According to the calculation of the State Bank of Vietnam (SBV), over the past six weeks, the average weekly capital mobilisation was up by 0.27 %. The credit growth was up only by 2.1 % following the deduction of reserve requirements and settlement reserves. Therefore, “hot” credit growth is impossible until the end of 2009. This information was shared by SBV Governor Nguyen Van Giau with the press in a recent meeting.
How has the global economic crisis impacted the overall balance of payment in Vietnam at present?
The Governor asserted that the global economic recession has caused quite serious impacts on the Vietnamese economy. The country’s exports are forecast to decline 9.9 % year on year this year before expanding 6 % next year. FDI amount, though not officially announced, will decline. The total overseas Vietnamese remittances are projected to fall 15 - 20 %. Last year, inward remittances totalled US$7.2 billion and this year may lose US$1 billion.
These decreases could affect the balance of payment and the exchange rate. However, the requirements of foreign exchange are being met with a stable exchange rate, and that the forex reserves remain equivalent to 12- import weeks.
Facing such difficulties, SBV and other relevant ministries have made great efforts in negotiating with international financial institutions for additional foreign currency build-up. On October 20, SBV received US$500 million loan from the Countercyclical Support Facility (CSF) of the Asian Development Bank for public spending programmes in 2009 and 2010. At present, SBV is negotiating with Japan to borrow an addition of US$500 million to respond to crisis impacts. At the 2009 IMF/WB Annual Meetings, the World Bank (WB) leaders asserted to continue maintaining its International Development Association (IDA) loans to Vietnam with an average annual US$1 billion concessional loan in the next three years, aimed at financing the Government’s projects and programs and helping Vietnam to get access to its International Bank for Reconstruction and Development (IBRD) loans. At the same time, WB leaders also promised to provide a program loan of US$1 billion for direct budget support to the Vietnamese Government to counter the adverse impacts of the global economic crisis of which US$500 million will be disbursed within 2009.
Besides, Vietnam also got other WB loans such as US$325 million for the hunger eradication and poverty reduction programme, commonly known as Programme 135, and US$75 million additional loans from ADB. These sources of foreign currencies are crucially necessary to supplement the overall balance of payment. While other countries are also dealing with the crisis, the lending is never easy.
Recently, SBV has not widened the band for exchange rate but it has repeatedly increased the interbank rate. What do you say about this movement?
Since early 2008 to date, SBV adjusted the exchange rate with a movement band of 5.16 % but the adjusted exchange rate of VND/USD was only 0.16 % from the start of 2009 to date. Unlike other countries, Vietnam does not apply floating or fixed regimes but the management of exchange rate has been conducted flexibly in accordance with the developments in the market. Thus, exchange rate adjustments are totally normal.
At present, there is a popular proposal of floating or adjusting official exchange rate to that of the “black” market, given the overall balance of exports, imports, national debts and corporate debts. However, in my opinion, under the current context, we should not pursue the floating policy because the depreciation of Vietnam dong will benefit exports to a certain extent but it will do more harm than good if export and production slump.
It is very difficult to manage the exchange rate under the current circumstance. Recently, foreign indirect investment (FII) turned “positive” but the “positive” amount was only several millions of US dollar a day. For instance, on October 19/10, the “positive” amount was US$2.1 million. However, from the start of the year, FII amount was still “negative” US$500 million. Meanwhile, earnings from tourism and overseas remittances have not revived since previous growth levels.
Could you talk about the “flexibility” in regulating the exchange rate at present?
First of all, I need to reassert that the Government has never announced a devaluation of the domestic currency and this policy will be continued until both subjective and objective conditions allow the floating.
Why has the State Bank adjusted the interbank exchange rate in recent months? That is because the flexibility is required to stabilise growth. For many reasons, Vietnam cannot divorce from the reality and be free of exchange regulating vehicles.
However, the flexibility is put under a certain scope and level. Please note that the adjustment rate to the exchange rate is only 0.16 % while the adjustment at 5 % upwards is considered a devaluation of currency. By the end of the third quarter of 2009, credit to the economy increased by 28 % as compared to the end 2008, however credit growth has been on a downward trend since July.
Is the hot credit growth unlikely to happen this year?
Inflation growth in 2009 is estimated at 7 %. Therefore, from now to end 2009, it is unlikely that the SBV will tighten the monetary policy. The fact shows that it is reasonable for the SBV to cut the base interest rate down to 7 % from 14 % and the reserve requirement to 3 % from 11 %. In the coming time, the SBV will continue to pursue a flexible and prudent monetary policy in line with the world and domestic economic developments.
The capital mobilisation growth was up by 10.65 %age points and the credit growth by 12.45 %age points in the second quarter, but only by 4.45 %age points and 7.58 %age points, respectively, in the third quarter. Therefore, the credit growth has been on a downward trend.
In the past six weeks, the capital mobilisation only increased 1.6 % and the rate is expected to rise only 2.7 % from now to the end of the year. The credit growth was up only by 2.1 %age points following the reduction of reserve requirements and settlement reserves. Besides, the difference between input and outputs at commercial banks was now only 1.75 %. Therefore, “hot” credit growth is impossible until the end of 2009.
Commercial banks may foresee further difficulties in capital mobilisation. Therefore, in order to ensure stable operations, commercial banks should take better measures of asset management and risk control in the coming time.
SBV will continue to closely monitor the total liquidity in line with the economic growth target. The easing of the monetary policy might be implemented in a restricted period of time with the focal aims of maintaining economic growth and ensuring social security protection.
Reported by Hai Anh
Vietnamese
