Vietnam

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S Sept 3, 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Rolf Danielsen. Tel : +46 8 763 83 92. E-mail : rolf.danielsen@seb.se

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Country Risk Analysis
BacIground and recenl deveIopmenls

The year nI exuberance: Nev numbers slov grovll reacling aImosl 9° in 2007,
lvo percenlage poinls more llan previous eslimales and liglesl ever since lle Asian
crisis. Tlal vas lle resuIl of conlinued good exporl grovll bul aIso ligl domeslic
demand. Tle Ialler fueIed soaring
imporl grovll, sending lle lrade
baIance inlo a rising deficil of
aImosl 10°/GDI. Tle nev
slalislicaI eslimale of lle deficil is
four limes ligler llan mosl
observers lad expecled onIy six
monlls ago and significanlIy up
from lle near baIance aclieved in
2006. 2008, llerefore, slarled al a
ligl pilcl, vill a slrong feeI-good
faclor and lle slocI marIel sliII buoyanl.
GDP growth
0%
2%
4%
6%
8%
10%
2003 2005 2007 2009
2008-09: forecast main scenario
%

p
a
.

Snme dissnnances had aIready aµµeared. Tlrougl mosl of 2007 lle Slale BanI of
Vielnam (SBV ) ÷ lle cenlraI banI ÷ lad laIen advanlage of lle unexpecled Iarge
capilaI infIovs lo buiId reserves from a precarious Iov IeveI, vliIe al lle same lime
conlaining exclange rale apprecialion lo leIp exporlers slay compelilive. Despile
vaIianl allempls al sleriIizalion, il couId nol prevenl a rise in domeslic Iiquidily.
Tlal lriggered a massive credil expansion, vlicl fueIed lle IocaI slocI and reaI
eslale marIels. Hovever, lovard lle end of lle year, lle forex marIel lad gone inlo
reverse, parlIy due lo gIobaI financiaI lurbuIence bul aIso lo rising domeslic
uncerlainlies. Some lave suggesled llal lle cenlraI banI al llis lime inlervened vill
non-marIel conform measures llal may lave conlribuled lo marIel confusion and
increased lle allracliveness of lle bIacI foreign exclange marIel conlrary lo officiaI
inlenlions.

The year nI reIIectinn: By lle end of lle firsl quarler il vas cIear llal lle economy
vas in need of a fix. Tle slocI marIel vas in free faII and consumer price infIalion
vas acceIeraling. In Iebruary, lle cenlraI banI became vorried llal some joinl slocI
venlure banIs vere allracling more relaiI deposils llan lley migll be abIe lo lonor
SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

2
in lle fulure lo fund lleir lorrenl grovll inlo reaI eslale. To cooI compelilion in lle
deposil marIel, SBV imposed a 12° pa. ceiIing on deposil rales. Tlal, lovever, vas
a puzzIing reaclion lo monelary deveIopmenls in macro, vlere lle silualion raller
caIIed for a ligllening and ligler inleresl rales. A fev monlls Ialer lle decision vas
reversed as lle SBV began an aggressive monelary ligllening vlicl las so far
aImosl doubIed poIicy rales lo 14° pa. Tlese rales do nol onIy serve as monelary
guideIines bul as IegaI ceiIings on banIs' Ioan rales al 1.5 limes lle base rale.

InIIatinn rising. Al llal lime lovever,
infIalion lad been unIeasled and reacled
25° year-on-year (yoy). Besides generaIIy
Iose monelary condilions in lle firsl parl of
lle year, severaI oller faclors conlribuled lo
llis, incIuding ligl gIobaI energy and oller
inlernalionaI commodily prices and aIso
adverse cIimalic condilions reducing lle
suppIy of agricuIluraI producls and. Al lle
same lime rumors aboul an imminenl
devaIualion caused loarding of food slapIes and oller consumplion goods driving
lle monll-on-monll (mom) infIalion number in May lo aImosl 4° before lle finaI
inleresl liIe in Iune pul some of lle rumor miII lo resl.
% change yoy
Consumer Prices
Source: Reuters EcoWin
jan maj sep jan maj
2007 2008
0
10
20
30

The gnvernment attemµts a IiscaI tightening. GraduaIIy lle governmenl seems lo
lave recognized llal monelary poIicies couId nol carry lle vloIe burden of
adjuslmenls. In ApriI il issued a revised budgel largeling culs in expendilures,
incIuding governmenl conslruclion vorIs, and Iimils lo a rising subsidy biII.
Hovever, lle governmenl aIso began lo pIan for ligler sociaI securily oulIays
slouId lle economy face a dovnlurn llrougl lle resl of lle year. As a resuIl, lle
governmenl may nov face claIIenges in Ieeping lle budgel deficil beIov lle
originaI largel of 5-6° of GDI unIess ligler llan budgeled oiI revenues come lo ils
rescue. Il is llerefore nol cIear llal il viII succeed in mucl fiscaI ligllening. Il may
lave more success in anoller approacl, lovever, by Ieaning on slale ovned
enlerprises (SOLs) loo cooI lleir ambilious inveslmenl projecls. Tlal las, reporledIy
aIready lad some desired effecls and apparenlIy aIso leIped curb some imporl
demand.

BaIance nI µayments has sn Iar remained
untnuched by the baIInnning trade deIicit. In
lle firsl fev monlls of lle year foreign infIovs
lo lle slocI marIel dried up and parlIy
reversed direclion. On lle oller land,
Vielnam conlinued lo allracl rising numbers of
foreign direcl inveslors and aIso lle savings
from lle Iarge diaspora abroad. Tlose infIovs
lave lo a varying exlenl supporled lle
exclange rale vis-à-vis lle doIIar (aIbeil a
decIining one as sucl) and even aIIoved SBV lo conlinue buiId reserves despile lle
videning of lle lrade deficil. Tle Ialler peaIed in lle spring as lle governmenl
sougll lo Iimil lle exporls of foodsluff lo leIp moderale infIalion al lome, bul aIso
because of a rapid rise in imporls alead of lle rumored devaIualion menlioned
above. In lle evenl, many companies ledged by imporling Iarge amounls of energy
producls and rav maleriaIs, incIuding ferliIizers and sleeI.
External trade
Trade Balanc e
Expor ts
Impor ts
Source: R eut ers EcoWi n
2006 2007 2008
U
S
D

(
b
i
l
l
i
o
n
s
)
-4
-2
0
2
4
6
8


SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

3

Exchange rate wnbbIes in an envirnnment nI a
dearth nI inInrmatinn. RefIecling llese evenls,
bul aIso spooIy reporls from some inlernalionaI
banIs predicling severe financiaI lurbuIence
alead, lle dong/$-rale experienced viId
gyralions of more llan 2° on individuaI days
resuIling in a deprecialion of aImosl 4° in Iune.
In lle IocaI “curb-marIel¨, vlicl is unofficiaI bul sliII said lo be used for many
lransaclions vill lle joinl venlure banIs (IVB), lle rale apparenlIy reacled some 10-
20° above lle officiaI rale. Tlal vas sliII Iess llan in lle llin bul indicalive off-
slore NDI (non-deIivery forvard) marIel vlere rales are reporled lo lave been off
by an even vider margin exceeding 25,000 dong/$. Tlis voIaliIily aIso refIecled
marIel uncerlainlies regarding lle officiaI reserve IeveI as lle cenlraI banI lad
laIled some of ils informalion fIov vliIe il vas cIear lle SBV by nov lad enlered
lle seIIing side in lle foreign exclange marIel lo supporl lle dong/$ rale. IinaIIy,
In IuIy, afler a slalislicaI lialus of severaI monlls, lle cenlraI banI governor
announced lle IeveI of reserves al $20,7 biII. Tlal vas ligler llan in December 2007
and indicaled no nel Ioss in Ianuary-Iune. RecenlIy lle marIels lave caImed
somevlal and lle gap belveen lle various rales lave narroved. Tlal is despile lle
videning of lle daiIy fIuclualion band, vlicl a priori couId be expecled lo increase
voIaliIily bul vlicl evenluaIIy may reduce lle one-vay-bel nalure of specuIalion
againsl a more rigid rale.
Exchange rate
Sou rce : Reu ters EcoWi n
16900
16800
16700
16600


FDI inIInws rev uµ. Anoller deveIopmenl llal may supporl equiIibrium in lle
forex marIel going forvard is lle groving infIovs of IDI. In IuIy, IDI
commilmenls since lle beginning of lle year lad aIready accumuIaled lo $43 biII.
more llan lvice lle amounl llrougl lle vloIe of 2007. According lo some reporls
$10 biII las aIready been paid in, aIso llal exceeding lolaI acluaI infIovs in 2007.
WliIe sucl infIovs aIso viII drav Iarge imporls, lle nel effecl on lle exclange rale
slouId sliII be posilive, and perlaps even more so in lle Ionger lerm. Tlal is
because llese inveslmenls are IiIeIy lo be more efficienl llan lle average domeslic
inveslmenl vlicl is dominaled by lle
slale ovned enlerprises, bul aIso
because lle exporl induslries, as
opposed lo lle non-lradeabIes seclors,
apparenlIy receive mosl of IDIs in lle
case of Vielnam. Tlal is conlrary lo lle
experience of many oller emerging
marIels, incIuding in Lurope and Ialin
America, vlere Iarge IDI infIovs oflen
focus on lle relaiI seclor, financiaI
services, and reaI eslale. Hovever,
slouId lle IDI infIovs grov mucl
furller lle absorplion capacily of lle economy vouId be seriousIy claIIenged and
exacerbale ongoing infIalion probIems. Il slouId be menlioned, llougl, llal aIso in
Vielnam llere are reporls of IDI inlo reaI eslale recenlIy picIing up quile rapidIy.

What Iies ahead?

InIIatinn may stiII nnt yet have µeaked. Ior lle resl of lle year, il couId be llal lle
foreign exclange marIel viII nol prove lo be lle aullorilies' main concern, bul llal
lle leadacle vouId raller be lome made infIalion. In IuIy, culs in governmenl
FDI (main sectors)
hotel & tourism
petroleum
heavy industry
light industry
So urce: Reuters EcoWin
2006 2007
U
S
D

(
b
i
l
l
i
o
n
s
)
0
2
4
6
8
10
2006 2007 2008
U
S
D
/
V
N
D
16500
16400
16300
16200
16100
16000
15900
15800
SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

4
subsidies liIed gasoIine prices by 36°, and more may be in lle pipeIine as lle
governmenl viII lave lo adjusl prices of severaI uliIilies and lransporlalion. Second
round effecls of lle sleep rises in consumer prices earIier in lle year couId aIso slov
up, as llere lave been reporls of many slriIes for ligler vages in recenl limes. On
llis basis many observers nov expecl a nev boul of CII infIalion over lle nexl fev
monlls, probabIy reacling veII beyond 30° on an annuaI basis. Hovever, abaling
gIobaI oiI prices and a good rice larvesl llis summer slouId miligale lle Ionger lerm
effecl on price formalion going inlo 2009. Tlal does nol mean llal lle foreign
exclange marIel cannol cause more lroubIe, bul our projeclions (conf. appendix),
indicale llal even in a reasonabIe vorsl case scenario lle reserve IeveI is unIiIeIy lo
faII precipilousIy llrougl lle resl of lle year.

Cnmmunicatinn cnuId imµrnve. Ior 2009, mainlaining slabiIily and confidence
cruciaIIy depends on lle aullorilies' abiIily lo affecl expeclalions among lle generaI
popuIalion and inveslors, foreign and domeslic. Over lle pasl lveIve monlls, lle
aullorilies lave oflen faiIed lo communicale effecliveIy vill marIels, and lave senl
mixed signaIs as regards exclange rale and monelary poIicies. Tley may even
lave made lle cardinaI mislaIe of lrying lo sorl oul some micro-economic probIems,
incIuding in lle financiaI seclor, vill “bIunl¨ macro-economic looIs. Tle
governmenl lave, lovever, aIso scored some poinls, as for exampIe vlen il mid-
lerm announced a significanl reduclion in ils grovll largel for 2008 from more llan
8° lo 6,5°, underscoring ils delerminalion lo figll infIalion. IoIilicizing lle grovll
rale is one of lle biggesl mislaIes by governmenls in many emerging marIels (and
perlaps some emerged as veII) regardIess of ideoIogicaI lue.

Interbank Iiquidity is cruciaI. Bul even if lle aullorilies slouId prove quicI
Iearners from previous mislaIes, il may sliII need IucI in lle monlls alead. Too
ligl infIalion may lave come lo slay and couId evenluaIIy prove deslabiIizing
unIess lle cenlraI banI slarpens ils veapons in a limeIy manner, vlicl in praclicaI
lerms may mean over lle nexl fev monlls. Tlal is IiIeIy lo mean Iess suppIy of
Iiquidily and ligler inleresl rales. Tle Ialler vouId pose a probIem for lle many
ISBs vlicl expanded exlremeIy rapidIy in 2007. Many even doubIed lleir baIance
sleels oflen based on expensive deposil
or inlerbanI funding. Tle Vielnamese
banIing syslem is fragmenled, bul sliII
dominaled by a landfuI of Iarge banIs,
aII of llem slale ovned. Togeller lley
represenl some 50° of lle lolaI banIing
marIel. Among lle ISBs many are
managed in a professionaI manner,
incIuding lle severaI vill a major
foreign slaIe. IolenliaI probIem banIs
are IiIeIy lo be raller smaII, and lle
aullorilies slouId be abIe lo conlain any
probIems arising among llem.
Hovever, recenl evenls in oller counlries lave slovn llal even smaII banI
probIems can prove very claIIenging incIuding for lle mosl experienced cenlraI
banIs in lle vorId.
Motor Vehicles, Domestic Sales
Source: Reuters EcoWin
2006 2007 2008
N
u
m
b
e
r

o
f
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000

A minnr banking crisis shnuId be cnntainabIe. SlouId Vielnam experience a minor
banIing crisis in 2009, llere vouId be a cIear risI of increased foreign exclange
marIel lurbuIence as llose vlo can vouId be leading for lle exil and ollers vouId
expIoil any opporlunily lo ledge, for exampIe by pre-paying for imporls. Under

SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

5
normaI circumslances ve foresee lle IeveI of reserves in lle lands of SBV being
sufficienl lo meel llal exlra demand for foreign exclange, given lle reIaliveIy
Iimiled amounl llal can Ieave lle counlry on slorl nolice due lo capilaI conlroIs llal
sliII seem lo lave some effecl. Hovever, in a Iess benign scenario, vlere lle
governmenl proves unabIe lo reslrain imporls incIuding for SOL inveslmenls, or
vlere for inslance privale car imporls experience a nev surge -- afler lle liIing of
imporl lariffs in ApriI bacI lo lle WTO agreed IeveI (in 2007 lle governmenl lad
sIasled llose lariffs beyond WTO commilmenls) lle car imporls lave nov slrunI a
Iol -- lle lrade deficil couId once again viden and exceed nel infIovs of IDI and
remillances. Tlose infIovs fuIIy covered lle lrade deficil in 2007, bul vere
insufficienl lo cover lle deficil in lle firsl laIf of 2008, according lo eslimales ve
lave been forced lo maIe ourseIves in lle absence an officiaI baIance of paymenls
presenlalion. Moreover, lle IeveI of remillances couId dvindIe. Mucl of llem
represenl a Iind of specuIalive carry-lrade. Iasl bul nol Ieasl, many foreign direcl
inveslors couId poslpone lleir pIans, nol onIy oul of concern for lle silualion in
Vielnam, bul simpIy because veaIer prospecls for lleir producl marIels in Weslern
counlries.
--´--

Vietnam has becnme tn be seen as a new “China" nI nµµnrtunities amnng
internatinnaI investnrs never mind the incnmµarabIe diIIerence in size. The Iervnr
heated as Vietnam jnined the WTO in Iate 2006, and snme degree nI “irratinnaI
exuberance"may have taken cnntrnI nI many market µarticiµants, whiIe nthers
may have returned Irnm China having been discnuraged by its rising cnsts and
Iess IavnrabIe tax treatment. That, cnmbined with traditinnaIIy Iax mnnetary and
IiscaI µnIicies and µrnbabIy snme weII-intended but µremature IiberaIizatinn, sent
the Vietnamese ecnnnmy intn nverdrive with acceIerating dnubIe digit inIIatinn
and a snaring trade deIicit as the inevitabIe cnnsequences since Iate 2007. The
situatinn nnw caIIs Inr a hard headed aµµrnach Irnm the authnrities tn maintain
investnr cnnIidence and set exµectatinns in suµµnrt s nI a sustainabIe
deveInµment. WhiIe we beIieve the gnvernment understands what it has tn dn, we
are Iess cnnvinced nI what is equaIIy imµnrtant: its abiIity tn imµIement the
needed measures and in sn dning cnmmunicate eIIectiveIy with the µrivate sectnr.

Key ratios 2008
Population 88,5
GDP/capita ($) 1047
GDP (change) 7%
Inflation 24%
Curr.Acc. Balance/GDP -15%
Reserves/imports (months) 2,8
Budget balance/GDP -4%
Government debt/GDP 38%
Graph: The pentagon shows the main weaknesses of
Vietnam's creditworthiness in the areas of resilience and
information. We regard event risk as moderate, although
a history of border conflicts with China is a potential
concern.
ExternaI ratings:
Iilcl: BB- /neg
S&I: BB/neg
Peers:
Clina
BraziI
Indonesia
0
2
4
6
8
10
12
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Vietnam Average EM Egypt

SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

6


Key data: 2003 2004 2005 2006 2007 2008 2009 2010
GDP (mill.US$) 39,6 45,6 52,9 60,9 71,1 92,7 111,9 126,5
GDP/capita (US$) 479 544 622 706 814 1047 1248 1392
GDP (change) 7,3% 7,8% 8,4% 8,2% 8,5% 6,7% 6,8% 7,0%
Investments/GDP 33% 33% 34% 34% 36% 39% 37% 35%
Budget balance/GDP -4% -4% -3% -3% -3,8% -4,0% -4% -4%
Govt debt/GDP 38% 36% 36% 37% 36% 38% 36% 35%
CPI inflation (%) 3,2% 7,8% 8,3% 7,4% 8,3% 24,1% 14,6% 8,0%
Money demand (%) 33% 31% 31% 30% 49% 9% 14% 16%
Stock prices (chng. eoy) -9% 44% 28% 145% 23%
Interest rates 5,4% 5,5% 5,9% 5,8% 6,3% 6,3% 6,3% 6,3%
Exch. Rate ($) 15510 15684 15859 15994 16078 16325 16550 16923
Trade/GDP (%) 127% 139% 143% 150% 165% 172% 161% 159%
Oil price (Brent) $29 $38 $54 $65 $73 $117 $113 $101
Millions US $
Export of goods 23,5 30,0 36,7 44,7 54,2 70,4 84,5 98,0
Imports of goods 26,8 33,4 38,9 46,8 63,3 89,3 96,1 103,1
Other: 1,4 2,5 1,7 1,9 2,2 4,6 1,5 0
Current account ($ mill) -1,9 -1,0 -0,6 -0,2 -7,0 -14,3 -10,1 -4,9
(% of GDP) -4,9% -2,1% -1,1% -0,3% -9,8% -15,4% -9,0% -3,9%
FDI 1,5 1,6 2,0 2,4 6,7 9,0 8,5 8
Loan repayments -0,5 -0,4 -0,5 -0,5 -1,4 -3,6 -4,9 -5,5
Net other capital flows 3,1 0,6 1,1 2,6 11,9 7,8 5,8 1
Balance of payments 2,1 0,8 2,0 4,3 10,2 -1,1 -0,7 0,0
Reserves 6,2 7,0 9,0 13,4 23,6 22,5 21,8 21,8
Total debt 16,0 18,0 19,2 20,2 25,8 40,4 49,3 53,2
o/w short term debt 1,3 2,1 2,6 2,5 3,2 5,0 6,1 6
Source: OEF (Oxford Economic Forecasting) and SEB estimates.
Rating histor
,2
,5
,9
,6
y
Fitch (eoy) BB- BB- BB- BB- BB-
S&P (eoy) BB- BB- BB- BB- BB
Type of government: Communist party
Next elections
Other:
Latest PC deal 1993
Recent IMF programs PRGF (Poverty Reduction and Growth Program) interrupted before expiry in 2004.
H o C h i M i n h C i t y S E
S o u rc e : R e u t e r s E c o W i n
j a n
0 5
m a j s e p j a n
0 6
m a j s e p j a n
0 7
m a j s e p j a n
0 8
m a j
In
d
e
x
2 0 0
3 0 0
4 0 0
5 0 0
6 0 0
7 0 0
8 0 0
9 0 0
1 0 0 0
1 1 0 0
1 2 0 0
E x p o r t s ( $ b i l l . )
D o m e s t i c e c o n o m i c s e c t o r
F o r e i g n D i r e c t I n v e s t m e n t s e c t o r
S o u r c e : R e u te r s E c o W i n
0 4 0 5 0 6 0 7 0 8
U
S
D
(b
illio
n
s
)
0 , 5
1 , 0
1 , 5
2 , 0
2 , 5
3 , 0
3 , 5
E M B I, s t r i p p e d s p r e a d
V i e t n a m C o m p o s i t e
S o u r c e : R e u t e rs E c o W i n
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8
B
a
s
i
s

P
o
i
n
t
s
5 0
1 0 0
1 5 0
2 0 0
2 5 0
3 0 0
3 5 0
4 0 0
4 5 0
Current account Balance
-20%
-15%
-10%
-5%
0%
2003 2005 2007 2009
2008-09: forecast main scenario
%

o
f

G
D
P


SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

7

Appendix:
BaIance nI µayment µrnjectinns

2008, January-June: the trade deIicit snars. Vielnam's slalislicaI services eslimale lle lrade
baIance for Ianuary-Iune al $15 biII. up 20° on lle vloIe year number for 2007. Tle Slale
BanI of Vielnam (cenlraI banI) las reIeased lle Iune number for officiaI reserves al $20,7 biII.,
aboul $0,7 biII up on December 2007. In lle absence of oller firm numbers ve eslimale lle
baIance of paymenl in lle firsl laIf of 2008, as slovn in TabIe 1 beIov. Here ve assume
buoyanl remillances and nel IDI infIovs aImosl al lle 2007 vloIe year IeveIs, refIecling lle
slrong senlimenls in lle firsl monlls of 2008. Nel slorl lerm infIovs laIve in Iine vill lle
correclion on lle IocaI slocI marIel, bul are aIso boosled by Iarge lrade finance in ApriI-May.

2008, JuIy-December: the adjustment µerind begins: Tle second parl of lle year IooIs very
differenl. Tle lrade baIance improves as imporls conlracl refIecling nol onIy Iover prices of
pelroIeum producls bul aIso Iover imporl voIumes in generaI. Tlal is because precaulionary
imporls in lle second quarler of 2008 of food, cars, melaIs and ferliIizers lave fiIIed
invenlories. Second, ve expecl senlimenls lo conlinue cooIing somevlal. Tlal may reduce
lle fIov of remillances as a parl of llem nov go lo inveslmenls, incIuding in lousing and
banI deposils, and damp IDI nel infIovs afler a surge in lle firsl laIf of lle year. Tle nel
resuIl is llal lle second laIf of lle year ends in a baIance of paymenl deficil vlicl is Iarger
llan lle surpIus of lle firsl laIf of lle year, reducing reserves by $1 biII. in Ianuary -
December 2008.

2009: cnnsnIidatinn cnntinues: Compared vill lle second laIf of 2008, lle monllIy lrade
baIance videns again as companies run oul of excess invenlories and relurn lo more normaI
imporlalion. On lle exporl side, our projeclion differs IillIe from lle 2008 oulcome, as ve
expecl increased oulpul from many nev faclories lo compensale lle impacl of lle veaIening
in Vielnam's exporl marIels. Tlal, combined vill a lurn-around on lle services baIance as
more lourisl faciIilies allracl visilors from abroad, leIps reduce lle currenl accounl deficil lo
$10 biII. On lle capilaI accounl IDI infIovs decrease onIy sIigllIy vliIe previous slorl lerm
capilaI nel infIovs lurn around lo a nel oulfIov of simiIar size. Tlal Ieaves lle baIance of
paymenls in a smaII deficil, reducing reserves lo $22 biII, or 2,7 monlls of imporls, vlicl is
nol greal bul aIso nol sucl a big drop as lo lrigger serious inveslor concerns.

Dnwn case scenarin: In a reasonabIe dovn-case scenario for 2008 and 2009 imporls conlracl
Iess vliIe exporls are lil larder as lle gIobaI economy goes inlo s slarper sIov-dovn.
Remillances aImosl dry up for oller llan income supporl. AIllougl sliII robusl, IDI infIovs
reduce parlicuIarIy in 2009, vliIe lle lurn-around on lle slorl lerm capilaI baIance becomes
more pronounced as a Iarger parl of lle lrade finance in 2008O2 cannol be roIIed over. As a
resuIl, lle currenl accounl baIance lurns even vorse in 2008 and lle improvemenl in 2009 is
moderale sending lle baIance of paymenls inlo a Iarger deficil and reserves dovn lo onIy $15
biII. ÷ 1,8 monlls of imporls. Al llal IeveI lle counlry can sliII conducl lrade and capilaI
lransaclions in a reguIar manner, bul becomes cIearIy more vuInerabIe lo clanges in senlimenl
and slocIs incIuding even a smaIIer domeslic banIing crisis.

SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

8
Base case scenario
Dovn-case
scenario
2007 2008 2009 2008H1 2008H2 2008 2009
Trade baIance -12,4 -20,0 -16,2 -14,8 -5,2 -22,0 -17,0
Services and nel income -0,8 -1,3 1,1 -0,6 -0,6 -1,3 1,1
Remmillances 6,2 7,0 5,0 5,0 2,0 6,5 4,0
Current accnunt baIance -7,0 -14,3 -10,1 -10,4 -3,9 -16,8 -11,9
IT Ioans (nel disbursemenls) 2,0 2,2 2,4 1,2 1,0 2,2 2,4
IDI nel infIovs 6,7 9,0 8,5 6,0 3,0 8,0 7,0
Basic baIance 1,7 -3,1 0,8 -3,2 0,1 -6,6 -2,4
ST capilaI infIovs 8,5 2,0 -1,5 4,2 -2,2 1,5 -2,0
Reserves chng. 10,2 -1,1 -0,7 1,0 -2,8 -5,1 -4,4
Reserve IeveI 23,6 22,5 21,8 24,6 21,8 18,5 14,1
Monlls of imporls 4,5 3,0 2,7 2,5 1,8


SEB Merchant Banking Country Risk Analysis Sept. 3, 2008

9


DiscIaimer

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