Supportive words for economic rescue act

VBF speakers underscored the urgent need to stabilise the shaky local economy

The forum, on the eve of the Mid-Term Consultative Group Meeting 2011 to be held in Ha Tinh province in June 8-9, was organised by the Ministry of Planning and Investment (MPI), the World Bank and International Finance Corporation.

While well noting the government’s announcement of the first successes in the implementation of its measures to reinforce macroeconomic stability, business participants cited dong devaluation and high inflation as their key concerns.

American Chamber of Commerce (AmCham) chairman Christopher Twomey stressed that macroeconomic stability was absolutely critical if the Vietnamese government wanted to drive its economy forward and win back enterprise confidence this year.

He added that Vietnam’s success in attracting foreign investment was all about the expectation of economic and political stability.

“Three months ago, the prime minister announced that the government would focus on stability rather than growth. AmCham supports this new focus and looks forwards to a future climate of macroeconomic stability,” said Twomey.

On February 24, the government adotped Resolution 11 which includes key measures to curb inflation, stabilise the macroeconomy and ensure social welfare.

“Some initial results have been recorded in the management of money, credit, interest rates, exchange rates, foreign currencies, and gold, all of which are gradually stabilising,” said MPI Minister Vo Hong Phuc. “However, much more remains to be done to get the economy back on right track and deepen business confidence.”

Singapore Business Group’s vice president Seck Yee Chung echoed Phuc’s remarks, saying that overall, Singaporean investors were generally confident in the mid and long-term prospects of Vietnam’s economy and development.

However, he noted that currency devaluation was a major factor undermining economic development and disheartening investors.

He said for foreign investors in long-term major projects such as infrastructure and real estate, and projects whose markets were predominantly domestic, a high component of their costs was in foreign currency, but their sales and operating revenue were in local currency.

“Our members are very concerned about the devaluation of dong. This is having a significant impact on current and prospective investment in Vietnam,” Chung said.

The Hanoi Young Business Association (HBA) also painted the current macroeconomic picture in less than glowing terms.

“We are very concerned about the current macroeconomic situation, with persistent high inflation resulting in a contradictory monetary policy amid on-going budget and trade-deficits,” said a HBA report. 

“More importantly, workers, consumers and companies are losing confidence in the home currency and in existing monetary, foreign exchange, fiscal and banking policies,” the report said.

The country’s inflation rate in May this year was up 19.78 from the level seen in the same month in 2010 while inflation for the first five months of 2011 had climbed 15.09 per cent from the same period last year.

According to EuroCham’s third quarterly EuroCham Business Climate Index late April survey of over 700 European enterprises in Vietnam, high inflation was a major concern for businesses.

Some 72 per cent of the businesses surveyed were expecting high inflation of over 10 per cent. This figure had risen significantly from only 47 per cent last quarter. 

As for the VND/USD exchange rate, 52 per cent of firms expected the dong to depreciate by 6–8 per cent or remain unchanged by mid-2011, while 57 per cent expected the currency to depreciate by 8 per cent or more against the USD by the year end. 

“This represents a continuing lack of confidence in the Vietnamese currency by European businesses,” the survey noted.

Dominic Scriven, head of VBF’s Capital Markets Working Group, also highlighted the challenges the country was facing.

“The government has clearly set in place tightening fiscal and monetary policies to curb inflation and stabilise macro conditions. In general, we support these policies and in fact they have gained some positives so far.

“However, we must admit that these actions were made with a delay, and more critically, without effective communication between policy makers and the business community, which might have caused some shocks to enterprises,” Scriven said.

State Bank deputy governor Nguyen Van Binh said the government’s strong anti-inflationary measures had produced some initial results.

“We must be patient with these measures in a long term. The government and the State Bank are under great pressure from enterprises, which require higher credit growth and lower lending rates.

“These requirements are rational, but the government cannot meet such requirements given it is combating high inflation to ensure macroeconomic stability,” Binh said.

Phuc said that the government’s Resolution 11 was “comprehensive and effective” enough for the government to achieve its targets.