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Inflation control, managing exchange risk top priorities
Viet Nam needs to tightly control inflation and have policies to manage foreign exchange risk, a conference heard in HCM City on Apr. 21.
Rowan Luke, Head of treasury operations at the Commonwealth Bank in HCM City, said foreign exchange represents one of the biggest risks for importers or businesses remitting dividends.
"The future direction of the currency will depend on a number of factors such as inflation, economic, policy, FDI, trade balance, and domestic confidence in the dong. While in the past many of the above factors have been working against the currency, recent market developments have shown a greater cause for optimism."
Inflation had risen significantly in the past 12 months as the Government prioritised high growth rates, he said.
But now the policy objective was to reduce inflation and some key measures had been taken, including a hike in reverse repo rate by the State Bank of Viet Nam and cut in fiscal expenditure.
Besides, domestic confidence was a key factor in foreign exchange management, especially given the closed nature of dong trading.
This had been fragile for the last three years, and changing these market perceptions would be difficult.
However, if real rates of return on the dong remained positive and policy targeted inflation, they would change over time.
The trade deficit was likely to improve this year, and FDI was likely to improve over the next 12 months.
It was driven by improvement in the global economy, and the dollar's low exchange rate against major currencies.
Michel Henry Bouchet, Head of SKEMA Business School's Global Finance Centre and director of the North Sea Global Equity Management Fund, spoke about how global capital markets currently assess Viet Nam's country risk.
He quoted the International Monetary Fund and World Bank as saying Viet Nam had fragile market stability due to confusion over the Government's policy intentions and the region's highest inflation rate (11 per cent last year and 13 per cent this year).
Weak governance will cause obstacles to sustainable investment, capital market development, and domestic savings and FDI.
The conference was organised by the French-Vietnamese Center for Management Education (CFVG).
Quynh Hoa
vietnamnews
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