Reform key to Vietnam's economic growth
HANOI - Vietnam's 7.12% economic growth over the past five years has been largely attributed to drastic reforms in monetary policy. The State Bank of Vietnam (SBV) managed to overcome the impact of the regional financial crisis by the end of 1999, reducing inflation from 9.2% to 0.1% in just one year from 1998 to 1999.
By 2001, joint-stock commercial banks and creditors had been restructured into a well-organized system, giving them new financial strength. Indirect monetary tools have been popular in the banking system since 1990, along with the introduction of a comprehensive and transparent monetary legal framework. By shifting to the daily figures for the rates of foreign exchange in 2000 from a long-term fixing, the SBV has contributed to positive changes in the monetary market, said bank deputy governor Phung Khac Ke. The exchange rates between foreign currencies and the Vietnamese dong have been kept stable in spite of the instability of many foreign currencies.
The flexible management of the exchange rates and appropriate measures in foreign exchange control have helped ease the tension in foreign currency supply-demand, developed the inter-bank market, and increased the central bank's foreign currency reserves. The liberalization of interest rates has been accelerated with the full liberalization of interest rates in the commercial credit market having been applied since mid-2000.
The State Bank of Vietnam has gradually adjusted the re-financing interest rate, making it the ceiling interest rate of the inter-bank market, while discount interest rates have been turned into the lowest interest rates. General director of the Vietnam Industrial and Commercial Bank, Pham Huy Hung, said the increased efficiency of monetary-policy management has made a positive impact on the interest rates of deposits and loans of credit organizations, and helped the SBV regulate interest rates in the market principle. Hung noted that the enforcement of the Banking Law since June 2004 and new regulations allowing banks to use government bonds in transactions have helped increase the volume of transactions between the SBV and other banks, thus strengthening the regulative capacity of the central bank toward the monetary market.
Between 1999 and 2003, the State Bank of Vietnam successfully executed a demand-boosting monetary policy, which contributed greatly to countering deflation and boosting exports and economic development. Between mid-2004 and now, the bank has implemented a cautious, controllable monetary policy. Aiming to stabilize the value of the Vietnamese dong, control inflation and create a favorable macro-economic environment for sustainable growth, the SBV has continued with the reform of its monetary policy, considering it as a key task for the coming years.
In this end, Dr Le Xuan Nghia from the SBV's Banking Development Strategy Department, suggested that the implementation of the monetary policy should continue to be based on the regulation of reserves. At the same time, preparations should be accelerated to regulate the market through interest and exchange rates in line with the trend of financial liberalization, he said. On the management of foreign currencies, Nghia proposed to raise the convertibility of the Vietnamese dong, reduce the use of foreign currencies in Vietnam and thereby reduce the "dollarization" phenomena.
He also said the exchange-rate band should be widened and the exchange rate should be based upon a number of foreign currencies instead of one strong currency like the US dollar as at present.
Vietnam News Agency / Asia Pulse - March 22, 2005
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