REVIEW
of
FINANCE -
Apr. 2018
51
(currently at 49% for joint stock companies and
30% for commercial banks) and allowing FDI
to be disbursed in VND only through VND
accounts at authorized credit institutions. To
some extent, these two measures have limited
the massive increase (beyond the control in some
cases) of indirect capital inflows into Vietnam.
In the coming time, the Government may apply
additional measures such as taxing on foreign
exchange transactions.
Secondly
, synchronizing fiscal and monetary
policies. In order to enhance the effectiveness of
the implementation of monetary and fiscal policy,
it is necessary to have a smooth and synchronous
combination of the two policies to enhance the
effectiveness of each policy.
State budget revenues and expenditures must
be closely linked to the principle of keeping the
monetary stability of the SBV. The government
should speed up the process of reforming the tax
system by amending and supplementing existing
tax laws towards expanding taxpayers, lowering
tax rates and drafting new tax laws to contribute
to the increase of state budget revenues and the
reduction of expenditures, thereby reducing the
state budget deficit.
In parallel with the increase in state budget
revenues, fiscal policy should reduce public
expenditures towards continuing to reduce
recurrent expenditures, and the ratio of
infrastructure expenditures to state budget should
be cut through years towards “the State and
investors do together” by calling for investment or
land conversion projects for foreign corporations
to get infrastructure to reduce the burden of
public debt. At the same time, it is necessary to
establish a regular and continuous relationship
in the planning and implementation of monetary
and fiscal policy between the Ministry of Finance
and the SBV.
Thirdly,
improving the basic conditions for
directing the monetary policy towards inflation
targeting. Historically, Vietnam has implemented
a multi-objective monetary policy. However,
in recent times, this policy has also revealed its
limitations. First of all, it has made Vietnam’s
inflation not market-oriented but subject to a lot
of subjective factors. In addition, multi-purpose
monetary policy has limited the SBV’s ability to
respond to market movements, especially price
volatility. The decision-making on the volatility
of inflation without compromising or weakening
other objectives has put the SBV ahead of more
complex options.
Compared to the basic criteria for the success of
the inflation targeting policy, it is not feasible for
Vietnam to immediately apply inflation targeting
at present. However, the present situation requires
a need to improve the basic conditions, the premise
for the process of applying this policy in the future.
In order to improve the premise conditions for the
roadmap to apply the inflation targeting policy,
the following measures should be implemented:
- In the transition period to the inflation
targeting policy, Vietnam should promote the
reliable calculation of basic inflation. This will be
an important basis for the SBV to supplement the
monetary policy since the basic inflation reflects
the trend of price fluctuation.
Core inflation not increasing is the basis for the
SBV to consider the possibility of not tightening
monetary policy. In contrast, when core inflation
rises, the SBV should consider having a monetary
policy response to control inflation.
In addition, basic inflation is likely to predict
CPI inflation in the future. This is one of the bases
for making a monetary policy decision because
the monetary policy is often delayed.
- Step by step building the independence of the
SBV, especially its functional independence. This is
a prerequisite for the success of the future inflation
targeting policy (to ensure the implementation
of a single objective monetary policy and the
transparency in all activities). Then, the SBV
should be more active in regulating the amount
FUGURE 1. INTEREST RATE VOLATILITIES FROM 2013 TILL NOW
Source: Calculated by NFSC
