This is a short interview with Vicente Nguyen, Chief Investment Officer at Asia Frontier Capital, regarding the Middle East conflict and its impact on Vietnam’s economy.
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Is it okay for me to record?
Yeah, sure, sure, sure.
Okay, fantastic.
So, because my English is not really good, just try to speak slowly.
Your English is fantastic.
My English is terrible.
So please speak slowly and easily.
So I will understand you more.
No problem. You just tell me if you can’t follow.
Okay.
Okay.
Cool.
So, I read your newsletter, and my assessment is that you are quite upbeat about Vietnam’s economy in the context of the conflict in the Middle East.
Yeah.
Is that a fair assessment?
A fair, a fair what?
Assessment. Is that accurate?
Yeah.
Yeah.
Okay, cool.
One of the things I wanted to talk about was inflation, and you said you expect it to remain contained.
Yeah.
So I’m wondering, do you think it just won’t go up, like it won’t go above 4.5 percent? Or do you think the government will step in to prevent it from going above 4.5 percent?
You know, if you look at the CPI in March, it has already moved up sharply.
Sure.
Against the same month last year.
So I think it’s roughly already 4.6 percent.
Sure.
Yeah, most likely because of diesel oil in the domestic market, after it moved up from 18,000 dong per litre to 45,000 dong per litre, which is more than double.
So it’s pushing up shipping costs, logistics costs, and everything related to transportation.
But you know, because the CPI in Vietnam has a basket with more than 35 percent food and foodstuffs, and in that basket, rice prices and pork prices are the most important factors.
At the moment, those goods are still very stable.
Rice prices haven’t moved up, and pork prices have even declined because we import a lot from the US.
Sure.
So at the moment, CPI has moved up just because of transportation fees.
So it’s moved up to 4.6 percent, but I think, because diesel has already more than doubled from last year, this is already the peak of diesel oil in the domestic market.
And as you see, oil prices are still very unstable, up and down, depending on Iran and the US. Nobody knows what will happen tomorrow.
But I think 5 percent is already very high. This is already a very bad situation.
Sure. So what sort of implications would you expect at 5 percent? What are the big impacts if it hits 5 percent? What’s going to suffer the most?
If CPI is above 5 percent, the banks have to increase their interest rates, especially deposit interest rates.
At the moment, deposit interest rates have already moved up to around 6 to 8 percent.
And when CPI moves up, the government will have very limited options in terms of monetary policy to support the economy.
Because when CPI rises, they cannot pump money into the market as much.
Right.
So in this case, the State Bank has to control inflation first.
So if inflation rises strongly, it will have a very negative impact on GDP growth.
Yeah.
So, according to the target for this year, it is 10 percent, but I think 10 percent is quite tough indeed.
In my very humble opinion, I think 7 to 8 percent this year is already very successful. If you can grow 7 to 8 percent, it is already very successful.
Yeah, okay. I’m just curious, do you think there would be a policy rate move, or do you think it would be mostly deposit rates?
You know, at the moment, I think we just had a new president yesterday and a new prime minister yesterday.
Yeah.
So, according to what they said on the first working day, it seems they will continue to keep their target of 10 percent this year.
Yeah.
But the solutions they pointed out on the first working day were quite concrete. They said they will focus on improving efficiency rather than pumping money into the market.
How are they going to do it? They will improve the efficiency of state-owned enterprises and give them more options to act independently.
Okay.
This is already written in Resolution 79.
And the second thing is to push the private sector by giving a lot of stimulus policies to help them improve.
And one more thing is that they will continue to focus very aggressively on the public investment sector.
This means infrastructure, highways, metro, airports, power plants, power stations.
In particular, Vietnam has already signed a deal with Russia to build nuclear power.
So they plan the first nuclear power plant will operate by 2035.
So in the next 10 years, Vietnam will continue to invest very aggressively in infrastructure.
So this is one of the key, very crucial factors to push economic growth.
Yeah.
Okay. But government spending is going to put pressure on inflation as well, right? Because you are putting more money into the economy.
No, it depends how they push it.
Yeah.
If they pump money into the market through credit, by loosening monetary policy, then that money will move directly into the stock market, real estate market, or other investment fields.
It means more speculation.
But if you put money into infrastructure, infrastructure will create jobs and support long-term growth.
Of course, we cannot deny it also has an impact on the money supply.
However, it supports long-term growth, creates a lot of jobs, and increases the productivity of the country.
It is completely different from printing money and putting it into the market.
Absolutely, that money will go directly into the stock market, real estate market, or other speculative markets.
But infrastructure is different, and many investors, economists, and strategists care about the capital for very ambitious infrastructure investment packages.
We spend roughly US$35 billion per year, which is around 7 to 8 percent of GDP.
That’s huge.
Sure. I would argue though that a lot of last year’s GDP growth was powered by credit growth.
Yeah.
Right. It was a lot of private lending.
And I’m thinking you need to keep that up, and we are talking about going an extra 2 percent this year.
Yeah.
So 10 percent as opposed to 8 percent last year.
Yeah.
So you need to have the same level of credit growth, and on top of that, you are adding more government spending, for example.
Yeah.
So this all suggests to me that inflation is going to be a big issue moving forward.
And then add to that the crisis in the Middle East with fuel prices.
Yes.
So I don’t know. I guess it will be interesting to see —
So —
Yeah, go on.
Yeah, as I said, if there were no crisis in the Middle East, I think the target could be reachable.
Yeah.
But because of the war in the Middle East, it has changed everything.
Absolutely.
Sure.
Especially in terms of energy prices, which are creating huge pressure on inflation, not only inflation but also production.
Because if you don’t have access to energy, you cannot achieve growth.
Absolutely.
Right.
So at the moment, with the war in the Middle East, I think growth of 7 to 8 percent is already very successful this year.
Okay.
Very successful.
I wonder how you go about advising investors when the government is saying it is targeting 10 percent growth, yet at the same time you are saying that might be very difficult in the current Middle East crisis.
Yes.
So what do you tell investors? Do you say they should expect 10 percent, or do you say they should expect —
10 percent is the government’s target, but on our side, we still think 7 to 8 percent is already successful.
Because the war in the Middle East does not only impact Vietnam, it impacts the whole world.
Maybe the only country benefiting in this situation is Russia, as they can sell crude oil and gas at very high prices and operate at full capacity.
But on the other hand, most countries around the world are negatively affected.
Especially in Asia.
Even China can buy crude oil from Iran or ship it through the strait, but the shortage is still there.
And now countries with large reserves like Japan, Russia, or China are already using their reserves.
So if the situation worsens, it will have a very negative impact globally, not only on Vietnam.
So 7 to 8 percent for Vietnam is already very good in this situation.
Yeah, I hear you.
I had a question. You mentioned the new prime minister. He used to work at the State Bank of Vietnam, right?
Yeah.
He used to be the governor?
The deputy governor.
Oh, okay.
So now that he is prime minister, do you think he will have an influence on monetary policy?
I think so.
On how it is shaped, or will he follow the existing approach?
You know, the former governor, Huong, already mentioned that the key priority for the State Bank this year is not to pump too much money into the market, but to watch inflation very closely.
This was stated before she stepped down.
So this is not really a warning, but a reminder for the next governor.
I think the State Bank will have to watch inflation very closely, because Vietnam has had very bad experiences with inflation in the past.
In the last 10 years, they have been quite successful in keeping inflation under control.
They do not want to undo those achievements.
So I think they will not sacrifice inflation control for economic growth.
They will use different methods, not freely pumping money into the market.
No, I don’t think so.
Interesting.
Because I know foreign reserves are currently quite low relative to what is expected, right?
At the moment, I think in the last two years the government has not disclosed foreign reserves.
The latest number we had was two years ago, around US$96 to US$97 billion.
That is roughly around eight weeks of imports.
Since then, there has been no official disclosure.
Some institutions like the IMF or the World Bank estimate it is still around US$90 to US$100 billion.
Yeah.
Okay, cool.
We do not know.
We do not know.
But you know, in a report many years ago I read that more than 50 percent of Vietnam’s foreign reserves are in US Treasuries.
So they bought them at very low interest rates, and when interest rates moved up, they had to book losses.
The reason they do not want to sell US Treasury bills when interest rates are high is that they would rather hold them until maturity.
So of course, this is my personal thinking, and I have no evidence to prove it.
Yeah, it’s a political decision.
It’s not economic science.
Yeah.
Interesting.
Okay mate, that kind of covers what I was interested in.
Did you have anything you wanted to add?
I don’t want to ask anything, but I have one thing to add.
This is very important, super important for Vietnam’s economy in the next 10 years.
It is the restructuring of the whole country.
You know, we already merged 63 provinces into 34 or 35 last year, right?
And we also cut down the middle administrative level, the district level.
So we now have only two levels: the provincial level and the commune level.
So it helps us cut a lot of expenses, because they already laid off roughly 300,000 officials.
So if you look at Vietnam’s state budget balance, it has improved significantly.
Sure.
Before 2024, we had never had a year with a state budget surplus.
We always had deficits, like in the US or Europe. Almost every country in the world has very large state budget deficits, around 4 to 5 percent of GDP, and Vietnam had the same situation before 2024.
But in 2024, we had a state budget surplus.
Uh-huh.
Okay.
In 2024, the surplus was not very big.
I think around US$1 to US$2 billion.
Not very big.
But in 2025, we had US$8 billion.
Mm-hm.
And in the first three months of this year, we already had US$9 billion.
You see, US$9 billion in state budget surplus.
So we have this because we cut expenditure, reduced corruption, and improved efficiency in tax collection.
Okay.
Yeah.
Okay.
We reduced the tax rate.
We did not increase the tax rate.
But you know, it is like water flowing through a pipe, there will be some losses.
Tax works in a similar way. When it moves through the system, there can be losses.
What the government did was minimise this kind of loss.
Sure.
So the efficiency of tax collection improved, I think, by 200 to 300 percent in the last few years.
That is amazing.
This is why they have a lot of capital for very ambitious infrastructure investment projects, even US$60 billion to build the high-speed railway from north to south.
Okay.
This they have already prepared well.
But there is one more thing where they still have room or potential to push economic growth faster, which is human resource improvement.
Mm-hm.
This is very hard to define, cultural understanding.
Okay.
A bit difficult to measure.
Mm-hm.
But I think this is the most important factor, more important than any other factor.
We discussed monetary policy, infrastructure investment, credit growth, inflation.
These are important, but not the most important.
This is the most important thing, because after the mergers last year we reduced the number of government officials.
So you see everything will improve.
Because in the last few years, Vietnam has really changed its policies.
They changed the mindset and the way they grow the economy.
Yeah, sure.
In the past, the only way to push economic growth was through credit and pumping money.
That is why they always had to trade off between growth and inflation.
When growth slowed, they increased credit, but inflation followed.
But now they have many more solutions and methods to support growth in a more solid and fundamental way.
They focus on productivity, not just the volume of cash.
So I think Vietnam will grow strongly.
This year is exceptional because of the war.
Nobody knows what will happen.
But 7 to 8 percent is already very good.
And I think Vietnam is now doing something similar to what China did in the 1990s.
Sure.
Okay, cool.
Awesome.
Well, thank you very much for your time.
I really appreciate hearing your thoughts.
Very helpful.
You know, if you write an article—
Yeah.
Yeah.
This is just my humble opinion.
Sure.
I have no idea, because I am not a writer.
But I think many economists and analysts focus on measurable factors like inflation, credit, and exports.
But those are consequences, not the causes.
Unmeasurable factors are more important.
Changes in policy, mindset, governance, and efficiency are the key.
State budget, export growth, credit growth, all of these are outcomes.
I get what you are saying.
I would argue they are equally important.
You need data to support your argument.
But there are qualitative factors that you cannot see in the data.
That is why you need both.
That is why I do interviews and use data together.
Yeah.
But that is my view.
Yeah.
Perfect.
Okay mate, thank you very much for your time.
Pleasure.
Have a good rest of your day.
You too.
Have a good afternoon.
Cam on, anh.