[Vnbiz] Vietnam's position on economic issues

Tue Jun 10 16:23:50 PDT 2008

Dear CACC,

One small typo that may create big confusion must be corrected.

In the message below, there is this sentence:  "But, the SBV's position on
an official exchange rate that artificially keeps the USD high is going
against my recommendation.  This hurts export and helps import."   Well, the
word "USD" is a incorrect.  It should be "VND."  So the correct sentence
should read:

"But, the SBV's position on an official exchange rate that artificially
keeps the VND high is going against my recommendation.  This hurts export
and helps import."

Sorry for the confusion.

Have a great day!

Hoanh

On Tue, Jun 10, 2008 at 4:38 PM, Tran Dinh Hoanh <tdhoanh at gmail.com> wrote:

> Dear anhs Hao, Craig & All,
>
> I think the government has done a number of things correctly.  Things may
> be on the way up.  If we look at the May 08 statistics that I posted here a
> week ago, things look good, except for the huge increase in food price,
> which obviously were created from the long lines in front of rice stores in
> May.
> First, I think we need to think again about exactly what we are trying to
> achieve.  Everyone said "inflation control."  Yes, but inflation is a
> symptom of sickness.  It is not the sickness itself.  Say, when you have
> high fever, obviously the immediately concern is reducing the fever.  But we
> cannot lose sight of the fact that the fever is just the outward symptom.
> We need to find out what is the disease that creates the fever, so that
> long-term and permanent cure can be done properly.
>
> Now let us repeat some of the "sickness causes" that create the inflation
> fever:
>
> 1.  Oil price increase in the international market.
> 2.  Food price increase in the international market.
> 3.  The stock market crash.
> 4.  Fiscal deficit.
> 5.  Trade deficit.
>
>
> The stock market crash is over (although stock price is still sliding).  So
> we can just ingore it for now.
>
> Oil and food price increases are outside causes.  We don't have much
> control over them. So let's talk about them later.
>
> What largely in our control is fiscal deficit and trade deficit.  On fiscal
> deficit, the government has reported that they have met (10%) the budget-cut
> target among government agencies (including provincial governments, I
> think).
>
> I hope that the government is seriously limiting import to cut out the
> trade deficit.  But here is the problem on policy:  I have been recommending
> allowing inflation to go its natural course (with a just bit of regulation
> from the government) and using the inflation  pressure to aim for an
> exchange rate favorable to export (and unfavorable to import).
>
> I recommend gradually moving out of energy price control and subsidy, by
> increasing gasoline price and then other energy products prices slowly (max
> 2% per month) until we are completely out of gasoline subsidy and price
> control.  Then, with both gasoline subsidy cut and 10% budge cut, we may
> completely solve the fiscal deficit.
>
> The inflation pressure caused by gasoline price increase may create an
> exchange rate favorable to our export (1 USD may be 20,000 VND for
> example),   This exchange rate may not be good for import, but that we will
> force us to limit import to the real necessities (not car, private jet,
> fancy cell phones and ipods, expensive perfume and cosmetics, etc.).  When
> export is increased and import decreased, we will solve the trade deficit
> while increasing production.  Producing more, exporting more and buying
> less--that will strengthen the economy and will bring inflation down
> permanently, because we solve the problem at the level of the real strength
> (or sickness) of the economy, and not just the outward inflation fever.
>
> The Ministry of Finance obviously agrees with my postion that gasoline
> subsidy and price control have to be out eventually and it is working on a
> plan for that.  But, the SBV's position on an official exchange rate
> that artificially keeps the USD high is going against my
> recommendation.  This hurts export and helps import.  And I am disappointed
> at the SBV.  May be the SBV is doing all it can to reduce inflation
> pressure, preparing the way for MoF to start lifting gasoline price
> control.  OK, increasing interest rate up to 16%, I can't see the logic
> of it and can agree with it.  But the artificial exchange rate is crazy; it
> brings a lot of damage and has zero effect on inflation control.
>
> I think the SBV can achieve the same result of keeping import price low by
> cutting import tax on necessity items, while stimulating export by the free
> market exchange rate, and avoiding the distortion of the economy by a
> distorted exchange rate.
>
> About the food subsidy, I recommend to wait for several more months (5, 6
> months) to see how things go.  If my guess is correct, the food market may
> correct itself where it is distorted.  Craig, talks about  a bread shop cuts
> its bread price by 1/3 recently.  That probably means that the price of
> wheat flour was increased due to hoarding, but the hoarders have no outlet,
> so they have to reduce the price back to normal.
>
> The fact that rice price was increased for a couple of months and haven't
> gone back down (although the government have rice subsidy and rice control)
> tells me that rice is being smuggled out of the country regularly and the
> current price is the free market price.  It means, the government is wasting
> its money on rice subsidy for nothing.  But this would be a good thing,
> because it makes the lifting of subsidy and price control on rice much
> easier--price is already free market price; when subsidy is stopped, the
> market wouldn't even feel a pinch.
>
> For the stock market, my feeling is that the stock is going down just
> because of pessimism, not because the stock price is over-valued.  As soon
> as the info comes out that we have achieved trade balance for the month
> (meaning, no more trade deficit for the month -- I mean the month, not the
> the period from Jan. 1, 2008 to the present time) then the stock price will
> start to increase slowly and steadily.
>
> That would be my recommendation for  now.
>
> Great day!
>
> Hoanh
>
>
>
>  On Tue, Jun 10, 2008 at 12:57 PM, Quach Manh Hao <quachhao at gmail.com>
> wrote:
>
>> [ Vietnam Business Forum ]
>>
>>
>> Dear anh Hoanh, Craig and friends,
>>
>> After all what have been seen, what should be done?
>> Cheers,
>> Hao
>>  On Tue, Jun 10, 2008 at 12:34 PM, Tran Dinh Hoanh <tdhoanh at gmail.com>
>> wrote:
>>
>>> [ Vietnam Business Forum ]
>>>
>>>
>>>   Dear and Craig & CACC,
>>>
>>> Of course "dollar trading has frozen" at the official rate.  No one
>>> trades at that rate in the market (unless some foreign tourist sell his USD
>>> at a gold shop at the official rate, because he has no idead on what else he
>>> can do).
>>>
>>> But rest assured, brother, the dollar trade is alive and well.  At the
>>> "free market" rate, mind you.  (Note: "Free market rate" now would be more
>>> accurately called "black market rate").  However, since the market trade is
>>> no longer "free" and has become "black," you can't see it, Craig.  You're
>>> not in the loop.  But if you give 100 USD to any Vietnamese friend and ask
>>> him to sell it for you at the market price, he would be able to do it for
>>> you.  Even if he is not in the loop, he may know a friend who may know a
>>> friend who is in the market loop.  Please keep in mind, the entire trade was
>>> fully open and free several days ago. It can't disappear that fast.  It just
>>> goes underground temporarily, until the SBV turns a blind eye and allows it
>>> to become "free" again.
>>>
>>> I'm still digesting your info on food price.
>>>
>>> Have a great day!
>>>
>>> Hoanh
>>>
>>>
>>>
>>> --
>>> Tran Dinh Hoanh, Esq., LLB, JD
>>> Washington DC
>>>
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>>
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>
>
>
> --
> Tran Dinh Hoanh, Esq., LLB, JD
> Washington DC
>

-- 
Tran Dinh Hoanh, Esq., LLB, JD
Washington DC
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