Time to adjust Dong/Dollar exchange rate

It’s time to adjust dong/dollar exchange rate

Posted: 04 Jul 2012 05:06 AM PDT

LookAtVietnam – Some bankers have urged the State Bank of Vietnam to
regulate the dong/dollar exchange rate in a flexible way to ensure the
harmonization of different economic goals, instead of trying to stabilize the
exchange rate somehow.

The dong/dollar exchange rate has been fluctuating regularly since early June.
When the dollar price increased slightly in early June, this did not catch the
attention of the public, because the central bank committed at the beginning of
the year that the dong will not devaluate by more than 3 percent by the end of
the year.
Experts also said on local newspapers that they did not think the dollar price
increase would continue in the context of the profuse foreign currency reserves
and kieu hoi (overseas remittance).
However, the dollar price has increased continuously since then. The dollar
price once climbed to 21,000 dong per dollar. Meanwhile, worries have been
raised among businesses that the dollar supply would be short in the time to
come. The dollar demand is believed to increase towards the end of the year,
when businesses need dollars to make payment for imports. Besides, the dong has
become more attractive when the dong interest rates have been lowered by the
State Bank.
Thoi bao Kinh te Vietnam has quoted a senior executive of HSBC as saying that
the exchange rate may not fluctuate too heavily in the third quarter of 2012,
but the dollar would surely be appreciating in the fourth quarter of the year.
Businesses have been told to keep cautious with the stabilization of the
dong/dollar exchange rate for a long time. In general, businesses do not use any
“defensive measures” which help them deal with the exchange rate fluctuations;
especially, they see the dollar price stable for a long time.
The businesses would only hurry to take actions when the dollar prices soar and
influence their business. This would cause uncertainties to the whole market.
Trinh Quang Anh, Director of the Economics Research Center of Maritime Bank said
on Dau tu that it’s now the time to adjust the dong/dollar exchange rate.
Anh said that the State Bank has been succeeding in its effort to stabilize the
exchange rate and the activities of the foreign currency market, improve the
foreign currency reserves and restore people’s confidence on the local currency.
However, this does not mean that the central bank would have to strive to the
same goal for ever.
He went on to say that the central bank should take actions right now in order
to avoid the overly hard pressure on the exchange rate which may occur by the
end of the year, when the dollar demand increases.
A banker who asked to be anonymous, also said it would be better if the central
bank begins devaluating the dong/dollar exchange rate slightly right now. The
exchange rate gradual adjustment would help make businesses get adapted to the
new circumstances and avoid the shocks to be caused in case the exchange rate
increases sharply at the end of the year.
The banker said that when the dong interest rates decrease, the adjustment of
the exchange rate would be necessary to harmonize the demands on the market.
If the central bank still holds out the nominal exchange rate for too long, thus
generating big gaps between the nominal exchange rate and actual exchange rate,
this would prompt people to speculate dollars, which would make the dollar fever
more serious by the end of the year.
Dau tu has quoted Truong Dinh Tuyen, a member of the advisory council for
national monetary policies, as saying that curbing the exchange rate fluctuation
within 3 percent this year proves to be a possible mission. However, the
government should think about whether to try to do that.
“When the dollar demand was low, we once asked to loosen the trading band.
However, the State Bank still tried to make the exchange rate stand still,” he
said.
According to Thoi bao Kinh te Vietnam, Vietcombank and Eximbank quoted the
dollar prices at 20,850-20,910 dong per dollar on July 2.
C. V

NA deputies unimpressed by Govt economic restructure plan | Look At Vietnam

NA deputies unimpressed by Govt economic restructure plan

May 26, 2012

Several National Assembly deputies have came out against the Government’s economic restructuring plan, calling the content vague and cursory.

A realistic economic restructuring plan should be made based on the country’s current socio-economic situation, natural resources and other advantages
During a discussion held on the afternoon of May 24, the majority of NA deputies emphasised the necessity for the economic restructure plan, but were not satisfied with its content.
Nguyen Dinh Quyen, a NA deputy from Hanoi, said the plan still lacks legality and the Government had not clarified its purposes before seeking for NA approval.
“While the NA is the country’s legislative body, the institution has yet to be granted real and meaningful authority in deciding several national issues,” Quyen said.
“Any decisions on state budget spending should be made by the NA. These plans are estimated to cost thousands of billions of VND and should obviously decided by the NA, which represents the people and not other agencies,” he added.
According to him, the plan’s content was cursorily prepared and failed to estimate impacts on the business community, society and people’s lives, as its implementation could lead to the bankruptcy of a number of enterprises as well as the amendment of several laws.
“Efforts should be made to consider the pros and cons of a plan as important as this. If the NA is compelled to make a decision on the plan, I will dissent,” he shared.
Another NA deputy, Nguyen Hong Son, said, “The plan’s content is too cursory. I propose that the NA not adopt it but require the Government to achieve it by its own means.”
Deputy Tran Thi Quoc Khanh said that the current methods suggested by the plan would be inefficient. Actually, she said, the plan should be made based on eight millennium goals, the party’s latest policies and resolutions, the current laws and regulations as well as international commitments if it is to foster sustainable development.
Deputy Nguyen Ngoc Bao, from HCM City, urged more efforts to further analyse the current economic structure, which could be used as a foundation for choosing a suitable restructuring plan with due attention paid to the banking industry.
“I see the plan as simply a good suggestion, and not as a feasible strategy. A realistic economic restructuring plan should be made based on the country’s current socio-economic situation, natural resources and other advantages,” he commented.
Deputy Truong Trong Nghia said that the plan has yet to carefully assess the damages caused by corruption to the national economy or the impacts it has on society.
“In order to drive the country out of the average-income group, it will be vital to heighten the efficiency of the State administration. In our country, law enforcement is rather poor. In order to further develop, the country needs to change its model for growth and improve its legal framework,” he added.
Dantri

Vietnam attaches importance to cooperating with US - Vietnam attaches importance to cooperating with US

Vietnam always attaches importance to cooperation for mutual development with the US, affirmed Prime Minister Nguyen Tan Dung.

PM Dung made the statement while meeting Prof. Joseph Nye from Harvard University in Hanoi on January 12.

The Vietnamese government leader expressed his joy at the development of cooperation between the two countries in economics, trade, investment, education and training, as well as their diplomatic and political ties at bilateral and multilateral forums. He hoped that Prof. Joseph Nye will contribute to boosting cooperation between Vietnam and the US and between Vietnam and Harvard University.

He informed his guest of the country’s economic development and said that Vietnam has always pursued its policy of developing the market economy and boosting economic integration along with ensuring social equality and welfare and environmental protection. It has also followed its consistent policy of independence, self-reliance, peace, friendship and cooperation with other countries.
Prof. Joseph Nye said the Vietnamese economy and others in the world are showing signs of growth. The US professor predicted that the Vietnamese economy would grow strongly in the future in the context of globalisation and integration.

HCM City targets 10% growth | Look At Vietnam

HCM City aims to achieve a Gross Domestic Product growth rate of at least 10 per cent next year.
HCM City is still the country’s biggest economic and service hub. The city aims to achieve a Gross Domestic Product growth rate of at least 10 per cent next year.
The target is one of the 22 points of an ambitious socio-economic development blueprint for 2010 announced by the city People’s Committee yesterday, December 28. The points include six for economic development, eight for social affairs and eight for environment-related issues.
Other important economic goals are export value growth of 12.7 per cent and a total of VND172 trillion (US$9.3 billion) in social development investment capital, accounting for 41.8 per cent of the GDP.
The city aims to keep the consumer price index (CPI) under 7 per cent while reducing its unemployment rate to less than 5.1 per cent and poverty rate to 7.2 per cent.
About 96 per cent of the city’s urban population will get access to clean water while this rate would be 85 per cent in rural areas, according to the plan, and all major acts of environmental pollution will be strictly penalised.
The points also include standard wastewater treatment systems for all city industrial parks and export processing zones.
According to Mayor Le Hoang Quan, to achieve the goals set, the city will focus its economy on services, industry and agriculture.
For the service sector, the most competitive and highest value added services will be given priority, while various economic sectors will be encouraged to invest in services to make them more efficient.
Diversifying domestic tourism products and creating new tourist destinations are still on the agenda to help reach the target of 3.5 million foreign tourists to the city (up 11 per cent), and 6 million domestic tourists (up 13 per cent) in 2010.
Increasing trade promotion at overseas markets, which have larger purchasing powers, and improving competitiveness will aid local enterprises to find larger market shares at home and abroad.
The blueprint signals more attention to develop the construction industry and the building material production industries, as they have potential to boost the city’s industrial production value.
Intensive investments into top value-adding high-tech industries and farming technology are also on the list.
The city would continue its investment in a high-tech agriculture park and research into developing it into a large-scale seedlings development centre to supply the whole region, Quan said.
The city’s socio-economic achievements in 2009:
- GDP growth rate: 8 per cent- Total budget revenues: VND128.47 trillion, up 3.8 per cent- Per capita GDP: over VND46.3 million, up 21.1 per cent.- Export value: US$12.1 billion, up by 1.3 per cent- Retail sales and service turnover: VND291.59 trillion, up 19.2 per cent.- Transport service: up 17.9 per cent - Industrial production value: up 6.3 per cent- Agriculture-forestry-fisheries production value: up 2.7 per cent.- 289,600 new jobs created- Crime rate: down 10 per cent- Tourists: 10.52 million
Creating a transparent, open and fair business environment remains to be a target in the next year with more simplified administrative procedures to boost trade and combat corruption.
The city would also place controls on prices and activities of finance, monetary, real estate, securities and gold markets, he said.
The role of state management in environmental affairs will be strengthened to minimise damages caused by global climate change, according to the plan. The city will also increase investment to realise more social security policies and poverty reduction programmes.
In 2010, the city hopes to attain total budget revenues of VND144.3 trillion (US$7.80 billion), up by 17.88 per cent from 2009 with VND14 trillion (nearly $760 million) being planned for investment development activities.
Continuous growth
This year, despite the impact of the global economic recession, HCM City has managed to fulfil 18 out of its 20 set goals for social economic development.
With the whole year economic growth rate of 8 per cent, high capital mobilisation and more investors, HCM City ranks 13th out 63 provinces and cities nationwide in terms of competitiveness.
VietNamNet/Viet Nam News

Vietnam's Devaluation Alarms Rival Exporters

Vietnam's Devaluation Alarms Rival Exporters - WSJ.com: "Vietnam's decision to devalue its currency raises tensions across Asia as the region's export-driven economies jostle for an edge amid a slow recovery in orders from the U.S. and Europe.

Vietnam shaved 5% off the value of its currency, the dong, on Wednesday, its third devaluation since June 2008. It also increased interest rates by one percentage point, to 8%. The moves were driven primarily by domestic concerns, including a need to combat speculative pressure that has weighed on Vietnam's economy for more than a year.

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Agence France-Presse/Getty Images

A factory worker in the northern Vietnamese province of Vinh Phuc helps assemble a motor scooter. Vietnam's currency devaluation this week gives it an edge over other Asian exporters.
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The devaluation makes Vietnam's manufactured goods cheaper than those of many other Asian countries, improving its relative position in global trade. That puts Vietnam in the same camp as China, another country that has kept its currency weak compared with its neighbors, sparking complaints from manufacturers and leaders in the region who want China to let its currency, the yuan, rise.

Thai Finance Minister Korn Chatikavanij, whose country has spent at least $15 billion this year to slow the appreciation of its currency and keep it competitive with the yuan, said in a phone interview Wednesday that Thailand could see some 'marginal impact' in low-margin export industries such as textiles after Vietnam's devaluation, but that he was hopeful the broader Thai economy wouldn't be buffeted too much.

Industry leaders, however, are worried. 'The Thai baht is rising too quickly in comparison with some of our competitors, and we in the private sector are telling the government that it is rising too quickly -- but it seems they aren't doing anything,' said Thamrong Tritiprasert, chairman of the footwear section of the Federation of Thai Industries, a trade association.
[vietnam currency]

He said it wasn't just Thailand's shoe industry that would suffer because of Vietnam's devaluation, but potentially all industries. The two countries compete for markets for agricultural products such as rice.

Economists say Vietnam's move is unlikely to trigger copycat devaluations elsewhere. Vietnam's economy is relatively small, and most Asian countries are more concerned with currency policies in China -- a much bigger rival than Vietnam.

But Vietnam's actions matter a great deal in some industries, including textiles and agriculture, and could accelerate a longer-term shift of manufacturing to the country, which already has the advantage of a large and low-cost labor force. Vietnam's exports grew faster in percentage terms than other Asian economies' in recent years, and the country attracted more foreign direct investment in 2007 than its much-larger rival Thailand. It is among the world's top exporters of rice, coffee and shrimp.

Vietnam has economic problems, though, many of which contributed to the decision to devalue. In sharp contrast to many other emerging markets, whose currencies have gained value against the dollar this year, Vietnam continues to face severe downward pressure on its currency, in part because it is one of Asia's only economies with both a fiscal budget deficit and a current-account deficit.

Vietnam's problems stem from years of rapid expansion from 2000 to 2007, when gross domestic product grew an average of 7.5% a year, making the country a darling of global investors. Policy makers were unable to manage the massive inflows of capital, and inflation began, reaching a peak of 28% in August 2008 and threatening an economic crisis.

The global credit crunch helped to ease inflation by depressing oil and food prices. But it also knocked out much of the foreign direct investment on which Vietnam had come to depend, and exports slumped. The trade deficit ballooned, reaching $10.2 billion in the first 11 months of the year, while dollar sales aimed at stabilizing the dong shrunk foreign reserves. All that -- coupled with billions of dollars in spending on economic stimulus -- added to the pressure on the dong.
video
Vietnam's Currency Moves
3:01

A decision to devalue the dong against the dollar and a hike in interest rates point to strains on Vietnam's economy. Hong Kong bureau chief Peter Stein and Asian economics reporter Alex Frangos discuss what prompted the actions.

Wednesday's devaluation, in which the central bank lowered the midpoint of the dong's daily trading range 5.16%, was an attempt to help stabilize the situation. The accompanying one-percentage-point rise in interest rates, in effect Dec. 1, was designed to make sure there will be no further depreciation.

'This time our solution is to strongly intervene,' State Bank of Vietnam Governor Nguyen Van Giau said.

Many economists say they are skeptical that will be enough to halt the downward pressure on the dong. 'The authorities are buying themselves some time with this move,' says Tim Condon, head of Asian research at ING in Singapore. But Vietnam needs the global recovery to pick up steam to boost exports and reduce the country's trade and balance-of-payments deficits before the situation can be remedied, he and others say.

Growth is still relatively strong in Vietnam, though, and the lower currency values could give a further shot to exporters. The World Bank expects Vietnam's GDP to climb 5.5% this year, compared with 6.2% in 2008."

Housing Price in Hanoi so steep, few can afford

Housing prices are so steep in suburban Hanoi that few people will ever be able to buy a place of their own.


A worker at her rent house in Hanoi.
The average income in the national capital is between VND10 million and VND15 million, while the cheapest dwelling of 50 square meters costs VND300 million, according to the Hanoi Socioeconomic Research and Development Institute.

“That means a person would have to work for 25 to 30 years, and spend nothing in that time, to save up for a house,” the institute’s head, Nguyen Dinh Duong, said at a conference held by the Hanoi Construction Association on Friday.

“So a huge number of urban residents will never buy a home.”

The alternative, renting, is nearly as big a problem.

There are now 55 industrial zones in Hanoi, but almost none supply accommodation for their workers, Do Quoc Tuan, deputy director of Hanoi Construction Department, told the audience.

According to his department, only 30 percent of state workers have been provided with housing, and the college and university dormitories can barely accommodate 20 percent of the city’s 800,000 tertiary students.

Hanoi will need investment of VND43.5 trillion to build enough housing for 60 percent of the students, 50 percent of the workers and five percent of low-income earners in the built-up area by 2015, Tuan said.

His superior, Do Xuan Anh, said the task ahead was beset by “difficulties with policies to develop home funds and ensure investors get their money back.”

“Housing development efforts are yet to meet the demand of young laborers and young married couples,” he said.

In Hanoi so far this year, construction of 800 houses for low-income earners has begun in Long Bien District, and plans have been made to build housing for college students on nearly six hectares of land in two new satellite towns in Thanh Tri and Tu Liem districts.

Duong said housing could be made more affordable by reducing the average area to 30 square meters or less and using inexpensive building materials.

Nguyen Trong Ninh, deputy head of the Housing and Real Estate Management Department of the Ministry of Construction, suggested the government either invest directly to build housing for rent to low-income earners, or supply property developers with land to do the same.

Duong gave the idea his support and suggested the housing problem might be eased if low-income earners accepted the idea of renting and gave up all thought of ever owning a place of their own.

VietNamNet/TN

Economic Crisis Vietnamese farmers

A research institute’s report on the impacts of the global economic crisis on Vietnamese farmers says that over 60 percent are strongly affected. The institute’s director argues that farmers need protection against land conversions and help in innovating.

The Institute of Policy and Strategy (IPSARD) is a research arm of Ministry of Agriculture and Rural Development. Its Agricultural Development Centre director, Dr. Vu Trong Binh, told Tuoi Tre Daily that the state must protect farmers better against the market’s ‘attacking arrows.’

“When we did our research,” Binh said, “we saw that almost all export items in the rural area, especially luxury products like cashews, handicrafts, even seafood products have strongly recessed. A lot of cultivated land is left fallow. There has been a more than 20 percent reduction of investment in agriculture.”

Tuoi Tre: According to the institute’s research, how many immigrant workers have had to return home because of economic recession?

Dr. Binh: We surveyed four provinces. We found that 22 percent of the people who had left to work elsewhere [principally in urban areas – ed.] have returned home because there was no more work. The economic crisis has also hit Vietnam’s labour exports. In the first four months of 2009, 17 percent of guest workers had to return to Vietnam before their labor contracts expired.

In the four provinces we surveyed, 37 percent of the workers who lost jobs and returned home had been factory workers. At home, only 6 percent of returned laborers found new jobs in the service and industrial sectors, 5.3 percent found farming jobs and the rest were unemployed.

TT: What are the direct impacts of the crisis on farmers?

Binh: The number of villages that have food-short households is up by 9 percent, particularly in the mountain regions.

The economic recession has forced down the prices of agricultural products. Some 72 percent of the villages said that they had to sell agricultural products for less, an average reduction of 14 percent from 2008. Fourteen percent of villages reported that they had unmarketable agricultural products. In the winter-spring crop of 2009, 4.9 percent of farmland was left unexploited. However, the total area used for aquaculture in 2009 is around 0.7 percent higher than 2008.

Economic crisis has forced farm households to cut down their spending, especially outlays for construction or for items like meat and fish. We saw this especially in Ninh Binh and Binh Thuan.

TT: What kind of assistance do farmers need?

Binh: Farmers are still very vulnerable. They need to be protected better. Many people applaud agricultural development but they don’t point out clearly that who is benefitting from that development. It is a very dangerous situation when projects that help farmers escape from agricultural production are encouraged.

Industrial parks and infrastructure are being built on prime land. In some provinces, the local governments are all too ready to move hundreds of families to make space for an industrial project. Farmers are in effect discarded and they have to face land-related difficulties. The construction of golf courses is a typical example.

TT: Do you think that this crisis offers opportunity to modernize the countryside and agriculture?

Binh: Crisis is the time for structural innovations. That’s something to hope for because it paves the way to the future. I think that government assistance policy for farmers should include structural adjustments. For example, the government can give priority to farmer families that seriously apply the rules on product quality, those who are capable of meeting technical requirements for exports, those who use modern technology to produce highly competitive agricultural products. At the least, we should support farms that employ a lot of workers, businesses that don’t break contracts with farmers and concientiously pay social insurance for their workers.

In this way, the crisis will help eliminate businesses that don’t catch up with the trend of development. At this moment, we are implementing the assistance policy on a level ground, rather than tilt toward restructuring that forms new paths and promotes new values.

TT: Research has shown that losing land is a traumatic event in a farmers’ life. What can be done to help farmers cope with the current wave of taking agricultural land for industrial production?

Hardly any farmer who loses land can afford to buy more farmland. Many countries have plans which show clearly which areas are for agriculture and which for urban development. Such land-use plans are designed for 10-20 years and it is difficult to change them. To change these plans, it must be proven that a new plan is better than the old ones.

We need to figure out where society’s interest lies. It should include a policy to ensure farms belong to the people who really want to develop agriculture.

VietNamNet/TT

Economic slowdown curtails Tet spending

With relish, Lu Thu Trang filled her shopping cart with Lunar New Year treats.
Reaching for some imported Belgian chocolates, she did a double take and took cheaper locally-made candies instead.
“I have no Tet bonus this year as the global economic recession has slashed sales at the company I work for,” said Trang, who was shopping at the Big C supermarket in Hanoi.
“So, I’m buying only the essential Tet foods this New Year,” said the 32-year-old personnel clerk from a Thai-invested company in the capital.
Trang is only one of many whose holiday spending has been cut by the economic slowdown. A number of firms, especially in textiles, garment, footwear and farm products, have lowered Tet bonuses for their employees. Others have even instituted lay-offs or cut salaries due to the difficult financial situation.
Decreasing purchasing power, slower economic development growth and an increasing unemployment rate are all expected to lead to only modest retail market turnovers during the holiday shopping season this year.
Traditionally, both prices and sales surge during Tet season as consumers stock up on new items for the New Year.
But this year might be different.
Deputy General Director of Big C in Hanoi Nguyen Thai Dung said, “Our turnover growth this Tet will not be high; an estimated 10 percent compared to 25-30 percent during previous Tets.”
Some supermarkets might not even make small revenue growths over the holidays as local consumers have tightened their belts in the face of economic difficulties.
“The market this year is gloomy due to decreasing purchasing power. During the current economic downturn, it’s difficult for supermarkets to post turnover growth,” said Tran Manh Canh, deputy general director of the Hanoi Trading Corp. (Hapro).
“We’re hoping sales grow as Tet [which falls on January 26] approaches.”
Essential products such as grain have been the bestsellers so far, Dung said, adding that locally-made products are selling while imported items are moving much slower.
Hapro’s Canh said the price of most products had not yet increased and sales of standard items such as candies, beverages and tobacco have remained unchanged against the previous Tet.
The somber commercial atmosphere has hit not only supermarkets and upscale department stores, but also street-side shops selling locally-made items to low- and medium-income earners.
“Business has been difficult this year. We’ve seen a remarkable drop in customers and our selling volume has dropped by 30 percent this Tet,” said Nguyen Thu Vinh, owner of a wholesale candy shop on Bach Mai
Street, as he sadly pointed to piles of goods overflowing out the front door.
To fight the down-beat atmosphere, supermarkets and shops are offering big discounts, gifts and lucky draws. Big C has offered discounts of 10-30 percent on over 700 items while Hapro Mart has implemented 5-30 percent sales on hundreds of products.
Meanwhile, a wide range of local candy producers such as Kinh Do, Bibica, Hai Ha and Vinabico have offered discounts of 5-10 percent on their products.
Still expecting Tet sales to swell despite the gloomy economic forecast, most supermarkets have stocked up on extra goods and have thus far left prices unchanged.
“We’ve set aside VND570 billion (US$33.53 million) to increase our goods supply this season. Our supply is estimated to be 15 percent higher than last Tet,” said Hapro’s Canh.
“This is a good time to buy as everything’s on sale and the shelves are packed,” said 25-year-old Nguyen Le Huong, an accountant at a state-owned commercial bank, as she squeezed out of the narrow Metro Supermarket doorway with a cart full of fruits, vegetables, rice and clothes.
However, the sales and promotions are not enough to attract many poorer locals, especially those working for small producers. Prices are still too high compared to their incomes, which have gotten smaller since the economic crisis began.
“My income is not enough for daily meals, let alone Tet. Everything, despite the sales, is still too expensive,” Nguyen Kim Thu, a seamstress at a private garment company said as she selected some pork at an open-air market along a crowded and dusty street.
Reported by Ngan

Vietnam economy faces storm, foreign business groups warn

Worried foreign business groups warned yesterday that Vietnam, a darling of foreign investors until a year ago, now faces "a perfect storm" of challenges amid the global economic turmoil.
The communist government must drive forward long-stalled reforms or risk dropping further behind its Asian competitors, major foreign chambers of commerce warned at the Vietnam Business Forum (VBF) conference in Hanoi.
"Economic news across the world is almost uniformly bad," said Michael Pease, chairman of the American Chamber of Commerce in Vietnam.
"The availability of debt and equity for investment into Vietnam has shrunk dramatically over the past few months. There is entrenched pessimism about the prospects of many announced projects moving forward to completion."
Lawyer Fred Burke, delivering the VBF report on the crucial manufacturing sector, warned that Vietnam's manufacturing sector was just beginning to feel the effects of the global financial meltdown.

"Based on an export-led growth model, our manufacturers and other exporters are confronting a 'perfect storm' of external challenges," he told the group of several hundred business and Vietnamese government officials.
Key threats for the developing economy, he said, included a drastic drop in demand in major export markets for manufactured goods and plummeting world prices of commodities and crude oil, which Vietnam exports.
"The furniture and electronics industries have been the first hit, but even garments and footwear and sea products cannot be far behind as global demand continues to weaken," said Burke, of law firm Baker and McKenzie.
Burke warned of the risk of "serious foreign exchange shortages" in coming months as foreign investment projects are delayed or cancelled, tourism drops off and overseas Vietnamese workers send home less money.

Vietnam takes measures to prevent economic decline _English_Xinhua

HANOI, Nov. 28 (Xinhua) -- Vietnamese Prime Minister Nguyen Tan Dung has said the government is taking measures to prevent the national economic decline in production and trade so as to maintain economic growth, the Vietnam News reported on Friday.

Dung made these remarks at a government meeting on Thursday, during which government officials said that Vietnam's economic situation is showing signs of slump, reflecting on sectors of production and trade, domestic consumption, export, investment andemployment.

Dung highlighted five groups of measures including pushing up production and export, boosting investment and consumption, implementing financial and monetary policies, improving social security, and enhancing State management and interventions.

Government officials also suggested a number of solutions to prevent economic downturn in 2009.

They suggested that the corporate tax should be reduced to 25 percent and tax rate for small and medium sized enterprises by 30 percent or more, the Law on Personal Income Tax be pushed back to Jul. 1 2009 and bank interest rates be reduced to below ten percent.

Local Toyota sales drop almost half as crisis hits Cambodia _Asia

Sales of Toyota vehicles, among the most popular in Cambodia, have plummeted almost 50 percent since May, national media reported Thursday, citing Kong Nuon, president of Cambodia's only Toyota distributor TTHK Co Ltd.
"The real estate recession is the main cause for the sales decline because people are not earning extra cash from land sales," he was quoted by the Phnom Penh Post as saying.
"Demand for cars has declined a lot," he added.
He said Toyota had hoped to sell about 2,000 cars this year, but has achieved sales of only 1,200 so far.
He said he expected next year's sales to decline by another 20 to 30 percent.
Despite the slump, the company expects to be able to withstand the tough economic climate, he said.
"We don't plan to lay off our staff, but we will cut expenses by about 10 percent," Kong Nuon said.
Meanwhile, Ngorn Saing, deputy general manager of RM Asia Co Ltd, the second largest automobile importer, told the Post that sales of Ford brand cars have declined about 10 percent within the last few months.
Ngorn Saing said the company expected to sell 500 Ford cars in 2008, but has cut its forecast to 450.
Chan Sophal, president of the Cambodia Economic Association, said the decline in automobile sales is mainly due to the slow real estate market.
"In the past, the auto demand has been high because people had money from selling their land and from speculation, but now the land market is in crisis," he said.

Seeking a panorama for Vietnam’s economy

Normal people don’t trade stocks, don’t invest in real estate, don’t import luxury cars – so why do they have to suffer the current difficulties?

When international financial institutions make economic analyses, they make comments based on the viewpoint of protecting investors, their customers, so is there anybody to analyse economic prospects for the common interests or the interests of normal people who don’t hold any US dollars or shares?

While foreign reports focus on financial matters, Vietnam needs a panorama of the economy, based on more basic factors.

Trade deficit: After reaching the record high level of US$14.4 billion after the first five months of 2008, the trade deficit is slowing down due to different factors. Last year share prices surged and many people spent freely, which was proven through statistics of imported cars and luxury commodities.

As money is scarce at present, Vietnam can’t import a great deal of commodities. The quiet real estate market will also result in a lower demand for construction materials. There is some evidence for these propositions: imported cars are selling slowly; imported steel is being re-exported; the sales of locally-assembled cars in May fell by nearly 1,800 units compared to April, which will result in fewer car components being imported.

While the exchange rate is fluctuating towards the trend that the US dollar is revaluating over the VND, importers are having difficulties buying USD so imported goods are more expensive. But how do we encourage exports to reduce the trade deficit when many export items rely on imported materials?

Flexibility in the exchange rate is a way to enhance the competitiveness of Vietnamese goods in the international market – a flexibility in the value of the VND based on a basket of foreign currencies of Vietnam’s fellow traders, not only on the USD. The monetary and public finance tightening policy, if it is performed seriously and resolutely, will also help lessen the pressure of the trade deficit in the remaining months of 2008.

Actually, the trade deficit is going down: from $3.3 billion in March to $2.8 in April and $2.6 billion in May (source: Barclays Capital). This reduction needs to be boosted to create positive influences on other norms, especially the balance of payment.

Inflation: it is difficult for Vietnam to take measures to curb inflation while gas and food prices are increasing highly in the world, which also cause worries of inflation for other countries in the region. Nevertheless, as many experts have said, inflation in Vietnam is much higher because of its loose monetary policy in previous years. Now as credit is being tightened, the supply of money isn’t increasing remarkably; inflation will likely decrease in the upcoming time when this policy begins taking effect.

The World Bank’s data shows that the money supply has fallen by 10% year on year, consistent with a decrease of imports. According to the WB’s Taking Stock report, which was released at the recent mid-term Consultative Group Meeting in Sapa, Lao Cai, if the food factor is excluded, the price index has been falling since March.

It is necessary to note that the people’s expectations for inflation play a significant role in deciding the price tendency. Therefore, the interest rate policy must be linked with inflation control. Interest rates must be raised to ensure profit for depositors, and thus, the monetary policy would be able to take effect quickly.

Other norms: agricultural, forestry and aquatic production are still growing 2.9% year on year. However, Vietnam seems to be not taking advantage of the increase of food prices in the world so farmers don’t benefit much. In fact, they are suffering difficulties because businesses don’t have money to buy their products to export.

Industrial production value in the past five months maintained a growth rate of 16.4%, except for the construction industry. The WB’s report Taking Stock says though Vietnam has reduced its GDP growth rate target this year to 7%, GDP in 2008 will be still higher than the country’s expected number, based on the growth impetus of 2007.

“Though the development pace of the construction sector will decrease to zero percent in the remaining months of the year while other industries will maintain the growth rates of quarter 1, GDP growth rate will be around 7.5% in 2008,” the report says. Though Vietnam will have to pay to struggle against inflation, in the short term, the cost of the growth rate will be not too high. But the government must definitely say ‘no’ to the pressure of maintaining a high growth rate from industries and provinces.

As psychological factors play an important role in stabilising the market, we should review some financial and monetary factors to have an objective view.

Balance of payment: According to Prime Minister Nguyen Tan Dung in his talks with David Fernandez, JP Morgan Chase’s chief economist, Vietnam’s balance of payment in the first five months of 2008 was in surplus, around $1 billion, and it will be $2-3 billion for 2008. Disbursement of FDI projects is over $1 billion a month.

The WB’s report also shows similar figures: deficit of current accounts in 2008 is estimated at $11.3 billion and it will be compensated for by surplus of capital account of around $14.8 billion. Therefore, the balance of payment will be in surplus of around $3.4 billion. These are the figures that the market needs to reject rumours of Vietnam’s crisis of payment balance (see the below table).

However, from this angle, the market needs flexible forex policies to contribute to reducing the trade deficit and enhance the competitiveness of Vietnamese commodities, raising incomes of workers in the foreign-invested sector, whose minimum salary is calculated based on the USD, and revoking speculation tools of the foreign financial circle. The inflation rate must be remembered when the government conducts the exchange rate, not only for the USD but also other foreign currencies.

Impacts on people: financially-powerful interest groups have a strong voice while interest groups representing the poor, especially farmers, nearly don’t exist.

Policy conduct must be kept out of foreign investors’ influences. Vietnam’s statement that it will not devaluate the VND suddenly goes to that direction because if the VND devaluates, there will be strong impacts on inflation, cause difficulties for the monetary tightening policy and the poor will be the major suffers.

Up to 73% of the population lives in the countryside. If policies enhance farmers’ purchasing power, the local market will be the support pillar for small-and medium-sized enterprises.

Portfolio investment flow: foreign investors are holding around 25% of listed firms’ stocks, both on the official and the over-the-counter markets. So the total portfolio investment capital is around $7-8 billion and most of it belongs to closed funds. There is around $2.5 billion of hot capital, plus around $5 billion of bonds owned by foreigners.

“Vietnam’s foreign currency reserve is equivalent to 360% of foreign debts,” comments Dragon Capital. Information about the high increase of NFD (non-deliverable forward) USD/VND exchange rate is not related to the real exchange rate and the people must be informed about this because the fluctuations in the stock market and the forex market are mainly caused by the psychologies of local investors.

The most important thing is once we define the reasons for the current situation are the monetary, fiscal policies and state-owned corporations’ investment, we have to persistently and resolutely perform set solutions.

It is necessary to control the impact of financial activities on production and business. The two have close relations, but in Vietnam financial activities have just emerged in recent years.

Vietnam’s balance of payment (million USD)

2007
2008 (forecast)
A. Balance of current account
-6.992
-11.346
Trade balance (FOB)
-10.360
-16.207
Transportation, insurance, service
-894
-908
Foreign investors’ profit remittance
-2.168
-2.432
Overseas Vietnamese’s remittance
6.430
8.200
B. Balance of capital account
17.541
14.847
FDI (disbursement)
6.550
5.800
Medium- and long-term loans
2.045
2.468
Short-term loans
79
4
Portfolio investment
6.243
1.985
Deposits
2.624
4.500
C. Error
-381
0
D. Overall balance (=A+B+C)
10.168
3.501
In which: increase of foreign currency reserve
10.144
3.475
Source: State Bank of Vietnam 2007 and the WB’s forecast for 2008




































(Source: TBKTSG