareness of people around me.

My job requires me to meet a lot of enterprises and I know that they are all very rich thanks to last year stock market and real estate booming. They seem ignorant about the high inflation and the poorness of many farmers who lost land. Many find raising fund too easy thus investing carelessly. For example, a company raised VND 1,000b bond then investing about VND 400m in VCB stock, so far they at least lost 60% of this investment. Many spent proceeds and retained profit on real estate and stock market, which is not their core business. All power SOE groups tried to open bank or financial institution with the naive thought that they have money and they can lure employees from other banks. Consequently, the liquidity of big banks as VCB get trouble, inter-bank overnight reached 40% some times.
Now, they begin to fell the breath of crisis. They begin to see the risk of bankrupt and question about their investment decision. If the government at any cost to save those SOE corporate, even by harsh administrative tools that can lead to stagflation there will may be not good treatment for management but bad result fall on the economy as a whole. I meant that I want to see at least some managers of those SOE corporate have to step down for their ignorance. And these business expansions should be reduced to the core business.

In terms of stock market, I think it is a good time to find some really good company or too cheap stock to take some stakes. There are some but not many, because many that are with great result last year from financial income and real estate income can no longer get this again. I expect those Non-SOE will soon recognize their situation and adjust their business to the core activities that they have the edge over competitors. On the other hand bankruptcy may be good lessons for others and for the economy as a whole.

Please do not misunderstand me. I am myself really optimistic about the long-term development of Vietnam. I believe that government have been aware of the situation and start taking good measures. I just raise some issues for people not being over optimistic.

Have a great Sunday,Duc.

On Sun, 6/29/08, Tran Dinh Hoanh <tdhoanh at gmail.com> wrote:

From: Tran Dinh Hoanh <tdhoanh at gmail.com>
Subject: Re: [Vnbiz] June trade deficit down
To: vnbiz at vietlinks.net
Date: Sunday, June 29, 2008, 3:27 AM

[ Vietnam Business Forum ]

Dear Brother Duc & CACC,

Thanks for the good note.  You make a lot of sense, but in order not to confuse some folks, allow me to clarify things a little.

In a treatment of any crisis, we always have two plans:   The immediate plan to solve the hot problem at hand, and the long-term treatment to solve the root cause.  It is easy to see how this two-prong approach works if you visit a hospital.  Say, if you go to the emergency room or intensive care unit, the doctors' focus is solely on the emergency symptoms at hand:  Temperature too high?  Reduce it?  Can't breathe?  Put a respirator on.  Heart stop beating?  Giving an electric shock.  Doctors in emergency or intensive care unit, most of the time. don't even think about what is the root cause of the problem and how to fix the root cause.  They don't have that luxury.  They have to focus on the emergency situation at hand.  

When the patient is transferred out of intensive care into the regular care unit, then the new doctor teams will start to work on a completely different system of treatment for the root cause.

It is important to keep this in mind when we solve economic crisis too.  Right now, we are focusing on the immediate solutions to control inflation: raising interest rate, tightening credit, reducing fiscal deficit, reducing trade deficit.

And now the situation gets a little better, we even plan to move into intermediate issues of subsidy and price control.  I call  these intermediate issues because we don't have to solve them when we are in the mid of a very hot crisis (we may even need them when we are in a very hot crisis), but as the crisis subsides, these issues may be solved to strengthen the crisis solutions further (and to solve a very long term problem of the economy--subsidy and price control).

Then a bit later, when we are very much out of the crisis concern, we can look at some truly long-term issues such as the organization of the SOEs, infrastructure, the integrity of the banking system, etc.

Dumping things together will confuse a lot of folks. Say, if in the middle of stock market analysis, we start to talk about infrastructure, lots of folks will ask:  What?  Why infrastructure?  Does it have anything to do with the stock price for next week?  The answer is no, although it may affect the stock price in the long term in a way that we cannot measure.  

Dumping many things together into a talk not only will confuse the readers but may also confuse ourselves in our analysis.  For example, we are talking about inflation, and inflation is on the way down, but SOEs are still very bad, should we conclude that inflation may start back up because the SOEs are bad?  No, normally there is no reason to have such close connection.

Other than making sure that we are not confused about different issues of the economy, everything you said make sense, brother Duc.  There is still a lot of work to do to strengthen the economy so that it can absorb surprise shocks wherever they come from.

Have a great day!

Hoanh

On Sat, Jun 28, 2008 at 2:13 PM, Duc Phamcao <ducpc83 at yahoo.com> wrote:

[ Vietnam Business Forum ]

Dear CACC,

It is good to have a positive expectation but we should be practical and see the current Vietnam's status in various perspectives, including the down side risk for the remains of the year. Theoretically, I believe that Vietnam government is on the right track; in discussion with my colleague I am insistent that the inflation and trade deficit are going down.

But downside risk for the economy and the banking system is put on the table afterward. Also the inflation pressure is still hanging around.

Why the inflation is going down? Because the speculation stop temporally. 
- Cement that is bountiful in the North is transported into the South easing the temporary shortage.
- Billet and steel imports that has been 100% yoy increase in the 1H08 is slowing down because the international market price is hiking while the price is capped in domestic. 
- Foodstuff accounting for about 40% VN CPI is believed to be affected by the international market and infectious diseases. The government seems to be able to control the foodstuff increase thanks to good harvest and export control but it can be harder if some kind of disease keep happening. 
- Also the tighter measure of government made the shortage of credit for companies, cooling down the economic growth that heavily depended on credit growth but not efficiency.

But all this measures expose the economy to a number of other risks:

- Inflation can go back higher when the price of some sorts of input as steel and oil can no longer be controlled.
- Some kind of natural resources are running out such as oil and coal, that is much blamed to TKS corporation (Coal and resources Corporation) because they are smuggling tons of coal to Chinese for the wealth of some peoples. This will make the Vietnam much more depending on international commodity market. It will run along with the international inflation.
- The current measures of government are weighing on banking system. With this level of rate the NPL will increase. The liquidity is also big problem if the SBV is not informed well.
- SBV is control the foreign exchange market both official and black by administrative tool and bumping USD into the banking system. The former seems to be effective with black market, curbing active speculation and dolarization. But the announced forex is not able to be applied for banks and companies as far as I know. Importers hardly find the exchange rate for their purchase and banks is also unable either. Moreover, the $$ reserve is reducing, which may bring about to VND significant devaluation.

All in all, the economy is still on the verge of crisis. It can be stable and recovery gradually but also may worsen. But I think for long term, the economy can only grow stably if the roots of problems are resolved.
- The management of SOE Corporate, Groups must be much more improved. Each Corporations have to focus on their core business and its own advantage. There must be not the situation of all investing in real estate, banking, ... 
- Infrastructure must be much more developed. How can economy can grow efficiently if traffic is as terrible as in Hanoi and HCMC. How can industries as cement, steel can be competitive with foreign without the deep and special ports? Office shortage in HCMC as well as in Hanoi is apparent but if there are more offices in the cities then how worse the traffic and pollution? Given the waist of time and energy for traffic it cannot be a advantageous investment environment. Just my 2 cents,

Have a great day,

Duc.

--- On Sun, 6/29/08, Tran Dinh Hoanh <tdhoanh at gmail.com> wrote:

From: Tran Dinh Hoanh <tdhoanh at gmail.com>
Subject: Re: [Vnbiz] June trade deficit down
To: vnbiz at vietlinks.net
Date: Sunday, June 29, 2008, 3:27 AM

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