HO CHI MINH CITY (AFP) - As Vietnam battles galloping inflation and a plummeting currency, a new challenge has emerged -- a general collapse of confidence in the state's ability to heal the ailing economy. With an eye on the brash success of neighbouring China, Vietnam's obsessive pursuit of growth lasted for two decades until economic threats forced it to shift attention to stability this year. The ruling Communist Party, which has total control in the one-party nation, announced an overhaul of its economic model during a five-yearly congress in January and a slew of monetary and tax austerity measures have followed. But as pressure on the economy continues to mount, the political system itself has come into question from businesses and the Vietnamese people. "What is happening in Vietnam is a crisis of confidence," a foreign investor in the southern business hub Ho Chi Minh City told AFP. In 2008, as financial turmoil swept the globe, Vietnamese authorities responded by injecting massive liquidity into the economy, and speculative bubbles multiplied. State-owned shipbuilder Vinashin embarked on a flurry of investments, racking up debts of $4.4 billion that eventually saw it plunge into quasi-bankruptcy. Now Vietnam is trying to bring down Asia's highest rate of inflation -- nearly 22 percent year-on-year in October -- trim its trade deficit and strengthen the dong, which has seen four devaluations in 15 months. The authorities have upped interest rates to try to cool the economy and choke off speculation, piling intense pressure on small- and medium-sized firms with lenders now charging upwards of 20 percent. Experts predict the pain will continue for at least another 18 months. "The price to be paid is enormous. There are already a certain number of corpses on the pavement," said the investor. But while he said the measures were "necessary", others are wondering if they will be enough. Dominic Scriven, general manager at Dragon Capital, said the last five years have seen Vietnam's economic model "go out of balance". "The question is does everybody realise that and are the measures put in place sufficient to restore the balance?" Recent signs are that foreign and local businesses have yet to be convinced. Pledged foreign direct investment into Vietnam slumped by almost a quarter in the first ten months of the year, to $11.3 billion, according to official figures. Business confidence has fallen for three consecutive quarters in 2011, according to a survey by the European Chamber of Commerce published earlier this month. "The measures taken to stabilise the economy have so far failed to ease the concern of the business community about the macroeconomic outlook," the group said. In a country still marked by a culture of opacity inherited from years of war, the true situation is difficult to determine. And when even the official picture is far from rosy -- with barely eight weeks worth of foreign exchange reserves and fears over the level of bad debts held by public banks -- the lack of visibility is worrying. The benchmark VN-Index at the Ho Chi Minh City stock exchange, opened with great fanfare in 2000, slumped to just 383 points in August this year, barely a third of its peak in 2007 after Vietnam joined the World Trade Organisation. It is a far cry from the 1990s when Vietnam, then described as the next Asian 'tiger economy', bounded onto the world stage with a seemingly unstoppable roadmap to success -- opening up vast swathes of unexploited land and mobilising a young and cheap labour force. But the economy has struggled to build on that promise. Jonathan Pincus, an economist and dean of the Fulbright School in Ho Chi Minh City, said the country's large trade deficit -- $12.4 billion in 2010 -- is a sign that the previous growth strategy was past its sell-by date. "Vietnam is kind of stuck producing the same sort of things... more and more coffee, rice, cashew, paper, shirts and shoes -- and is having trouble moving into higher value-added production, a lot of which is therefore imported from China," he said. The country's institutions have failed to endorse major reforms, he added. "Everyone knows it's time for another strategy, but they know they don't have the political structure that is coherent enough." Even ordinary Vietnamese have shown nervousness over the economic future, ditching the currency in favour of the relative safe havens of gold and dollars in recent months -- a move echoed by some banks which, according to one source, have profited handsomely by speculating against the dong. "You got people voting the only way they could vote which was to sell the currency. So everybody -- households, companies, banks, state enterprises, government people -- were selling the Vietnam dong," said a businessman who asked to remain anonymous. It was evidence of general distrust, he said, and the authorities "have more work to do to show they deserve the mandate" of the people.