Monday, July 14, 2008

Korean Investors in Vietnam to Be Hit Hardest

By Lee Hyo-sik

Staff Reporter

South Koreans will likely be hit the hardest among foreign investors in Vietnam if the Southeast Asian nation falls into deeper economic trouble. Domestic businesses and investors have put $13.5 billion into the country since 1988, the largest amount among international investors.

The Ministry of Strategy and Finance said Sunday that asset deflation and other ongoing economic difficulties facing Vietnam are part of the growth process after years of rapid economic expansion.

But the ministry did not exclude the possibility that the Southeast Asian nation could suffer from the sudden depreciation of its currency and a similar economic malaise to the one South Korea grappled with in the late 1990s.

Korean companies and investors poured $4.58 billion into Vietnam last year alone, becoming the largest foreign investor for the second consecutive year.

In particular, domestic institutional and retail investors have spent $2.7 billion purchasing equities listed on the Vietnamese stock market, while more than 70 Korean builders are currently undertaking nearly 120 construction projects.

As the largest foreign investor in Vietnam, Korean businesses will likely suffer the most if the Southeast Asian country falls into a full-blown economic crisis.

Its stock market has dropped 68 percent since March 2007, when its benchmark VN index hit an all-time high. The value of real estate and other assets have also been declining sharply as international investors have taken money out of Vietnam, putting downward pressure on its local currency, the dong.

To prop up the dong's value and curb rises in consumer prices, Vietnam's central bank has raised its policy interest rate three times this year to 14 percent. But prices of goods and services in the country rose 25.2 percent in May from a year earlier, placing the heavy financial burden on businesses and households.

It has also posted a deficit in the current account balance this year as it has to pay more for oil and other imported commodities amid surging prices. Vietnam recorded an $11.5 billion shortfall in May, equivalent to 16 percent of its 2007 gross domestic product.

With slowing exports and rising imports, the Vietnamese government has revised down its growth target for this year to 7 percent from an earlier 9 percent.

Against the asset deflation and the weakening dong, the finance ministry suggested that local companies and investors with a stake in the Southeast Asian nation boost foreign exchange and other corporate risk management to tide over current economic difficulties.

``Now is the time for businesses to be more conservative and focus more on risk management. But they should continue to maintain a foothold in Vietnam because it is an important production base for us and has a large consumer market,'' a ministry official said.

He said following the 1997-98 Asian financial crisis, many foreigners snatched up companies and real estate properties here at a bargain price and reaped huge capital gains several years later, suggesting Korean companies take advantage of Vietnam's current economic conditions and establish a long-term business scheme.