A new ordinance that continues to allow Vietnamese individuals and entities to take loans from overseas creditors has experts concerned about its practicability because it fails to introduce a strict and detailed legal framework for such transactions.
The ordinance, which would revise the 2005 ordinance on foreign exchange, was recently passed by the National Assembly’s Standing Committee and is set to take effect from January 1 next year.
Truong Van Phuoc, CEO of Eximbank, applauded the ordinance, saying that it is “very good” for the cash-strapped Vietnamese economy.
However, the government’s management role is vital, he told Tuoi Tre newspaper, stressing that the loans should be registered with the State Bank of Vietnam so that the latter can keep track of them.
The central bank also needs to regulate that the disbursed foreign currencies must be sold to it, which will help increase the national foreign-exchange reserves, Phuoc said.
On the other hand, it is important to facilitate procedures for people who take overseas loans to exchange dong into foreign currencies to make repayments, he added.
Since these loans are not secured by the government, they will not be accounted as public debt, and should, therefore, be encouraged, Phuoc said.
Economist Le Dang Doanh agreed with Phuoc, but cautioned that the chances of Vietnamese being cheated are high, given the absence of central bank instructions and the incomplete legal system.
A legal framework and detailed instructions are needed so that the government can maintain tight control over such transactions, Doanh told Vietweek.
In fact, Doanh’s concern has already been validated by recently busted cases.
In 2011, the Ministry of Public Security’s Department for Finance, Money and Investment found that Tan Thien Bao Uoc Nguyen Company in Ho Chi Minh City had signed loan agreements worth over VND433 trillion (US$20.5 billion) with 165 businesses.
The company, majoring in construction, was founded by Ngo Thi Thuy Hang under the instructions of Le Jannie Uyen, a Vietnamese American, with the registered capital of VND2 billion ($94,700).
Uyen claimed that she was authorized by a Filipino named Francisco E. Delos Santos to use his five accounts worth a total of $295 billion at Vietnamese banks for charity work and aiding local businesses in social welfare projects.
But police found that the bank accounts were not owned by the Filipino and they did not have the money as claimed.
Since the case was discovered before any of the Vietnamese companies were actually swindled, the department ended up fining involved people, and Uyen had fled the country.
In another case, Hoang Anh, chairman of the Hung Hop Luc Construction Company in Hanoi, received a life sentence last October for cheating several local businesses out of more than VND40 billion ($1.89 million).
Police said Anh promised his victims access to overseas loans, claiming to have connections in foreign countries and an account with a bank in Dubai. He asked them for some money to complete procedures for the loans and pocketed it himself.
Le Tham Duong, dean of the Business Administration Department with the HCMC Banking University, told Vietweek that taking overseas loans is an “obvious trend” among Vietnamese businesses.
However, such loans should be carefully considered, given the current lax management of the state, Duong said.
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By Thanh Xuan-Viet Anh, Thanh Nien News (The story can be found in the March 22nd issue of our print edition, Vietweek)