The US dollar is strong, and Vietnam can't hold on!
The World Bank has warned that anti-corruption efforts could potentially cripple Vietnam's economy! This is because even more deadly challenges lie ahead, as Vietnam is currently facing a double storm. So, what does Vietnam's current economy mean for the global context?
Some time ago, the United Nations, the World Bank, and Western donors jointly wrote a letter to the Vietnamese government, which was also co-signed by 18 ambassadors from the United States, the European Union, Japan, and others. What exactly did this letter say? It caused such a stir that it could be described as a joint warning from Western countries! So, what signal is being conveyed behind this?
Let's first discuss the content of the letter. It stated that over the past three years, Vietnam has lost at least $2.5 billion in foreign aid, and as a result, may lose an additional $1 billion, with potential losses equivalent to nearly 1% of the country's GDP.
The ultimate reason is that due to Vietnam's anti-corruption efforts, the country's administration has become paralyzed, with $2 billion in funds being recalled upon maturity, and another $1 billion in funds is awaiting a lengthy approval process.
Let's discuss why Vietnam's anti-corruption efforts lead to a reduction in foreign aid.
Firstly, as the Zhang Meilan incident in Vietnam continues to escalate, foreign investors are concerned whether their invested companies might become the next Vinatex Group, fearing that they too might suffer significant losses. Therefore, after the $2 billion in funds matured, they were recalled to minimize unnecessary losses.
Secondly, due to Vietnam's strict anti-corruption crackdown, bureaucrats are afraid of inadvertently stepping on a mine, so they can only be described as "dragging" their feet in handling affairs. As the saying goes, "Do nothing, make no mistakes; the more you do, the more mistakes you make." Everyone wants to delay sensitive matters for others to handle. The upgrade of Vietnam's state-owned power grid facilities is delayed due to the bureaucrats' "dragging" tactics, and it will not be operational until at least 2027. Currently, the $1 billion in foreign investment is also stuck in a lengthy approval process.
From this alone, it is clear that Vietnam's anti-corruption efforts have indeed imposed certain constraints on foreign investment entering the country. However, we must understand that this mere $3 billion means little to Vietnam, as we should recognize that a single individual like Zhang Meilan has caused nearly $20 billion in losses to the Saigon Commercial Bank of Vietnam.So why are Western countries making such a big fuss about this issue, and why did 18 ambassadors to Vietnam jointly sign their names?
Before we discuss this matter, let's first talk about another storm that Vietnam is currently experiencing, that is, the storm in the foreign exchange and stock markets.
Due to the strong US dollar index, the Vietnamese dong has now depreciated to a historical high of 25,455. However, what is even more bizarre is that last week, the US dollar index fell by 0.79%, and the global non-US currencies showed a clear increase, except for the Vietnamese dong, which did not rise. What is the reason for this?
There are two reasons. One is Vietnam's loose monetary policy implemented this year. Since the second quarter of 2023, the State Bank of Vietnam has cumulatively cut interest rates four times by 150 basis points, and the interest rate for three-month term deposits has been reduced to 2.1%. This will lead to a significant interest rate differential between the US dollar and the Vietnamese dong, making it difficult for the Vietnamese dong to recover in a timely manner with the decline of the US dollar index.
Another reason is that Vietnam's available foreign exchange reserves are severely insufficient. In fact, in April, Vietnam used hundreds of millions of US dollars to intervene in the foreign exchange market, but the effect was not significant. However, we must understand that Japan has used tens of billions of US dollars in foreign exchange to intervene in the market. So, what can Vietnam's foreign exchange do?
But on the other hand, Vietnam's total debt has reached nearly 200 billion US dollars, and Vietnam's current foreign exchange reserves are only a little over 80 billion US dollars, with available foreign exchange reserves being even less. Because just one Saigon Commercial Bank has consumed 24 billion US dollars of the "special loans" from the State Bank of Vietnam, almost depleting one-third of Vietnam's foreign exchange reserves. In addition, Vietnam currently has more than 1,200 real estate projects that have been abandoned due to the breakdown of the capital chain. It can be said that Vietnam is almost powerless when facing the devaluation of its own currency!
As the Vietnamese dong depreciates significantly, a large amount of foreign capital begins to withdraw from Vietnam. Since 2023, more than 130 trillion Vietnamese dong of funds have been withdrawn from Vietnam. Calculated at the current exchange rate, that is also more than 50 billion US dollars.
With the withdrawal of foreign capital, Vietnam's bullish stock market has also faced unprecedented pressure. Since the beginning of 2023, the securities holdings of foreign investors in Vietnam's main stock market have decreased by nearly 2 billion US dollars. Just in the week starting from March 25, overseas investors have net sold stocks worth 7 trillion Vietnamese dong!So, speaking of this, the loss of 3 billion USD in foreign investment, compared to the hundreds of billions of USD that can be lost with just a slight movement within Vietnam, which one would be more severe? It can be said that this is simply not worth mentioning! So why would Western countries make such a big fuss to warn Vietnam?
Why does the United States want to shift the blame? We must understand that with the strong U.S. dollar index, Vietnam, facing difficulties both domestically and internationally, is going through its darkest hour. But this is just the beginning! The Federal Reserve has recently made tough statements, saying that they will raise interest rates again if necessary. So, what will happen to Vietnam's economy next? Can it still withstand the pressure?
Of course, Vietnam's current economic issues are just a microcosm of developing countries that rely on the U.S. dollar economy globally! It can be said that every move Vietnam makes now will affect the United States' nerves, which is why the U.S. pays so much attention.