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.
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
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
"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
"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