Vietnam Currency Discussion Board

[tenac]

Forex policy... and the purchasing power of the VND

VNECONOMY : 20/09/2007

Hisatsugu Furukawa, the Finance Policy Consultant to the Japan International Cooperation Agency (JICA), talks about the forex policy Vietnam is following and the suggestion for the new period.

VietNamNet Bridge briefs the conversation between a VN Express reporter and Mr Hisatsugu Furukawa.

What is your assessment about the forex policy Vietnam is pursuing and the current purchasing power of the local currency?

The government of Vietnam has been paying special attention to maintaining the purchasing power of the VND and curbing inflation.

Vietnam has been stabilising the value of the VND in comparison with the US dollar by applying the forex management scheme with set trading band, under which the VND can’t fluctuate within narrow bands. Vietnam also tries to keep control over the prices of key commodities and tariffs. The said policies have helped ensure the stability of prices over the last time.

The high inflation rate Vietnam has been experiencing comes from the main factors as follows: the world’s oil price increase, and the big domestic demand for housing and construction.

The State Bank of Vietnam and the Ministry of Finance have gained satisfactory achievements in the monetary market through foreign transactions like treasury bond issuance, government bond issuance and the decision to require higher compulsory reserve ratio. The said measures have shown their effectiveness, but they have made the management cost higher.

Moreover, the measures may increase risks in terms of payment and monetary risks if you use foreign short-term loans for long-term investment.

What would you say about the domestic purchasing power of the VND reflected in the CPI?

In Vietnam, the CPI seems to not sufficiently reflect the current domestic purchasing power of the VND due to the coverage and the contents of the basket of commodities serving the CPI calculation. The adjustment of prices may distort the calculation of the actual purchasing power.

As far as I know, the General Statistics Office GSO has been trying its best to heighten the truthfulness of the CPI to better reflect the domestic purchasing power of the VND. However, I think that Vietnam should regularly reconsider the selection of the commodities in the basket of commodities for calculating CPI. It is necessary to use the data about the current consumption situation based on a survey of households’ living standards

I also think that the housing leasing fee should be added into the basket of commodities for calculating CPI as unmovable assets play important roles in everyday life. It is necessary to reconsider the contents of the basket of commodities every five years, and to make an assessment on whether the CPI can truly reflect the everyday life of people.

Besides, as the prices of several kinds of food and foodstuffs fluctuate according to seasons, the CPI should be made public annually.

Source: VietnamNet