Reducing trade gap: many more things need to be done

The trade deficit has been decreasing considerably for the last two months as a result of measures to reduce consumption, tighten public expenses and control foreign currencies for import.

The trade deficit has been decreasing considerably for the last two months as a result of measures to reduce consumption, tighten public expenses and control foreign currencies for import. However, curbing the trade gap at below $20bil in 2008 remains a big challenge.

Deputy Prime Minister Hoang Trung Hai set a very ambitious goal at the Ministry of Industry and Trade’s conference in early July: the monthly average trade deficit must not exceed $700mil a month in the last months of 2008.

At that time, people had doubts about the feasibility of the target. However, people have changed their minds since they saw the trade gap was $800mil only in July – curbing the trade gap in the first seven months of the year at $15.24bil.

The US newswire Bloomberg reported that Vietnam’s trade deficit has decreased considerably this year thanks to efforts by the government of Vietnam to cool the overly hot economy. Reducing the trade gap is now the government’s top priority task in its efforts to control inflation.

Nevertheless, experts have warned that Vietnam still has a lot to do in order to boost exports and reduce the trade gap. Foreign experts have expressed concerns about capital and exchange rates problems in Vietnam.

The experts say that the current regulation narrowing the list of subjects eligible for foreign currency loans has been putting big difficulties on enterprises. Enterprises cannot borrow money in foreign currencies so they have to borrow in VND, while there is a big gap between the interest rates of VND and foreign currency loans.

Hiroaki Yashiro, General Director of Itochu Vietnam, said that he hopes the government of Vietnam will loosen the regulations on borrowing in foreign currencies.

The 30% credit growth rate limit has also been making it hard for businesses to get loans. The limit has been proposed to be raised to 40% or 50% in order to provide enough capital for businesses.

The business circle has also proposed the increase of the daily trading band, now at +/-2%, in order to help export companies arrange capital.

The companies complain that they cannot borrow money in foreign currencies, and they have to borrow in VND at very high interest rates. Meanwhile, they have to sell the dollars they get from export deals at exchange rates no more than 2% higher than the interbank exchange rates.

Benedict Bingham from the International Monetary Fund (IMF) also said that the current lending interest rates are overly high. Therefore, in order to restore investors’ confidence, especially domestic investors, banks should demonstrate they are able to control their financial situations. Interest rates should be slashed, while technical measures are needed to improve liquidity.

According to the World Bank, one of the main reasons behind the high inflation was the strong inflow of foreign capital into Vietnam in 2007 while the exchange rate was kept stable, which resulted in the use of more VND.

The World Bank’s Chief Finance Expert Noritaka Akamatsu said that the State Bank should pay more attention to the foreign capital flow into Vietnam and liquidity.

(Source: Vietnam Economic Times)