From: Nhan Tran <tran@peora.sdc.ccur.com>
Subject: NEWS: VN chokes money supply to cure inflation
Originator: daemon@media.mit.edu
Reply-To: tran@peora.sdc.ccur.com
Organization: N/A
Date: Mon, 13 Apr 1992 23:43:11 GMT


VIETNAM CHOKES MONEY SUPPLY TO CURE INFLATION

    By Kathleen Callo
    HO CHI MINH CITY, Vietnam, April 13, Reuter - Vietnam has successfully
attacked inflation and boosted the value of its currency in recent months but
has run into criticism in its progress towards a modern banking system.
    The State Bank of Vietnam crudely implemented the decision late last year to
tighten money supply, by simply refusing to allow some companies and individuals
to withdraw cash.
    The resulting shortage of dong, and its rise in value against the dollar,
sparked panic among local exporting companies which had bet on the dong's
strength declining.
    "It has taken courageous decisions," said one Western banker about the state
bank which for decades had simply increased money supply whenever cash was
short.
    The government reined in inflation to an annualised 30 pct by early 1992,
from about 70 pct last year, and increased the value of the dong to 11,000 to
the dollar this month from 15,000 last November by selling dollars and gold on
the domestic market.
    But Le Van Tu, head of the Monetary and Credit Institute, a research body,
said policies to tighten money supply and boost the dong were too late, too
abrupt, and improperly coordinated.
    "You foreigners think that this is a successful venture into the market
economy. We insiders know that Vietnam has not successfully moved to a market
economy yet -- just in some parts," he told Reuters in a recent interview in
Hanoi.
    In an editorial in March, Vietnam Confederation of Labour weekly, Lao Dong
Chu Nhat, accused state bank leaders of incompetence and of trying to slow down
economic reform for fear of losing their power.
    "Where in the world must people submit a 'plan' to ask to withdraw money
from the bank? Where do people have to spend so much time waiting and begging to
withdraw cash and to declare to the bank how they are going to spend the money?"
the newspaper said.
    Foreign bankers say the state bank is moving in the right direction, but
will not succeed in functioning like a real central bank until Vietnam
implements big structural changes.
    Those include closing hundreds of state-owned companies and making the state
bank politically independent of the Council of Ministers, Vietnam's cabinet.
    But those same bankers say until Hanoi can get loans from the World Bank and
the International Monetary Fund (IMF), it would have a hard time sacking
hundreds of thousands of state workers without bringing on destructive social
instability.
    Washington is blocking IMF and World Bank loans to Vietnam.
    Vietnam impressed the IMF in the late 1980s, by letting the dong float to
the free market rate, slashing price subsidies and thus ending triple-digit
inflation. Since late 1989 the state bank has also tried to offer positive real
interest rates to attract deposits, instead of interest rates lower than
inflation, to help state-owned companies.
    In recent months, the government has issued or approved the sale of new
financial instruments -- treasury bills, certificates of deposit and bonds based
on the price of gold.
    But these moves have failed to draw in a lot of the money circulating in the
informal economy.
    "The public does not wholeheartedly trust the state bank," says Tu, who
helped draft a 1990 government banking decree that was supposed to create a
modern banking system.

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