Vietnam's Economy May Revert 20 Years, India's 25 Years
Since last March, the US Treasury and the Federal Reserve have, in just 69 weeks, unprecedentedly announced a total of $31 trillion in base currency liquidity and economic stimulus measures to the market. The latest development is that on September 22nd Eastern Time, the Federal Reserve indicated that it is highly likely to begin tapering at the next Fed meeting (November 2nd-3rd), reducing the monthly bond asset repurchase by $120 billion. Concurrently, half of the members at the Federal Reserve meeting anticipate that interest rates will start to rise in 2022.
This suggests that the 69-week feast of inflated dollars may be coming to an end. If this occurs, Wall Street interest groups, facing unprofitable conditions in the dollar asset market, might shift their focus to vulnerable markets with high dollar-denominated external debt and low foreign reserves, seeking to harvest wealth. In other words, dollar capital may leverage the contraction of the dollar to initiate a new cycle of wealth extraction. It is noteworthy that Vietnam and India, which have high external debt, low foreign reserves, and are overly reliant on dollar capital, may find themselves in difficulty as a result.
Advertisement
First, let's consider Vietnam. According to data cited by the Saigon Economic Times in Vietnam, since July 5th, the previously impressive Ho Chi Minh Index in Vietnam has plummeted by about 18% over the past month, returning to its starting point in 2021, with global funds accelerating their withdrawal from Vietnam. Data cited by Vietnamese media shows that as of September 5th, foreign investors have net sold a staggering 550 trillion Vietnamese dong worth of securities and financial assets, which is 2.56 times that of the same period in 2020. Vietnam has thus become the most vulnerable market to be impacted first following the Federal Reserve's anticipated monetary policy tightening. This also reveals the true vulnerability of Vietnam's economy.
It is important to recognize that Vietnam's past high economic growth has been driven by massive dollar debt. Should dollar capital withdraw from Vietnam, the Vietnamese economy could immediately face a dollar shortage. As early as five years ago, Vietnam's total debt exceeded $125 billion, reaching 63.6% of the country's GDP. HSBC forecasts that due to Vietnam's total debt nearing the 65% international warning level, Vietnam is considered the Southeast Asian country most in need of fiscal consolidation.
Adding insult to injury, since 2018, the US economy has continuously targeted Vietnam with trade sanctions, including Vietnamese timber and shrimp being listed by the US Department of Commerce as targets for punitive tariffs. For instance, in 2018, the US Department of Commerce announced a preliminary anti-dumping duty rate of 25.39% on Vietnamese shrimp. Furthermore, the US Treasury has included Vietnam in its list of currency manipulators. This makes the Vietnamese economy, which is highly dependent on dollar debt and the US market, appear increasingly passive.
According to a report by Nikkei Asia earlier, Vietnam's consumer confidence has dropped to its lowest level in at least 20 years. This implies that, from the perspective of this foreign media analysis, Vietnam's economy may be at risk of regressing 20 years. Reuters analyzed and reported that the once-booming Vietnamese economy may be becoming a sacrificial lamb. This scenario seems familiar; in terms of debt, Vietnam may be becoming a replica of India.
For example, data shows that in just the first three months of this year, India's current account deficit expanded to $8.1 billion, accounting for 1% of GDP. Amid the ongoing impact of the Delta variant on the Indian economy, UBS strategists believe that India's quarterly current account balance has deteriorated rapidly compared to last year. It is expected that India's current account deficit will continue within the range of 1-1.5% until 2022, putting pressure on the Indian Rupee.
In fact, from 2018 to 2020, India has been one of the worst-performing currencies in Asia for three consecutive years. According to data from the Reserve Bank of India, India's external debt has increased to $558.5 billion, and when including the debts of various states, India's total public debt has reached a staggering $1.17 trillion, approximately 250% of foreign reserves. External debt and foreign exchange reserves are in a severe state of inversion, with India's economy facing a shortfall.
Moody's recently downgraded India's rating risk to the lowest investment grade, indicating that India's financing capabilities will weaken. The International Monetary Fund (IMF) reported that India has the highest debt ratio among all emerging markets, please note, without exception.
Billionaire Jim Rogers has repeatedly sent signals to attack the Indian market and economy, stating that he has not invested in India since 2014. This seems to be one of the cases of Wall Street financial groups harvesting wealth in the Indian economy. Regarding India's heavily indebted economy and trade measures, Rogers also criticized, saying they often make mistakes and do not understand economics. The Economist magazine analyzed that the current Indian economy is in its most urgent situation in 25 years. This also means that the Indian economy may face the risk of regressing 25 years or even potentially receding back to its original state.Royal Bank of Canada has noted that economies with limited financing capabilities are highly susceptible to shocks from risk factors such as the US dollar. This further indicates that Vietnam and India, due to their excessive reliance on dollar debt and lack of ample foreign exchange reserves for protection, will instantly exhibit vulnerability if there is a contraction in dollar capital.
However, it is intriguing to note that some individuals in the economies of Vietnam and India have long been engaged in business transactions with Wall Street financial groups and have taken great pleasure in doing so. This has become a hidden force that may cause the economies of Vietnam and India to revert to their original state, providing more room for dollar capital to harvest wealth in these two fragile economies.