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SBV Deputy Governor highlights measures to implement Resolution 11/NQ-CP
In response to Resolution No.11/NQ-CP of the Government dated February 24, 2011 and the guidance of the Prime Minister, Mr. Nguyen Van Binh, member of the Central Committee of the Communist Party of Vietnam and Deputy Governor of the State Bank of Vietnam (SBV) wrote an article on the solutions of the banking sector to implement Resolution 11/NQ-CP on curbing inflation, stabilizing macro economy and secure social protection. Following is the full text of the article.
Looking back at the outcomes of the macroeconomic management in 2010, it can be seen that the Government, ministries and agencies directed the decisive implementation of various measures to achieve socio-economic goals. The positive macroeconomic achievements were as follows: (1) economic growth rate was 6.78%, higher than the target of 6.5% set by the National Assembly and higher than the rate of 5.32% in 2009; (2) export volume and foreign capital inflow obtained a relatively high increase, hence improving the balance of payment; Export turnover reached USD 71.6 billion, up by 25.5% and import volume reached USD 84 billion, up by 20.1%, resulting in trade deficit being USD 12.4 billion, equivalent to 17.3% of export turnover just below the threshold of 20%; actual FDI disbursement was USD 11 billion, up by 10%, and foreign indirect investment (Including USD 1 billion of government bond issue) reached USD 2.43 billion, up by 190% as compared to 2009; the deficit of the aggregate balance of payment was USD 4.6 billion, lower than that of USD 8.8 billion in 2009; (3) the development investment of the whole society registered 41.9% of GDP; (4) the unemployment rate was 2.88%, and the rate of poor households continued to decline to 10.6% from 12.3% in 2009; and (5) budget deficit was 5.6% of GDP, lower than that of 6,9% of GDP in 2009.
However, the macro-economy in 2010 still faced certain problems as follows: Firstly, the targeted inflation rate of about 7-8% set by the National Assembly was not met. The consumer price index (CPI) of 2010 rose by 11.75% against December 2009 and the YoY CPI was 9.79%. Secondly, the economic structure transformation was still slow and the investment efficiency was low; Thirdly, the measures of trade deficit reduction were limited; the aggregate balance of payment suffered from large deficit, the macroeconomic balance remained unstable, and the budget deficit and public debt remained at a high level.
In the first two months of 2011, the domestic economy continued to recover, all the YoY macro-economic indicators in January increased in spite of the coincidence with the Lunar New Year festival. The YoY industrial production, exports, imports, total retail sales of goods and services, and disbursement of foreign direct investment rose by 16.1%, 18.1%,15.5%, 22.1%, and 5% respectively. This reflects the increasing trend of domestic investment demand and consumption. The YoY consumer price indexes in January and February rose by 1.74% and 2.09% respectively. Meanwhile, the world economy is moving in a complicated direction, with the regional inflation being going up, and the prices of crude oil, basic material inputs for production, and food in the world market being on the continued rise. Domestically, natural disasters and weather affects adversely production and life and market prices tend to rise, while the prices of such important inputs of production and life as electricity and petroleum have not been set by market forces, thus increasing the high risk of macroeconomic stability of the nation.
In the face of inflation pressure from various directions and macroeconomic risk, the Government has emphasized the importance of curbing inflation, stabilizing macro economy and securing social protection. Accordingly, the Government issued Resolution No. 11/NQ-CP dated February 24, 2011 on a number of key solutions to control inflation, stabilize macro economy and secure social protection in 2011. The Resolution covers six sets of solutions, namely (1) pursuing a tight and prudent monetary policy; (2) tightening the fiscal policy and public investment; (3) promoting production and business, encouraging export, controlling trade deficit, and economically consuming energy; (4) adjustment of electricity and oil prices with the priority policy in favour of poor households; (5) improving social protection; and (6) promoting communication and information. These are the fundamental solutions to ensure sustainable economic growth of this year and the coming years.
To implement the resolution of the Government and the guidance of the Prime Minister, the SBV plans to pursue an active, tight and prudent monetary policy; improve the monetary, credit and banking mechanisms in order to stabilize the money market and maintain a safe and sound banking sector; to keep credit growth of below 20% and the total liquidity rise of about 15-16%; and manage interest and exchange rates at reasonable levels in accordance with the macroeconomic conditions and objectives. The sets of solutions will mainly be managed as follows:
(1) Upon the issuance of the Government Resolution, the SBV will issue a Directive to require SBV entities and credit institutions to implement monetary and banking measures aimed at controlling inflation, stabilizing macro-economy and securing social protection in 2011.
(2) Formulating managerial solutions to keep credit growth below 20% in parallel with ensuring sufficient capital resources for effective production and business, prioritize credit extension for agricultural and rural development, exporters and supporting industries, and small and medium enterprises, in particular:
- Flexibly managing monetary policy instruments with a focus on interest rates, open market operations, refinancing, and reserve requirements to regulate the amount of money supply and liquidity, and ensure the growth of the total liquidity of about 15-16%.
- Directing commercial banks to revise their operational plans in terms of credit and asset growth, and register their credit growth plans with SBV on the basis of compliance with the prudent ratios and credit growth of below 20% as set by SBV.
- Directing commercial banks to minimizing loans for the non-productive sector, especially the real estate and securities industries. SBV will adjust flexibly the risk provisioning and other prudent ratios so as to focus credit flows on important and essential productive and business sectors of the economy.
- Issuing a necessary mechanism to effectively control the purchase of corporate bonds by credit institutions in order to avoid the change from credit extension to bond purchase.
(3) Controlling interest rates at reasonable levels to curb inflation and credit growth, enhance the value and attractiveness of the domestic currency against foreign currencies, and to prevent the transfer of VND-denominated loans into foreign exchange-denominated ones, in particular:
- SBV will issue without delay several legal documents, namely the circular on the base interest rate, the circular on interest rates in case of abnormal movements of the money market and banking operations, the circular on loan fees, and the circular on time deposit withdrawal before due date.
- Determining the regulating interest rates of SBV in a flexible manner to match the expected inflation rate and the YoY principle.
- Revising the foreign currency lending mechanism to keep the lending growth rat of foreign currencies at about 20% only for essential productive and business clients who are able to obtain foreign exchange revenue from their production and business.
- Closely working with the Ministry of Finance in the issuance of Government bonds in the domestic and international markets and managing capital markets to ensure the harmonization and consistence between the monetary and fiscal policies in order to control inflation and stabilize the macro-economy
(4) Flexibly managing the exchange rate and forex market in line with movements of the market; enhancing the foreign exchange management by taking necessary measures without delay to ask institutions and individuals to sell their foreign exchange revenues to and to buy foreign exchange from banks in cases of their reasonable demands, hence ensuring the adequate availability of foreign exchange, stabilizing the exchange rate, meeting the requirements of the essential productive and business sectors of the economy, and increasing international reserves, in particular:
- To flexibly manage the exchange rate in line with foreign currency supply and demand for the needs of essential commodity importation; promulgating consistent mechanisms and policies to mitigate risks in the operations of enterprises and commercial banks, thereby contributing to curbing inflation, limiting trade deficit, stabilizing macro-economy and promoting economic growth.
- To take measures of developing the market, utilizing a number of derivatives to flexibly manage the exchange rate in proactive support of the monetary policy management to facilitate enterprises and commercial banks to balance their foreign exchange needs and avoid foreign exchange risk.
- To decisively take measures of management and utilization of foreign currencies, and strictly control both foreign exchange loans and sales for importation of non-essential and non-urgent commodities.
- To promptly implement necessary measures to require enterprises and individuals, especially the state-owned economic groups and general corporations, to sell their foreign exchange revenues to and to buy foreign exchange from banks in cases of their reasonable demands.
- To take measures of strictly controlling the utilization of international payment cards and foreign currency spending abroad by institutions and individuals.
- To work closely with the Ministry of Planning and Investment and the Ministry of Finance to strictly manage overseas investment and lending by economic and credit institutions.
- To further stipulate the SBV regulations on the non-government guaranteed foreign borrowings of economic institutions in order to contribute to ensuring foreign exchange liquidity, prioritizing foreign exchange for essential production and business, and reducing foreign debt pressure and obligation of the economy.
- To actively coordinate with the Ministry of Trade and Industry in taking measures to reduce trade deficit, boost export and promote essential production and business of the economy.
- To make recommendations to be submitted to the Government to minimize dollarization in Vietnam to make VND the only payment instrument in the Vietnamese market; and to gradually change the local foreign exchange mobilizing-lending relations of credit institutions into the buying-selling ones.
(5) Taking measures to strictly manage the gold market:
- To monitor and forecast fluctuations of international gold price, and gold supply and demand in the domestic market for proper management of gold export and import, thereby preventing speculation, hoarding and manipulation of the gold market.
- In the second quarter of 2011, to submit the Decree on gold management and trading to the Government for issuance in the direction of permitting certain major gold importers, eventually doing away with gold bar trading in the parallel market, and effectively preventing the cross – border gold-smuggling.
(6) Enhancing supervision of credit quality and extension, the compliance of prudent ratios, and foreign currency and gold trading of credit and economic institutions and the parallel market, in particular:
- To supervise lending operations, debt rescheduling, loan classification, risk provisioning and provision utilization in compliance with law.
- To focus on on-site supervision of loans for the non-productive sector, credit quality and prudent ratios of credit institutions.
- Coordinating with the relevant authorities to promulgate regulations and sanctions to deal with violations, including revoking of licenses and confiscating of assets, and rewarding the detectors of illegal foreign exchange and gold trading.
- Working closely with the Ministry of Public Security, the Ministry of Industry and Investment, the People's Committees of provinces and the centrally directed cities and the specialized agencies to monitor the compliance with the regulations on foreign exchange and gold trading.
(7) Improving mechanisms and the quality of information and communication on monetary policy management and banking operations:
It can be said that the SBV measures to implement Resolution No.11/NQ-CP of the Government are very decisive but also sensitive, and affect all aspects of the productive and business sectors. This requires the SBV to conduct an effective campaign of information and communication in order to help the entire society to properly, timely and fully understand the nature and objectives of monetary policy management and banking operations in the interest of the nation, and sustainable and healthy development of the whole economy.
- Through international institutions, especially such international financial institutions as IMF, WB and ADB, the SBV is responsible for fully and timely publicizing all the directives, policies and measures of the Government in general and the SBV in particular to stabilize macro- economy and curb inflation, thus enhancing the confidence and consensus of the international donor community and investors vis-a-vis Vietnam’s sustainable economic development.
In a nutshell, there remain numerous difficulties and challenges, however we are deeply confident that with the close guidance of the central government, the decisive and synergetic implementation of the above mentioned solutions by governmental agencies and the governments of all levels, and the patriotic tradition of our people, Resolution No.11/NQ-CP and the SBV solutions will be implemented successfully, thereby creating a solid precondition for fulfilling the socio-economic tasks in 2011 and the Five – Year (2011-2015) State Plan.
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