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Vietnam: Moodys downgrade raises spectre of banking bailout

September 28, 2012 7:50 am by Ben Bland


The fallout from Vietnams slow-burn economic and banking crisis continues to spread.
On Friday, Moodys downgraded the Communist-ruled states sovereign credit rating
because soaring bad debts have limited banks ability to lend, damaging the countrys
medium-term growth prospects and raising the spectre of a costly government banking
bailout.
The downgrade came one day after police said they would prosecute Tran Xuan Gia, a
former investment minister, for economic crimes because of his role as chairman of
scandal-hit Asia Commercial Bank, a major Vietnamese lender that is 15 percent-owned
by Standard Chartered.
Moodys, which last downgraded Vietnam in December 2010, cut the countrys foreign-
and local-currency government bond ratings to B2 from B1 and downgraded the ratings
of eight Vietnamese banks as a result. By contrast, Standard & Poors, a rival of
Moodys, recently upgraded Vietnamese banks, arguing that operating conditions were
improving despite substantial risks of economic imbalances remaining.
Despite the differing outlooks, it is clear how Vietnam got into this mess. Credit
expanded rapidly as Vietnams economy opened up and took off in the last decade. But
much of this easy money was channelled to wasteful state-owned companies and
speculative real estate and stock market investing cronies, leaving Vietnams banks and
corporate sector saddled with bad debts and the countrys reputation as one of Asias
hottest emerging markets in tatters.
The governments belated attempts to rein in excessive lending have succeeded in
bringing soaring inflation under control. But they have also dented annual GDP growth,
which has fallen to below 5 per cent from the pre-crisis trend of more than 7 per cent.
With political leaders under pressure to react, dozens of state company executives,
businessmen and bankers have been arrested or convicted on charges of economic
wrongdoing in the last year.
But, with little transparency in Vietnams secretive criminal justice system, many
observers believe that the apparent crackdown is being driven by political score-settling
as much as a desire to restructure the ailing economy.
The government has talked about setting up a debt restructuring agency to buy bad
loans from banks a move that credit rating agencies and others say would be a good
step forward. But Vietnams autocratic Communist leaders, who insist that only they can
uphold national sovereignty, have baulked at the suggestion that they may need help
from outsiders such as the International Monetary Fund to implement such a
restructuring plan.
Ultimately, without an accountable, transparent and painful process of the sort that
Indonesia went through under the IMFs watch after 1998, Vietnam will struggle to
resolve its problems and fulfil its undoubted potential.
(447 words)
Source : http://blogs.ft.com/beyond-brics/2012/09/28/vietnam-moodys-
downgrade-raises-spectre-of-banking-bailout/#axzz28tYhIkJv

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