Foreign bankers slam Vietnam forex move
HANOI - Foreign bankers in Vietnam
on Friday slammed a tightening of a controversial
foreign exchange rule, and said it would force dollars
out of the banks and increase the cost of doing business
in the communist-ruled country.
Under the new decision all Vietnamese and certain
foreign-invested firms would be forced to immediately
convert 80 percent of foreign currencies at the time of
deposit into current accounts.
Firms previously had a 15-day grace period before
being compelled to effect the transaction.
``It would obviously create losses for firms when they
have their dollars converted into dong when depositing.
Then when they need to pay in dollars they will have to
buy the dollars back,'' an executive with a foreign bank
said.
``The exchange rate risk would emerge to cause losses
to these firms.''
The decision, signed on December 1 on behalf of the
prime minister by his deputy Nguyen Tan Dung, took
immediate effect and ordered the central State Bank
governor to issue implementing regulations.
Dung is also governor of the central State Bank.
Banks in Hanoi and southern Ho Chi Minh City said
they had received neither official nor unofficial
notification of the rule change.
``Technically we banks are now non-compliant. That's
totally outrageous,'' one bank manager said, adding he
needed time to inform clients of the rule change.
``We can't just start unilaterally taking our client's
money and converting it without our client's authority.''
A senior banker at a major state-owned commercial
bank welcomed the move, which he described as
``overdue.''
``The regulation of the State Bank to sell 80 percent
within one day is very good because it can quickly
create supply for the foreign exchange market,'' he said.
Hanoi, trying to fend off a dollar crunch, enacted the
original rule on September 30, but subsequently found
firms exploiting the 15-day grace period to move funds
around banks to avoid mandatory conversions.
Foreign bankers said that while some dollars had been
flushed out into the system, they had detected increased
flows offshore. Other businesses have said they tried to
increase offshore billings and payments.
``It smacks of desperation, they're going the regulatory
route as opposed to asking the question: Why are
people so reluctant to sell their dollars?'' said a treasurer
at a foreign bank.
``They're trying to force people through regulation with
a school-yard mentality...it's just not going to work.''
Hanoi treats as secret the level of its foreign exchange
reserves.
The dong has been devalued by around 20 percent
since late last year, and confidence in the
non-convertible currency remains low.
The World Bank said on Wednesday that Vietnam
needed to relax restrictive foreign exchange rules and in
particular dump the controversial 80 percent measure.
Reuters - December 04, 1998.
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