World Bank urges Vietnam to cool property fervour

HANOI: Vietnam should cool its overheating economy, especially the hot property sector, by using more market mechanisms and keeping better track of capital flows to maintain economic stability, the World Bank said on Tuesday.

The Southeast Asian country’s emerging market economy is a favourite foreign investment destination, but it has been hit by double-digit inflation for five consecutive months and a tripling of its trade deficit. The Communist-run government was forced to shave its 2008 growth target by 1 percentage point to 7.5 percent amid the global slowdown On Tuesday, the World Bank forecast growth in the $70 billion economy at 7.5 percent to 8 percent.

“We do not anticipate a financial crisis in Vietnam or anything like that,” Martin Rama, the bank’s head economist in Hanoi said, as part of a World Bank report for East Asia and the Pacific. “Vietnam should have a well-prepared protocol in the event of a crisis on what to do, who can take capital out and in what circumstances,” Rama said.

World Bank economists, who met with the government in recent months as Hanoi weighed options to contain inflation, among the highest in Asia, suggested it announce features of a proposed property tax to help halt speculation on land.

“Property tax does not create major distortions and is progressive (recent fortunes have been made on land),” the report said.

A proposed law on property tax would come into effect in 2010 and a capital gains tax in 2009, government officials have said.

Prices for city luxury apartments tripled in 2007 and office rents in Ho Chi Minh City rose 40 percent, resembling prices of a developed economy, not Vietnam, which has an annual per capita of just $830.

Credit grew 50 percent, fueling prices, imports and the real estate bubble. Rama told reporters the current account of the balance of payments was an estimated deficit of 9.3 percent to 9.7 percent of the $70 billion GDP, but complete data was not available.

“Today the balance of payments account has $3 billion to $4 billion of errors and omissions,” Rama said. “Nobody can tell what kind of money is coming in.”

The government began gradual economic reforms in 1986, but a more market-oriented economy did not emerge until the last five years. A year ago, Vietnam joined the biggest free trade club, the World Trade Organisation. Vietnam’s growth reached 8.5 percent in 2007 and fears that WTO membership would adversely affect agriculture and retail trade did not materialise, the World Bank said. The dollarised economy is exposed to the US slowdown and had Vietnam chosen a trade basket of currencies for exchange rate policy in December 2006, the inflation rate would have been 4 points lower in 2007 than the 12 percent recorded, the bank said. reuters\story_2-4-2008_pg5_34


One Response

  1. Something similar needs to be done in Nepal, where only the financial sector enjoys a buyoncy-on foreign remittance largely, if not on the charity of the institutions like WB- and makes money by mostly financing real estat or automobiles’ purchase, while the investors get interests that are half than the rate of inflation. This ridiculous situations has prevailed for many years now.

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