Vietnam emerges, again
High on the list of underappreciated Asian economies, Vietnam deserves a mention. The impoverished, Communist-run nation isn't for everyone. It hardly helps that Vietnam has been discovered before, and not with good results. In 1986, much foreign capital flowed in. Then the roof collapsed, and investors fled.
Anyone thinking of taking another look at Vietnam now has the perfect excuse: The nation held its first overseas debt sale last week.
Vietnam's economy is set to grow 8 percent this year, a reminder that Asia boasts potential stars other than China. Moody's Investors Service considers it a lower credit risk than Indonesia and the Philippines. What ought to intrigue investors, though, is the nature of Vietnam's progression from a state-run command economy to capitalism.
Expect Vietnam to be in the news often between now and June, when it may join the World Trade Organization. That would be a natural step for an economy that is steadily embracing foreign investment and tourism. The nation has long since put the war years behind it; the United States is now its biggest trading partner.
Any enthusiasm needs to be tempered by the hurdles to economic modernization. Vietnam is dogged by opaque decision-making. Its banking system has been recapitalized at a cost of $1.3 billion over the past four years and still burdens public finances. Monetary policy is inflexible, and the central bank lacks openness and has taken only half-hearted measures to manage excessive credit growth.
And yet, even the specter of a bird flu pandemic has not unnerved credit-rating companies. Vietnam has one of the lowest levels of external debt among countries in its credit-rating category, said Agost Benard, a Singapore-based analyst at Standard & Poor's, which this month raised the outlook on Vietnam's long-term debt rating of BB- to positive.
Vietnam also has a "diversified, open and resource-rich economy," according to S&P. "Its vibrant private sector and robust export potential are supported by trade liberalization."
There is another reason to be bullish: The nation is stepping up efforts to create a vibrant bond market. On Thursday, it completed its first dollar-denominated bond offering, selling $750 million in securities that mature in 10 years. The offer was 50 percent larger than planned after investors placed orders for $4.6 billion.
The sale "marks an important step in the country's long transition toward a market economy," Benard said.
Vietnam Oil & Gas and Electricity of Vietnam may be among state-owned companies allowed to sell bonds overseas, the government has said. Once a benchmark for government debt is in place and the corporate bond market gets going, Vietnam may turn to building markets for mortgage-backed and asset-based securities.
The need for deep bond markets became clear at the height of the 1997-8 Asian crisis, when underdeveloped debt markets left economies hypersensitive to surging interest rates, credit crunches and currency gyrations.
Robust debt markets also lower borrowing costs and offer more creative financing options to companies that now borrow from banks. Such alternatives could accelerate the growth of small and medium-size Vietnamese companies over time.
This is also a chance for Vietnam to leave the "Brady Bunch," a reference to developing nations that issue Brady bonds. Named after Nicholas Brady, the former U.S. Treasury secretary, the bonds were created in the 1980s as part of a debt restructuring plan for countries that defaulted on bank loans. The plan forgives part of a country's debt while rolling the rest into bonds.
In 1998, Vietnam gave creditor banks Brady bonds in return for the cancellation of $553 million of its defaulted loans from international lenders. While Brady bonds are a handy vehicle to rehabilitate fragile economies, issuing them comes with a stigma in markets - one that Vietnam may move beyond sooner than many think.
Finally, Vietnam's approach to globalization also is worth considering. The nation of 82 million certainly wants the benefits that come from trade and the increased movement of capital and people - it just doesn't want a Starbucks or a McDonald's on every corner.
Recent years have shown that globalization is no panacea for developing economies. Since the 1980s, Asian countries have opened to the world rapidly and enthusiastically.
But while they saw Western-style fast-food outlets and shopping malls multiply, stable growth and increased foreign investment proved to be elusive.
Vietnam wants to avoid the boom-and-bust cycle that so many of its neighbors have experienced in the last 20 years. If its strategy continues to succeed, investors who got into Vietnam early may be a happy crowd.
By William Pesek Jr. - Bloomberg News - October 30, 2005.
|