Vietnam-IMF discuss challenges to middle income economy transition

HANOI, March 14 (Xinhua) — A workshop on handling policy challenges in transition to the middle income economy was held here on Wednesday by the State Bank of Vietnam (SBV) and the International Monetary Fund (IMF), with participation of many domestic and foreign experts.

Vietnam is facing with inflation, trade deficit, fluctuant interest rates, public debts and other difficulties in the context that the country has shortly become a middle income economy. We are trying hard to restructure the economy and not to fall into the “middle income trap”, said SBV deputy governor Le Minh Hung.

Hung said, along with the government’s policies to strictly control inflation and stabilize the macro economy and social security, the SBV has implemented a tightened monetary policy, contributing to successfully fulfilling the set goals.

Addressing the conference, IMF experts, Rina Bhattacharya and Nombulelo, spoke of factors that have impacts to inflation, and about Vietnam’s monetary policy.

They recommended, the SBV should be entrusted with an independent and clear task, i.e. to stabilize the price. Besides, administrative measures to control the interest rates and allocation of credit growth should be abolished. Also, the SBV should establish a corridor for the interest rates seen as an important tool in its monetary policy, which is applied to both the lending and deposits.

Mentioning Vietnam’s GDP and credit growth which is similar with other economies, but moves with a faster speed and more fluctuant, Yin Sze Liew from Singapore’s monetary management office, said Vietnam should carefully review those impacts to the country’s economy.

The transition in Vietnam’s monetary policy would be more complicated because it takes place quickly, in the state of dollarization, and for huge goals of restructuring, Liew said.

Central Bank mulls its inflation…good luck honeybuns!

by May Kunmakara,PPenhpost—Cambodia’s central bank is looking to tighten monetary policy to slow an inflation rate that could hit 8 to 9 percent this year, National Bank of Cambodia Director General and Spokeswoman Nguon Sokha said yesterday.

Increases in commodity prices and petroleum has led to rising prices around the globe, and may cause further price inflation in Cambodia this year. The NBC is committed to maintaining price stability and Cambodia is not alone in the region in considering a tightened monetary policy, she said.

“The NBC may need to take action given current price inflation,” she said. “At the moment, we are making efforts to maintain stability in the value of the riel, and we are pleased with the current performance of the exchange rate.”

Given Cambodia’s high degree of dollarisation – by most estimates more than 90 percent of the Kingdom’s currency – the central bank has relatively few policy instruments to use and the effectiveness of some its monetary policy options are limited.

The NBC will hold a meeting this month to consider whether to raise the reserve requirement rate for commercial banks from 12 per cent on deposits in foreign currencies to 16 per cent or higher, she said.

A reserve requirement is the amount of money a commercial bank must hold, rather than lending out.

“I don’t know for sure if we’re going to implement the policy. We’re considering final approval from the monetary policy committee meeting set for the middle of this month,”  Nguon Sokha said.

“If we do nothing, the press-ure of inflation will become worse and worse, destabilising our exchange rate.”

The NBC’s prediction of eight  to nine per cent inflation this year is higher than many other observers’ forecasts.

Last month, Minister of Economy and Finance Keat Chhon upped his prediction to 5.5 per cent inflation for 2011, while the World Bank has predicted five per cent.

The International Monetary Fund currently predicted inflation of about 6.5 per cent for Cambodia in 2011, IMF resident representative Faisal Ahmed wrote yesterday.

“A tighter monetary policy, sooner rather than later, can help reduce the inflationary pressure,” Ahmed said.

“In fact, as observed in many countries, price stability is one of the key ingredients for fin-ancial development.”

Vietnam’s consumer prices increased 22.16 per cent in July from a year earlier, compared with a growth of 20.82 per cent in June, according to statistics released from Hanoi’s General Statistics Office last week.

Business Research Insitute for Cambodia chief executive Suzuki Hiroshi wrote that Cambodia’s inflation rates were not particularly high compared with those of countries such as Vietnam, adding that he supposed it was too early to talk about monetary tightening in Cambodia.

“It is very difficult for the NBC to take policy measures for fine tuning because of the highly dollarised economy,” Hiroshi  wrote yesterday.

Diversifying and improving exports was the most important step the Cambodian economy could take to mitigate external shocks, he said.

“The government has to diversify the industry by inviting other manufacturing indust-ries to Cambodia.  Strengthening competitiveness is also a big challenge.”

The Ministry of Commerce’s daily statistics show prices for foodstuffs and petroleum in particular have risen this year.

Paddy is up by about two  per cent since the start of the year, though pork has increased by 35 per cent and fish is up by 26 per cent, the statistics show.

Nguon Sokha downplayed concerns that an increase to reserve requirement rate would negatively impact the domestic financial industry, as the NBC had maintained a rate of 16 per cent in 2008, before the financial crisis.

“In our banking system, there’s a lot of liquidity – the increase to the reserve requirement will not have a big impact,” she said.

ACLEDA Bank vice-president So Phonnary said she had not received concrete information of an increase, but added the NBC’s measures would make the industry stronger.

“We don’t have any problem with our bank [to meet an increase to the reserve requirement ratio]. But I think it will impact on smaller banks by limiting their liquidity for daily operations,” she said.