Viet Nam gov't issues another reassurance on inflation

Vietnam’s top finance officials have repeated their reassurances that inflation will be brought under control and the nation’s trade commitments would be met.

The economic problems Viet Nam was experiencing were “temporary and short-term” officials told a video conference linking Vietnamese government officials and investors in Hanoi, Ho Chi Minh City, Hong Kong and Singapore.

The economy is being buffeted by high inflation and a widening trade deficit.

The consumer price index rose 25.2% in May from a year earlier, its highest level since 1992.

Vietnam’s trade deficit has more than tripled over the first five months of the year.

Many fear the dong, the local currency, may lose value and the country’s foreign exchange reserves would be insufficient to withstand a financial crisis.

High loan interest rates, a result of the central bank’s monetary tightening policy, have also left many businesses with cashflow problems.

The central bank has raised the benchmark interest rate three times this year, allowing banks to charge up to 21% a year for loans and offer deposit interest rates of up to 18% a year.

Finance Minister Vu Van Ninh, who earlier this week told global leaders the dong would not be depreciated, said global price hikes had been hurting the economy since last year.

However, he admitted the government had been slow to realize risks and its own economic forecasting “had many shortcomings.”

However, Ninh said the economic solutions package adopted in April was already showing good effects.

The eight-point plan included a directive for government-wide spending to be cut by 10 percent.

“Inflation and trade deficit have shown signs of declining in June,” he said.

Deputy Minister of Industry and Trade Nguyen Thanh Bien said Vienam’s May exports increased to US$5.57 billion from April’s $5 billion while imports declined by $500 million to $7.66 billion from April.

“The trend (of increased exports and decreased imports) will become more obvious towards the end of this year,” he said.

Nguyen Van Giau, governor of the State Bank of Viet Nam, said hard currency reserves were sufficient for the government to step in to support the value of the dong.

“Viet Nam’s foreign currency reserves are $20.7 billion,” he said.

The dong has declined against the dollar for three straight months, the longest losing streak since August.

The central bank set a reference rate of 16,452 to the dollar Friday.

The currency is allowed to trade up to 1% above or below the rate.

Giau said “psychological factors” had contributed to the dong’s decline.

He said the central bank had worked with commercial banks to ensure reasonable forex rates for businesses.

He admitted that the central bank’s loan interest rate of 14%, the highest in Asia, was impacting business operations, but “our target is to curb inflation.”

“Businesses should cut spending and practice thrift to ensure competitiveness,” Giau said, promising to adjust the rates when inflation slowed.

Ninh said the government had adopted multiple solutions to improve the economy, including accelerating privatization of state-owned companies.

He said Vietnam would allow foreign investors to own more than a 40% stake of unlisted public companies in certain business areas.

The government had facilitated an increase in local supplies of industrial and agricultural materials, including fuel, steel and fertilizer, to reduce the economy’s dependence on imports, Ninh said.

The country’s first oil refinery is expected to begin operating mid next year in Quang Ngai Province.

Ninh said it was expected to meet 45% of domestic demands of fuel.

“In the middle and long term, we commit… to control inflation and stabilize the macro-economic factors to ensure economic growth,” he said.

He pledged to “establish an enabling, open, fair and transparent environment that ensures the interests of both local and foreign investors.”

Donors’ support

Representatives of the World Bank and Asian Development Bank (ADB), two major aid donors of Viet Nam, told the conference that their aid commitment would be mostly unchanged.

Martin Rama, lead economist of the World Bank in Viet Nam, said he expected the World Bank’s official development assistance (ODA) would remain stable.

He said Viet Nam also became eligible for loans from the International Bank for Reconstruction and Development (IBRD), which helps reduce poverty in average-income and developing countries that have reached a certain level of credit reliability.

ADB Resident Mission Country Director Ayumi Konishi said the bank would continue its strong support of Viet Nam. (Thanh Nien – Tuoi Tre)