The US removed the quotas on the on textile and apparel imports and besides that an agreement was signed in the year 2007 with the US, which were the Trade and Investment Agreement. The above agreements resulted in the United States becoming one of the major exporting countries for Vietnam and hence, any recessionary activity experienced in the US would have a great affect on Vietnam.
The present recession has had a huge impact on Vietnam not only in terms of the fall in FDI levels but also due to the fall in exports and increased competition from the domestic producers of the United States.
The trade relationship between Hong Kong and United States has been quite strong as the US has strong economic ties with this country. It has a number of bilateral trade agreements and the US exports to Hong Kong totaled 20. 7 billion while it is also one of the largest investors. Therefore, any recessionary activity would have a great impact on the Hong Kong trade activity and its exports particularly.
b) The Hong Kong currency has been pegged to the United States dollar in the year 1939 and since then the currency has been pegged in this manner. It was done so in order to maintain a policy-defined relationship between the domestic currency and the foreign currency. However, the current recession has affected the Hong Kong currency in a deep manner due to this pegged currency as the country has had to sell a total of 7.8 billion Hong Kong dollars in order to maintain the peg.
As a result, the monetary authorities have been seeking ways in order to remove this pegged relationship as it has been undermining the domestic currency. Even the recent rise in the Hong Kong's dollar has been due to the speculators betting on the revaluation. The Hong Kong government has had to intervene quite a lot in the recent pas tin order to maintain the peg by injecting huge amounts of the Hong Kong dollar.
The pressure has been felt by the local economy in terms of the local inflation and the asset inflation which has created problems for the domestic economy. Therefore, the constant maintenance of the pegged rate is only worsening the situation for the domestic economy and hence, it would be beneficial to remove this method of maintaining a relationship between two nations.
c) There are a number of measures which would have to be adopted by Vietnam in the near future for the betterment of its economy. It needs to control the inflation level while at the same time tackling the downward pressure on the currency. The GDP forecasted is amounted to be 6.9 percent which is actually down from the previous value of 7.3 percent of last year. The reasons for this have been the smaller levels of credit expansion and the lower level of consumption growth. Inflation is estimated to be around 23.3 percent while the dong is expected to depreciate slightly in 2008.
The current account deficient will be expected to remain negative as well which shows an overall bleak picture of the forecasted economy.