Replies to post #895 on Vietnam Currency Discussion Board

[RICK C]

THURSDAY SEPT 13,2007-------------
Banking & Finance

Urgently heightening the international position of VND

VNECONOMY updated: 13/09/2007


The dollarisation in Vietnam’s national economy seems to be eased recently, but it remains the big challenge for Vietnam’s banking system to integrate the currency into the world.

The dollar – everywhere and at all times

In 1992, the dollarisiation in Vietnam was described as ‘serious’ with 41% of deposits at banks being in dollar. The figure now is 25-35%, which shows that Vietnam has been successful in combating dollarisation. However, no one can deny that dollars are being used everywhere and are present in all transactions.

Under the current regulations on forex management, only the institutions and individuals which are allowed to collect money in foreign currencies in Vietnam’s territories can place advertisement pieces and quote goods’ and services’ prices in foreign currencies. However, in fact, price quotations in foreign currencies can be seen everywhere in big cities like Hanoi and HCM City.

Nguyen Thi Thu, the owner of a luxury jewellery shop at Diamond Plaza, said that she knew the regulations on quoting prices in VND. However, her customers are mainly international guests, therefore, the price quotation should be in dollars for better understanding. Other trade centres and hotels in Hanoi and HCM City all calculate hotel room rates and other fees in foreign currencies. In order to avoid punishment, they quote prices in both VND and US$.

Computer trading firms have been found as the entities most often violating the regulations on price quotation. Even a quotation in both VND and US$ is considered as violating laws.

Dim role of management authorities

In HCM City, there are 800 operational transaction points serving money exchange, most of which are gold shops. According to the HCM City Branch of the State Bank of Vietnam, if banks want to provide money exchange services, they have to be licenced by the state bank. Meanwhile, gold shops only need to fulfill procedures to become bank agents to be eligible to provide the services.

Under the current laws, violators of the regulations on price quotation and illegal money exchange have to pay a fine of between VND5-12mil. However, the HCM City branch of the state bank has discovered and imposed a fine on only one case so far this year: a home appliance centre in the city.

Explaining this, Nguyen Thi Minh Lan, Head of the Forex Management Division under the HCM City branch of the central bank, said that the thin labour force of the division did now allow it to punish all violators, especially as violations have become spread out.

Le Xuan Nghia, Head of the Banking Development Strategy Department under the State Bank of Vietnam: It is necessary to limit transactions in foreign currencies

The dollarisation has made monetary policies more complicated as there always exist two kinds of interest rates, the rates for foreign currency deposits and loans, and for local currency, which do not always go in the same direction.

A dollarised economy would cause exchange risks for enterprises and commercial banks. The international exchange market always fluctuates as nations all float the exchange rates.

The dollarisation has generated the habit of using foreign currencies in transactions. Therefore, the important measure in order to curb the dollarisation is not to accept deposits in foreign currencies. Most countries in the world do not accept deposits in foreign currencies. In the immediate time, it is necessary to reconsider the licencing of foreign currency trading, strictly ban advertisement and price quotation in foreign currencies. The central bank should raise the required compulsory reserve ratio of foreign currency deposits, a preparatory step to prohibiting foreign currency deposits in the future.

However, all the above mentioned measures need to be carried out on the basis of the controlled inflation. It is very important if Vietnamese people have confidence in the local currency and use VND in payment and savings.

Dao Hong Chau, Deputy Director General of Eximbank: Vietnam needs to build up the prestige of the local currency

The dollarisation will continue if people do not believe in the stability of the VND. Banks now still provide inconvenient services, and as a result, people don’t make foreign currency transactions via banks. A Can Tho-based company has to make payments to a HCM-City based company, and it takes cash to HCM City instead of using banks’ services because it believes that this takes less time.

In fact, the dollarisation not only originates from the demand and habits of the public, but from credit institutions as well. You may see that the information about the VND/US$ exchange rate is always put on the top of thelectronic boards at banks’ transaction points.

Source: VIR

[RICK C]

Vietnam, the Asian choice for US companies: Industry Week
22:27' 06/10/2007 (GMT+7)



Granting investment license to Intel's project in Ho Chi Minh City
VietNamNet Bridge - Vietnam has quickly become a leading recipient of foreign investment by US companies, said Alex Bryant, President of the East West Associates (EWA), in h is article run by the online Industry Week on June 6.

The article notes that: "As a result of favorable governmental policies, a well-educated workforce and concern about China's rising costs, Vietnam has experienced a significant rise in direct foreign investment. These companies view Vietnam as a real alternative for establishing manufacturing and distribution centres, primarily for export.

Recent investments include Intel's project in Ho Chi Minh City with a total investment of US $1 billion. This investment is being followed by other hi-tech investments as well as prospective Intel suppliers.

Vietnam attracted more than US $10.2 billion in registered capital to carry out foreign investment projects in 2006 -- nearly $8 billion went toward 800 new projects and more than US $2.2 billion to 440 applications for capital expansion of existing projects.

During the last 2 years, Vietnam has yielded robust economic results and showed up strongly on investors' radars following WTO entry, hosting of the APEC meeting and the US government's approval of permanent normal trade relations.

The article outlines 6 key characteristics of the Vietnamese market for manufacturers considering establishing businesses in Vietnam as follows:

Reasonable labour rates and well-trained workforce

In comparison to many of its Asian neighbors, Vietnam has a relatively inexpensive labor rate. For factory operators, the average salary is US $200/month while key managers and senior engineers are paid US $1,500/month. Vietnam has a 48 hour work week and the government-mandated social programmes are approximately 25% of the salary costs. In comparison, China has a 40 hour work week and social costs are 50-60% of the operator's salary.

The Vietnamese workforce is well-educated and ambitious. The average age of an worker is 24 and a growing percentage of the workforce is comfortable with English as a second language due in large part to the availability of English language centres.

Tax incentives

In terms of economic development, Vietnam is now where China was 10-12 years ago, with the noted exception that policy makers in Hanoi have learned valuable lessons from the Chinese model.

The government has implemented an aggressive program of corporate income tax incentives. This program involves up to 4 years of tax holiday following (and including) the first year of 'carried forward' profitability. Thereafter, the tax rate is 1/2 of the nominal tax rate for a period of up to 7 years, with a total application period of up to 15 years. The nominal tax rate can be 10%, 15%, or 20% - depending on the industry sector, investment classification and location. The standard tax rate is 28%.

When a company is selecting the site for their investment, the various business parks should be visited and tax incentives of each discussed, as well as the criteria for obtaining preferential tax treatment. There are also duty free programmes for the importation of capital goods (new and refurbished).

"The Vietnamese government's tax incentives are among the best in Asia and companies recognise the financial impact these incentives will have to their bottom line revenue", says Mr Charlie Blocker, managing director, Gannon Pacific Group.

Infrastructure

Vietnam's infrastructure is developing rapidly to meet this new influx of foreign direct investment. While behind China, the Vietnamese government is committed to developing infrastructural balance, especially electricity and water supply, seaport services and telecommunication. Bilateral lenders and grants continue to be plentiful.

In the last 2 years, Vietnam has invested some 10% of GDP into its infrastructure. By 2012, Vietnam will have completed a major logistical milestone via deep water ports and surface transport -- this development will give Vietnam a huge competitive advantage and allow them to further support investors supply chain initiatives and exports to ASEAN, China and North America.

Intellectual property and legal infrastructure

In addition to meeting IP and legal requirements for WTO admission, the Vietnamese government has taken steps to protect IP and enacted laws providing specific protection for investors. The judicial system of laws affecting foreign investment has continued to see improvement, creating a more transparent and open legal framework for investment activities.

Last year, the government issued decrees to guide the implementation of the Investment Law and the Procurement Law. The National Assembly also approved new laws to make the legal framework more synchronic to investors: the Securities Law, the Technology Transfer Law, the Intellectual Property Law, and an amended Labor Code, which has new stipulations on strike issues.

Availability of existing manufacturing facilities

Vietnam has developed a relatively large number of Business Parks. The lease rates for land are generally less expensive than China, averaging US $20-25 per square metre for a 50 year lease. Lease rates in existing, more established parks are more expensive and are approximately US $40 per square metre.

Statistics from the Industrial Zone (IZ) and Export-Processing Zone (EPZ) Management Department of the Ministry of Planning and Investment show that in 2006, US $5.68 billion went to IZs and EPZs. This investment was for new projects and capital increases in present projects and was nearly twice the inflow in 2005.

Ba Ria-Vung Tau, Binh Duong, Dong Nai and Ho Chi Minh City were most attractive to investors with 213 projects and total registered capital of nearly US $2.58 billion - approximately 60% of the total FDI in IZs and EPZs.

One of EWA's clients, a US metal fabricator, wanted to establish a manufacturing facility near Ho Chi Minh City in order to take advantage of the seaport and ease of customs. Of the approximately 55 Business Parks located in the area, we narrowed the list to 3 qualified sites which met the client's needs. These parks were competitive in their services and are a good place for companies establishing business entities.

The author concludes by stressing that "Vietnam offers investors great economic potential and is a leading alternative for companies wanting to diversify their Asian investments. With an inexpensive labor force, exceptional tax incentives and a growing infrastructure, Vietnam will continue to offer investment opportunities for US companies."

(Source: Industry Week Online)