he sidelines due to inflation

o 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.





Vietnam Bonds Drop After Policy Rates Lifted to Stem Inflation

Bloomberg News 6 May 2011



Vietnam’s benchmark five-year bonds fell this week after the country’s central bank raised three key policy rates as part of attempts to combat accelerating inflation. The dong weakened. The State Bank of Vietnam increased refinancing and repurchase rates to 14 percent from 13 percent, and lifted the discount rate to 13 percent from 12 percent over the last seven days, as officials intensify the fight against the fastest rise in consumer prices in 28 months. Inflation surged to 17.51 percent in April from a year earlier, stoked by increases in fuel and electricity costs.



“Local institutions are staying on the sidelines due to inflation concerns and high deposit rates,” said Nguyen Thi Ngoc Anh, the Ho Chi Minh City-based head of fixed-income trading at Asia Commercial Bank. Bonds also fell after the latest govern
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