Hot winter

This is the greeting season time. Normally, as seen in previous years, the center must be decorated lavishly by now. But it is not at the moment. There are decorations, but for the new year event. Big hotels fire their Santa Claus and reindeers. The only Christmas-themed thing that still thrives well this year is Christmas tree which does not cost too much. What happens? Do people no longer enjoy Christmas?

Fortunately and sadly, the answer is no. People still love Christmas. The only problem is that they cannot afford it now.

It has been a tough year.

There was a lot of hope when this year began 11 months ago. It is the year of dragon.  After year 2011 with too much inflation that dragged down people’s lives, many hoped that the economy would fly again with the dragon. It has not. In contrast, things seem worse than the last year.

It is true that in the first months of this year, there were some positive signs. VN-Index recovered and spiked. Inflation halted. Trade deficit decreased. However, it was just a matter time till the problems appeared. Together with the decrease of inflation was the GDP growth reducing. Inventory increased to 30% as VN-Index stopped going up.  Credit became more and more inaccessible since interest rate was still too high. More than 200,000 enterprises went bankrupt. Foreign Direct Investment left us. For a moment, Vietnam paused.  People had no idea what happened and what to do next.

It is difficult to find out the root of all the problems. Was it because of the financial sector? Or the real estate market? In economics, nothing stands alone. They all have links and connections to others. Banks were the victims and also the culprit. They had given too much credit to the real estate market. The estate market, on the other hand, had been valuated too high. How can people with income of just $700/month afford a $70,000 apartment? The bubble formed. Anytime a bubble formed, bad things were going to happen soon. Things might get worse since it was the housing bubble, the most valued asset in the economy. The bubble busted when hardly anyone was able to buy a house, even speculator. Banks had fueled the bubble. Now they are the victims of that bubble. Debt was not repaid. Capital flow was stuck. Bad debt rate was over 8%. Only a few constructions still run as projected. Without the demand from construction sector, cement, brick and wood companies faced great difficulty. Banks, therefore, were afraid to lend more. Ironically, people, too, were afraid to borrow. The whole economy lost its good credit. And without credit, nothing can continue. After all, the answer for all the problems is simple, and sadly, familiar: the misallocation of capital. Business is not only about making money. It is the art of allocate and connect things.

When things are good, mistakes are often ignored. People can do whatever they want as long as they do not get caught and what they do still brings profit. But now things do not look bright. People turn against each other.

In the spring of 2012, one of the biggest banks of Vietnam had problems with its share owners. Months later, a leader of a famous bank was arrested. Then, that bank’s CEO resigned. Stock market crashed, losing $5 billion. Rumors helped spread the panic. People look more closely to the recent banks’ activities, their assets and equities to know what was really going on. Finally, it came out that there were too many problems and violations. Crossed-owning, gold business, interest rate, … There was one M&A between two banks which caused the former CEO of one bank to be a normal officer. However, she was still lucky because many bankers were fired. Financial sector is now a dead field.

Government policies were issued to improve the situation. Gold is now a monopoly business. It would be idiot to judge the effect of those policies now. All the policies have its lag. It needs time to blend into the market and effect the economy in long-term. However, monopoly is never a good idea.

Though things seem dark, there is some brightness recently. People are talking about reconstructing the whole system. In the next year, the housing market may hopefully get a little warmer. Bad debt will be paid due to the preservation fund.

If we ever have a chance to read newspaper or watch TV at this time of a year, we will see or hear some predicts about the next year. However, not this time. Things have never been so unstable and unpredictable. The storm has not been over. The dragon has failed to bring Vietnam fly with it.

May God help me and my friends.

Kz

in the last days of 2012. seven months before his graduation.