Economists warn against Vietnam's plan to borrow from forex reserves

By Hong Suong, TN News

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 Photo: Le Hieu

Soon after the government announced plans to borrow from its foreign-exchange reserves for developmental projects, several economists voiced concern, saying it is " risky".
Pham The Anh of Hanoi's National Economics University said the reserves are not huge albeit "temporarily safe" at an estimated $35 billion last year.
He pointed out that Vietnam's trade balance is always negative while money brought in by foreign investors could be pulled out any time.
Moreover, the reserves are meant to be used for paying external debts, and any default would cause the nation to lose its creditworthiness, he warned.
Governments only borrowed from forex reserves when they were bankrupt or wanted to pump-prime the economy, he said.
Do Thien Anh Tuan, a lecturer with the Fulbright Economics Teaching Program, said the plan was "not right" in every aspect.
There are no legal provisions for using forex reserves for developmental projects, he said. Theoretically, they are meant for purposes like stabilizing exchange rates, fighting speculative currency attacks, and guaranteeing national monetary security, he said.
The dong faced speculative attacks in 2009-2010, and the State Bank of Vietnam apparently had to sell a huge amount of foreign exchange to defend it, Tuan said, adding that the reserves fell to $10-12 billion from $22-23 billion before 2008.
Economist Vu Dinh Anh said the government has to prove there is an "emergency" and comply with rules related to the reserves like guaranteeing its security, liquidity, and profitability.
Given that the government's history of public spending is replete with wastage, the borrowing plan is risky, he warned.
At a press conference last week, the Ministry of Finance said Vietnam's public debt is rapidly approaching the set limit of 65 percent of GDP.
The debt is now above $84 billion, or 60.3 percent of GDP.

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