The surge in jet fuel prices, a stock market plunged into crisis and outright panic among foreign investors are set to derail plans to privatise Vietnam's largest airline.

The sale to foreign investors of between 10 per cent and 20 per cent of Vietnam Airlines has been on the cards this year, but industry sources have told The Times that it is now unlikely to happen before 2009. If the Vietnamese economy continues to writhe in its current agony, it could be postponed even further.

Despite strong passenger numbers and bullish ambitions in line with Vietnam's recent economic miracle, the airline's bottom line has been battered by fuel costs, which soared nearly 40 per cent beyond the company's forecasts. Plans for the airline to run direct flights to the United States are thought to be in jeopardy and this month the group reported a first-half loss of $5 million (£2.5 million).

The Vietnam Air privatisation was to have involved a slice of the Government's stake being sold to three or four strategic investors from overseas. Foreign investors have already walked away from previous Vietnamese privatisations because of rules that forced them to agree to buy stakes before a price was known.

The expected delay to the privatisation of Vietnam Airlines comes as the lustre on the country's recent economic boom has begun to fade. Fund managers with significant portfolio exposures to Vietnam say that the past few months have been dreadful. One described the collapse in the stock market as a timely reminder of the meaning of risk in emerging markets.

Rumours abound among brokers in Singapore that at least three substantial foreign hedge funds have been stung by a liquidity trap that has left them unable to exit stock and currency positions that have turned heavily against them.

The difficulties experienced by Vietnam Airlines, observers say, highlight some of the vulnerability of the country's stratospheric economic story. The carrier's revenues in the first half of 2008 were nearly 30 per cent higher than at the same period in 2007 as business travel and cargo use soared. The business model has unraveled because of Vietnam's lack of big energy resources.

The same is true at a national level. Vietnam's exports remain exceptionally strong, despite fortunes fading elsewhere in Asia, but the January-July trade deficit doubled to $15.01 billion because of the cost of imported oil. Vietnamese inflation is running at 27 per cent and many economists believe that it could touch 30 per cent by the end of the summer. Interest rates have been raised three times this year and a further tweak is expected. Robert Prior-Wandesforde, an HSBC economist, has said that monetary policy authorities will have to act soon if the country is to regain the credibility that it has lost over recent months.

The Government is also likely to face a prolonged, financially draining struggle to support its currency. Traded on a vigorous black market, the dong has come under intense downward pressure from speculators. Government resolve to avoid the sort of currency implosion that triggered the 1997 Asian crisis could lead to its foreign reserves being reduced to nothing by repeated intervention.

A more striking sign of that drop in credibility has been the main stock market index's plunge of more than 55 per cent of its value since its peak last Autumn. A lot of recent bank lending in Vietnam has been collateralised with shares and property prices are sinking fast.

Some of Vietnam's other vulnerabilities have also emerged of late. Where once it was a much-favoured destination for Japanese foreign direct investment - particularly factory-building - suddenly circumstances have changed. Rising construction costs and materials prices, for example, persuaded Nippon Light Metal to pull out of plans for a huge aluminium hydroxide plant, which was to have opened in 2011. On Friday, Sony, the electronics giant, said that it was closing a factory producing televisions principally for the Vietnamese market.

The closure, which will result in the loss of 200 jobs, appears to stem from the country's recent induction into the World Trade Organisation (WTO). Pre-WTO entry, crippling tariffs on imported electronics meant that it made sense for companies such as Sony to build a factory in Vietnam to meet rising demand from the market there. Now that those tariffs have disappeared, Sony can deliver to Vietnam televisions made outside the country and produced at an even lower cost than the ones leaving the factory in Ho Chi Minh City.

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