[Vnbiz] ML's on Inflation in Vietnam

Tue May 27 17:30:15 PDT 2008

Dear Brother Hoanh,
This report from ML did a good job on analyzing inflation in Vietnam.
Perhaps the graphs on page 2 will convince you of the relationship between 
inflation  and the stock market crash.
There are also good stats on Vietnam's positions comparing to Asian 
neighbors.  Vietnam is only leading the pact on negative indicators.  It's 
not better than anybody else.
If this is a war, Sun Tzu's advice to "know yourself" is paramount here.
By the way, inflation has yet to ease, hitting 25% for May and spilling 
from food and fuel to other sectors.
The government can't afford continued subsidies, which may actually 
further fuel inflation.
I am particularly concerned about early signs of capital leaving the 
market, mentioned for the first time (that I know of) in this report.
Best,
HPP

"Tran Dinh Hoanh" <tdhoanh at gmail.com> 
Sent by: vnbiz-bounces at mail.saigon.com
05/22/2008 09:21 PM
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Re: [Vnbiz] GS's Update on Vietnam

[ Vietnam Business Forum ]

Dear Brother Phong,

Thanks for the response and thanks for reminding me about the stock crash. 
 Yes, I still maintain that the stock crash was the biggest among the 
immediate causes of the inflation (along with other immediate causes like 
energy and food price rises, and other long-term causes like excessive 
monetary expansion).  I don't talk about stock crash now because I 
consider it over (even though the stock price is still sliding, but that 
is a normal rate of sliding, not a crash).

Have a good day. 
Hoanh
On Thu, May 22, 2008 at 9:08 PM, <Hong-Phong_Pho at ita.doc.gov> wrote:
[ Vietnam Business Forum ]

Dear anh Hoanh, 
Thanks for trying to respond to my earlier question regarding your 
assertion that inflation can help Vietnam's exports. 

You wrote: 
"Also (not mentioned in the GS article), is the fact that your money (VND) 
tends to depreciate against the USD by the general rate of your inflation, 
say, 10% annually (and, of course, by the external rise or dive of the USD 
in the world market).  But the price increases in the various industries 
(which make up the general inlfation rate) are different: Say, food may 
rise 40% while labor may rise only 5% and some materials you use in your 
export may rise only 2%.  It means the VND may depreciate 10% against the 
USD (making your export product 10% cheaper) while the cost increase in 
your export product (due to inflation) is only 4%.  That makes your export 
product 6% cheaper (10% - 4% = 6%) and therefore 6% more competitive than 
your neighbors' export." 

But your assertion that "your money (VND) tends to depreciate against the 
USD by the general rate of your inflation" is not a fact and is also 
incorrect.  That would only be the case if the VND exchange rate actually 
increases (more VND per USD) by the rate of inflation, which is not the 
case in reality.  Inflation of the local currency means it takes more of 
the VND to buy inputs to go into the goods to be exported.  With the 
exchange rate essentially unchanged, the VN exporter is spending more VND 
to export and get the same USD.  The pressure would be for the VN exporter 
to raise prices in USD terms.  There is no competitive advantages with the 
neighbors either because they too peg their currencies. 

Well, at least you no longer insist on the stockmarket crash to be the 
main cause of inflation! 

Cheers, 
HPP 

-- 
Tran Dinh Hoanh, Esq., LLB, JD
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