Vietnam sees dong pressure ease as bad-debt resolution firms up

Bloomberg

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Bundles of dong bank notes are seen in Hanoi, Vietnam.
Vietnam’s central bank will weaken the dong only when “truly needed” as it steps up efforts to create more favorable conditions for foreign investors, including a plan to auction bad-debt assets of banks.
 
The central bank and the justice ministry are trying to “quickly” finalize legislation to regulate auctions of bad-debt assets and collateral of lenders, State Bank of Vietnam Governor Nguyen Van Binh said in e-mailed responses to Bloomberg News today. Meanwhile, pressure to weaken the dong will be eased by a balance of payments surplus this year, helped by increases in remittances, exports and foreign investment, he said.
 
“The government and the central bank encourage and want to create favorable conditions for foreign investors to participate in the sale and purchase of bad debt,” said Binh. On the exchange rate, while the monetary authority aims to allow the dong to strengthen or weaken no more than 2 percent against the dollar in 2014, “how many times adjustments are made, and how big they are will depend on supply and demand for foreign currency, as well as other macroeconomic indicators,” he said.
 
The central bank yesterday said it will lower its refinancing rate to 6.5 percent from 7 percent and the discount rate to 4.5 percent from 5 percent. The repurchase rate was reduced to 5 percent from 5.5 percent. The cuts are effective today.
 
Vietnam targets gross domestic product growth to rise 5.8 percent this year, quickening from a 5.42 percent pace in 2013. It would be a seventh straight year of expansion below 7 percent as the highest level of bad debt among Southeast Asia’s biggest economies curbs lending and hurts businesses.
 
The dong was little changed at 21,099 per dollar as of 2:30 p.m. local time, according to data from banks compiled by Bloomberg. The benchmark VN Index rose 0.2 percent at its mid-day break, heading for its highest close since Oct. 2009.

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