[Vnbiz] Vietnam's position on economic issues

Tue Jun 10 03:05:54 PDT 2008

All:

Oh, yeah, that local bread shop that I was referring to, is quite a high
volume operation, they pull carts of bread from ovens several times an hour
and sell to hosts of local eateries and sandwich carts, hopefully, that
would stem further rises, although not sure the local shops would be
repealing increases, my local favorite restaurant has gone from 28,000
(before Tet) a plate of pork to 50,000 (last week) with three price
increases since Tet, some of that was probably due to rent increases as my
neighborhood seems up and coming, and the owners of my favorite little
restaurant were moving until they worked something out with the landlord, I
suspect higher rent, anyway neighborhood seems popular, is filled with
foreigners, lotsa construction, lotsa new shops, very busy, lotsa
upper-middle class Vietnamese, Mercedes and such.  Most other menu items,
(French Fries, Sour Pork Soup, Salad, Rice, Beer) have stayed similarly
priced as to before Tet.

Craig

On Tue, Jun 10, 2008 at 5:56 AM, Craig Stevenson <cstevenson2000 at gmail.com>
wrote:

> All:
>
> Gold Shops sticking to SBV rate, small shops that sell imported electronics
> using 18,200, no choice, they have to borrow in dollars to purchase
> products, and dollar trading has frozen, no one buying dollars, cause no one
> selling dollars....must have been an interesting arbitrage for some, selling
> dollars, getting dong, buying at the large fixed price stores, some people
> got 12 to 15 % discounts, large fixed price stores must have been must have
> been shouting from the rooftops, bet that they still are.....
>
> Craig
>
>
>
>
> On Mon, Jun 9, 2008 at 5:34 PM, Tran Dinh Hoanh <tdhoanh at gmail.com> wrote:
>
>> [ Vietnam Business Forum ]
>>
>>
>> Dear Brothers Nam, Shane & Craig & CACC,
>>
>> Anh Craig, thanks for the notes about pricing.  Those help.
>>
>> Anh Shane, good to hear land price is down and you are taking the
>> opportunity.  I think buying land now is wise.
>>
>> Now to anh Nam's questions:
>>
>> 1.  I said the SBV should have a good grip on USD circulation because USD
>> has such a strong influence on Vietnam's economy.   That is a very general
>> statement.  It means the SBV should have a fairly good idea of how much USD
>> is circulating in Vietnam (at least through the official channels), where
>> and how much USD gathers at each location in the economy (like in the SBV
>> itself, in commercial banks, in exchange agencies, and how they are kept in
>> the accounting books in various accounts, etc...).
>>
>> Now about controlling inflation.  First of all, we need to keep in mind
>> that economics is still more of an art than a science.  So, there are many
>> things to do to control inflation, and economists may argue and disagree all
>> the time about what to do.
>>
>> Typically, when there is inflation, it usually means there is too much
>> money (both USD and VND, but mostly VND) in the economy, much more than
>> available products and services for sale.  Demand (from VND) is higher than
>> supply (of products and services), therefore the price is increasing.  And
>> price increase means inflation.
>>
>> So most economists automatically recommend increasing the interest rate
>> when there is inflation.  High interest rate will do 2 things: First, it
>> discourages people from borrowing money, and second, it encourages people
>> from saving money in the bank.  These two effects will reduce the volume of
>> money circulation in the economy.  Less money for the same volume of
>> products and services means less demand for the same supply, therefore price
>> is reduced, meaning less inflation.
>>
>> That is about interest.  We talk mainly about VND here.  But the same
>> logic works with the USD too. So the banks also increase the interest
>> rate on USD saving.
>>
>> Now, SBV also tries to use the exchange rate to keep the VND high to fight
>> inflation.  Here is how it works.  Say, you import a sewing machine at 50
>> USD.  If the exchange rate is 15,000 VND to a USD, then that machine costs
>> 750,000 VND.  However, if the VND dong is weaker so that 1USD equals 18,000
>> VND, then that machine costs 900,000 VND.  So the SBV thinks that if it
>> keeps the USD low and VND high (by sticking with the exchange rate of
>>  15,000 VND for 1 USD), then it can keep import costs low, therefore helps
>> keep the general prices in the economy low.  This is the direct effect of
>> exchange rate.  (We can have other kinds of example too.  But one is enough
>> to demonstrate the argument).
>>
>> In addition to the direct effect, we also have the indirect psychological
>> effect.  If the VND is kept high against the USD via exchange rate,
>> people tend to have more faith in the VND and therefore will not be
>> so panic to make inflation worse (Ex:  if people panic, they will just line
>> up to buy gold or USD and will not put VND in the bank.  That will increase
>> prices of USD and gold, and may also increase the prices of all other things
>> in the economy -- psychology, if USD and gold prices are high, everything
>> else will be high along).
>>
>> Now, I am generally against this kind of strategy, because it encourages
>> import and discourage export.   (A Viet Tien shirt costs 180,000 VND
>> will export for 10 USD if the exchange rate is 1USD/18,000VND, but will be
>> up to 13 USD if the exchange rate is 1USD/15,000 VND).  Now, if you run
>> a private company, you will realize that only governments can do and would
>> do crazy thing like this.  If you are a company, when there is any kind of
>> trouble, you immediately cut spending and increase selling.  That is always
>> the fundamental strategy.
>>
>> So the best strategy is to allow the free exchange rate to work.  That
>> rates will help export (selling) and discourage import (buying).  It will
>> help strengthen the economy.  If our export and production are increased and
>> import decreased, that will eventually beat down inflation.  This is just
>> common sense.
>>
>> We should not encourage spending (import) and discourage selling (export),
>> because such a strategy will weaken our economy further.
>>
>> Besides, such as strategy won't help inflation control because there is
>> always a black market (or free market) that will reflect the true strength
>> of the VND in everything in the economy (except probably in import and
>> export).
>>
>> In addition,  the USD may just find its way to stay in the free market
>> instead of going back to the SBV at low value.
>>
>> Further, if the official exchange rate is so much different from the free
>> rate, we may face the danger of a currency crash eventually.
>>
>> 2.  Now exchange rates: I am aware of only 2 exchange rates: One is in the
>> free market rate and one official rate set by SBV.  I think the official
>> rate is the rate that everyone is supposed to use every where (but of
>> course, other than commercial banks, people don't care about that and just
>> use the free rate in the free market, even if it means they have to do it
>> under the table.  I suspect that some commercial banks will try to use the
>> market rate under the table whenever they can).  (Anyone has different
>> information about this, I would love to learn).
>>
>> Brother Nam may think about interest rates.  For interest, the SBV sets
>> the "prime rate" which is the rate that SBV charges commercial banks.  And
>> the commercial banks may have a rate slightly higher than the prime rate for
>> interbank lending, and even a higher rate charged in loans to consumers.
>>
>> Back to exchange rates, the official rate does have some effects. Ex:  if
>> you do import, you may want to go to commercial banks, do paperwork, and get
>> the official rates.  Better for you.  (But bad for the economy).
>>
>> 3.  About the increase in interest rate, I have answered in section 1
>> above.
>>
>> 4.  I think the SBV is telling commercial banks to sell USD to people who
>> can prove that they need USD (mostly importers, and may be some exporters
>> occasionally, depending on exactly what they do).  Individuals can hardly
>> prove they need USD.  The reason SBV has to do that because everyone the
>> country will want to buy USD at commercial banks at official rate and resell
>> them in the free market at the free rate, and make 10% profit immediately.
>> (Easy money!)
>>
>> 5.  Of course, the economy is in trouble and we should be concerned about
>> it.  But, as in any kind of crisis, if we keep our hearts and our minds
>> together, we will come out of it victoriously.  The bottom line is just
>> that:  United we stand, divided we fall.
>>
>> Very good questions, brother Nam.  Thanks for asking.
>>
>> Have a greatr day!
>>
>> Hoanh
>> On Mon, Jun 9, 2008 at 1:23 PM, Mercedes Benz <myhometheatre at gmail.com>
>> wrote:
>>
>>> [ Vietnam Business Forum ]
>>>
>>>
>>> Dear Brother Hoang and CACC,
>>>
>>> I like to share with you all my little knowledge and questions about the
>>> currency-related issues.
>>> 1. The grip on USD ex-rate by SBV is for reducing the current inflation
>>> (said by Bro. Hoanh). I do not understand this much.
>>>
>>> 2. There are currently 3 existing exchange rate USD/VND.
>>> a) Official rate by SBV.
>>> b) Inter-bank rate.
>>> c) Free-market rate.
>>> It is the fact that the official rate almost make no sense. (Am I
>>> right?). That is because all of trading is based on the 2 others. Inter-bank
>>> rate are usually applied on banks and enterprises. By one way or the other,
>>> the actual rate will reflect the real demands and supplies.
>>>
>>> Free-market rate is most relevant to individuals, the rich and some small
>>> companies for any purposes ranging: investment, speculation, asset stocking
>>> due to herd mentality, bypassing some systems, realizing their illegal
>>> revenues and so on.
>>>
>>> 3. Currently, interest rates offered by commercial banks already exceed
>>> 16%. (2% left for moving) What is the meaning behind the scence?
>>> Is this for reducing inflation (retrieve more and more VND)?
>>> Why the interest rates in USD are also increased to 8% at the same time?
>>>
>>> 4. SBV already issued a decision about forbidding commercial bank
>>> agencies to sell foreign currency to individual but commercial banks only.
>>> How long will it stay effective?
>>> Consequently, citizens will be in favor of gold stocking. The prices go
>>> up accordingly. Can it be also prohibited?
>>> Is the symptom related to the stock market situation?
>>>
>>> 5. I share my feeling: I am really worried about our Vietnam!
>>>
>>> Could you CACC please help me make the above concerns clearer?
>>> Thank you much!
>>> E. Nam
>>>
>>> --
>>> Tran Dinh Hoanh, Esq., LLB, JD
>>> Washington DC
>>>
>>
>> _______________________________________________
>> To subscribe/unsubscribe, please contact admins at
>> vnbizadmin at vietlinks.net
>> Info at http://mail.saigon.com/mailman/listinfo/vnbiz
>> Archive at http://groups.yahoo.com/group/vnbiz/
>> or http://groups-beta.google.com/group/VNBIZforum/
>> or http://mail.saigon.com/pipermail/vnbiz
>>
>
>
-------------- next part --------------
An HTML attachment was scrubbed...
URL: http://mail.saigon.com/pipermail/vnbiz/attachments/20080610/a58fd565/attachment.html 