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Vietnam's Forex Reserves Depleted Amid Crushing Debt

The first Asian country to fall may be on the verge of appearing.

Recently, the Asian currency market has been in a state of turmoil, with currency defense battles being fought fiercely.

And when it comes to who is the most miserable one, many people might first think of Japan:

After all, as an established developed country, the yen exchange rate has repeatedly collapsed, even breaking through the important integer threshold of 160 at one point, which is indeed miserable.

But in fact, the performance of the Vietnamese dong compared to the yen is not inferior, and even surpasses it.

Under internal and external pressures, Vietnam, which once loudly claimed to replace our "world factory" status, is being rapidly drained.

Why is Vietnam facing an unprecedented crisis, and how to break the situation?

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The drained Vietnam

Last Friday, following the sharp decline in April, the Vietnamese dong once again broke through a historical low, with a drop of as much as 10% in the past year.At first glance, the Vietnamese dong "only" depreciated by 10%, which, among Asian currencies, seems to be one of the better performers.

However, the reality is not the case: the most serious problem Vietnam faces today is a severe shortage of foreign exchange reserves.

Once Vietnam's foreign exchange reserves are depleted, that will be the real beginning of the complete collapse of the Vietnamese dong exchange rate, and the real crisis Vietnam is facing now.

For a long time, the high growth of Vietnam's economic data has depended on risky loans and the accumulation of foreign debt, which directly led to Vietnam's $185.6 billion foreign debt.

To put it bluntly, it is borrowing US dollars to develop its own economy, and during the loose US dollar monetary policy period, it accumulated a huge debt.

But as the Federal Reserve started the interest rate hike cycle and the US dollar policy tightened, a huge amount of US dollars flowed out of Vietnam. To maintain exchange rate stability, Vietnam was forced to consume a large amount of foreign exchange.

But how much foreign exchange reserves does Vietnam have now?

Only $60 billion left, less than 1/3 of the total debt.

Previously, Vietnam relied on exports to achieve an economic growth rate that attracted global attention, but the fact has proven that this glory is actually a castle in the air and cannot withstand the wind and waves.

In the first quarter of this year, Vietnam's GDP growth rate was only 5.66%, far below the expected 6.4%, and the sharp decline in exports was the main reason.Foreign exchange reserves are plummeting rapidly, and the economic growth rate is falling short of expectations. Vietnam, drained of its resources, is going through its darkest hour.

Squeezed from both inside and out!

Everyone should be aware that Japan's economy developed rapidly in the past, accumulating a massive bubble. The housing prices in Tokyo alone were enough to buy the entire United States.

Eventually, the Japanese bubble crisis erupted, and the Japanese economy suffered a devastating blow, never to recover, ushering in the "Lost Decade."

Now, Vietnam is going down the same path:

Housing prices keep soaring. By the end of last year, the average housing price in 65 cities across Vietnam had already reached 17,000 RMB.

It is obvious that, given the actual economic development situation in Vietnam, such housing prices have far exceeded the normal level and are filled with bubbles.

At such a critical moment, Vietnam's richest woman, Trương Mỹ Lan, delivered a beautiful assist:

From 2012 to 2022, over a span of 10 years, Trương Mỹ Lan forged a large number of loan procedures and defrauded a huge amount of money from the Saigon Commercial Bank, which she actually controlled.

How big of a mess did Trương Mỹ Lan create?The wealthiest woman in Vietnam, using thousands of shell companies, defrauded loans amounting to $44 billion, with more than $27 billion of it already unrecoverable.

As of April 2nd, the State Bank of Vietnam has injected a staggering $23.72 billion in special loans into the Saigon Commercial Bank, an amount equivalent to 5.6% of Vietnam's annual GDP and a quarter of its foreign exchange reserves.

Thus, it can be said that Zhang Meilan is largely responsible for the tightness of Vietnam's foreign exchange reserves.

Misfortunes never come singly; when the richest woman in Vietnam, Zhang Meilan, caused a financial explosion that triggered the Vietnamese real estate crisis, she also faced a life-and-death sniper attack from the United States.

The US dollar is at a historical high, and capital is withdrawing from Vietnam in large strides, directly leading to a devaluation crisis of the Vietnamese dong, almost reminiscent of the 1997 Asian crisis.

Caught between internal and external pressures, the danger Vietnam is facing now is much more severe than that of Japan.

Has the first Asian country to fall appeared?

Some time ago, when the Japanese yen exchange rate plummeted, many people said that Japan would be the first Asian country on the menu.

But now, with Vietnam catching up, the first Asian country to fall may really be about to appear.

On one hand, Vietnam is far from having the economic volume of Japan, nor does it have Japan's experience in dealing with similar crises, making it difficult to respond effectively.The real estate bubble bursts, how to avoid a hard landing?

Foreign exchange reserves are about to be exhausted, how to save the continuously falling Vietnamese Dong exchange rate?

These issues, Vietnam cannot provide an accurate and effective solution.

On the other hand, Vietnam's economy is too closely tied to the United States, and it is almost impossible to get rid of the influence of the Federal Reserve's policies in the short term.

As the Federal Reserve's monetary policy tightens and market demand decreases, Vietnam's economy, which relies on exports to the United States, will be severely affected immediately, with factories shutting down and workers losing their jobs, leading to a rapid reduction in economic growth.

If the Federal Reserve chooses to start a rate-cutting cycle, Vietnam may still have a chance to catch its breath and possibly get through this crisis.

But when will the Federal Reserve start cutting rates? It is still uncertain, and according to the United States' nature, it may not be as fast as the market expects.

In addition, the current attitude of the United States towards Vietnam is very ambiguous. On one hand, the Biden administration announced that the United States and Vietnam are "comprehensive strategic partners" and praised Vietnam as a "friendly outsourcing destination" for the supply chain;

On the other hand, it is unwilling to grant Vietnam "market economy" status and continues to impose punitive anti-dumping duties on Vietnam.

If the United States is determined to put Vietnam on the menu and serve it at the dining table, Vietnam's ability to resist may be very limited.In conclusion:

Vietnam is currently at a historical turning point:

A slight misstep could lead to a plunge into the abyss, not only facing a "lost 30 years" like Japan, but even potentially "losing the future."

And the most tragic part is that Vietnam's fate is not even in its own hands, leaving it at the mercy of fate.

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