Private investment reaches 400 billion kip in Vientiane Capital

(KPL) Foreign and domestic private investment in Vientiane Capital has reached 400 billion kip, with 223 projects approved in the first six months of the current fiscal year. Investment by private domestic companies has outnumbered that of foreign companies. Some 214 of 223 projects are investments by local companies, according to a government report on the implementation of the socio-economic development plan in the first half of the 2012-2013 fiscal year. Most private investments were in basic infrastructure development, market-oriented agriculture and services, according to a report read by Minister of Planning and Investment, Mr. Somdy Douangdy at the 5th Ordinary Session of the National Assembly, July 8-26. Chinese investments top foreign private investment in Vientiane Capital, with Thailand, Vietnam and France, ranking second, third and fourth respectively. Companies from the Republic of Korea, the U.S.A and Australia also made investments in the first half of this year. The national economy has continued to expand in the first six months, despite uncertainties in the global economy, the report noted. It is expected that Laos will reach its 8.1 per cent growth target this fiscal year. All sectors, especially mining, hydropower, services, tourism and agriculture are trending toward increased expansion. Meanwhile, currency reserves are high with the central bank confirming the inflation rate remaining at 4.85 per cent.

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Large banks focus on corporate bonds

HA NOI (VNS)— The total value of corporate bonds sold during the first six months of this year has reached VND15 trillion (US$707.5 million), equivalent to 88 per cent of last year’s total, according to a report from the Bank for Investment and Development of Viet Nam (BIDV).

Property developer VIDP Group issued VND7.6 trillion ($358.4 million) in corporate bonds, mineral giant Vinacomin raised VND2.5 trillion ($117.9 million) and HCM City Infrastructure Investment (CII) issued VND1 trillion ($47.1 million) worth of bonds.

The BIDV report recorded small scale issuance of under VND100 billion ($4.7 million) from other companies. “Most of the bonds belonged to real estate firms,” the report said.

Corporate bonds were favoured by commercial banks. BIDV and Techcombank bought VND500 billion ($23.8 million) and VND3 trillion ($141.5 million) worth of bonds in VIDP Group, while all the bonds issued by CII, totalling VND1 trillion ($47.6 million), were sold to Vietcombank (VCB).

“Attractive yields have brought banks with large cash reserves to corporate bonds,” the report said. “Despite the gloomy economic situation that made it for bond issuance more difficult, large corporations are still alluring to investors.”

The supply of corporate bonds is expected to continue to rise as companies take advantage of low interest rates to raise capital. “Along with increasing supply, demand will be large, especially for bonds from reputable businesses,” the report said.

Bond yields for three to five-year terms range from 13-15 per cent.

Meanwhile, Government bonds were less attractive, according to Viet Dragon Securities Co. Government bonds during the first six months yielded about 6-9 per cent. Declining yields discouraged investors, especially banks.

In June and the beginning of this month, foreign investors sold Government bonds with a net value of VND7.2 trillion ($339.6 million). — VNS

Vietnam’s economy ranks 42nd in the world

VietNamNet Bridge – With the gross domestic product (GDP) estimated from purchasing power parity (PPP) calculations equivalent to $322 billion, Vietnam’s economy ranks 6th in Southeast Asia, after Indonesia, Thailand, Malaysia, the Philippines and Singapore.

According to the rankings announced last week by the World Bank, the U.S. remains the largest economy in the world with GDP last year reached $15.7 trillion. It is followed by China with about $12.5 trillion, India with $4.8 trillion and Japan with $4.5 trillion.

Russia overtook Germany to become the 5th largest economy in the world with $3.4 trillion. The figure for Germany is $3.3 trillion.

In Southeast Asia, the biggest economy is Indonesia (16th) with more than $1.223 trillion, followed by Thailand (21st) with more than $655 billion, Malaysia (26th), the Philippines (29th) and Singapore (39th). Vietnam ranks 42nd, behind Singapore, with more than $322 billion dollars.

The World Bank’s rankings of 177 economies is different from the rankings based on nominal GDP of the International Monetary Fund (IMF).

According to the IMF, the U.S. and China still top the list with over $15.7 and $8.2 trillion. The following economies are Japan, Germany, France, England, Brazil and Russia. Vietnam ranks 51st in the list with nominal GDP of over $141 billion.

Monetary and fiscal policies go their separate ways

Vietnam has been mostly relying on the monetary policies in regulating the national economy, while the fiscal policy has been ignored. (VIETNAMNET)

According to the Governor of the State Bank Nguyen Van Binh, by the end of May 2013, the outstanding loans had increased very slightly by 2.98 percent in comparison with the end of 2012. Of this, the dong outstanding loans had increased by 5.48 percent and foreign currency loans decreased by 8.41 percent.

As such, the lending interest rates have reduced by 2-4 percent in comparison with the beginning of the year, while the new loans’ interest rates are now equal to the rates applied in 2005-2006 and even lower than that in 2007. However, despite the sharp falls, the credit growth rate remains very modest. While commercial banks have continuously launched low-cost credit packages, businesses still keep silent and don’t intend to borrow money for the investment.

Bankers have affirmed that they have slashed the lending interest rates to the lowest possible levels.

Meanwhile, Binh said that the margin between the deposit and the lending interest rates has decreased to 3.03 percent, and if deducing the provisions against risks, the gap would be 1,93 percent only, much lower than the 2.33 percent seen at the end of 2012.

Binh said this was one of the reasons which led to the sharp falls of the credit institutions’ profits in 2012 and the first months of 2013.

Experts have been pointed out that the monetary policy has been abused, while the fiscal policy has not been used to stimulate the national economy. In other words, the monetary and fiscal policies have been going their separate ways, while they should strive to one thing.

Dr. Le Xuan Nghia, Head of the BDI, a business development research institute, said he and his colleagues have carried out a business survey and found out that businesses nowadays only strive to short term business plans, while they do not think of long term business strategies.

In 2009, when the government launched the interest rate subsidy package, under which the lending interest rate was lowered to 6.5 percent per annum, a lot of businesses believed that the government would stabilize the interest rate for a long term. With the confidence, they injected their money in developing their business and expanding the production.

However, just after some disbursement fits, the interest rate suddenly soared to 20 percent per annum. A lot of businesses merely got bankrupt, while their new production lines were left unused, because they could not bear such the sky high interest rates.

Businesses, which have lost confidence on the interest rate policy, have decided that they should strive for short term profits only.

A good monetary policy should not only try to increase the money supply to pave the way for the interest rates to go down. More importantly, it should strive to a stable monetary policy,” Nghia commented.

Only when the inflation rate, exchange rate and interest rate are stabilized, will businesses be able to think of their long term business plans and feel secure to make investment.

“No one can do business well, if the inflation rate goes up to 15-20 percent and down to 5-6 percent so regularly,” Nghia maintained.

He has blamed this on the abuse of the monetary policy in dealing with the problems, while the fiscal policy has been the“outsider.”

Vietnam greedy for too many different goals in setting up monetary policy

The Vietnamese monetary policy always aims at many different targets, which, in some cases, are contradictory. As a result, the policy cannot bring the desired effects. (VIETNAMNET)

Simplifying the monetary policy’s targets

The experts from the International Monetary Fund (IMF), who have been keeping a close watch over the Vietnamese monetary policy over the last many years, have commented that Vietnam always pursues too many goals with its monetary policy, from the economic growth, exchange rate stabilization and inflation congestion. Meanwhile, these are the contradictory things which should be approached through different ways.

The loosened monetary policy, for example, which expands credit rapidly, would help stimulate the national economy, but it would also cause a side effect– the high inflation.

Therefore, the IMF’s experts believe that it would be better to simplify the monetary policy’s targets. The State Bank, for example, has recently targeted a reasonable goal of controlling the inflation. The low inflation rates would help stabilize the national economy, thus bringing benefits to businesses.

A reasonable monetary policy would help create a good business environment in which the market performance is predictable for businesses. This would create favorable conditions for businesses to draw up their business plan, including the investment capital arrangement and labor recruitment.

Meanwhile, the low inflation would also benefit the poor and the old people who live on the stable and limited incomes.

 

IMF has also suggested that the dong/dollar exchange rate needs to be regulated in a reasonable way, to serve the economy which has been more deeply integrating into the world and has been heavily relying on foreign investment.

The State Bank of Vietnam has been advised to gradually remove the non-market measures to control the market, including the ceiling interest rate and targeted growth.

 The side effects of the monetary policy loosening warned

The government and the State Bank of Vietnam have been advised to maintain and to pursue the policy on stabilizing the macro economy, making the banking system healthy and perfecting the legal framework for the monetary policy implementation.

The State Bank has done many things over the last two years when dealing with the problems in the national economy and the banking system. The inflation has been decreasing, while the banking system and the foreign currency market have been stabilized, and the foreign currency reserves have increased significantly.

However, problems still exist which require the government to strengthen the consolidation of the banking system, and to restructure the state owned enterprises.

The two goals prove to have close relations, since state owned enterprises play a very important role in the Vietnam’s national economy. They are also the big clients of banks and need to take partial responsibility for the bad debts

Vietnam, after a long period of applying an easy credit policy which has led to the high inflation and the credit bubble busting, has taken important steps since 2011 to congest the inflation and stabilize the finance market in an effort to avoid the banking system crisis boom.

The widened gap between the VND and dollar interest rate has helped restore the confidence in the local currency, thus helping stabilize the exchange rate and increase the foreign currency reserves.

Tools to recalibrate economy

Work is underway to lift the bad debt cloud from the economy.

The Vietnam Asset Management Company (VAMC), the main weapon to attack debts, is in place with VND500 billion ($23.8 million) in chartered capital at its disposal, the VAMC envisages tackling nearly VND100 trillion ($4.7 billion) in bad debts. Through issuing bonds for debt purchases, the VAMC seeks to address bad debt dilemma without using the state budget.

Senior financial expert Dr. Nguyen Tri Hieu, however, warned that to tackle such a huge bad debt amount, the VAMC would need to use big financial leveraging which was risky.

“Assuming that the VAMC bought VND50 trillion ($2.38 billion) worth of bad debts, it would need to pay commercial banks special bonds of the same value. Banks then take these bonds to the State Bank asking for refinancing with 50 per cent discount of the bond value to get back VND25 trillion ($1.2 billion). This means the VAMC could have around $1.2 billion in total asset value versus $23.8 million in chartered capital. VAMC’s financial leverage rate by that time will be 50/1, too perilous for a financial institution,” Hieu said.

In this case, VAMC’s chartered capital would even be contracted if one commercial bank dropped in its debt payment obligation.

In this respect, a commercial bank executive assumed VAMC going bankrupt was unlikely, but this would make banks think twice before‘selling’ their bad debts for bonds.

At the Vietnam Business Forum in early June 2013, VBF co-chair Alain Cany said VAMC’s setup was a positive signal, but settling banks’ bad debts could not only resort to a single solution.

Economic experts claimed the VAMC could only tackle one-third of the total bad debts, while the government was set to fully deal with current bad debts by 2015.

Under the premier-approved project on tackling bad debts, not only banks, all ministries and government agencies must get involved in the push. The premier also required credit entities to collaborate with VAMC in addressing bad debts.

In addition, credit organisations and borrowers should incur major responsibilities for the arising bad debts and sharing losses in dealing with bad debts.

Meanwhile, state budget shall be on the hook for bad debts stemming from lending to priority subjects or to those under government assignments.

The government reportedly would resort to using debt instruments in dealing with bad debts. The prime minister has assigned the Ministry of Finance to map out plans on debt instrument issuances to help the government effectively tackle various debt issues.

Robust recovery continues

Cambodia’s economy is on track to maintain its robust recovery thanks to a cocktail of private sector and government efforts. In 2012, the Asian Development Bank estimated that gross domestic product grew at a rate of 7.2 per cent, an increase from a 2011 International Monetary Fund figure of 6.5 per cent. After suffering from the fallout of the global economic downturn, GDP growth is surging back.

Kang Chandararot, president of the Cambodian Institute for Development Study, attributes much of the success to agricultural production, public investment in infrastructure and recoveries in both the garment and tourist sectors.

“The government role is a leading force, while the private sector followed as business confidence was not strong after the downturn [of 2008 and 2009],” he said.

The ADB predicts  7.2 per cent  growth in 2013 and 7.5 per cent in 2014, figures that are largely contingent on a steady recovery of markets in the European Union and United States.

Contributing factors for growth include Cambodia’s exports, consumer spending and the diversified flow of  foreign direct investment, which reached $1.5 billion in 2012. In its 2013 outlook, the ADB expects the industrial sector to expand by more than 10 per cent as EU demand for Cambodia’s products increase, thanks to preferential access to the market under the Everything but Arms initiative.

The ADB report says that export volume of garment and footwear products to the US may also rise in coming years.

Valued at $2.2 billion, Cambodia’s tourism sector continues to thrive.  In 2012, Cambodia welcomed more than 3.6 million tourists, a 24 per cent rise when compared with 2011.

The export of milled rice in 2012 was about 200,000 tonnes, and is expected to be greater this year. The value of construction projects approved by the Ministry of Land Management, Urban Planning and Construction last year, at a time when the sector was facing the threat of labour shortages, was $2.1 billion – double the amount the year  before.

Both the government and the private sector are making collective efforts to diversify the country’s exports while actively seeking new ways to market the Kingdom’s products, from its temples to its rice.

There is, however, more to be done.

Hiroshi Suzuki, Chief Economist of the Business Research Institute for Cambodia, is positive about sustaining growth through the evolution of Cambodia’s manufacturing base, instead of relying on the garment sector. Suzuki says Cambodia is attracting Japanese investment in automotive parts and electronics manufacturing.

“This type of foreign direct investment is the most important key for development in many Asian countries,” he said.

Moreover, as Cambodia looks toward integrating economically with other ASEAN member states, it has to play catch up when it comes to electricity supply, transport efficiency and infrastructure development.

Some analysts have also warned of unequal development.

“Cambodia’s economy is still fragmented, (there is) no broad-base growth . . . and it is led by unfair competition,” said Chandararot when asked about the challenges for Cambodia’s future growth.

Despite the shortcomings, observers believe that Cambodia’s economy will keep heading in a positive direction over the short and long term.

By May Kunmakara│10 June 2013│The Phnom Penh Post