THÔNG TIN TÀI LIỆU
I Overview Vietnam is considered a great market opportunity as the country is undergoing a strong economic and developmental transformation The “Doi Moi” cause including significant economic reforms started in 1986 has made Vietnam transform from a centralized economy to the socialism-oriented market economy in which directive and planning are used as instructions Vietnam is one of top ten countries in attracting Foreign Direct Investment (FDI) in the latest International Investment Prospect Survey Program of the UN The Vietnam’s entry into the World Trade Organization (WTO) in the early of 2007 created greater market freedom and encouraged foreign investment flow Recently, particularly in the event most of economies are under impacts of the global economic crisis, Vietnamese Government has applied a larger number of measures, policies in order to recover its economy from crisis for socio-economic stabilization According to report of the Transparency International, Vietnam is ranked among countries with serious corruption In 2011, in spite of its certain reforms, Vietnam still gained slow scores and was ranked at the bottom of the scale In 2012, the big loss and bankruptcy of thousand billions Vietnamese dong caused by some state-owned economic groups have put more pressure on the already poor economy Freezing real estate and bad debts of credit organizations have made the economy go to the dogs In 2012, inflation and trade unbalance reduces pressure on the Vietnamese dong However, according to economists, price increase in some basic goods and services have influence on inflation Moreover, in comparison with other countries in the region, the credit growth rate to high GDP level in previous years have caused many consequences to the economy In September, the market investigation news of BIDV restated by domestic newspapers and e-papers revealed that foreign currency reserves of Vietnam reached 22-23 billion USD, equivalent to 11,5 weeks of import – higher the updated figures released by ADB Stepping into 2013, Vietnam’s growth is estimated to be higher (5.6%) but 9.3% of inflation, much higher than the target of 8% set by the Government, according to ANZ’s forecast In terms of foreign currency reserve: the figure of 2.4 months of import provided by ADB in April 2012 has been higher At present, according to ADB, Vietnam’s foreign currency reserve in Quarter II/2012 is billion USD equivalent to months of import, an increase of 3.5 billion USD compared to the figures released by the International Monetary Fund (IMF) in the middle 2011 Otherwise, according to Government’s report at the end of April, its foreign currency reserve was sufficient for paying weeks of import Vietnam has stabilized it micra-economy However, its weak production and business activities and slow credit growth cause big obstacles to the economy The bank’s experts also appreciate Vietnam’s export with recent changes in mechanism Accordingly, FDI capital is strongly directed to hi-tech industries In the context of decreasing FDI to Vietnam, report of the Ministry of Planning and Investment reveals that in the first months of 2012 total registered FDI to Vietnam, including new registration (4.12 billion USD) and increase (1.2 billions USD) was 31.8% compared to the same period last year It should remembered that in the same period last year, FDI to Vietnam declined 49% compared to the year of 2010 So in three consecutive years, FDI to Vietnam has decreased However, in a discussion with the Investment Journal, Minister of Planning and Investment Bui Quang Vinh affirmed that FDI decrease to Vietnam was under registered capital meanwhile disbursed capital still remained 11 billion USD/year At the end of this year, it is remarked for 25 years of the first Law on Foreign Investment in Vietnam According to statistics revealed by the Ministry of Planning and Investment, since 2009, FDI to Vietnam has decreased to 23 billion USD equally 30% of the previous year It tends to decline in the years to come In the first months of this year, FDI to Vietnam has just reached 10.5 billion USD including new and increased capital, a decrease of nearly 25% compared to the same period last year It is impossible to attract FDI when investment environment has no improvement One of the fundamental principle in investment is that enterprise comes a place that is profitable Growth quality and market confidence of Vietnamese economy are big issues Such economy is burdening negative consequences accumulated from the previous years It should be studied to release appropriate measures II Analyzing financial criteria of the economy Inflation In the past years, Vietnam’s financial depth has considerably developed Recently, both ratio of money supply/GDP and ratio of deposit/GDP have strongly increased Meanwhile the ratio of money in circulation to total deposit has decreased from 28% in 2006 to approximately 17.5% in 2010 This shows that impacts of monetary factors on productions have been stronger Therefore, policies of the State Bank of Vietnam will be more “sensitive” Money and credit supply to private sector compared to GDP of Vietnam remains a quite high position in comparison to other countries in the region The ratio of credit in bank system to GDP of the economy also dramatically increased and reached 123.01% just behind Hongkong (167%) and China (145%) in 2009 However, capital source for the economy mainly depends on bank system This is presented by the great deviation between the credit ratio from banks/GDP higher than 123% while capitalized ratio of the stock exchange /GDP in 2010 was approximately 35% Therefore, it can be seen that in Vietnam the bank system plays a very special role in the economy compared to other countries in the region Extended monetary policy and credit growth for a long time but ineffective investment and credit flow to property markets caused fast inflation rate to return particularly in the end of 2010 and to rocket in the early of 2011 Credit growth rate at this time can be considered an inflation indicator of the economy Besides, at the same time, prices of some goods and exchange rate are also adjusted strongly Electricity and water fees increase while petroleum price is more flexibly adjusted in accordance with fluctuations in the world Increase in exchange rate caused higher price in input import, which caused expense pressure leading to inflation in the early months of 2011 Particularly in April 2012, CPI raised 3.5% compared to the preceding month and inflation reached the highest rate in the same period since 1995 Monthly inflation rate from 2009 to 2012 Source: General Statistics Office In the context of high inflation, monetary policy was consistent in accordance with the Resolution No 11 as mentioned previously aiming to closure by limiting credit growth rate of the entire bank system below 12% and growth rate of total payment means below 16% Policy interest rates equivalently increased Basic interest rate increased to 9% from November 2010 Interest rate for refund and overnight loan increased to 11% in February 2012, 12% in March, 13% in April and 14% in May While re-discount interest rate also increased from 7% to 12% in March and 13% in May At the same time the compulsory rate of reserve to foreign currency deposit also increased by 1% in June 2011 Besides, for the purpose of appropriate interest rate to production and business, the ceiling interest rate of 14% for cash mobilization in the economy was determined by the State Bank of Vietnam However, in the impacts to commercial industries, it can be seen that in fact the ceiling interest rate for mobilization had kept actual interest rate last year at low rate, even negative This created less motivation for people to deposit their money into the banks, reducing deposit In other words, it created an additional channel for tightening monetary policy apart from other actions for tightening monetary policy Since September 2011, tightening monetary measures was effective Credit of the whole year grew at suddenly low level compared to previous years, reaching about 1113%, lower than the limited level of 15% Besides, CPI (monthly) decreased after many consecutive month of fast increase However, inflation of the whole year of 2011 was still high of 18.13% while that in other countries in the region was one-digit rate This proves that in spite of many external causes such as the increase of goods price in the world market affecting many countries, the subjective cause underlies in policies particularly the loosening monetary policy in the past years Interest rate – Banking - High rate of lending/mobilization (LDR According to statistics of IMF, LDR of Vietnam declined from 117% in January 2011 to 109% in October 2011 However, this rate was still equal to that of 2009 and 2010 If it took into account the amount of credit that credit organizations found ways to avoid ceiling credit rate (20%) and nonproduction ceiling credit rate (16%) through other forms such as investment in corporate bonds, investment trustee and other receivables, this rate might be much higher Moreover, the unbalance between credit and mobilization mainly occurred in some weak commercial joint stock banks This was the major reason making banks in this group compete their mobilization interest rate at any cost - Strong fluctuations in input – output cash flow of credit organizations Due to unbalance between lending/mobilization, some credit organizations in weak group must implement their fiercely competitive measures to attract capital by using interest rate to attract deposit This led to considerably increase of withdrawal of deposit prior to its term in the whole industry, particularly in the half end of 2011 To December 31, 2011, such figure raised twice higher than the same period in 2010 Fluctuations of deposit withdrawn prior to its term (billion VND) Source: National Financial Supervisory Commission Credit organizations mainly lent short-term loans instead of long-term loans Lending amount increased twice higher but just 13% of average loan increase The narrowing lending term enable credit organizations to be more flexible in controlling credit growth limit below 20% at the year end The continuous increase of amount of deposit withdrawn prior to its term and other short-term amounts put credit organizations in intense situation of liquidity due to continuous balance of term between lending and mobilization Many credit organizations are dependent on inter-bank market (TT2), which considerably increases interest rates at some points of time According to statistics released by the National Financial Supervisory Commission, the mobilization ratio of TT2/total asset increased from 16% in 2010 to 21.3% in 2011 For some credit organizations, this rate accounted for 50% of total asset, mobilization of TT2 increased up to 56% compared to the same period in 2010 The mobilization ratio of TT2/total asset presented strong increase in commercial joint stock banks and joint venture banks and foreign banks Transaction amount in inter-bank market focused on short terms, particularly overnight transaction or transaction in a week, counting for 80% of total transaction value A noticeable event in the TT2 was that from September to the end of 2011, the liquidity of this market was delayed Transactions in market occurred mainly between banks with strong liquidity Weak commercial joint stock banks could not get anymore loans from banks with good liquidity as they could not pay their own old debts According to the National Financial Supervisory Commission, overdue debts in TT2 presented an increase of 94.2% billion VND in December 31, 2011 compared to 2010 To be able to get loans in inter-bank market, credit organizations had to have mortgage assets This was the first time in history of Vietnamese credit system, some commercial joint stock banks put requirements of mortgage assets to others if they wanted to get loans The significant reason of this phenomenon was that weak commercial joint stock banks could not mobilize capitals in the market in the event strict penalty to excess of ceiling interest rate was applied by the State Bank of Vietnam Another important reason was that bad debts grew at the year end, which caused such banks not to be able to get backs their money for liquidity Interest rate in VDN in inter-bank market in 2011 Source: Development Department, Military Bank Foreign exchange rate In general, adjustments in exchange rate of Vietnam during the last time can be shorted as the follows: strong dumping at crisis of the economy, great pressure from market and great deviation between official exchange rate and market exchange rate; anchor of exchange rate at the stability of the economy upon the closure between official interest rate and interest rate in free market During the period from 2001 to 1008, Vietnam’s exchange rate policy was quite strict The slight increase of actual inter-bank exchange rate in the end of 2011 compared to 2010 was viewed as a success of the Government in its monetary policy for the past years The main root for the stability of exchange rate was the great deviation between mobilization interest rate of VND and USD That mobilization interest rate of VND was about 16-19% in fact during almost the year while that of USD was about 2-3% indicated a dramatic decrease in the attraction of keeping foreign currency Exchange rate of USD/VND, 2005-2011 (monthly) Source: The State Bank of Vietnam To see fluctuations of exchange rate in the past year, it is necessary to count for the root of exchange rate instability in recent years Vietnam’s exchange rate had considerably fluctuated since 2007 in which foreign capital rushed into Vietnam causing pressure on Vietnamese dong However, such period was quite short High inflation rate in the early months of 2008 and micra-instability plus the world economic crisis in the middle of year all caused indirect capital flow to Vietnam to converse Meanwhile long and strong increase in trade deficit (excluding first months of 2009) as well as in the demand of keeping gold and foreign currency as reserves under economic instability led to the strong growth of foreign currency for export and goods Those factors all put Vietnamese dong under big pressure of price devaluation As a result, the State Bank of Vietnam had to extend exchange rate margin from 0.75% in 2007 to 5% in March 2009 after four adjustments After that Vietnamese dong continued to experience its devaluation of 5.4% in November 2009 and margin narrowing down to 3% Nevertheless, pressure on devaluation of Vietnamese dong was still very big, which partly was caused by people’s fear of Vietnamese dong devaluation leading to reserve of gold and foreign currency apart from those reasons stated above This was reflected in the size of item Errors and Mistakes in payment balance of 2009 with a dramatically increase to higher than billion USD compared to billion USD of 2008 In February 2010, Vietnamese dong underwent the next devaluation with the exchange rate of 28,544 VND/USD Beside such devaluation were administrative measures like closing gold floors, stopping gold transaction in foreign accounts of credit organizations as well as other modification in interest rate in the context of potential increase of inflation Thanks to such policies, foreign currency market contemporarily enjoyed its stability until the middle of 2010 with many positive signs of indirect and direct investment and foreign currency of Vietnamese overseas In that favorable condition, the State Bank of Vietnam actively carried out some modifications while exchange rate was quite stable in August 2010 However, exchange rate pressure returned when inflation, pressure on foreign currency loan of enterprises, people’s exchange rate speculation and trade deficit raised at the end of 2010 With small foreign currency reserve, in February 2011, the State Bank of Vietnam once again has to carry out a strong devaluation of 9.3%, causing the exchange rate to raise up to 20,693VND/USD and affirmed that the increase of exchange rate until the year end would not exceed 1% Together with this devaluation, in 2011, interest rate policy for maintaining deviation between foreign and domestic currencies as well as the tightening control to foreign currency helped to mobilized a larger amount of foreign currency from people to banking system and to considerably reduce pressure on foreign exchange market Besides, careful fiscal and monetary policies aiming to reduce total demand also decreased the excess of import and kept exchange rate stable for a long time in 2011 However, to the end of 2011, exchange rate pressure tended to repeat as that in 2010 under the increase of loan payment demand by foreign currencies and higher demand of keeping assets Additionally, the unwell managed and controlled gold market with many problems such as group interest, gold import limit and the psychology of keeping assets kept kept domestic gold price always higher than that of the world This led to gold trafficking for the purpose of gold speculation, suddenly raising the demand for foreign currency The rate of USD/VND in free market and inter-bank market in 2011 Source: The State Bank of Vietnam and personal findings Despite such situation, with positive signs in factors of payment balance, the exchange rate goal would be achieved at the end of 2011 Specifically, excess of import in 2011 declined due to better control and decrease of domestic demand Excess of import this year was the lowest rate for the past five years and this year was also recognized for the lowest rate of excess of import to export ratio since 2002 While oversea national currency exchange and indirect investment showed positive movements Although direct investment decreased but not too much, foreign currency supply still assured the stability of Vietnamese dong Trade balance In a general view, the general trade balance of Vietnam showed significant shift, from deficit in 2009 and 2010 to surplus in 2011 and kept its surplus in Quarter I (4282 million USD) and Quarter II (2169 million USD) with the average surplus of 6451 million USD for months in 2012 This vital shift made to recover Vietnam’s foreign currency reverse, helping to reduce pressure on the psychology of inflation expectations of the people There were many reasons for the vital shift of general trade balance One of which was the significant change of mind in determining major objective That was to put priority on inflation control, micra-economic stability, reasonable growth, social and welfare insurance at the same time promotion of economic restructure, shift of growth model Inflation control moved from passive status to active status in accordance with the goal: if CPI slowly increased and decreased for two successive months, the Government did not catch up with growth goal but was persistent to the goal of inflation control, micraeconomic stability Another reason was the drop of investment rate/GDP from 42.7% in 2006 – 2010 to 34.6% in 2011 and aiming to 33.5% in 2012 The ratio of investment in public sector in total social investment decreased from 38.9% in 2011 to 37.2% in September 2012 The next reason was the decrease of state budget deficit/GDP from 6.9% in 2008 to 4.9% in 2011 and aiming to 4.8% in 2012 Other reason was the surplus of current account and capital and financial account Surplus of current account in Quarter I, II and overall surplus of first months were 4773 million USD Current account consisted of specific items including the balance of trade, service, investment income and money transfer Surplus of trade balance was 2191 million USD in Quarter I, 1930 million USD in Quarter II and 4121 million USD in first months in 2012, while that of the same period last year produced a deficit of billion USD This resulted from, due to FOB price, the excess of export to import This was one of the outstanding results for the first months of the year Money transfer balance gained its surplus both in private and public sector, in which private sector counted for the most part Specifically, surplus was 2132 million USD in Quarter I, 1966 million USD in Quarter II and 4098 million USD in the six first months (in which surplus of private sector was 3951 million USD) Capital and financial balance gained its surplus in Quarter I, Quarter II and in the first six month was 2781 million USD Capital and financial balance consisted of items, in which some items gained surplus in the first six months (like 1831 million USD of loan payment, 1357 million USD of short-term loans, 1171 million USD of investment in paper, 335 million USD of money and deposit) Thanks to the surplus of general payment balance, foreign currency reserve increased 4282 million USD in Quarter I, 2169 million USD in Quarter II, and 6471 million USD for the six first months In spite of such positive results, international payment balance still showed its limits and backwards Some amounts underwent deficit For example, service balance experienced slight slight surplus in Quarter I but big deficit in Quarter II resulting 1243 million USD of deficit for the first six months; investment income underwent deficit of 1084 million USD in Quarter I, 1119 million USD in Quarter II, and 2203 million USD in the first six months; other asset balance underwent deficit of 2059 million USD in Quarter I, 3853 million USD in Quarter II, and 3853 million USD in the first six months Surplus of trade balance was not stable due to the shrinkage of investment, production and consumption demands Foreign currency reserve increased highly in Quarter I but much slower in Quarter II and moderately in the first six months but still lower than 12 weeks of import Vietnam’s international trade, 2000-2011 Source: General Statistics Office Estimate of current account in the last six months of 2012 With the “progress” in the first six months, the general balance is estimated to gain surplus in months and the whole year due to growing surplus of current account, excess of import and the flow of national oversea currency exchange However, due to the impacts in the coming time, Vietnam’s general balance and foreign currency reserve are estimated to gain surplus in Quarter II and Quarter IV However, such surplus may be lower than than in Quarter I and Quarter II It is necessary to implement many synchronous and strong measures to maintain this rate of surplus such as remaining the surplus of trade balance based on the growth of export ratio (18.9%) like in September, to control the import of goods that are restricted, controlled and not encouraged for import; to inspect and supervise temporary import and re-export To reduce the deficit on service balance, the key lies on managing the sectors which are still large trade import surplus, such as transportation and insurance service as well as reducing deficit on investment income and other assets, better attracting remittances and international visitors to Vietnam Minimize the higher price gap between the domestic gold price and the world’s to prevent and stop the risk of gold import quotas (to interfere) or Government smuggled fiscal (to benefit) health Ongoing budget deficit in over the last decade has increased its seriousness Specifically, in case of not including payments of principal, Vietnam's average budget deficit in the period 2003-2007 was 1.3% of GDP; but this figure had doubled to 2.7% of GDP in the period 2008-2012 Especially, in recent years, ongoing budget deficits have led to the rapid growth of public debt Vietnam's total public debt increased from about 40 percent of GDP in late 2007 to more than 57% of GDP at the end of 2010, and declined slightly in 2011 due to high inflation At the same time, Vietnam's foreign debt rose from 32% to nearly 42% of GDP However, these numbers may not reflect the fact of the current fiscal deficit in Vietnam International organizations have showed the different figure of the deficit from the one reported by the Ministry of Finance In the two years 2009-2010, the average Vietnam's budget deficit ranked the highest compared to other countries in the region, at around 6% of GDP / year This figure is approximately times higher than the corresponding figure of Indonesia, three times higher than China, and about nearly twice compared to Thailand’s Vietnam budget deficit from year to year (% GDP) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -4,9 -4,9 -4,9 -5,0 -5,7 -4,6 -6,9 -5,6 -4,9 -4,8 MoF1 -1,8 -1,1 -0,9 -0,9 -1,8 -1,8 -3,7 -2,8 -2,1 -3,1 MoF2 IMF -3,8 -3,3 -4,8 -1,2 -3,3 -0,2 -2,5 -1,2 -9,0 -5,7 ADB -3,5 -2,3 -2,2 0,2 -1,1 1,3 -1,0 0,7 -6,6 … Note: MoF1: Deficit including principal payments, MoF2: Deficit excluding principal payment Source: Compiled by the author, from the MoF, World Economic Outlook (IMF, 2011) and Key Economic Indicators (ADB, 2011) Vietnam public debt from year to year (% GDP) 2004 Total public debt External public debt Foreign loan 29.9 37.2 2005 2006 2007 2008 2009 52.6 27.8 26.7 28.2 25.1 29.3 32.2 31.4 32.5 29.8 39.0 2010 2011 Threshold 57.3 54.6 65.0 31.1 42.2 41.5 50.0 Note: public debt and foreign debt thresholds proposed by the Ministry of Finance Source: Ministry of Finance III Proposed measures Transparency Enhancement Implement transparency broadly in consistent with international standards in all activities of agencies and officials related to economic activity and people's lives as many other countries applied( publicize the calendar, telephone transactions, the cost of the business trip, the decision issued by the key officials in the state entities, etc.); publicize and transparent the official selection process, standards for individual position, public, transparent voting results for electing officers The state agencies have responsibility of accountability on the use of the state capital which must be widely publicized in the press It’s necessary to have specified regular dialogue with people through the Internet and answer the questions and issues raised More radical implementation of market mechanism Implement market mechanisms under the management of state law, compete fairly under law control, control of the exclusiveness of corporation by power and authorized state agencies, eliminate the privileges, incentives for SOEs to land, natural resources, forests, sea and have to pay land use tax , the state budget revenues from natural resources , etc Inflation Control State Bank of Vietnam continues to implementing initiative, flexible and prudent monetary policy as well as ensures credit growth to reach about 25% and total payment at 20% At the same time, the Bank directs commercial banks to lend under the interest rate agreed upon for productive projects and effective business Maintain stable price of electricity sold to the producers, consumers and the selling price of coal for electricity production through 2010 Also, check petrol control mechanism to ensure that gasoline business activities operate under market principles while reviewing business expense and use effectively the taxes tools, fees and petrol price stabilization fund to prevent continuously rising gasoline prices in a short time, causing adverse effects on production and consumer sentiment Export promotion and trade deficit reduce Implement measures to boost exports and control trade deficit Strengthen trade promotion to expand the market, export market share for businesses, and establish appropriate mechanisms and policies to encourage enterprises to increase exports Develop mechanisms and incentive policies to attract domestic and international organizations, individuals to invest and develop supporting industries, consumer goods industry to create more quality goods as the alternative for imported goods which helps reduce the trade deficit both short and long term Further promote simplification of administrative procedures in the field of customs to shorten the clearance time and reduce costs for exports Capital focus on important and urgent projects Promote disbursement and use effectively official development assistance funds (ODA); review investment projects using the state budget, which is derived from the state budget and Government bonds to move the capital to the central budget and capital transfer instructions for the local budget by concentrating capital for the important and urgent projects The investment projects which haven’t arranged the capital up to date, cannot borrow the capital, except for the foreign loan projects Develop attractive policies to attract for domestic and international organizations and individuals to invest according to the policy of promoting socialization in coincidence with investment development; build and publicize a list of projects to mobilize social resources in developing investment objectives Interest rates Reduce to acceptable levels Promote production and export of agricultural products focusing on Vietnam key products which have advantages such as rice, coffee, seafood, etc Develop mechanisms to ensure that product consumption benefit producers when world prices become lower and ensure exports at the best price Export enterprises need to cooperate and work together to keep the market share and ensure export prices at a reasonable level In order to create favorable conditions for businesses, organizations and individuals, especially the rural agricultural sector, exporting enterprises, small and medium enterprises to borrow capital to develop production and business, the State Bank of Vietnam should direct credit institutions, especially the state-owned commercial banks to save operating costs and reduce market interest rates to acceptable extent Study to apply Future, Option, Forward markets to supply more tools for enterprise and business to ensure the safety of the fluctuations phases I Conclusion Overall, in the coming years , under the context of the world economy’s difficulty, Vietnam with its internal problems will continue to remain difficult However, in fact, Vietnam still remains a promising destination (population, geography, nature, etc.) together with more positive policy of the Government for foreign companies to study and find their opportunity ... domestic newspapers and e- papers revealed that foreign currency reserves of Vietnam reached 22-23 billion USD, equivalent to 11,5 weeks of import – higher the updated figures released by ADB Stepping... August 2010 However, exchange rate pressure returned when inflation, pressure on foreign currency loan of enterprises, people’s exchange rate speculation and trade deficit raised at the end of 2010... seafood, etc Develop mechanisms to ensure that product consumption benefit producers when world prices become lower and ensure exports at the best price Export enterprises need to cooperate and
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