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June 8, 2008

Analysts fear worst-case scenario

Vietnam's economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, AFP quoted analysts as saying.

The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector.

Credit rating agencies Standard & Poor's, Fitch and Moody's and several investment banks have revised downward their outlooks for Vietnam at a time when the spectre of a US recession could spell global trouble.

Aseambankers Research said "the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund for help."

Analyst Adam Le Mesurier wrote for consultancy DSG Asia that "an 'IMF programme' style policy response will be needed within six months," including monetary and fiscal tightening and a dong currency devaluation."

Many investors and donors in Vietnam remain upbeat about the market of 86 million, pointing to strong exports -- including of food and oil -- investment inflows, growing tourism, and the potential of its young workforce.

"It's too easy to get excited and claim that Vietnam has gone from poster child to problem child," said EU chief country representative Sean Doyle.

"But I'm not sure it's very wise and very balanced ... Vietnam, if it can keep steady, stick with the right policies, will be attractive."

Nonetheless, the turnaround in investor perception has been stunning.

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