How to ‘awaken’ the $60b fund in the population?

01-Nov-2018 Intellasia | Lao Dong | 6:26 AM Print This Post

Recently, the problem of mobilising capital from the population was mentioned by To Lam, the minister of Public Security Ministry in a discussion at the group of socio-economic issues about the annual and the interim State budget status: “capital mobilisation from the population is an important issue for the socio-economic development of a province, a region and the whole country”. Nevertheless, how to make people feel secured when investing in different channels such as real estate, bonds, stocks, bank savings, etc. instead of investing money into multi-level trading channels, virtual currencies, is a big question.

Great untouched potential

“The Vietnamese economy has a high saving rate with about $60 billion in the population that has not been fully mobilised,” said Alatabani Alwaleed Fareed Alatabani, chief expert of Vietnam financial market of the World Bank at the forum on capital and financial market.

According to some experts, Vietnam’s GDP is about $220 billion, so if compared, $60 billion is huge, especially in a situation of large budget deficit and high public debt.

However, idle money is not only in kept by the people, but also of outflow from the country. In 2017, the public media was stirred up with the information that Vietnamese people have spent about $3 billion to buy houses in the United States, and Vietnam continues to be one of the 10 countries with the most Unitied State housing buyers in the world.

Talking about this issue, Dr Nguyen Tri Hieu, a banking expert, raised the questions: “What motivates many Vietnamese to transfer assets from Vietnam to foreign countries? What motivates Vietnamese overseas to transfer money to Vietnam, or how to retain talented people in Vietnam? There should be an in-depth analysis of these motives.”

The problem of mobilising money

Ketut Kusuma, Senior Expert on Capital Markets of the World Bank mentioned: “How to mobilise idle capital in households so that they will invest more in the channels like real estate, bonds, stocks, bank savings, etc. What are the channels that savings of the household are investing in? These are the questions that managers and the government need to put in place to mobilise the idle capital from the public. If this source of capital is mobilised effectively and sustainably, Vietnam will be able to ensure long-term capital.”

In order to do this, Ketut Kusuma made the following recommendations: “Firstly, it is necessary to improve the transparency of information data, the modernisation of the legal framework and market infrastructure, and the supervisory capability. Secondly, the stock market should integrate equitisation strategies for State-owned Enterprises (SOEs) into market development, aiming to participate in emerging market indicators, in order to increase transparency of information on segmentation and consolidation of the market. Third, the market for government bonds needs further reforms, targeting to participate in indicators of global emerging markets. Fourth, the corporate bond market should promote the widespread offers to the market, introduce reputable issuers, and apply the credit rating.”

Talking to the press, Dr Nguyen Tri Hieu proposed four solutions to attract idle money in the population. Firstly, Vietnam can apply the 401K retirement fund scheme of the United States. This fund is set up by the businesses, with employees contributing five percent of the monthly salary and the employers contributing a corresponding amount to the fund. The fund will save money for the employees’ retirement and also an effective investment channel for raising capital for production and business.

Second, it should create open policies for bond issuers. Currently, only companies with large capital are allowed to issue bonds. Small businesses with less capital still encounter many obstacles.

Third, encourage the establishment of credit rating agencies to provide information to investors. This unit needs to be able to assess credibility, and people will rely on these assessments the security of their investments.

Fourthly, it should create investment funds to encourage the development of medium and long-term capital. Funds are financial intermediaries which can mobilise long term capital not like banks.

From the perspective of the management agency, representatives of the State Bank of Vietnam (SBV) acknowledge “the transformation of gold resources is a long-term process, solutions to transform gold resources should be implemented consistently, synchronously and step by step”.

Representatives of SBV said that the mobilisation of gold through the conversion of gold into cash, in essence, changed the habits and needs of people holding gold, reducing the attractiveness of gold bars, preventing goldisation in the economy. Therefore, the conversion of gold resources into money is the optimum option to utilise the gold resources for economic and social development. The transition is based on the fact that people decide to move from holding gold to other assets, so that it will not cause psychological disturbance, and do not create psychological stimulation effect on gold hoarding; at the same time, it will save a certain amount of foreign currency as gold import will be reduced.

On the mobilisation of capital in US dollar resources, in order to limit the dollarisation in the economy, SBV has set the ceiling of US dollar deposit rate at zero percent. Since the introduction of this policy, exchange rate movements and the foreign exchange market have been stabilised, the habit of holding US dollar has been soften (the dollarisation rate has decreased from 11.06 percent in 2014 to 8.21 percent as of 31st December 2017, the system of credit institutions has shifted from net-selling to buying foreign currencies since 2016, facilitating SBV to buy large amounts of foreign currency to build up the State’s foreign currency reserve.

 


Category: Finance, Vietnam

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