Strikes Spread Across Vietnam As Yearly Inflation Tops 25%

A proliferation of labor strikes in Vietnam is dragging foreign manufacturers into the country’s worsening inflation crisis, while Hanoi’s Communist leaders struggle to keep rising prices under control.

[Nguyen Tan Dung]

About 1,000 workers walked off the assembly line at one of Panasonic Communications Vietnam Co.’s four Vietnamese plants over the weekend, demanding higher pay to keep pace with inflation, which in May hit a 13-year high of 25.2% from a year earlier, up from a 14.1% rate in January.

Nguyen Thu Tanh Minh, a public-relations manager for Panasonic, a unit of Matsushita Electric Industrial Co. of Japan, said the strike involves about a quarter of the workers at one of the company’s Hanoi plants. They are seeking a 25% pay increase. Panasonic officials in Vietnam said the company will respond to the workers’ demands on Wednesday.

The sudden strike follows a series of similar worker protests about rising prices over the past few months. The strikes reflect the anger of the tens of thousands of Vietnamese who have left rural farming communities to seek work in the new industrial zones around Hanoi and Ho Chi Minh City, only to see the buying power of their wage packets dwindle amid rising food and fuel costs.

According to government statistics, about 300 strikes took place in the first quarter, up from 103 strikes recorded in the first quarter of last year. That is despite new labor rules that make workers liable to compensate their employers if they walk off the job illegally.

One of the biggest strikes this year involved a Taiwanese-owned factory that makes shoes for Nike Inc. About 21,000 workers went on strike in April, seeking higher wages. The employees returned to work after a week after receiving a 10% pay increase.

Vietnam has seen an influx of foreign companies in recent years, many of them clothing or footwear manufacturers seeking relief from rising labor and business costs in neighboring China. Last year, foreign companies applied to invest $20 billion in Vietnam, a third more than in nearby Thailand, pushing up office rents and other costs.

Foreign-run businesses are still expanding their operations in Vietnam, despite the country’s economic problems. India’s Tata Steel Ltd., for example, signed a memorandum of understanding with the Vietnam Steel Corp. on May 29 to develop a steel-making complex in Ha Tinh province over the next 10 years. Tata Steel said the plant would have an estimated capacity of 4.5 million metric tons a year.

Still soaring inflation rates are rattling financial markets. Stock prices slid 1.5% Monday after falling 55% since the beginning of the year.

The value of the Vietnamese currency, the dong, is also beginning to wilt as investors worry about the size of the country’s current-account deficit, which the central bank predicts will hit a hefty 7.8% of gross domestic product this year. Last week, futures contracts on the dong versus the dollar slumped, indicating that currency traders expected the dong could lose more than one-third of its value against the dollar over the next 12 months. The dong is currently trading at about 16,000 to the dollar.

[influence]

Thailand’s current-account deficit was 6.5% of GDP in 1997 when Bangkok’s central bank was forced to devalue its currency, triggering, in part, the Asian financial crisis of 1997 and 1998.

Economists worry that Vietnam’s inflation could lead to a broader economic crisis in the country if policy makers in Hanoi don’t handle it correctly. Many commentators point out that other Asian economies have greatly strengthened their finances since the 1990s and are less vulnerable to another round of devaluations prompted by Vietnam’s problems.

“Vietnam is balancing on a beam at present. The situation has not yet deteriorated to a point where a crisis is inevitable, in our view, but we are hardly reassured about the economic and policy direction either,” Credit Suisse said in a research report late last week.

Speaking at a business forum in Hanoi on Monday, Nguyen Dong Tien, deputy central-bank governor, said the government had a package of policies to manage the inflation problem and reduce Vietnam’s current-account deficit. Those measures include requiring banks to deposit more of their funds with the central bank and to slow lending to stock-market investors. The central bank has also increased interest rates — although at 12%, the main policy rate still lags far behind rises in consumer prices.

“The tightening polices are beginning to demonstrate their effectiveness and they are going to be improved further with a view to curbing inflation and controlling the trade deficit,” Mr. Tien said, according to a Reuters report.

Some government advisers privately suggest that Vietnam’s ruling Communist Party should have acted more aggressively and more quickly to tame inflation. They say policy makers were more concerned with ensuring that state enterprises could secure cheap loans to build up their businesses in order to compete with the influx of foreign companies that have entered the Vietnamese market since the country joined the World Trade Organization last year.

http://online.wsj.com/article/SB121240405345637501.html?mod=googlenews_wsj

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