Vietnam Town

Though America is yet to be officially recognized as being in recession, the lethargic US market is making business difficult for Vietnamese exporters.

Leather and footwear producers are already having a hard time persuading American importers to renew contracts, Vietnam Leather and Footwear Association Deputy Chairman Nguyen Duc Thuan said.

“It won’t be easy to turn away from the US and look for partners elsewhere,” Thuan said.

He said the only solution for many local producers was to keep negotiating.

Former Chairwoman of the State Capital Investment Corporation (SCIC), Le Thi Bang Tam, said it was inevitable Vietnam would feel the effects of what was happening else-where in the world as the nation became more integrated with the world economy.

If America did slide into recession, the impact on Vietnam’s economy would be severe.

Head of the Central Institute for Economic Management’s Department on Economic International Integration Policies, Vo Tri Thanh, identified three major problems for the local economy in the event of an economic downturn in the US

“If there is a recession, American consumers would certainly cut down on their spending, which would likely result in less consumption of Vietnam’s exports,” Thanh said.

America accounted for as much as 24 percent of Vietnam’s total exports last year.

The pride of Vietnam’s exports - textile and garment – would take the first hit, according to Thanh.

The HCMC Association of Garment and Textile Embroidery and Knitting’s Vice Chairman Diep Thanh Kiet agreed.

Last year, exports to the US made up more than half of Vietnam’s total textile and garment exports, Kiet said.

In the face of a recession, Kiet said local producers would have to lower prices to compete for a claim on American consumers’ lighter purses.

However, cutting prices would heighten the risk of anti-dumping lawsuits from American producers.

“Low prices would put local producers in direct confrontation with the wary American government which, at present, is monitoring Vietnamese textile and garment very closely,” Kiet said.

As well as the direct effects of a US recession, the Central Institute for Economic Management’s Thanh said the local economy would also suffer indirectly as the shockwaves of an American recession hit East Asia.

Thanh said East Asia was now Vietnam’s biggest investor, accounting for 60 to 70 percent of total foreign investment.

With the US going through a downturn, East Asian countries would react by also reducing spending and encouraging exports instead of investing in and importing from Vietnam.

That would also mean fiercer competition among Southeast Asian exporters, who now rely on the American and East Asian markets, according to Thanh.

He said the American recession would affect the local stock market, with foreign investment in stocks to fall.

Despite the dire warnings, some experts say the US recession may not eventuate.

Last Tuesday an emergency meeting of the American Federal Reserve cut the short-term interest rate by 0.75 percent from 4.25 percent.

The extraordinary move (the US central bank has rarely reduced interest rates by such a high percent-age) had an immediate impact across the world, as investors stopped their frantic selling on international stock markets.

New York’s Down Jones was down by only 1 percent at Tuesday’s close, recovering from being 3 per-cent down when the trading session opened.

The FTSE index in London rose by 2.8 percent that day and Frankfurt’s DAX index was down only 0.3 per-cent compared to a 7 percent slump on Monday.

The New York Times reported the US Federal Reserve was considering further interest rates cuts at the end of the month.

The American government is also to speed up the ratification of a US$145 billion plan economic rescue plan, which was originally expected to take months to be passed by Congress.

Even so, Vietnam should prepare for the worst.

The Footwear Association’s Thuan advised local producers to minimize production costs by using domestic input materials, among other measures.

The Central Institute for Economic Management’s Thanh said the government should continue pursuing economic growth by reining in inflation, upgrading infrastructure, minimizing ineffective investment and enhancing local businesses’ competitiveness.

Source: Tuoi Tre