Vietnam pushes on with controversial forex rule
HANOI - Vietnam has issued
regulations to implement controversial new rules that
force certain companies to convert at least 80 percent of
their foreign funds held in bank accounts into the local
dong currency.
The guidelines, signed by deputy central State Bank
Governor Le Duc Thuy on Wednesday and obtained by
Reuters on Friday, took effect immediately and require
banks to actively police the measure.
The move, which was designed to help flush dollars out
and breathe new life into stagnant money markets, was
likely to have the opposite effect, bankers have said.
Under the rule banks would be required to sell for dong
80 percent of all foreign currencies held by firms with
foreign exchange guarantees 15 days after the cash had
been deposited.
Exchange guarantees for selling non-convertible dong
revenues were mostly limited to companies producing
import substitution goods, or operating in other priority
sectors.
The new guidelines specify that while firms hit by the rule
must sell 80 percent of foreign currencies held,
non-profit organisations will be required to sell their full
holdings.
Banks are now required at the time of deposit to transfer
the relevant deductable amounts into ``temporary
controlling and holding accounts'' pending the
compulsory forex transaction 15 days later.
The document did not specify in whose name these
accounts would be registered.
At the same time the bank has a duty to inform its client
of the total currency to be sold so that the customer can
conduct the sale 15 days later.
If customers fail to sell banks would be required to give
an extra five days notice before having an obligation to
enter the account and forcibly effect the transaction.
The rules specify that for foreign currency deposits made
before September 12, firms and other economic entities
have a deadline of October 5 to sell the required
amounts.
Banks are now responsible for ensuring the rules are
adhered to, and to match customer foreign exchange
requirements when hard currency payments become
due.
Additionally, banks are required to make daily reports to
the State Bank on all details of their forex transactions.
Banks are also responsible for detecting violations --
either by banks or companies -- and then report to the
State Bank for settlement.
The document stated that banks and companies found
violating the rule face administrative fines, suspension
from forex business, or withdrawal of business licences.
Serious violations would face criminal charges.
Foreign bankers and lawyers have been highly critical of
the new rules, saying the net result will be an increased
flow of foreign company funds offshore together with
more offshore billing.
A lawyer said all foreign law firm branches were hit by
the rule, and that his firm had already transferred most of
its foreign currency funds offshore.
``They are attacking what they perceive as illegitimate
holdings of foreign currency rather than the root-cause of
why people are holding,'' he said.
``That is lack of confidence in the local currency and
lack of convertibility.''
The dong has been devalued around 20 percent against
the dollar in the past year, with the most recent
movement being a 9.1 percent downwards adjustment
on August 7.
Bankers said they expected a further devaluation of
around 10 percent before the end of the year, and that
the foreign exchange risk under the new ruling was
unacceptable to most people.
By Andy Soloman - Reuters - October 02, 1998.
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