Vietnam sees dark side of overseas remittances

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Amidst the ongoing economic downturn, Vietnam has received more remittances for overseas residents, which has helped increase the nation's foreign currency reserves and contributed to reducing the nation's trade deficit.

However, experts are pointing to the other side of the inflows, saying they could compound the problem of dollarization in the economy, and that the benefits from remittances are lower than losses caused by the brain drain.

According to the National Overseas Vietnamese Committee, Vietnam received US$8.9 billion in overseas remittances in 2012. The country has moved down one spot to number nine in the list of developing countries with the largest remittances from migrants around the world.

Economist Bui Kien Thanh said overseas remittances are a big foreign currency source, equaling last year's disbursed FDI. The funds sent by overseas Vietnamese to their relatives in the country is very important for Vietnam, as it can help address the trade imbalance, increase foreign currency reserves and enhance poverty alleviation efforts, he said.

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Between 1991 and 1993, overseas remittances were a fundamental factor in the nation's economic growth, driven mainly by the development of small and medium-sized enterprises, Thanh said.

"Without the remittances, the economy would not thrive," he added.

Since 1993, the country has received a total of $70 billion in remittances, or twice the amount of foreign aid from development partners over the same period, official statistics show.

However, the inflow also has some negative impacts, Thanh said. The remittances are a small part of the income of overseas Vietnamese population, especially those living and working abroad in the long-term, as most of them are skilled employees with high incomes.

Some four million Vietnamese people are living and working in 101 countries and territories. Only 400,000 of these have been sent abroad to work, said the National Overseas Vietnamese Committee.

Thus, the benefits gained by foreign countries from the people's contribution to their GDP and from their spending there is much higher than their remittances to Vietnam, Thanh said.

"So Vietnam should strive to create a favorable environment for overseas Vietnamese to return home to live and work. It is much better than just receiving their remittances."

Another problem is that money earned from illegal activities abroad like smuggling is laundered after being sent to Vietnam as remittances, he said.

Cao Sy Kiem, former governor of the State Bank of Vietnam, said if the remittances are not managed strictly, it will not flow through the banking system, especially at a time foreign exchange rates in the unofficial market are much higher than at banks.

Thus, a large part of foreign currencies sent home by overseas Vietnamese will be traded in the unofficial market, seriously increasing dollarization in the economy, he said.

According to a report prepared by the HCMC branch of the State Bank of Vietnam, the city is estimated to receive remittances worth $4.1 billion in 2012, but only a third of the fund was sold to commercial banks. Kiem said households could use foreign currencies received from their overseas relatives to purchase goods, contributing to raising consumption demand and increasing inflation.

He said Vietnam should tighten management of remittances and encourage people to use the funds to invest in production and business.

Remittances made by overseas Vietnamese are often invested in the stock and property markets here. However such investments are likely to decrease this year because of the frozen property market and bearish stock market.

"A part of the total overseas remittances may be deposited to earn interest rates," he said.

People can earn interest of just 0.35 percent per annum from their dollar deposits in the United States, while they can get 2 percent here. If they sell the foreign currencies and make dong deposits, they can earn interests of 8 percent or more, Kiem said.

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