Moody’s cuts Vietnam rating amid financial stress

Moody’s Investors Service on Wednesday cut Vietnam’s credit rating, citing an increase in financial stress including the risk of a balance of payments crisis, rising inflation and the huge debt of shipbuilder Vinashin.

Moody’s downgraded the rating on government bonds to B1 from Ba3, maintaining a negative outlook, which means the rating could be cut again.

A lower credit rating increases the cost of borrowing and can make it more difficult for the Government to raise money from international financial markets.

“Moody’s considers that short-comings in economic policies have allowed pressures to remain unabated on the balance of payments and are resulting in ongoing macroeconomic instability,” Moody’s senior vice president Tom Byrne said in a statement.

Hiccups in the country’s monetary policy have also exerted great pressure on the balance of payments and the stability of the economy, Byrne said.

Moody’s said the debt problems at Vinashin suggest the government has a reduced ability to provide financial support to the company and possibly other large state-owned enterprises.

The government has said it would not pay for Vinashin’s debts totaling VND86 trillion, or some US$4.5 billion as of June when the State-ordered restructuring of this giant group began.

Moody’s said the government’s refusal to provide financial support to Vinashin may have unintended consequences.

Vinashin’s top leader told local media this week that it was asking creditors for rescheduling a loan payment of US$60 million due next week. The requirement for the deferral, which is the first installment on a 600-million-dollar loan arranged by Credit Suisse in 2007, was reportedly rejected by the creditors.

“A default on Vinashin’s foreign obligations would likely damage the ability of the country to raise foreign market financing at affordable rates,” Moody’s said in the statement.