Giving
administrative orders instead of following market rules is the lesson that
Vietnam should draw for the monetary policy management, said Deputy Chair of
the National Finance Supervision Council Le Xuan Nghia in the interview given to Thoi bao
Kinh te Saigon.

The Government has stated that it
will not adjust the dong/dollar exchange rate until Tet. Will the statement be
effective after Tet?

The
Government has emphasized that the top priority task for 2011 is to stabilize
the macro economy with two important duties: stabilizing the goods’ prices and
reducing the interest rates. The statement allows us to predict that the
Government will follow the policy on stabilizing the foreign currency market.
If necessary, it will adjust the exchange rate flexibly in accordance with the
changes in the market. Therefore, it is difficult to say when the exchange
rates will be adjusted.

The State Bank of Vietnam always says it adjusts the
exchange rate flexibly in accordance with the changes in the marketHowever,
that“flexibility”  was not there in 2010?

I
think that the exchange rate policy at this moment needs to be more
comprehensive. We need to adjust the required compulsory ratios for Vietnam dong
and foreign currency deposits. In principle, the compulsory reserve ratio on
foreign currency deposits must be higher than that on Vietnam dong
deposits. A reasonable gap between the two will help increase the prestige of
the local currency and help ease the pressure on the exchange rate.

Meanwhile,
the interest rates of foreign currency deposits must be low in comparison with
the dong interest rates, while the lending interest rates in foreign currencies
must be high. The State Bank can also intervene in the foreign currency market
as the final buyer and seller.

Some experts believe that it is
necessary to resume some policies in order to make the exchange rate “more
flexible”. Do you agree with this?

The
current exchange rate mechanism that we are pursuing seems to have become
backward given Vietnam’s
deeper integration into the world. In the medium term, I think we should shift
to the mechanism of “controlled floating exchange rate” instead of the current
mechanism, under which the market exchange rate is controlled by trading bands

Five years ago, Vietnam applied
the mechanism that you have mentioned, the “controlled floating exchange rate”

It
is true. The application of derivatives such as swap, forward, futures and
option will automatically become necessary when we diversify the currencies for
making payment, and especially when applying the “controlled floating exchange
rate” mechanism.

Statistics showed that the foreign
currency credit growth rate was very high in 2010. Do you think that the sharp
increase in the foreign currency outstanding loans had big impacts on the
exchange rate?

The
overly high growth rate of the foreign currency credit in 2010 reflected the
problems of the interest rate system. This should be seen as a lesson for the
interest rate and exchange rate management. The consequence is that the demand
for foreign currencies increased sharply when loans became matured and
enterprises had to collect foreign currencies to pay debts.

In
general, banks should only lend foreign currencies to exporters, because they
have earnings in foreign currencies to pay debts. However, many importers also
tried to get loans in foreign currencies.

Petrolimex,
the biggest petroleum distributor, said that in 2010, they had 5-6 trillion dong
kept on their bank account. However, they could not buy dollars from banks and
they had to borrow elsewhere. You see, not all importers want to borrow in
foreign currencies.

But
Petrolimex has borrowed foreign currency already. This may lead to two risks,
the exchange rate risk and the risk of bad debts. I believe that it is now the
right time to apply comprehensive measures to narrow the gap between the
official exchange rate and the exchange rate on the black market.

Source: Thoi bao Kinh te Saigon