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Laos holds enough foreign reserves: LSX CEO
The Bank of the Lao PDR has enough foreign reserves to keep currency exchange rates stable despite increased foreign ownership of shares in EDL-Gen, a top stock market official says.
Lao Securities Exchange Chairman and CEO Mr Dethphouvang Mounlarat made the comment last week in response to public concerns that increased foreign ownership of EDL-Gen stock would make it difficult for the central bank to stabilise currency exchange rates.
The central bank must ensure it has a sufficient supply of foreign currency so that foreigners who sell their stock can convert their kip earnings into foreign currencies to take out of the country.
Mr Dethphouvang said the government's decision to increase foreign ownership of EDL-Gen shares from 10 percent to 20 percent of the total was based on the capacity of the central bank to supply sufficient foreign currency.
He said the government would consider allowing an even larger percentage of foreign ownership of stocks when Laos has built up more foreign reserves, which is essential to ensuring the central bank can keep currency exchange rates stable.
“At present, the foreign reserves that the government and central bank have are sufficient to meet the needs of investors,” he said, adding that foreign investors can exchange currencies at any time.
Mr Dethphouvang, who is a senior official at the Bank of the Lao PDR, did not provide any details on the exact amount of foreign reserves held by the bank.
According to the World Bank's Lao PDR Economic Monitor December 2011 Update, foreign exchange reserves increased by 28.7 percent year on year, reaching US$719 million in June 2011 following inflows of foreign investments and export earnings. The reserve level in 2011 was projected to cover about 3.8 months of non-resource imports.
At the same time, net foreign assets (NFA) grew rapidly by 54 percent year on year, reaching US$911 million in June 2011 from US$576 million in June 2010. Such increases in reserves and NFA are partly explained by the slowdown of credit growth.
The levels of reserves and NFA were projected to slightly climb to around US$750 million and US$950 million respectively by the year end. This slight increase is explained by the offset from large imports despite estimated strong capital inflows and export earnings.
The Lao government aims to keep sufficient foreign reserves to secure six months of imports. However, an unexpected increase in imports would lower the central bank's capacity to secure imports over this timeframe.
Minister of Industry and Commerce Dr Nam Vinhaket told Vientiane Times at the end of last year that imports were not a serious concern because most went towards investment projects, which would help to increase export value in the coming years.
vientiane times
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