Vietnam’s economy – Fighting over the flotsam

James Hookway of the Wall Street Journal takes a look at Vietnam’s turbulent economy through the lens of Vinashin, its sprawling state-run shipbuilder. In December, the company missed its first repayment on a $600m loan from a bunch of prominent international creditors, led by Credit Suisse.

“Some of Vinashin’s lenders now complain that they have been deceived,” the article notes. They expected Vietnam’s government, which wrote a letter of support for the company at the time of the loan, to step in and make them whole. I haven’t seen the letter, but I wonder if they were wholly justified in that expectation. The lenders charged a 7.15% interest rate, arranged at a time (early 2007) when Vietnam’s dollar-denominated sovereign bonds were yielding only about 5.75%. Surely Vinashin’s lenders expected to run some risk in exchange for the extra return?

The creditors may not have a case, but they may still have a point. Vietnam, as the article says, needs to attract foreign capital to fill a big external deficit and support its currency, the dong, which has been devalued six times since June 2008. Six-hundred million dollars may be a small price to pay to keep foreign capital sweet.

But the government has another, competing priority: to clip the wings of its state-owned enterprises, which ran amok in the years before the crisis. The $600m Vinashin owes to the foreign syndicate, for example, is only a fraction of the $4.4 billion of debt it ran up by the middle of last year. Some parts of the government clearly believe that now is the time to introduce some market discipline, holding the state-owned enterprises and their creditors responsible for their own liabilities.

In its pomp, Vinashin spanned 289 separate businesses and employed over 49,000 people. (Check out the size of its screw propellers.) The government plans to slim the group down to a mere 43 businesses and 30,000 workers by 2013.

Faced with such a big restructuring, it’s just possible that giving money back to foreigners is not top of the government’s concerns. Besides, as the FT’s Ben Bland has pointed out, many of the original creditors have other business interests in Vietnam, which they will not want to jeopardise by antagonising the government. Credit Suisse, for example, was just hired to help sell a stake of Vietcombank, a government-owned lender, to foreign investors. Making loans to Vietnam may be a risky business. But selling lenders from Vietnam is still an attractive one.

Source : Economist

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