"TO HONOUR the dead, the Vietnamese sometimes burn fake banknotes, made out of “votive paper”, for the deceased to spend on the other side. Vietnam’s government recently complained that this votive money looked too similar to the real thing. Unfortunately the resemblance runs deeper than that. Over the past year the value of Vietnam’s official currency—the dong—has been steadily going up in smoke.
Consumer prices rose by 17.5% in the year to April, outstripped only in Ethiopia and Venezuela. The dong has been devalued against the dollar six times since June 2008 (see chart). The Vietnamese have flocked to more reliable stores of value. Those hoping to salvage their savings from the ashes can buy 37.5-gram bars of fine gold, embossed with a Phoenix, from the Phu Nhuan Jewelry Store. Above one Hanoi branch, a digital display shows the price: 38,170,000 dong. There is space only for the first five digits.
But Vietnam’s government seems newly determined to douse the inflationary fires. On May 4th the country’s central bank, the State Bank of Vietnam, raised one of its key rates to 14%, the latest in a flurry of increases since February. Its campaign was accompanied by a package of commitments to tighten money and credit, cut the budget deficit and rein in the country’s state-owned enterprises.
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* Central banking
Known as Resolution 11, this package is meant to show that the government is no longer torn between fighting inflation and fanning the recovery. The phrase “economic growth” did not appear in the decree. At the annual meetings of the Asian Development Bank (ADB) this week in Hanoi, Vo Hong Phuc, the Minister of Planning and Investment, conceded that Vietnam might fall short of its official growth target of between 7% and 7.5%. At the same event, Nguyen Van Giau, the central-bank governor, said the cabinet was showing “strong commitment and determination” to pursue Resolution 11. That is just as well, because the governor is himself a member of the cabinet, without the independence central bankers enjoy elsewhere.
The resolution obliges him to curb private credit, which has surpassed 120% of GDP, up from less than 40% in 2001. By this measure Vietnam is the “world record-holder for debt creation”, according to Jonathan Anderson of UBS, although bank deposits have largely kept pace with the expansion of loans.
The central bank is also fighting the creeping dollarisation and even “goldisation” of the economy. In Vietnam, despite its capital controls, holders of dong find it unusually easy to switch to hard currency or soft metal. The country is home to a large stock of dollars, many of them remitted by migrant workers, and a sizeable stock of gold. Vietnam’s banks offer dollar deposits and in Ho Chi Minh City, DongA bank has even installed an ATM that dispenses gold bars.
In April, the government capped the interest rates offered on dollar deposits at 3%, compared with rates as high as 14% on dong accounts. It has also clamped down on the grey-market trade in bullion. Even DongA bank is no longer keen to talk about its gold ATM.
As well as restoring faith in the dong, the government must restore sanity to the public finances. In Resolution 11, it promised to prune public investment, which amounted to 17% of GDP in 2009. There are grave doubts about the efficiency of this spending. Last year Vinashin, a vast, government-owned shipbuilding group, almost sank, after straying far from its core business.
Only if the big programme of public investment bears fruit can Vietnam hope to grow sustainably at 7-8% in the future without suffering the inflationary pressures of recent years. That pressure will continue to rise over the next few months. The government has raised fuel and electricity prices, and its recent tightening will take time to work. “You don’t see the result overnight,” says Ayumi Konishi of the ADB. But the imminent spring harvest should lower rice prices, kept high by farmers hoarding rather than selling their grain. Bags of rice, not bars of gold, are the poor man’s hedge against inflation."|||"To honor the dead, the Vietnamese sometimes burn fake banknotes, made out of “votive paper”, for the deceased to spend on the other side. Vietnam’s government recently complained that this votive money looked too similar to the real thing. Unfortunately the resemblance runs deeper than that. Over the past year the value of Vietnam’s official currency—the dong—has been depleting.
Because:
*Consumer prices rose by 17.5%
*The dong has been devalued against the dollar six times since 2008
*The Vietnamese have changed their methods.
the government is doing what it can to reduce the inflamation of its monetary system. Banks are raising key rates to as much as 14%. They want to tighten money and credit,
They call it Resolution 11, this package is meant to show that the government is no longer torn between fighting inflation and fanning the recovery. The phrase “economic growth” did not appear in the decree. They are worried that they will not make their monetary goals.
They find it easy to both give out money and gold. There is an ATM that gives out gold bars.
In April, the government capped the interest rates offered on dollar deposits at 3%, compared with rates as high as 14% on dong accounts.
As well as restoring faith in the dong, the government must restore sanity to the public finances. In Resolution 11, it promised to prune public investment. There are grave doubts about the efficiency of this spending.
They need to grow 7-8% in the future without straining their government.
The government has raised fuel and electricity prices, and its recent tightening will take time to work. It wont happen fast and the government needs to do its part to help their country.
*Im not quite sure what you are looking for in this, so it was a little hard. All I did was take out irrelevant parts and reword some of the longer paragraphs. Hope this helps!*
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