Viet Nam's economy at risk of foreign capital flight - Moody's Economy.com

Moody's Economy.com said investors have soured on Viet Nam in recent months, sending the country's benchmark stock index down nearly 60% and putting its economy increasingly at the risk of foreign capital flight.

The agency said Viet Nam's year-to-date trade deficit in May -- a whopping $14.4 billion -- exceeds the $12.4 billion shortfall for all of 2007. Moreover, gold imports have risen sharply, aggravating the trade deficit.

This year, the current account deficit as a share of GDP may rise to 7.8%, while the IMF projects Viet Nam's budget deficit to decline slightly to 6.6% of GDP from an estimated 6.9% in 2007, Moody's Economy.com said.

Viet Nam can still avoid a currency crisis if the government restores macroeconomic credibility by acting quickly and decisively. The government should focus on attacking inflation by raising interest rates, a strategic move that would also blunt speculative pressure against the currency, Moody's Economy.com said.

To prevent a currency and balance of payments crisis, it is necessary that the government take a tough tightening stance. This could dampen growth in the near term, but the benefits outweigh the downside, as it would take an extended period for an economy to recover from a major crisis, Moody's Economy.com said. (Thomson Financial)