Government gets cold feet over international bond issue

Dung said the international interest rate for the government bonds was estimated to be 9 per cent, much higher than the 3 per cent rate for hard currency deposits in domestic banks.
“The government is considering the difference between the rates very carefully,” Dung said. “Why don’t we mobilise foreign currencies in the domestic market in advance?”
The government started selling bonds in the domestic market on October 15 and hopes to make VND63,000 billion ($4.1 billion) by 2010 to finance national projects like the Son La and Na Hang power plants. Dung said the total capital needed for development projects was expected to be VND100 trillion next year. The state budget can only meet half of this cost.
Under the domestic bond issuance plan, the government hopes to mobilise around VND7-8 trillion ($450-$516 million) per year to make up the shortage.
“Demands for capital for construction projects exceed the capacity of the state budget. The government is going to borrow from the people to solve this problem,” Dung said.
Dung’s comments are at odds with Finance Minister Nguyen Sinh Hung, who in September said the time was right for Vietnam to issue $500 million in international bonds to pay for large-scale projects.
Hung said one of the main reasons the government decided to issue the bonds at that time was the US Federal Reserve’s decision to cut its interest rate to 1 per cent – the lowest level since 1958. Seeking to shift their money to more profitable sectors, investors withdrew their bank deposits and others were discouraged from making new deposits. Experts estimated only several billion US dollars remain in the banks, making a bond issuance necessary.
Another reason for the bond issue was Standard & Poor’s confirmation of Vietnam’s BB- credit rating, which economists said reflected the country’s improved economic outlook and would help the government set attractive interests rates.