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US$ bonds will stabilize market: Expert
After selling US $100 million worth of bonds on March 20, the Ministry of Finance continues to auction US $200 million worth of Government bonds on March 24 and 27. Associate Professor Dr. Tran Hoang Ngan, Member of the National Advisory Council for Monetary Policies talked about the bond issuance.
Why does the Government decide to issue Government bonds in dollars?
As the State has to take a lot of measures to curb the economic downturn (exempting or reducing tax on the poor, building houses for some subjects in the society), it is expected that the state budget deficit would reach VND 90 trillion this year. In order to cover the state budget deficit, the Government plans to issue VND 10.5 trillion worth of bonds.
However, it has raised only VND 100 billion because of the low interest rate at 6.7% per annum, lower than the expected interest rate at between 8-9% per annum. I think that the Ministry of Finance needs to pay appropriate attention to the bond interest rates in the US $300 million worth of bond issuance in order to ensure the success of the issuance.
How high the bond interest rates should be? Some experts have warned that the bond issuance in dollar may lead to the more serious dollarization in the national economy. What is your viewpoint about that?
I think that the interest rates at between 3-4% per annum would be attractive to investors. If so, the gap between the VND and US$ deposit interest rates would be 6% (the VND saving interest rate is now at between 8-9%).
The biggest worry for the Government is that the burden on the state budget would be heavier if the dollar price increases at the time the Government pays interests for the bonds. However, with the bond interest rate of between 3-4%, the cost of mobilizing bonds in foreign currencies would be 9%, equal with the VND deposit interest rate, if the VND/US$ exchange rate increases by 6%. Therefore, I don’t think that there will be the move of people’s converting from VND into dollar.
After successfully mobilizing capital in foreign currencies, the Ministry of Finance will sell the dollars to the State Bank of Vietnam. The State Bank will use the foreign currencies to intervene the foreign currency market, stabilize the VND/US$ exchange rate, and ease the pressure on the state budget’s spending. Meanwhile, by issuing bonds in foreign currencies, the State will be able to attract floating dollars on the market, giving better control of the foreign currencies in circulation, thus helping reduce the dollarization.
So, the foreign currency market will not see big shocks like in 2008?
In 2008, Vietnam saw the surplus of US $190 million in the payment balance, which helped Vietnam increase the foreign currency reserves. As the import decreased, Vietnam saw the excess of exports over imports at US $1.6 billion in the first three months of the year. If the US$ bond issuance succeeds, the foreign currency situation in Vietnam will not be tense.
VietNamNet, NLD
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