Vietnam trade deficit going no way but up

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Vietnam's trade deficit has just kept ballooning over the years and economists don't see it stopping any time soon, given the country's heavy reliance on imported materials and machinery.

The deficit widened to US$1.7 billion in May from $1.49 billion in April, the General Statistics Office said last week. The country is now importing almost all kinds of goods from vegetables and seafood to equipment and hi-tech devices.

Economist Pham Chi Lan told Thanh Nien that if there is a demand for foreign goods, traders have the right to bring them into the country.

The problem is that manufacturers keep importing a lot of materials and machinery, even amidst an economic slowdown, said Lan, a former adviser to the government.

"These imports are to facilitate production for both domestic and export markets. But it would be risky if more goods are imported despite slow sales and growing inventories."

Some other economists suspect that local companies have tried to stockpile imported materials over the past months on anticipation that prices would surge later in the year.

They say the trend shows, once again, how heavily dependent Vietnam is on foreign materials. Even trade barriers and tax policies would not be able to narrow the country's trade gap if it cannot ease its reliance on imported raw materials and machinery, they add.

Nguyen Minh Phong, of Hanoi Socioeconomic Research Institute, said Vietnam continued to buy many products that can be manufactured at home. This is because local producers are not strong enough to fight against the strong flow of foreign goods, he said.

"The recent high interest rates have made them even less competitive. As a result, the market will open wider for imports and the trade deficit will continue to worsen," he said.

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The General Statistics Office said exports in May rose to $7.5 billion from April's $7.44 billion, while imports increased to $9.2 billion from $8.93 billion.

For the first five months of the year, the total trade deficit was $6.59 billion. The lion's share of this continued to be incurred from trading with China. Typically the shortfall from two-way trade with the neighbor is around $1 billion each month.

The General Statistics Office said the value of imports in the first five months rose 29.5 percent to $41.3 billion, but this was mainly due to price hikes. Prices of imported products surged 24 percent on average from the same period last year, the office noted.

The prices of oil products, for instance, rose by between 32 and 43 percent over last year, according to Petrolimex, Vietnam's top fuel importer and distributor.

Analysts have said the widening trade deficit is draining Vietnam's foreign exchange reserves and putting huge pressure on the dong.

ANZ said in a report last week that a 7.5 percent devaluation of the dong in February has increased the already high cost of commodity imports. The situation was complicated by rising global food and oil prices, it said.

"The country's huge trade deficit and low levels of foreign reserves mean that engineering an appreciation for the dong is not a viable option," the report said.

Vietnam's trade deficit is expected to hit $14 billion this year, up from $12.6 billion last year. The government aims to keep the annual trade deficit below 16 percent of the country's exports in 2011, but the trade ministry has admitted that this might be a tough target to achieve.

The government has introduced a new rule to restrict imports of mobile phones, alcohol and cosmetic products to prevent the inflow of counterfeit and low-quality goods into the country.

Effective June 1, the rule requires importers to bring in these products via one of three sea ports in the country, banning the use of air and land transportation. Traders also have to obtain a letter of authorization notarized by Vietnamese diplomatic representatives in the country of origin before the products can be brought into Vietnam.

Foreign business groups have alleged that the new measures are aimed at restricting trade. Deputy Minister of Trade and Industry Nguyen Cam Tu, however, rejected the idea. Mobile phones, alcohol and cosmetic products are expensive and often subject to price manipulation, so it is necessary to monitor closely their origin and quality, he was quoted in a Reuters report as saying.

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