HO CHI MINH CITY, Vietnam—At a time when many emerging markets are trying to stem a destabilizing rise in their local currencies against the dollar, up-and-coming Vietnam is grappling with a rather different problem: Residents can’t get enough of the U.S. greenback, as their own currency, the dong, threatens to spiral lower.
Moody’s Investors Service signaled the extent of the problems Wednesday, downgrading its rating on Vietnamese government debt to B1 from Ba3 in part because of the downward pressure on Vietnam’s currency and worsening inflation. It also maintained a negative outlook on the country’s ratings, citing the mounting debt problems at state-run Vietnam Shipbuilding Industry Group as another reason for the downgrade.
Call it the dark side of Vietnam’s economic boom. In recent years, Vietnam has established itself as a major production hub for the global economy, luring big names such as Canon Inc. and Intel Corp. to its shores and racking up some of the fastest growth rates in Asia after China.
But the Communist-run government’s determination to hit persistently high growth targets, coupled with state-directed lending growth of more than 30% annually in recent years, have flooded Vietnam’s economy with money and created a raft of problems for the local currency. The excess capital has triggered a sharper uptick in inflation than has been seen in other emerging markets, stripping confidence in the dong as residents doubt their government can manage rising costs in the months ahead.
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