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Asian Gloom Spreads to Vietnam

Yesterday it was South Korea, today it’s Vietnam: the future is looking less and less rosy for the emerging economies of Asia. The cheap, export-based development model that made Asian economies the envy of the world in the 2000s is in for some serious shocks as it enters its second decade of life. An FT profile of Vietnam raises some serious concerns about its ability to sustain its growth:

When one former central bank governor attempted to blame the country’s woes on developed world governments “captured by greedy financial institutions” he received a finger-wagging rebuke. Tran Xuan Gia, a steely former investment minister, urged Vietnam’s leaders to look inward to understand why their country suffers from the highest inflation rate in Asia. He warned that the country was on the verge of a debt crisis and urged the government to reform and sell off inefficient state-owned companies as soon as possible. […]

Domestic overheating, coupled with the deterioration of the global economy, has forced many investors, foreign and Vietnamese, to revise their view of the country’s prospects. Deep-seated problems, such as corruption, poor education and infrastructure bottlenecks – all often overlooked by investors in the boom years – have moved into sharp focus.

And with inflation driving wages higher but labour skills not advancing as quickly, fresh questions are arising. Among them is whether Vietnam’s Communist party can force through painful reforms needed to ensure they avoid the “middle-income trap” ensnaring the likes of Malaysia and Thailand, whose economies are a source of cheap labour but not yet makers of higher-value products.

Similar problems are popping up elsewhere, as the transition from an export-based growth model has proven trickier than leaders expected. The sense of pessimism that has characterized recent reports from China is spreading across Asia — the Asian Development Bank’s Asia 2050 report ominously warned that “Asia’s rise is plausible but not preordained.”

The inevitability of Asia’s rise has become a fashionable meme for American declinists, but even fashionable ideas plausibly embraced by glib pundits on TV are sometimes wrong.

Development models aren’t like undershirts; you can’t just change them because you suddenly feel like it.  They are more like tattoos; it usually takes more time and trouble to get rid of one than to apply it in the first place.  Asia’s transition is going to be a rough one for many countries.  Keeping the peace won’t always be easy.

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  • Kenny

    Just like the public sector depends on a robust private sector, so do the ‘developing’ economices depend on a vibrant 1st world.

  • Jacksonian Libertarian

    This is not the export economies fault. We have encouraged their currency manipulations, in order to create the American Global Trading System, and uplift mankind with the largest and therefore most efficient market in history (too altruistic sounding?). Their currency manipulations are beginning to crash against the Law of Supply and Demand, in that there is too big a supply of Dollars and keeping their value propped up isn’t working very well any more. It may be time to harvest the Hamiltonian Plan, by paying off all foreign held Treasuries ($4.5 Trillion).
    This would have the following effects
    1. Improve US credit rating by reducing US Debt from $15 Trillion to $10.5 Trillion
    2. Reduce US interest payments by almost 1/3
    3. Give US businesses a price advantage for the first time in at least 4 decades
    4. Increased foreign product prices at the same time the relatively lowering of US prices, will reverse the trade deficit (-$550 Billion) leading to at least 10% additional growth in US GDP over the following 4 years
    5. US businesses are the strongest and best managed in the world, as they are the survivors of over 4 decades of price disadvantage, given a price advantage for the first time in over 4 decades they will quickly gain market share
    6. The US is in Great Depression 2.0, and the normal source of jobs, small business start ups and expansions, is denied to us because the home equity normally use to finance them is gone with the housing bubble. An export driven recovery is all that is left to us.
    7. The American Global Trading System we have sacrificed so much to build is under threat from protectionism, which will grow stronger the longer the economic stress of Great Depression 2.0 goes on.
    8. By paying back our debt we will strengthen the global financial system, reinforce the sanctity of paying your debts, which the EU and the Euro are presently doing serious damage to.
    9. It will put $4.5 Trillion into the hands of our customers, and there is really only one place to spend them. Can You Say “America Sale!”
    10. $4.5 Trillion worth of capital that has to find a new place to be put to work, is just the bullet we need to put a hit on Great Depression 2.0, before it generates Megalomaniacs 2.0

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