Abstract
Vietnam has achieved high rates of economic growth for a period of two decades. Growth slowed in 2008 as the government was forced to tighten credit in order to slow down price inflation. With the advent of the global recession, the government must now reverse course and find ways to support demand in the face of declining exports and foreign investment. However, as a small, open economy with a fixed exchange rate and large fiscal and trade deficits, Vietnam's options are limited. The most effective response would be to gradually depreciate the Vietnamese dong to slow the flood of imports and boost export prospects, while redirecting the public investment towards labour rather than import-intensive projects. The government must also find ways to impose discipline on the large state-owned enterprises and control their diversification into financial sector activities.
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