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VN unready to do battle with inflation

KUALA LUMPUR - Heavy inflows of foreign funds into Vietnam and robust economic

growth have raised the specter of runaway inflation which the Vietnamese central

bank is ill-equipped to deal with, bankers said last week.

"Vietnam is

still a cash economy and you can't control a cash economy by using interest

rates. You have to physically drain the currency out of the system," said John

Brinsden, chief executive for Standard Chartered Bank in Vietnam and

Cambodia.

Speaking to delegates at a Pacific Economic Cooperation Council

(PECC) meeting in Kuala Lumpur, Brinsden said Hanoi in 1991 resorted to issuing

some three to seven tones of gold to soak up liquidity and managed to keep

interest rates stable.

Inflation in Vietnam fell to about 5.5 percent in

1993 and 17.2 percent in 1992 from 80 percent in 1990. It was about six percent

this year, Brinsden said.

Michael Ward, Principal Economist of the World

bank's Asia Department said the Bank was concerned that the Vietnamese economy

appeared to have all the right ingredients for an inflationary

spiral.

"There will be a large inflow of funds and expansion of the money

supply over which there will be very little control," Ward said during a

question and answer session.

Speaking to Reuters later, Brinsden said the

State Bank of Vietnam was not yet ready to shoulder the responsibilities of a

central bank.

"It is coming together now but it will take three to five

years before the state bank has the capability of imposing its will on the

banking system," Brinsden said.

He said the Vietnamese banking system

remained fragmented and currently lacked sufficient expertise and manpower to

deal with the problem. -Reuters

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