June 24, 2008
Widening trade gap prompts Vietnam to halt venture, gold imports
Vietnam pulled the plug on a $1 billion investment by a state firm and has halted
gold imports in its struggle to prevent soaring prices and a ballooning trade gap
from crippling the once-booming economy, reported Reuters.
Vietnam's state-run shipbuilder Vinashin said on Monday it had dropped a plan to
invest in a $5 billion steel venture with South Korea's POSCO heeding the
government's appeal to state companies for spending cuts to bring down inflation
from multi-year highs above 25 percent.
Vinashin said it would also delay or suspend 40 other projects worth a total of $395
The Communist Party-run government has ordered state-run businesses to cut borrowing
and spending, cited by economists and authorities as among the drivers of
Vietnam also temporarily suspended imports of gold earlier this month, worried that
purchases of the precious metal were pushing the country's swelling trade shortfall
to unacceptable levels, a World Gold Council official said on Monday.
Official June trade and inflation data are due later this week, but a state-run
newspaper reported on Monday Vietnam's trade deficit tripled in the first half of
this year to almost $17 billion.
Imports are estimated to have soared 64 percent in the first six months to $45.5
billion, while exports rose 27 percent to $28.6 billion, the official Lao Dong
newspaper reported, citing planning and investment ministry data.
"The government is very concerned. They have to reduce trade balance deficit. Gold
is one of the main imports," said Hyunh Trung Khanh, a consultant for the Vietnam
chapter of the World Gold Council.
Vietnam is Asia's second-largest gold investor and traditionally Vietnamese use gold
for savings, jewellery and real estate transactions. But the surge in inflation and
a slew of worrying trade figures in the past weeks and months have shattered local
investors' confidence in the dong currency and triggered strong demand for gold and
According to the council's figures, Vietnam's gold imports doubled to about 60
tonnes, worth $1.8 billion, in the first five months of this year, compared with the
same period of 2007.
The Southeast Asian nation of 86 million people for the better part of the past
decade has boasted one of the fastest economic growth rates, averaging 7.5 percent
But after a bumper 2007, the economy began sputtering with inflation roaring to more
than decade highs, the import bill soaring and local stock markets and the currency
hit by quickly deteriorating investor confidence.
The dong was quoted around 16,610 per dollar in the official onshore market, 0.96
percent weaker than the mid-point set by the central bank.
The central bank allows the dong to move only within a 1 percent band around that
mid-point, but effectively devalued the currency earlier this month by 2 percent.
Still, black market rates are markedly lower than official rates. Traders said the
dollar was changing hands at about 17,800 dong on Monday, down from a record 19,600
dong last Friday.
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