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Vietnam Economy Highlights

[FDI] Vietnam received $1.1 billion in disbursement of foreign direct investment (FDI) in the first two months of this year, a rise of 10 percent from the same period last year, a government report said on Saturday. New pledges and increased capital in existing projects in the two-month period plunged 72.8 percent from a year earlier to a combined $1.78 billion, the Planning and Investment Ministry·s report said. Foreign investment inflows and overseas remittances are key foreign exchange sources helping Vietnam offset its trade deficit, which stood at $1.75 billion in the January-February period against a surplus of $1.23 billion a year ago. Disbursement of FDI in Vietnam could rise 10 percent to between $10 billion and $11 billion this year, thanks to the global economic recovery, a government minister was quoted by state media early this month as saying.- Source: Vietnam Finance News, 28/02/2010,7

[Finance] Vietnam·s central bank said on Friday it had widened the scope of bank loans that can be offered at negotiable interest rates to include areas such as production, business, services and investment for development. The State Bank of Vietnam said in a statement it now allowed banks to grant medium- and long-term loans in such sectors at negotiable rates, extending the scope from loans meant for consumer needs only. The central bank issued a circular, in effect as of Friday, to specify the new types of loans for which banks can charge a rate above the ceiling of 12 percent applied to ordinary loans. Loans for consumer needs, including those to credit card holders, have been at 15-20 percent, well above the ceiling rate, the central bank has said.

Bankers have said they expected the base rate to rise to ensure their profitability. Businesses, on the other hand, have complained that they have to pay an extra fee to banks in addition to the interest rate, resulting in actual borrowing costs of 16-18 percent. - Source: Vietnam Economics, 27/02/2010,4

[Finance] Commercial banks have said that with the gap between official and black-market exchange rates narrowing, they would find it easier to buy dollars. The dong weakened to 19,100 against the dollar at local banks after the State Bank of Vietnam lowered the daily reference rate 3.3 percent to 18,544 last week, the second devaluation since November to control the trade deficit and stabilize the economy.

As unofficial rates were much higher than those at commercial banks, many people favored trading in the black market. Now that the gap has been narrowed, bankers said they expected easier dollar purchases after Tet holidays.

A new rate cap on dollar deposits would also curb dollar speculation and increase the supply of the currency in the market, according to banks. The central bank last week introduced a cap on interest rates for corporate dollar deposits of 1 percent.

Following the move many banks cut their rates down to 1 percent from 2.5-4.5 percent earlier. According to banks, interest rates on dong deposits are now more attractive and would encourage companies to shift their dollar savings. - Source: Vietnam News, 20/02/2010,5

[Finance] Containing inflation is one of the most important tasks for this year, Ninh said, noting that increasing demand for materials and growing budget deficits around the world could increase inflationary pressures. The government is taking coordinated measures to maintain economic stability and there are grounds to forecast inflation would be contained at under 7 percent this year, Finance Minister Vu Van Ninh said. Fiscal and monetary policies will be implemented in a flexible and cautious manner to make sure economic growth is stable, he told local news website VnExpress Monday.
The government will limit growth in both credit and money supply, he said. Vietnam has set a 28 percent growth target for money supply this year and a credit growth target of 25 percent. Consumer prices rose 7.62 percent year-on-year in January, official figures showed. Vietnam successfully beat its annual inflation target of 7 percent in 2009, keeping inflation down to 6.52 percent, Ninh said.- Source: Vietnam Express, 18/02/2010,2

[General] Vietnam’s Consumer Price Index (CPI) in December rose by 1.38 percent from last month and by 6.52 percent over the same period last year, according to the General Statistics Office (GSO). The statistical agency says the CPI for the whole year went up by only 6.88 percent against last year, which means the country has successfully kept the inflation rate at bay (under 7 percent). The December CPI rise was reflected in 10 out of 11 major groups of commodities, with increases ranging between 0.07-2.06 percent. Only the post and telecommunications sector continued contracting, nudging downwards by 0.11 percent. Most prominent was the transport industry whose CPI climbed 2.47 percent. Next came food and restaurant services with 0.06 percent and housing and construction materials at 1.4 percent. Goods and services in the cultural, recreational and tourism sector saw the lowest increase.
Economic experts attribute these changes to an increase in petrol prices in late November while the demand for travel has soared towards the end of the year.Also, food prices have approached their new record highs in December as domestic businesses are boosting the purchase of rice to fulfil a large number of export contracts secured this year.
Such products as steel and cement have also contributed to December’s high CPI. Other factors include the import of a large volume of luxury items such as wine and spirits at year’s end, even as the price of the dollar over domestic currency is rising. Many economists predict a number of other essential goods would see surges as the Lunar New Year (Tet) festival) is drawing near. They also warn that some businesses might make use of fluctuations in exchange rates and the state’s policy to limit luxury imports in order to raise the prices of these commodities for their own profit. Therefore, the state’s efforts to reserve goods and supervise and control the market are extremely necessary to prevent speculation on goods and possible virtual fevers on the market during both the New Year and Tet. Also in December, gold prices increased by 10.49 percent against November and by 64.32 percent compared with the same period last year.- Source: Vietnam Economic News, 25/12/2009,6

[Finance] Prime Minister Nguyen Tan Dung has ordered seven major State-owned enterprises and economic groups to immediately sell US dollars from their deposit accounts to commercial banks authorised to handle foreign exchange.
The directive was aimed to boost the capacity of the State Bank of Viet Nam to manage foreign exchange as well as to ease the shortage of dollars in the economy. Oil and gas giant PetroVietnam, mining giant Vinacomin, the Viet Nam Machine Assembly Corporation (Lilama), Viet Nam National Chemical Corporation (Vinachem), Vietnam Airlines, and major food processors Viet Nam Northern Food Corporation and Viet Nam Southern Food Corporation were all told to release their dollar reserves.- Source: Vietnam news, 25/12/2009,1

[Economy] Vietnam’s inflation accelerated to the highest level since May, driven by faster-than-targeted credit expansion, quicker economic growth and higher oil prices. Consumer prices increased 4.35 percent in November from a year earlier after gaining 2.99 percent in October, according to figures from the General Statistics Office in Hanoi. On a monthly basis, prices rose 0.55 percent in November from October. Inflation may accelerate to 6 percent by the end of the year, Deputy Prime Minister Nguyen Sinh Hung said last week. Credit growth in the 10 months through October reached 33 percent, exceeding the government’s 30 percent full-year target.

Higher commodity prices and “healthy” wage growth, according to Capital Economics Ltd., are also driving inflation.

“There are risks of inflation picking up,” Hung said in a Nov. 18 interview in Hanoi. “Since we wanted to boost economic growth, we injected a large volume of funds to businesses.” The government also expects inflation of about 6 percent in 2010, Hung said, calling it an “acceptable and reasonable” increase given Vietnam’s economic growth. - Source: Vietnam Cap.News, 25/11/2009,3

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