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The Vietnam News

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Vietnam exports up,but inventories loom

HANOI - Vietnam released economic data on Friday that showed an improving trade performance in the first half of the year, but which also raised the spectre of rising inventories.
The General Statistics Department estimated the January-June trade deficit would narrow to $232 million from almost $1.3 billion in the year earlier period thanks to healthier exports and plunging imports.
Exports were estimated to rise 7.7 percent to $4.995 billion while imports would fall 12 percent to $5.227 billion.

But economists said sustained industrial growth -- the statistics office estimated the year-on-year rate in June at 10.3 percent -- indicated factories were still pumping out goods despite an economic slowdown.
Economists expect Vietnam to grow around three percent this year from an official figure of 5.8 percent in 1998.
Official growth estimates for the first half have not been released, nor have details on countrywide inventory levels.

``The figures show production is rolling on but is anybody buying this stuff? When the situation gets to full inventories (Vietnam may) see a large drop in total output,'' said Ari Kokko, a Vietnam expert at the Stockholm School of Economics. He said this would put heavy pressure on jobs.

``Layoffs would not be surprising, although this is not really the Vietnamese way of handling things, so maybe it would be more underemployment,'' he told Reuters.
Separate data released on Wednesday estimated year-on-year inflation in June at 4.4 percent from 8.7 percent in June 1998, proof that consumer demand was sliding, economists said.
Kokko said the threat of deflation was real.

``I see that definitely if we have a lot of stockpiling. To clear inventories, companies will cut prices and that process would have a serious impact not only on prices but on the willingness of companies to produce,'' he said.
On the trade front, the narrowing deficit has taken heat off the balance of payments, which has suffered amid a steep drop in inflows of foreign investment in the past two years.
But the trade deficit has narrowed partly because of official curbs on imports to conserve foreign exchange, a practice that has not won Hanoi any friends at multilateral agencies and major trading nations.
Meanwhile, exports have stuttered all year, with shipments falling in the first few months of the year before growth scrambled back into positive territory.

For Vietnam to hit double-digit export growth -- rates of 20-30 percent were common in the mid-1990s -- a more realistic exchange rate and lower costs were needed to help companies compete against leaner regional rivals, economists have said.
Bankers have said the local dong currency was overvalued by 15-20 percent.

Key export gainers in the first half compared with the same period in 1998 were textiles and garments, up 12.1 percent at $697 million, aquatic products up 9.9 percent at $399 million and pepper shipments, up 160 percent at $91 million.

Reuters - June 25 , 1999.