Like many other countries in the region, Vietnam's economy is export-driven, energy dependent and labor intensive. Vietnam's economy had been working very well as long as energy remained cheap and American consumption was high. But as the credit crisis hit the U.S. and consumers spent less, and rising oil and food prices led to double-digit inflation throughout the region, Vietnam's economy took a downturn. Imported oil surpassed export earnings and created a trade deficit which ballooned to US$14 billion in the first five months of 2008, from US$11 billion for all of last year. “We're in a situation now, and have been, where we have very big capital inflows financing a big trade deficit,” said Jonathon Pincus of the United Nations Development Program.
The global rise in oil and food prices has worsened inflation, which has also increased due to an explosion of credit from banks looking to profit from the boom. Many smaller and newer joint-stock banks that were opened up in the last few years, got heavily involved in real estate and the stock exchange, and expanded their credit by over 100 percent in 2007, which also has contributed to inflation.
