WTO not the cause of inflation, says economic expert

Tuesday, April 15, 2008
WTO not the cause of inflation, says economic expert
Viet Nam’s inflation crisis is caused by long-term global problems, not WTO membership, a senior economic expert and former head of the Central Institute for Economic Management Le Dang Doanh says in an interview.
The government has implemented several measures to battle inflation.
At the conference “The Impact of WTO participation on Vietnamese Economics and Society,” which you recently attended, several economic experts agreed that the country’s participation in the WTO should not be blamed for inflation. What are your thoughts?
Le Dang Doanh: We should look at the country’s economic picture as a whole, and not peel off one leading cause of this situation – either Vietnam’s participation in the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA) or its bilateral trade agreement with America.
It’s important to realize that Vietnam had initiated a series of economic reforms before joining WTO and we did not see their effects until after the country’s admittance to the organization.

It’s unfortunate that following Viet Nam’s accession to the WTO, the world crude oil price topped US$110 per barrel and rice prices also jumped.

The prices of essential raw materials climbed as well, many people mistakenly thought that Vietnam had suffered the consequences of export inflation because of the WTO.

I certainly disagree.

Without being admitted to the WTO, the magnitude of these problems could even be even worse.

We might have just continued importing gasoline and oil products while watching prices climb and it would have been even more difficult to battle inflation.

You mentioned at least twice before that we have been slow in reacting to this type of economic turmoil. How do you assess the government’s reactions to inflation this time around?

I think in 2007, we did not respond quickly and effectively enough and that’s why inflation has risen this high.

By the first quarter of 2008, we realized that it was time to act but there weren’t any coordinated measures among government agencies and ministries.

Some of the measures were counter productive, including the central bank’s request for interest rate hikes, the increase of banks’ reserve requirements and the issuance of compulsory Treasury bills while not buying US dollars from local exporters.

I’ve realized that the government has made some changes, however, it’s critical for government officials to consult companies before fixing any policy.

In this inflation battle, no monetary policy can satisfy all components of the economy.

The government must lead the way by example.

It could do this by saving, through lowering the amount of public funds being poured into stalled state projects.

The flow of such funds should be announced to the National Assembly, to each people’s committee and to the public.

We should strive to stabilize our growth rate instead of continuing with growth we can’t keep up with.

Can you comment on reducing our growth rate from 9% to 7.5%?

I want to emphasize that a large number of world economies are slumping.

Even the world’s biggest economic player, the United States, has adjusted its growth rate goal, so it’s inevitable that we adjust ours.

Since our economy depends 70% on exporting, we are obviously hurt when our export markets are hurt.

I think the maximum growth rate we could strive for is 7.5% – not 8 or 8.5%.

The public should sympathize with the government in its efforts.

It’s possible that the situation could get worse over the second quarter. (Lao Dong)

MobiFone to apply soon for 3G licence

Tuesday, April 15, 2008
MobiFone to apply soon for 3G licence
The Viet Nam Mobile Telecom Services Company (VMS) which operates the Mobifone network has announced it will apply for a 3G licence next month.
According to VMS General Director Le Ngoc Minh, the Ministry of Information and Communications will kick off its 3G licensing process in May.
"We’ve almost fulfilled preparations for financial resources, and an infrastructural platform and management to offer 3G services in the near future," said Minh.
MobiFone is collaborating with France Telecom to showcase the latter’s 3G services during an exhibition at the Phu Tho Stadium in District 11 that will run until tomorrow.
The expo is part of the on-going French Week in the city.
"We’re confident that our group has the right experience and expertise to become MobiFone’s strategic partner," said Anne Bouverot, France Telecom’s executive vice-president for International Business Development.

The French firm has provided 3G services to European customers since 2004, mostly under the Orange brand.

With their hand sets, its subscribers have access to services including 62 TV channels, over 20 radio stations and a music catalogue with more than one million titles and online games. (VNS)

Group set up to supervise monetary market

Tuesday, April 15, 2008
Group set up to supervise monetary market
The governor of the State Bank of Viet Nam has signed a decision on the establishment of a Monetary Market Supervision Group headed by standing deputy governor Tran Minh Tuan.
The move is among the bank’s activities to implement the Prime Minister’s instructions on measures to curb inflation and control price hike in 2008.
The group is responsible to supervise the monetary market, update market information and offer analysis and assessment of the market situation so as to provide advisory services to the SBV governor to release suitable measures.
Mr Duong Quoc Anh, head of the Department for Banks and Non-bank Credit Organisations is the standing deputy head of the group. Other members of the group include leaders of seven units: the Department of Foreign Exchanges Management, SBV’s Inspectorate, the Department of Monetary Policies, Credit Department, the SBV Transaction Centre, and SBV Branches in Hanoi and Ho Chi Minh City.

MB and SUDICO join hands

Tuesday, April 15, 2008
MB and SUDICO join hands
The Military Commercial Joint Stock Bank (MB) and Song Da Industrial And Urban Investment Joint Stock Co, SUDICO, have lately inked a cooperative memorandum of understanding in Hanoi.
Under the agreement, MB will directly or together with other credit institutions provide capital for SUDICO to carry out property projects.
The bank’s services and insurance programmes offered through its service will be made prior to SUDICO’s staff and customers.
In return, MB ATMs will be placed in buildings of SUDICO.

State giants mull floating in 2008

Saturday, April 12, 2008
State giants mull floating in 2008
Many investors had ever been eager to participate into bidding such large-scaled businesses as Viet Nam Bank for Foreign Trade (Vietcombank), PetroVietnam Financial Corp (PVFC), Bao Viet Finance and Insurance Corp, Viet Nam Construction Import and Export Corp (Vinaconex) with a hope of gaining big profits. However, the stock market has been presenting a gloomy move, disappointing many people. How will the mentioned businesses realise its listing plans and whether will 2008 see listing of many giants in the stock market?
According information of Vietcombank as well as announcements of the bank's officials, the route for enhancing liquidity of Vietcombank shares is very clear. Namely, the bank will hold a shareholder's meeting in April and list shares in the HCM City Stock Exchange in June. While there has not been yet any foreign strategic investor eyeing Vietcombank, Nguyen Hoa binh, Vietcombank's executive chair, talked with Dau Tu Chung Khoan newspaper in February that in case Vietcombank's shareholder structure fails to meet listing requirements in the HCM City floor, Vietcombank will ask for permission from the prime minister for listing its shares as a exceptional case. Meanwhile, Nguyen Thu Ha, vice general director of Vietcombank, said that the bank does not forget what it has said. Vietcombank is preparing necessary documents as well as procedures for a shareholder's meeting slated for April. Vietcombank's listing might fail to follow its scheme, however, Vietcombank is asking for instructions from the government. Regarding seeking foreign partners, Ha said, Vietcombank is resuming negotiations with two big financial organisations. Nevertheless, movements in the stock market and difficulties of the economy seemed not to favour Vietcombank.
Another large-scaled financial institution, Bao Viet Finance and Insurance Group, also planned to list shares in 2008, which had been approved at the first shareholder's meeting of the group at the end of 2007. According to Le Quang Binh, Bao Viet's executive chair, going on the bourse will not be difficult. What is important is selecting proper time because the group has signed a cooperation deal with the HCM City Stock Exchange. Currently, the group's management board is considering different proposals to draw out specific plans.
Ahead of the shareholder's meeting to be held on April 17, Vinaconex has also discussed listing plans in 2008, which Vinaconex will ask for opinions from shareholders at the meeting.. As scheduled, Vinaconex will raise its chartered capital from two trillion dong to three trillion dong, a large portion of which will be set aside for foreign strategic investors through consultancy of Credit Suisse. Vinaconex's officials said that the company itself has never promised to list shares in 2007 but that was in fact decisions and wishes of the Construction Ministry, the management body of the company before it was equitised. However, listing now becomes necessary requirements of the company. (DTCK)

Binh Dinh Minerals targets 42% dividend in FY2008

Saturday, April 12, 2008
Binh Dinh Minerals targets 42% dividend in FY2008
The Ho Chi Minh Stock Exchange listed firm (Coded BMC), Binh Dinh Minerals Joint Stock Co recently passed the plan to issue extra 2,360,520 bonus shares to existing shareholders with a ratio of two new shares for five shares held in order to hike its chartered capital in 2008.
This year the company also targets to reach 140 billion dong in revenue, 45 billion dong in after-tax profit, and a dividend of 30%.
Also the firm will invest 42 billion dong in building Binh Dinh Titanium Slag Factory Phase II.

HUD-Tasco to go public

Saturday, April 12, 2008
HUD-Tasco to go public
5.5 million HUT-coded shares of Tasco Joint Stock Co (Hud-Tasco) is to be officially traded on the Hanoi Securities Transaction Centre (HaSTC) today April 11, marking the first company in the Urban and Housing Development Investment Corp (HUD) listing shares on the Vietnamese securities trading floor.
After the list, Tasco plan to offer more shares to draw investment capital for its projects and seek business partners.
At present, the company is carrying out some BOT, BT and BOO projects like the project to expand the national road No 10 and the project to build Nam Dinh-My Loc route.
In Hanoi, Tasco is preparing to start construction on building the route from Le Duc Tho to Xuan Phuong new urban area under the model of BT contract.

Indochina Capital to spend US$25m on buying ITC-coded shares

Saturday, April 12, 2008
Indochina Capital to spend US$25m on buying ITC-coded shares
Indochina Capital Group, ICC's securities investment fund, recently signed an agreement with ITC International Transportation Joint Stock Co (coded ITC), the Viet Nam's biggest transportation firm, to buy ITC-coded shares worth US$25 million.
According to Indochina Capital, the agreement marked the first participation and contribution of Indochina Capital in field of sea transportation in Viet Nam. At the same time, the agreement also showed the Indochina Capital's orientation to invest in private shares.
Being the strategic investor, Indochina Capital pledged to provide long-term capital and support ITC in key business activities.
ITC with the headquarters in HCM City specialises in dry goods transportation and ranks the fourth position amongst domestic sea transportation firms.

PVFC signs business cooperation with Song Da subsidiaries

Saturday, April 12, 2008
PetroVietnam Finance Corp (PVFC) signed business cooperation contracts with two partners namely Song Da Transportation and Commerce Joint Stock Co (Sotraco) and Song Da Viet Duc Investment Joint Stock Co on April 9.
Under it, PVFC and Sotraco pledged to jointly invest capital in key projects like energy and mineral. PVFC will also give preferential credits to Sotraco under models of short-medium-long-terms. At the same time, these two signatories also cooperate in the fields of account management, monetary and banking consultancy services and capital arrangement.
Meanwhile, with the partner Song Da Viet Duc, PVFC will also provide credit services and arrange capital with models of short-medium-long-terms. The two signatories will cooperate in such fields as mandate capital management, account management and other monetary and banking consultancy services.
Recently, PVFC and Song Da Viet Duc are studying to jointly invest in the project to rebuild Nghia Tan collective area in Hanoi's Cau Giay district on an area of 45 hectares with the total investment capital of three trillion dong in the phase of 2009-2015. (DTCK)

Financial Market: No Abusing Administrative Measures!

Saturday, April 12, 2008
The January-March consumer price index was at a 12-year high of 9.19 per cent. Taming inflation is now the top priority of the Government. Recognising the financial market and impacts of new policies to promote the rule of the market and to stabilise the consumer price is the topic of the interview between Dr Nguyen Dai Lai, senior economist of State Bank, and Viet Nam Business Forum. By Chau An.
It is undeniable that the Vietnamese financial market now has problems. Would you mind telling your viewpoints about this situation?
The Government has introduced important policies to cope with inflation. The US dollar badly depreciated but it suddenly appreciated on fear of the flight of indirect investment flows. The stock market is operated under the administrative regime. There are different perspectives on this phenomenon.
I think that the escalating consumer price index is attributable to two reasons: “inflation import” and demand surge. Regarding the inflation import, we know that the US Fed applies the weak US dollar to cope with the slowdown of the US economy. Soaring gold and oil prices result from the US economic recession and political tensions in some areas in the world. International payment in USD and the dollarization will cause inflation to soar when the US dollar depreciates.
Regarding domestic demand, the GDP growth of Vietnam mainly relies on investment increase. However, the investment is ineffective. The ICOR ratio of Vietnam is now deemed the highest in the region at 4.4, compared with the regional average of 2.5-3.5. The very high increase of total payment means caused expected inflation to be many times higher than nominal inflation.
The US dollar fell to the bottom level but surged in the last two weeks. There are three major reasons for this phenomenon. First, the State Bank of Vietnam (SBV) is ready to buy USD at commercial banks. Second, the trade deficit was at a record of US$7.3 billion in the first three months this year. Third, foreign banks may buy in USD to help foreign investors to remit profits to their homelands. The stronger USD is expected by local exporters but this makes inflation control more difficult. Thus, we should be cautious with this.
The stock market is rallying but the uptrend is the result of administrative intervention and the trading value is at record low. Only a small number of investors are still present on the market as the narrowed daily trading band limits the margins of investors. I feel that we pay too much attention to the rise and fall of the index. It means that we are concerned too much about the secondary market where low quality goods are dominating. We make light of two fundamental issues. First, the stock market is a channel to mobilise medium and long-term investment capital for the economy, which is long a responsibility of commercial banks. In fact, the stock market tends to focus more on issuance and trading of capital shares rather than debt securities. Second, the stock market should focus on developing the primary market where the high quality goods are profuse, not delaying it as now. In addition, the relation between the stock market and monetary market is very weak. The credit monetary market is investing in the stock market instead of relaying the stock market.
USD devaluates to a record level across the world and the US Fed repeatedly cuts interest rate, currently to 2.25 per cent. However, the USD interest rate in Viet Nam seems to increase and commercial banks have reached an agreement to keep the USD deposit interest rate below 6 per cent per annum. How can we resolve this paradox?
While the USD price on the domestic and global markets terribly decreased, the USD deposit and lending rates tends to keep rising. Even, the Vietnam Banking Association has to gather to reach a consensus of slowing down the USD deposit interest rate. This shows our problematic foreign exchange management regime. Many countries do not have foreign currency credit, especially short-term ones. In the past years, Vietnam still strongly developed foreign currency credit. This proves that we lack foreign currencies. The foreign currency credit raises the value of foreign currency capital even when the foreign exchange rate reduces. This is one of the paradoxes in foreign exchange.
To deal with this situation, I propose short buy and sell regime for foreign currency credit. It is necessary to gradually eliminate foreign currency credit regime, especially short-term credit, and develop derivative tools for enterprises to self-protect against exchange rate risks.
In the case of profuse foreign currencies as now, I propose allowing enterprises to issue foreign currency bonds. Giant economic groups are allowed to issue bonds to raise foreign currencies for business demand. These types of bonds are safe security assets for enterprises to borrow local currencies at commercial banks or let commercial banks use these debt papers to ask for cash supply from the State Bank. This mechanism helps stabilise the exchange rate and diversify the foreign exchange reserve structure at commercial banks and the State Bank. This amount of foreign currencies will be spent on renovating technologies and expanding production instead of borrowing from foreign sources. Foreign currency bonds help enterprises to carry out big projects without relying on the supply of foreign currencies from banks, which are tightening lending to curb inflation.
However, many worry about the exchange rate risk. Thus, both banks and enterprises choose credits instead of holding foreign currencies. Is the banking sector responsible for this?
Commercial banks self-balance the credit buy and sell markets. Some banks take foreign currencies on the buy/sell market to meet the demand on the lending market. However, using Vietnamese dong to buy USD and then lending USD exposes banks to risk in the event of USD/VND fluctuation. Therefore, most banks now do not use VND to buy foreign currencies for lending, but increase deposit interest rates to mobilise USD.
Definitive purchase and sell will increase the activeness of banks and enterprises and promote the market nature in foreign currency relations. Then, the State Bank will be the last buyer and seller on the market. This mechanism is much more complicated.
Uncommon derivatives showed that commercial banks are too weak in their services. At a recent seminar on developing derivatives, held by the Banking Development Strategy Department, hardly any commercial banks have strategies to develop this potential and common service in the world. To develop derivatives, the policy system must be complete, the information system must be developed and the enterprises should be provided sufficient knowledge. When enterprises use derivatives, they will have time to prepare their business deals, distribution systems, methods and modes of payment without paying attention to exchange rate fluctuation. When the USD devaluates, derivatives help enterprises avoid risk. At present, commercial banks develop many risk provision products such as future options. Using these products, enterprises can negotiate a suitable exchange rate in the future. This will help enterprises avoid unexpected loss in exchange rate fluctuation.
To curb inflation, apart from tightening public spending, the Government is pursuing a tightened monetary policy. What do you think about this?
A series of measures have been introduced by the Government and ministries to fight inflation, including sacrificing the growth goal. In my opinion, this is very high political determination. However, from the angle of market economy rules, I have doubts about the use of administrative solutions. Several policies introduced including sacrificing tax, lending securities investment, capping interest rate and limiting securities trading band have generated many reactions to support the fact that those administrative measures are not needed. For example, when the stock market plunges, investors dare not borrow money although banks offer. When the lack of liquidity is solved by the supply-demand law, no banks will join an interest increase race. When the price fluctuation limit imposed on securities trading is narrowed, investors will leave the market, supported by record low trading volumes and values. Thus, the employment of market rules is the most important policy in the battle against inflation and to maintain financial market stability. Policies should not directly affect market rules such as price, competition and the confidence of the public and investors.