IMF: SBV's credibility in market improved

Question: What is your view of the recent conduct and direction of monetary policy by the SBV, particularly interest rate and exchange rate policies?

Mr. Kalra: One important thing to look at the conducting of policies is to look at the results, and that should be compared to the results achieved in the past 7 months and compared with the results of 2011. We have seen a very stable exchange rate, very significantly declined inflation rate from the high level of about 20% in August, 2011 to under 5.5% in July, 2012. Also, the level of international reserves has significantly increased for the last seven months. These are important achievements that the Vietnamese Government has made in the adoption of Resolution 11. SBV has obviously played a very important role in the achievements. There is more confidence in VND. SBV's credibility in the market has been improved.

Based on our discussions with SBV, we believe that SBV are closely following up and watching on how macroeconomic developments are expressing and in align with the developments SBV has been taking policy measures regarding interest rates, the changing of the policy rates, lending rates. We want the policy interest rate to be slower, but by large, on the whole, we can say that the outcomes have been positive and the policy actions have delivered the results of macroeconomic stability as we expect.

Q: Do you have any comments on the SBV’s determination and direction to its set targets? What is your opinion and experience about this issue?

Mr. Kalra: The set target of SBV for 2012 is to try to keep inflation at single digit, maintain the exchange rate stability, and make sure that the depreciation of the exchange rate is lower than 3%. We think these goals are appropriate.

In the future, it is important to make sure the stability that has been achieved in the past seven months is maintained. It’s very to go back to the high inflation. Nobody wants the high inflation as we saw in 2011. No one would like to see the exchange rate volatility as seen in 2011. Therefore, we think that the entire government should strongly support what SBV is implementing. It is important to make sure that beside maintaining the macroeconomic stability, the government needs to implement kind of economic reforms that are required for the banking sector, the corporate sector and state-owned enterprises because the current problem is not the macroeconomic policies but the structural issues.

Q: Banking and financial sector restructuring and NPL resolution are trending issues now in Vietnam. Do you have any comments, international experience and policy advices to share with Vietnam Government and the SBV?

Mr. Kalra: The most important thing when you have such problem is to be patient. The experience of many other countries coping with similar problems shows that the imbalance of the balance sheets that we have seen now is because people borrowed too much in the past.

When real estate prices increase to the levels that cannot be sustained, and when prices are coming down, the imbalance in the balance sheets are caused. The process of adjusting the balance sheets required to take a lot of time and patience.

In these conditions, macro-economic policies such as monetary policy and fiscal policy can just do that. What is required in the current situation, first of all, we need to reform the banking sector, we need to decide what to be done and to handle the problem of non-performing loans.

Thus, the first fundamental lesson from international experience is that we cannot solve the structure problems by using macroeconomic policy measures. Banking sector reform, State-owned enterprise reform is what is required to be done.

Secondly, because these problems have accumulated for many years, it will take some time to solve the problems. But the decisions have to be taken quickly and actions should be taken quickly, the results of these decisions and actions need time to see clearly.

And when these problems are being resolved, growth will be a little bit low for a certain period of time. Countries have to accept that the balance sheet adjustment takes time and it will go through an uneasy process and needs our patience.