Vietnam's economy slows down in 2011, inflation soars

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Vietnam's economy grew at a slower pace of 5.9 percent in 2011, compared to 6.78 percent a year ago, during a period when bank lending was tightened to curb soaring inflation, government data showed on Friday.

"The GDP growth in 2011 at around 5.9 percent is relatively high under the circumstance of efforts to control inflation," the government said in a report seen by Reuters on Friday.

Inflation rate in December rose around 18 percent from the same month last year, data showed.

Annual inflation this year will be 18.12 percent, according to a government official quoted in a state-run newspaper on Thursday.

Prime Minister Nguyen Tan Dung said in the report that Vietnam's first priority in 2012 would be to control inflation, with a targeted consumer price index (CPI) rise of 9 percent, while aiming for economic growth of 6 percent.

The central bank aims to cut interest rates next year to make funds easily available for businesses. Dong loan rates rose to as high as 20-25 percent earlier this year.

Exports this year jumped 33 percent from 2010 to $96 billion, above the 10-percent annual target approved by the parliament, while imports rose 25 percent to $106 billion, leaving the trade deficit at $10 billion.

Higher foreign reserves

The country's foreign currency reserves have improved, with value equal to 7.5 weeks of imports in the third quarter ending September, from 3.5 weeks in the first quarter.

The budget deficit is at 4.9 percent of GDP, below the government's target of 5.3 percent.

The report said Vietnam's foreign debt this year is estimated at 41.5 percent of GDP, "within the safe level of national financial security", but gave no debt value.

Foreign debt fell to $32.5 billion in 2010, or 42.2 percent of GDP, from $36.5 billion in 2009, government data shows.

Restructuring of banks

Governor Nguyen Van Binh said on Thursday that dong deposit rates would fall to around 10 percent by the end of 2012, suggesting lending rates could ease to 14-15 percent.

The report mentioned restructuring of the country's banking sector as one of its targets.

In 2011, the country's credit growth slowed to 12 percent, after rising 27.65 percent a year ago. Money supply rose about 10 percent from last December versus an annual growth of 23 percent in 2010.

Vietnam's government hopes to shift its economic growth model away from reliance on cheap labour and capital, and is looking at improving efficiencies in banks, public spending and state enterprises.

The central bank has allowed three small partly-private lenders to merge and let BIDV, a fully state owned bank, to command the state ownership in the new entity.

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