Agencies’ policies in opposition

The Ministry of Finance and the State Bank of Vietnam have contrasting fiscal policies

Experts are warning that the Ministry of Finance (MoF) and the State Bank of Vietnam (SBV) are contradicting each other in establishing fiscal and monetary activities to reach economic goals of the nation.
The 8 per cent interest rate of commercial loans, plus inflation at 7.2 per cent by the end of October resulted from the contradiction of lax fiscal and strict monetary policies, they said.
Le Xuan Nghia, head of the SBV’s Development Strategic Department, said that in recent years lax fiscal policies have been applied with the aim of retaining the high economic growth rate after the recession from 1998-2001.
“The interest rate of government bonds has been constantly set higher than commercial loans, aiming at drawing a huge amount of capital for national large-scaled projects,” he said.
He added that it resulted in lowering capital of privately owned investment projects.
The SBV is required to provide a certain sum as an annual loan to the state budget to compensate a yearly deficit rate at around 5 per cent, which should be refunded at the year’s end. However, in reality the refund isn’t conducted within the year, resulting in a rise in inflation.
“So, this is the reason to excise pressure on inflation increases now,” Nghia said, calculating that inflation increased to about 10 per cent last year and 7.2 per cent after the first 10 months of the year, which was 0.7 per cent higher than the plan set by the government for the entire year.
However, the SBV has tried to maintain single-digit inflation by increasing the compulsory reserve of credit organisations, re-lending interest rates and other unidentified monetary tools.
Nguyen Ngoc Bao, deputy head of the SBV’s Monetary Policy Department, said the two main agencies haven’t cooperated well in information exchange, resulting in the contradiction of both monetary and fiscal policies.
“The interest rate of treasury bills should have been put at the lowest level on the market,” he said, adding that in reality it has been set at an equivalent or even higher interest rate than deposits at commercial banks.
Nguyen Dai Lai, a senior expert from the state bank, said that a modern payment system should be built up to connect both the MoF and SBV.
“So far, a national payment centre hasn’t been established, resulting in an overload of the Treasury in controlling and stock-taking such a huge amount of capital,” he said.
Experts said regulations on fiscal and monetary management and operation released by both MoF and SBV should be consistent and in such a way that could ensure a highly sustainable economic growth rate at 8 per cent planned by the government in next five years.