ADB official: Surviving crisis, but strict monetary policy needed

ADB Country Director for Việt Nam Ayumi Konishi

Foreign currency reserve safe

Mr. Ayumi Konishi asserted that Việt Nam is not in a more difficult position than other regional countries though its inflation increased by 8.51% on average in Q1 and the trade deficit stood at US $3.5 billion while foreign currency reserve shrank.

He explained that the economy already started to rebound in Q2 of 2009, earlier compared to other countries, thanks to a series of effective economic measures.

On November 25, 2009, the State Bank of Việt Nam (SBV) began to impose tightened monetary policy and the Government reaffirmed macro-economic stability as the first priority.

At present, one positive example that can be easily seen is the rising FDI disbursement, the ADB official stated, saying that though the foreign currency reserve (enough for 12 import weeks) is not an alarming signal, Việt Nam needs to closely monitor it.

The exchange rate in the black market and the official one dropped from 10% in 2009 to 3.5% in March this year. It means that the pressure on VND has been eased.

Concerning the possible corollaries of import increase (37%) and export fall (1.6%) in Q1, the Director said that Việt Nam’s high disbursement of FDI and ODA naturally led to bigger import.

The sudden increase in the import value of gold and other reserved commodities, if not deriving from FDI and ODA disbursement, should receive due attention.

Mr. Ayumi Konishi said that, as long as Việt Nam’s surplus of capital account is larger than its current account deficit, it is not worth concerning about trade deficit.

He believed that bigger FDI inflows and the higher disbursement rates reflect investors’ confidence in Việt Nam’s business opportunities and environment as a good market and production destination.

The FDI flow into property market, as he analyzed, is not a discouraging signal because, to some extent, Việt Nam is still short of offices for lease.

He proposed that Việt Nam should continue perfecting business legal framework, infrastructure and skilled labor force. Securing macro-economic stability is the key for Việt Nam to further allure FDI, he said.

Tightening monetary policy needed

Regarding how the Government’s recent decision to free lending rates to curb inflation, Mr. Ayumi Konishi stated that inflation drives people to expect a weak VND. At the same time, the depreciation of the domestic currency contributes to price hike of imports, including petroleum, and the consequence is a higher inflation rate. It is the reason why people count on macro-economic stability.

A strict monetary policy, as he said, is necessary to control inflation and recover investors’ confidence. The removal of interest rate ceiling has helped to tighten monetary policy and the adjustment of exchange rate is also a step toward smooth operation of the foreign currency market.

Mr. Ayumi Konishi said Việt Nam’s economy is projected to grow at 6.5% in 2010 and 6.8% next year while inflation rate is forecast at around 10% and 8% respectively.

Payment balance settled down

Mr. Ayumi Konishi said that, last year, the Government’s economic stimulus measures resulted in large-scaled financial deficit, thus assistance is necessary.

Even prior to 2009, besides the Government’s Poverty Reduction Support Credit (PRSC), Việt Nam had been accredited to receive ODA resources directly from foreign partners.
The ADB and other sponsors decided to increase the PRSC to US $100 million from US $25 million. The institution also agreed to grant another US $500 million loan from its recession fund to Việt Nam.

The WB also raised credit support for the PRSC and pursued quick disbursement approach. Moreover, the Japanese Government provided Việt Nam with a special credit loan worth of US $ 500 million.

Commenting Việt Nam’s international bonds sales earlier this year, he believed that the issuance of the bonds was an appropriate move which helped to improve the country’s payment balance.

He said Việt Nam should increase budget collection to slash down overspending while reducing its spending as it is important to secure the efficiency of public spending. Tax collection, especially personal income tax, should be expanded not only because of its role but also its nature of equality.