MORE EXPENSIVE NOW: Viet Nam's inflation rate hit 25.2 percent in May, the highest in a decade

It looked like a sudden nightmare when stockholders with hundreds of millions of Vietnamese dong found their pockets half empty overnight. The once prosperous bull market in Viet Nam plummeted to a troubled bear market. Viet Nam's inflation rate hit 25.2 percent in May, the highest in a decade. Its currency has been depreciating greatly and its trade deficits with other countries continue to grow.

Some financial institutions have predicted that a new Asian financial crisis fueled by Viet Nam's current financial turmoil could be on the horizon. Morgan Stanley, a New York-based global financial service firm, issued a report in May, which said Viet Nam was undergoing a "currency crisis" similar to the Asian financial crisis in 1997 that was sparked by the depreciation of the Thai baht. Its words created panic and doubt among investors and resulted in drastic fluctuations in the exchange rate of the dong against the greenback. They also prompted the withdrawal of large amounts of international investment from Viet Nam.

Despite such pessimistic assessments and appraisals, some Chinese experts are voicing different opinions. They believe that Viet Nam's current financial difficulties may have only a limited spillover to the surrounding region and could be tided over if the Vietnamese Government took effective and correct measures.

Downside of economic growth

Since the implementation of doi moi, economic reforms initiated in 1986, Viet Nam has made noteworthy achievements. In the past 10 years in particular, the Vietnamese economy has climbed at a dazzling speed with its gross domestic product (GDP) growing more than 7.5 percent annually. It has been a success story that has been hailed as another Asian miracle second to China's economic achievements.

Fu Weiliang, a professor who specializes in international economic cooperation at Beijing International Studies University, said although rising oil and agriculture prices worldwide play a role in the ongoing economic troubles in Viet Nam, the country's domestic problems are mainly responsible for its current financial situation.

Viet Nam's overheated economy has resulted from its inappropriate macroeconomic policies, Fu said. Strong growth in bank loans and foreign direct investment also has contributed to the country's oversupply of money and mounting inflation pressure, he added.

Since Viet Nam's accession to the World Trade Organization in January 2007, the Vietnamese Government has mapped out bold plans to attract foreign investment to speed up national development. It also has made ambitious claims about surpassing India and chasing China.

"The Vietnamese Government is pursuing fast economic growth and instant benefits, but fails to keep an eye on the problems that crop up during development, in addition to the lax control of its fiscal and monetary policies," Fu said. "Furthermore, the government exercises loose supervision over bank lending."