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Inflation, currency weakness threaten Vietnam: donors

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Hanoi, December 07, 2010 — Vietnam's economic growth will be threatened unless the government can control rising inflation and currency weakness, donors warned on Tuesday.

Last week the dong currency slumped to a record low on the black market, while prices rose 11.09 percent year-on-year in October. The government has targeted a maximum of eight percent inflation for 2010.

At an annual meeting of Vietnam's donors, Japanese ambassador Yasuaki Tanizaki spoke of "growing concern" at the communist country's currency and price rises. Japan is Vietnam's biggest donor.

"It's a priority for Vietnam to adopt effective measures to restore public confidence in (the) dong and improve communications with the market to stabilise its currency," he told the annual Consultative Group meeting with World Bank and Vietnamese officials.

The dong has been devalued three times since late last year and has lost nearly a third of its value against the US dollar over the past three years, according to a World Bank report for the meeting.

Tuesday's comments come ahead of a five-yearly Communist Party Congress in January at which top leadership posts will be determined and a strategy for the country's development over the next decade is expected to be adopted.

In Vietnam the dollar, along with gold, is considered a safe haven against economic uncertainty. Investors selling the dong to buy the greenback put pressure on the local currency.

"Without macroeconomic stability, Vietnam will not be able to maintain or accelerate its continuing rapid socioeconomic development over the medium to long term," said Ayumi Konishi, the Asian Development Bank's director for Vietnam.

Macroeconomic stability is also vital to Vietnam's growth strategy, which until now has relied on low-cost labour and natural resource extraction, said Victoria Kwakwa, the World Bank's country director.

Foreign investors say Vietnam, celebrated as an "Asian Tiger" economy two decades ago, has since lagged behind neighbours and needs further reforms to catch up.

Overloaded infrastructure, an under-qualified workforce, excessive bureaucracy and corruption are just some of the problems that investors highlight.

Vo Hong Phuc, Minister of Planning and Investment, forecast economic growth of 6.7 percent by the end of this year, a shade above the official target of 6.5 percent.

The United Nations head in Vietnam, John Hendra, called for the government to focus on fighting inflation, "as rising prices are a huge burden for poor households".

Donors praised Vietnam's achievements in reducing poverty but warned of widening income disparities and the persistence of poverty among ethnic minorities.

Swiss ambassador Jean-Hubert Lebet, speaking on behalf of Canada, Norway and New Zealand as well as his own country, said poverty rates "are actually increasing" for some ethnic minorities in remote areas.

Lebet highlighted "the importance of ensuring that freedom of opinion and access to information are not impeded as Vietnam transitions towards a knowledge-based economy".

Observers say a fresh crackdown is under way against bloggers and activists as political tensions rise ahead of the Congress.

Lebet expressed regret over recent arrests and said restrictions on the media and other areas of society "can only impede Vietnam's economic and social development".

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