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Citi confident in economic outlook
Participating in the second Viet Nam Economic Forum in Hanoi tomorrow, Citi is one of the main sponsors as well as an important speaker at this seminar. Viet Nam News reporter spoke with the Citi country officer for Vietnam, Brett Krause, about the domestic economic forum as well as international impacts on local economic situations.
What is Citi’s key messages in the Viet Nam Economic Forum this year?
I think Vietnam has made extraordinary economic progress over the past decade, with a workforce that is growing larger and more efficient and a Government leadership that is stable and strong. Today, the economy faces a more difficult global environment as it seeks to maintain its course of rapid development.
The global economy is experiencing rising inflation, which is challenging almost every country to sustain growth while controlling inflation. The challenges facing Vietnamese authorities are particularly strong, given where Vietnam is starting from, but it is not fundamentally different. The policies that will be needed are difficult. But if effective action is not taken, the Vietnamese economy will face the rising risk of a sharp drop in growth of the kind that has derailed the economic development of other emerging economies over the years.
Many investors are concerned about the impact from Lehman Brothers filing for bankruptcy. What do you say about this?
For the last several market days, as well as all throughout the weekend, we have been dealing with an unprecedented time in financial markets. We support the measures that the regulators have taken to provide liquidity to help support market stability. We also believe that the measures the industry have taken to help support liquidity are also very important steps.
Due to the strength of our capital and liquidity position, we were able to be a supportive participant in the US$70 billion liquidity facility that the Fed has put in place. This facility will help bring stability to the markets and we are very pleased to be an active participant.
Citi is committed to supporting our clients in these volatile times and we have the liquidity and financial strength to do this. In the last 12 months, we have raised more than $50 billion in capital and at the end of the second quarter our tier 1 capital ratio stood at 8.7 per cent, well in excess of the ‘well-capitalised’ regulatory minimums. Our balance sheet was in excess of $2 trillion at the end of the second quarter and we continue to work with our clients in Vietnam to help them work through these challenging markets.
According to a foreign research company, 50 countries in the world are facing double digit inflation including Vietnam. The Prime Minister of Vietnam, however, hoped that Vietnam could bring inflation to one digit by the end of 2009. Do you think it is an optimistic opinion?
I would like to congratulate the Government in managing past crises and encourage them to continue the development of Vietnam’s major financial institutions. Growth may slow somewhat even as the recommended policies are implemented. But a sudden stop can be avoided. Pressure on the exchange rate may continue for a short time, and allowing some further adjustments may be necessary. With strong policies, confidence will be strengthened and growth at full potential will be restored rapidly even if global commodity prices remain elevated. Successful policies lead to new challenges and it is likely that one reward for following the suggested course will be an early return to managing pressures on the dong to appreciate.
In particular, I’d recommend the following measures. First, it is necessary to continue to respond to inflation and exchange rate pressure by maintaining the monetary and administrative policy tightening measures that have been put in place this year, as well as the prudent limits on credit. Authorities should control Government spending and tighten control over Government lending as a part of the overall credit restraint programme.
In addition, resist large exchange rate depreciation but be prepared to allow some flexibility. The Government should resist a large exchange rate adjustment because depreciation adds to inflationary pressures although exchange market pressure will continue until market participants believe a sustainable level has been reached. But a rigid fixed rate would carry the risk of being impossible to maintain. Some further depreciation could be needed to restore competitiveness that perhaps has eroded with higher inflation and to bring down the trade deficit. Interest rates should be used as the key policy tool to keep supply and demand for foreign exchange in balance on the exchange rate path chosen by the authorities. Use of reserves, if sterilised, is a very weak instrument for exchange rate management and allowing reserves to decline rapidly would risk a loss of confidence.
The markets would sense a declining reserve trend even without the publication of reserves. There would be merit in adopting the prevailing practice of frequent and timely publication of foreign exchange reserves to reduce uncertainty.
Furthermore, it should target measures to mitigate hardship from higher commodity prices to limit the cost to the Government’s budget while preparing for the possible need for bank restructuring and recapitalisation in ways that leave equity and bond holders to absorb risks. Some other recommendations are to foster public understanding of the reasons why tighter policies are needed and sustain confidence in Vietnam’s economic future: implement greater financial transparency and an ongoing dialogue with financial institutions, both foreign and domestic, to reduce the risk of surprises, and sustain ongoing reforms while focusing greater attention on reducing commodity dependence, which is likely to be a recurring source of stress.
What do you think about Vietnam’s position in Citi’s portfolio?
Vietnam is an important market for Citi and we are exploring opportunities to grow our franchise organically and support our clients’ growth. Citi has a long-term commitment to help with the development of Vietnam’s banking and finance sector, so we are taking all opportunities to expand our footprint in this market and this may include inorganic moves should the right opportunities present themselves.
When did Citi begin its operation in Vietnam and what are your major advantages (i.e business, images ) and plans in the coming future?
Citi has been in Vietnam since 1996 and we have built a strong reputation for product innovation, world-class service and constantly bringing new ideas to our clients and we will continue to raise the bar in those areas.
Citi is committed to growing and expanding our business here by providing the best services to our clients. We take a long-term view to the market and will continue to be Vietnam’s long-term development partner.
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