Reporter: In the recent past, the average exchange rate has constantly increased and surpassed the mark of VND17,000 for US$1. Could you tell us about the purpose of the increase?
Mr. Giau: The global economic slowdown has had a large impact on the Vietnamese economy, resulting in falling exports (Export turnover is estimated to have dropped by 9.9 percent). There are, as yet, no exact figures on the decline in foreign direct investment (FDI). It is predicted that this year’s overseas remittances will shrink by 15-20 percent from last year’s US$7.2 billion to hover around US$6-6.2 billion. Apart from this, tourism revenue will also decline.
To make up for the shortfalls, the State Bank of Vietnam (SBV) has coordinated with international financial organisations to provide more foreign currency sources. Accordingly, Vietnam has borrowed US$500 million from the ADB, US$500 million from the Japanese Government and US$325 million from the WB’s poverty reduction programme. Aside from this, Vietnam will borrow US$1 billion from the World Bank (WB), of which US$500 million might be disbursed this year.
Regarding the control of exchange rates, on March 24, 2009, the exchange rate between VND and US$ rose from 3-5 percent. In comparison to last year’s level, the current exchange rate has increased by 5.16 percent while the inflation rate over the past nine months of this year was kept at 4.11 percent. Hence, the adjustment of the exchange rates has helped to stimulate exports.
As the rate of inflation this year is predicted at around 7%, Vietnam will not continue with a floating or fixed exchange rate regime but persist in flexible controls with state management. The recent adjustment of exchange rates has followed market trends. In fact, since July, foreign currency liquidity has not met any difficulties, as it did before. Banks have effectively controlled foreign exchange helping to avoid the excess of imports over exports, which affects domestic production.
The government has assigned the Ministry of Industry and Trade and the State Bank of Vietnam to manage the trade imbalance.
Reporter: How will the SBV control basic interest rates to stimulate the economy and keep the banking system running profitably at the same time?
Mr. Giau: Interest rates and compulsory reserves decreasing or increasing shows the SBV’s tightening or loosening monetary policy.
With the rate of inflation likely to stay at 7%, it’s reasonable for the SBV to reduce the basic interest rate from 14% to 7% (since February) and compulsory reserves from 11% to 3%.
Loosening the monetary policy means to decrease the basic interest rate and increase credit. There is no way to tighten monetary policy from now until the end of this year, so it should be managed in a flexible and cautious manner.
Reality shows the growth of capital mobilization has dropped from 10.6% in the second quarter to 4.44% in the 3rd quarter. This means people are becoming financially exhausted as many have invested in production. Also, the growth of credit has fallen from 12.45% in the 2nd quarter to 7.58% in the 3rd quarter. As a result, there will be no chance of experiencing “heated” credit growth in the remaining months of this year.
At the moment, the SBV is still able to closely control all means of payment and keep the monetary policy stable.
According to forecasts, the economic growth rate in 2010 will be 6.5% and the Consumer Price Index (CPI) about 7%. In case of raising the basic interest rate, maybe, more capital will be mobilized but the prices of products will also be driven up - this is no good for the competitiveness of the economy.