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New move on gold imports cannot achieve stated policy aims, experts caution


 
One-tael (37.5 grams) bars gold are sold at a bank branch in Ho Chi Minh City

The newly approved exemption of customs procedures for gold imports at airports, touted by the central bank as a measure to help "stabilize" the local gold market, will most certainly fail that very purpose, economists say.

The government this week approved a central bank proposal in May, instructing the Finance and Public Security ministries that imported gold cargo can be transported straight from the airport to a central bank-designated warehouse without going through customs clearance procedures required for all goods.

Related customs documentation can be completed within 30 days after the import date.

 The bank, known in full as the State Bank of Vietnam (SBV), is the sole importer of gold bricks used to make gold bars and jewelry.

The SBV said the exemption would help accelerate gold imports so as to timely help stabilize the market for the precious metal and narrow the gap between domestic and global prices.

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It would also help improve safeguards and secrecy related to such operations, thus prevent information leaks to speculators, the bank said.

Private gold holdings are traditionally popular among Vietnamese who, according to SBV, keep an estimated 300 to 500 tons of bullion as savings - valued at as much as US$19 billion at domestic prices and equal to official UK holdings.

The price of one tael of gold (37.5 grams, or 1.206 Troy ounces) in Vietnam is currently about VND2.5-3 million more expensive than in the global market. One-tael bars are most preferred for personal gold holdings in Vietnam. Import tax on gold bricks is now zero percent.

Economist Le Dang Doanh said the exemption will not bring any benefit to the economy. The acceleration of gold imports cannot solve current market issues, he said. 

"We should not eliminate the strict surveillance over gold imports and create space for fake and poor quality products to infiltrate into the country," he said.

Economist Ngo Tri Long said the exemption might be too big an incentive for a "normal item," and could set a "bad policy precedent for management of other goods."

Instead of increasing imports, SBV should seek ways to mobilize gold held by local residents to serve economic development, he said. 

The central bank hasn't disclosed how much gold it has imported so far this year, although it has sold nearly 57 tons in the domestic market through auditions, local newspapers have reported.

The SBV has spent an estimated $2 billion on importing gold this year, the reports said.

They also said that the import of gold is causing a decline in the country's forex reserves. Based on economists' calculations and government data, Vietnam's foreign reserves were estimated at around $26 billion at the end of 2012. The exact amount of foreign exchange reserves is not publicly released in Vietnam.

Ineffective policy

The central bank said in April that the long standing gap between international and domestic gold prices would reduce after commercial banks completed returning the precious metal to depositors in June.

It said that demand for gold would reduce because commercial banks will not need the precious metal anymore, and it would only be purchased for personal use.

However, two months have passed since banks completed returning all gold deposits to their owners, the domestic-international price gap is still large and the hoarded gold has not been turned into investment in production and trade.

Economist Nguyen Tri Hieu said the central bank has received many incentives for its gold trade. However, it has not yet dealt with the local gold market's shortcomings.

One more incentive the exemption of customs procedures would not solve the problems, he added.

The gold premium, despite decreasing from over VND6-7 million ($285.7-$333.3) per tael two months ago, still stands high at VND2.5-3 million per tael, he said. A reasonable gap would be VND0.4-1 million per tael.

Hieu said the fact that the gold premium is high even after the central bank sold large volumes in the domestic market means that a lot of the precious metal has not come into "real transactions," meaning purchases were not being made by individual customers but by credit institutions.

The situation that some big traders buy up large volumes of gold and speculate for profit may also happen, Hieu said.

"If large volumes of gold had actually come into the market, the market would have stabilized," he said.

After the gold market stabilizes, the central bank should give up its role of a gold trader as well as its monopoly over bullion imports, Hieu said.

"The gold market should operate like a market for normal goods."

Another economist who did not want to be named said the sale of nearly 57 tons of gold may increase the volume of the physical gold, which is unreasonable at a time the government is aiming to limit use of gold as a means of payment and reduce the volume of physical gold held by local residents.

To stabilize the gold market and reduce the use of the precious metal as a means of payment, Vietnam should stabilize the dong and control inflation well so that local residents see that it is not necessary to hold on to the precious metal, Doanh said.

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