[Vnbiz] Not on Vietnam but may shed light on the inflation debate....a readers rsponse from

[Hong-Phong_Pho at ita.doc.gov]

Dear anh Hoanh:
There are various problems with this posting, but I will only focus on 
one: gasoline subsidy.
What Vietnam makes in exporting crude oil, it has to turn around to pay 
for ever increasing demand for refined products, including gasoline.
Gas in Vietnam is cheaper than in neighboring Cambodia so there is much 
smuggling.  Subsidizing gasoline consumption in Cambodia makes even less 
sense.
Best,  HPP
 



"Tran Dinh Hoanh" <tdhoanh at gmail.com> 
Sent by: vnbiz-bounces at mail.saigon.com
03/04/2008 03:42 PM
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Re: [Vnbiz] Not on Vietnam but may shed light on the inflation debate....a 
readers rsponse from






[ Vietnam Business Forum ]

Dear anh Craig & CACC,
 
Thanks for the post, Craig.  The facts may confuse people but the 
conclusion is relatively clear: "Soon the monetary alarmists in China will 
see that strength in Asian currencies, slowing money supply growth, a 
downturn in export growth, soaring import price inflation, eroding trade 
balances, and downside reversals taking place in output and GDP growth 
threaten far worse negative consequences than they ever imagined (the 
least of which is placing Asian equities in danger) and will reverse 
course once again."
 
I agree with the above analysis:  Basically the main problem at this point 
is the weakening of the USD, which makes all Asian currencies appreciate 
in value, which in turn makes Asian exports more expensive and therefore 
reduces Asian exports. The reverse is true, Asian imports become more 
expensive.  So we have here low export and high import, which will create 
trade deficit and thus inflation pressure.
 
For Vietnam, I think lowering the price of the VND relatively the USD (as 
Vietnam's State Bank has done) is a good move.  This would make Vietnamese 
export more competitive and will increase export volume  (Whether the 
export amount will increase is the result of the final math:  Export 
amount = export volum x export price).  Let's hope that export amount may 
increase or at least stay the same as last year.  (But if the USD 
continues to slide, whether Vietnam can continue to lower is VND is 
another story).
 
At the same time, we need to reduce import.  Vietnam import a lot from 
China (construction materials, household items), these imports will become 
much more expensive, especially because the Chinese Yen is appreciating 
against the USD.  I have proposed a luxury sales tax on luxury consumers 
items, hoping that will reduce some imports. 
 
Housing costs may increase because construction material imports increase 
in price.  Gold price is also increasing, that may bring housing cost up 
along too (psychology).  But housing, especially new housing is not a 
matter of every day concern, so the pressure is not immediate.
 
The immediate pressure is food price for the population, especially for 
the poor, which has the highest CPI increases.  I will repeat my proposal 
here that the government uses the windfall profit gains from exporting 
crude oil to offset the price of gasoline sold domestically.  That will 
take some inflationary pressure off gasoline and food.
 
If the we have a high CPI increase, but the highest increase is in housing 
and gold, and the lowest increase is in food and gasoline, then the 
majority of the population will still be able to handle the situation 
well..
 
(I repeat my previous message about the stock market money here  I still 
stick with my prediction that the VNINDEX will stabilize around 600 -- 
unless there is a psychological crash among investors, which is hard to 
predict.  So chances are we won't have anymore "sudden" inflationary 
pressure from the "stock crash.") 
 
Have a great day!
 
Hoanh
 ___________ 

2008/3/4 Craig Stevenson <cstevenson2000 at gmail.com>:
[ Vietnam Business Forum ]


Hi all:
 
Thought this might be of interest and shed some light on the inflation 
debate.
 
It is a readers response to a posting on China Financial Markets by 
Dr/Professor Michael Pettis who, essentially teaches future Chinese 
Investment Bankers.
The site for Dr Pettis' blog is: http://www.piaohaoreport.sampasite.com/
 
Bio on Dr Pettis: 
 
Michael Pettis is a professor at Peking University's Guanghua School of 
Management, where he specializes in Chinese financial markets.  He has 
also taught, from 2002 to 2004, at Tsinghua University's School of 
Economics and Management and, from 1992 to 2001, at Columbia University's 
Graduate School of Business.   He is a member of the board of directors of 
ABC-CA Fund Management Co., a Sino-French joint venture based in Shanghai.
 
Pettis has worked on Wall Street in trading, capital markets, and 
corporate finance since 1987, when he joined the Sovereign Debt trading 
team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 
2001, Pettis worked at Bear Stearns, where he was Managing 
Director-Principal heading the Latin American Capital Markets and the 
Liability Management groups. He has also worked as a partner in a merchant 
banking boutique that specialized in securitizing Latin American assets 
and at Credit Suisse First Boston, where he headed the emerging markets 
trading team. Besides trading and capital markets, Pettis has been 
involved in sovereign advisory work, including for the Mexican government 
on the privatization of its banking system, the Republic of Macedonia on 
the restructuring of its international bank debt, and the South Korean 
Ministry of Finance on the restructuring of the country's commercial bank 
debt. 
 
Pettis is a member of the Institute of Latin American Studies Advisory 
Board at Columbia University as well as the Dean's Advisory Board at the 
School of Public and International Affairs.  He is the author of several 
books, including The Volatility Machine: Emerging Economies and the Threat 
of Financial Collapse (Oxford University Press, 2001).  He received an MBA 
in Finance in 1984 and an MIA in Development Economics in 1981, both from 
Columbia University.
 
 
Anyway his post was discussing rising concerns over inflation and issues 
related to monetary policy and a reader wrote the following:
 
"The tug of war between monetary alarmists and pro-growth members is by no 
means over. The pendulum will swing back to pro-growth once China's 
leadership realizes the alarming extent to which Asia's growth engine is 
sputtering, and that China has no special immunity to the accelerating 
regional fallout. 

Clearly, the impact of the slowdown in the US macro-economic scene 
combined with the deepening debacle in US credit derivative markets, is 
beginning to have a more pronounced impact on Asia. The breadth and extent 
of the negative fallout was completely underestimated by Asian leaders, 
and is much greater than is simply reflected by the action to date in 
equity markets. 

(Significantly, today every single one of the 33 sector indexes within the 
broader Topix Index posted a loss for the day. The share price of China 
Merchant Holdings, owner of stakes in China's five largest container ports 
plunged by (-) 7.5%, leading the Hang Seng to a (-) 3.3% loss for the day 
with every single stock in the 43 stock index posting a decline. Beijing 
Capital Land, China Overseas Land, and Gaungzhou R & F properties...three 
of the top mainland property developers, all fell by more than (-) 4% 
following brokerage house downgrades to the Chinese real-estate market, on 
the back of a decline in housing starts and home prices.) 

The suggestion that deflation in the US Housing and mortgage/credit 
derivatives market would not spill over into the high-flying Asian markets 
was a product of wishful thinking at best. 

Foreign (i.e. US) investors were huge sellers of stocks in Taiwan this 
morning, with net capital outflow from equities hitting 13.5 billion 
Taiwan dollars, following net selling of more than 5.3 billion on Friday. 

Asia collectively is now experiencing slowing growth in exports, 
industrial output, and GDP growth, accompanied by disinflation in money 
supply growth, along with intensifying appreciation in almost every Asian 
currency relative to the dollar. 

Moreover, inflation indicators throughout Asia reveal an upside 
acceleration in price pressure, despite the slowing export-output-GDP 
growth. Stagflation is appearing everywhere, spilling outward from its 
primary source (the US economy) secondary to hyper-easy Fed monetary 
policy, worsening deflation in the US housing market as well as within US 
consumer's balance sheet, and in terms of the global rise in commodity 
prices. 

The Bank of Japan released January's macro data revealing a worrying 
CONTRACTION in the monetary base, sliding back into deflationary 
territory. Current Account Balances declined, taking the year-year rate of 
contraction to (-) 14.4%. The number of new job applicants rose to 577,400 
versus Decembers 398,800 while the number of job offers plunged to (-) 
11.4% yr-yr. Japan's Purchasing Manager's Index also turned down while the 
CPI hit its highest level in a decade during December and January. The 
Nikkei's 2 year exp-ma has reversed to the downside. 

Korean import prices rose to a (+) 21.2% yr-yr basis in January as 
compared to August 07 rate of (-) 0.7% when the Fed first began easing 
monetary policy in response to the credit crunch. Despite the Won's 
appreciation and rising exports, Korean trade balance has now turned from 
running a longstanding surplus to a deficit due to import price inflation. 
Korean equities appear on the brink of a technical breakdown below the 52 
week exp-ma. 

In Hong Kong there has been a notable erosion within the money supply 
trajectory and bank lending data. Although still nominally positive, what 
is important to note is that the trend has reversed. Both money supply and 
equities are caught up in disinflation. 

Money supply in Taiwan has experienced an outright contraction/collapse in 
January. Despite deflation in the money supply and appreciation in the 
currency, Taiwan's wholesale price inflation is soaring, hitting double 
digits rates. 

In Thailand, import growth has exploded to a new all time high on a yr-yr 
basis at nearly 50%, causing the country's trade surplus to vanish and 
turn to a deficit, just like South Korea's. Despite a strong currency, 
rising import prices have pushed Thailands CPI significantly higher, thus 
indirectly resulting in negative real interest rates, triggering the Baht 
to soar even higher....putting further downside pressure on the trade 
balance. The central bank dare not ease for fear of exacerbating the 
upward pressure in CPI. 

As Asian currencies appreciate against the dollar they will 
eventually/inevitably reach new historic "reverse crisis" levels. Whereas 
in 1997-98 export contraction and currency depreciation threatened to 
unleash disinflationary dominance in commodities, the reverse weakness in 
the USD and exploding Asian import dynamics will unleash hyperinflationary 
forces in the commodity sector, something that China is well on her way to 
experiencing. 

Lastly, consider the case of Singapore. M2 Money Supply growth rate has 
reversed, CPI is rapidly rising reaching a (+) 6.6 % yr-yr despite 
significant currency appreciation. Singapore's "official" overnight rate 
is 1%, thus real interest rates are a deeply negative (-) 560 basis 
points........but even this is not enough to support the stock market. In 
the face of rising inflation, slowing export growth, and the slowdown in 
the money supply expansion the market has fallen below its 52 week exp-ma 
and roa. 

Soon the monetary alarmists in China will see that strength in Asian 
currencies, slowing money supply growth, a downturn in export growth, 
soaring import price inflation, eroding trade balances, and downside 
reversals taking place in output and GDP growth threaten far worse 
negative consequences than they ever imagined (the least of which is 
placing Asian equities in danger) and will reverse course once again."
 
By kevinfischer2002 - Tue, 04 Mar 2008 03:55:34 GMT
 
Not sure if this helps to clarify some issues or confound others but, 
where possible, enjoy,
 
Craig

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-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC _______________________________________________
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