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���������ֳ�-Singapore/Hong Kong-12 March 2010: ���������ֳ� has today placed Vietnam's respective Long-term foreign and local currency Issuer Default Rating (IDR) of 'BB-' on Rating Watch Negative (RWN). This reflects the deterioration in domestic confidence in the Vietnamese dong and a lack of data transparency regarding international reserves and the balance of payments at a time of weakening external finances. At the same time, ���������ֳ� has placed the country's Short-term foreign currency IDR of 'B' and Country Ceiling of 'BB-' on RWN.

"The strength of Vietnam's external finance position, which has provided support to the sovereign's overall creditworthiness, has been sharply eroded as the economy displays signs of domestic overheating and residents lose confidence in the local currency," said Ai Ling Ngiam, Director in ���������ֳ�'s Asia Sovereign team.

Wide current account deficits, currency and deposit outflows and abnormally large errors and omissions (E&O) in the balance of payments (BOP) accounts have weighed down on overall reserves. The steady deterioration in gross international reserves (GIR) during 2009 has been material. Official data show a decline in GIR to USD15.9bn at October 2009, which is one-third lower than the September 2008 high of USD23.6bn. More recent reserves figures have not been published.

���������ֳ� forecasts that foreign exchange reserves (FXR) cover may drop to 2.6 months of imports and 1.6 months of current external payments in 2010, which will be the lowest level since 1994 and the weakest amongst 'BB'-rated peers. Including banks' foreign exchange deposit liabilities to account for risk arising from dollarization within the financial system, ���������ֳ� estimates the adjusted international liquidity ratio is likely to have declined to 55% in 2009, the lowest in a decade. Moreover, the dollarization ratio of approximately 24% may underestimate the extent of gold and dollar hoarding occurring outside the banking system. ���������ֳ� forecasts a 2010 gross external financing requirement, including short-term external debt, of over 109% of estimated end-2009 FXR.

Unidentified outflows are placing significant pressure on the BOP, with abnormally large E&O recorded during Q109-Q309 of USD11.7bn (11% of GDP). Since the latest of two recent currency devaluations on 10 February 2010, previously wide spreads on the VND/USD interbank market have narrowed and retail gold prices in major cities have stabilized. However, the ongoing divergence between the black market VND and the market clearing spot rate continues to point to VND depreciation pressures. Underlying price pressures are also building as the negative output gap (real vs. potential GDP) in the economy is estimated to have disappeared since Q409. A preference towards VND devaluation to boost exports and the authorities' pro-growth policy measures in the run-up to the January 2011 national congress of the ruling Communist Party point to risks of further build-up in inflationary pressures and a weak policy response.

A series of nine failed primary auctions by the State Treasury to date since November 2009 signal weakening public confidence in VND-denominated assets and rising USD liquidity constraints within the domestic financial system due to strong USD demand. The risk remains that bond yields may rise further on the back of increasing interbank rates as loan demand is propped up by the government's three interest rate subsidy schemes. Loan growth was 38% in 2009.

Without a strong policy tightening backed by significant BOP support, confidence in the VND is unlikely to be restored. Vietnam's weakened external finance position provides less support to mitigate the sovereign's weak structural fiscal deficit. Triggers for a rating downgrade include continued lack of significant policy tightening and continuing pressure on the VND and international reserves. Improved transparency would help avert negative rating action.

Applicable criteria, 'Sovereign Rating Methodology', dated 16 October 2009, are available on ''.

Contacts: Ai Ling Ngiam, Singapore, Tel: +65 6796 7216/ ailing.ngiam@fitchratings.com; Vincent Ho, Hong Kong, +852 2263 9921 vincent.ho@fitchratings.com.

Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6796 7215, Email: shivani.sundralingam@fitchratings.com.

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