Vietnam Credit Rating Outlook Cut to Negative by S&P (Update1)2008-05-02 05:04 (New York)

By David Tweed May 2 (Bloomberg) -- Vietnam's credit rating outlook was cutto negative at Standard & Poor's, which said the country'soverheating economy was a risk to stability. The rating company affirmed the country's BB long-term foreigncurrency rating, which is two levels below investment grade and onerating above those given to the Philippines and Indonesia.


``Hectic investment activity of recent years appears to havepushed the economy to the limits of its capacity,'' Kim Eng Tan, aSingapore-based analyst at S&P, said in a statement. The central bank is struggling to cool inflation, which rose21.4 percent in April, the fastest pace since at least 1992. S&Pforecasts Vietnam's annual current account deficit will bemaintained at close to 10 percent of gross domestic product.


``Policy measures announced recently by the government shouldhelp rein in growth and prevent a further exacerbation ofmacroeconomic imbalances,'' S&P said in the statement.


``However,rapid economic restructuring in recent years has made the task ofeconomic management more complex.'' The government has increased benchmark interest rates, toldbanks to raise the amount of money they have to keep on reserve,and sold more bills and bonds in an attempt to reduce money supplyand slow inflation.


``The weak banking sector, which experienced excessive creditgrowth in the past few years, aggravates this situation,'' S&P said.``Chances of policy missteps are, therefore, not negligible.'' Vietnam's financial markets were closed today for a holiday.