Vietnam News Network

Le Duc Thuy, former Governor of the State Bank of Vietnam, now Chairman of the National Finance Supervision Committee, believes that there are no worries about the dollarization in the issuance of bonds in US$.

Possible impacts of the issuance of US$ bonds

In the talk with Thoi bao kinh te Vietnam’s newspaper, Thuy said that the bond issuance will not worsen the dollarization as some experts fear, while it will help put dollars drifting on the market under control and ensure that the dollars can be used for the right purposes.

He said:

Le Duc Thuy, former Governor of the State Bank of Vietnam, now Chairman of the National Finance Supervision Committee

The Government bond issuance proves to be a must, when we need to mobilize capital from the public for investment, while the state budget may face the deficit.

The main thing we need to care for is that the bond interest rates should be reasonable to successfully raise funds from the public. At the very sensitive moment, accepting a little high interest rate to successfully mobilize capital would be better than insisting on low interest rates and unsuccessfully mobilizing capital. The failure of the capital mobilization will badly affect the demand stimulus policies.

The interest rates are relatively high on the international market. Vietnam will not be able to afford such high interest rates. However, if we are mobilizing capital at the domestic interest rates, the buyers of the bonds will be Vietnamese people only.

Some experts have warned that the bond issuance in dollar at this moment will make the dollarization more serious. Do you agree with this?

I don’t think so. The dollarization occurs when people use dollars in payment, especially when the dollars lie among the public. Meanwhile, issuing bonds in dollars means that we try to collect dollars and put them in the banking system. This should be seen as a measure to fight the dollarization.

JICA has just said that the dollarization in Vietnam has decreased as the deposits in dollars have been increasing. This means that the dollars drifting on the market have been put into the bank system.

If the Government does not need to use all the dollars it mobilizes, it can sell the dollars to get VND to serve its spending. The dollars will be sold to those who really need to the dollars. Therefore, there is no need to worry about the dollarization.

But why do you think the Government plans to issue bonds in dollars, not VND, at this moment?

We once issued bonds in both VND and dollars. We lately issued bonds in VND, but the issuance failed because of the offered low interest rates.

The most important thing that makes us think of issuing bonds in dollars is that banks have profuse capital in dollars, but the loaning in dollars have been going slowly as businesses dare not borrow in dollars for fear of the exchange rate fluctuations.

In the US, the bond always has the interest rate at less than 1%. Meanwhile, experts believe that the interest rate of the bonds to be issued will be relatively high. Do you think that the high interest rates will badly affect the credit ranking of the Government?

To date, even as the Chairman of the National Finance Supervision Committee, I still don’t know how high the interest rates should be. Commercial banks are paying between 2.5-3% per annum for US$ deposits.

I think we should not compare the bond issuance in Vietnam with the US. Only the country with the credit ranking at AAA can borrow money with the interest rate close to Libor.