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Sunday December 4th, 2022

Vietnam among fastest to grow in the world, IMF says after refusing to ‘live with Covid-19’

COMMUNITY SCREENING: Staff of a company in Tan Thuan Export Processing Zone in HCMC lining up for tests by Vietnam’s Centres for Disease Control. Source/Touitre Online.

ECONOMYNEXT – Vietnam’s gross domestic product will grow at 2.4 percent in 2020, one of the fastest rates in the world the International Monetary Fund said, after the country closed borders, aggressively traced Coronavirus patients and used institutional quarantine.

“Vietnam’s growth this year is expected to be 2.4 percent, among the highest in the world, thanks to its decisive steps to contain the health and economic fallout from COVID-19,” Era Dabla-Norris said in a statement.

“The fiscal response has been largely geared towards supporting vulnerable households and firms and has benefited from prudent policies adopted in the past.

“Monetary policy easing and temporary financial relief measures by the SBV have alleviated liquidity pressures, lowered the cost of funding, and facilitated continued flow of credit.”

Vietnam has refused to ‘live with Covid’ unlike some other countries, and controls Coronavirus making its own test kits and aggressively tracing and quarantining contacts with public support solicited with media notices on places frequented by confirmed infected persons.

Unlike the less-successful Korea which uses home quarantine, resulting in a constant stream of deaths, (522 up to Nov 28) Vietnam uses institutional quarantine, regional border restrictions and surgical lockdowns to completely kill outbreaks and bring infections to zero.

Vietnam has had only 35 deaths, no curfews and mild lockdowns (social-isolation) involving a stay at home request, closing bars and gyms.

In the March to May period some big factories were also closed, though orders also dried up at the time.

Vietnam completely killed the first wave from Wuhan in Jan-Feb 2020, the second Wave from mainly European and other Asian nations that allowed community transmission and a third outbreak in Da Nang July – August 2020 after over a 100 days without a single confirmed case.

Related Vietnam re-deploys Coronavirus controls after second Covid-19 patient found – Update II

Vietnam also closed borders with China against the advice of the World Health Organization at the time and started quarantining what the WHO called ‘healthy’ arrivals.


WHO says ‘no reason’ to close borders with China, quarantine healthy travellers

US stocks steady as WHO says new virus not emergency

Meanwhile the IMF said Vietnam’s economy would recovery strongly in 2021.

“A strong recovery is expected in 2021,” Dabla-Norris said.

“Growth is projected to strengthen further to 6.5 percent as normalization of domestic and foreign economic activity continues.

“Fiscal and monetary policies are expected to remain supportive, although to a lesser extent than in 2020. Inflation is expected to remain close to the authorities’ target at 4 percent.”

The IMF advocated higher spending to Vietnam’s frugal government which taxes lightly and spends prudently, helping those in deed, giving people space to stand on their own feet with actual activity rather than the heedless Keynesian ‘stimulus’ spending of the state.

The biggest advantage given to the people by the state is to move around freely and engage in real wealth creating economic activity after controlling Covid-19.

“The outlook is subject to substantial uncertainties stemming from possible renewed outbreaks, a protracted global recovery, ongoing trade tensions, and corporate distress, which could translate into firm closures and bankruptcies, labor market and banking system strains,” Dabla-Norris said.

“Given these uncertainties, flexibly adjusting the size and composition of the policy support will be important. Fiscal policy should play a larger role in the policy mix.

“This year, the fiscal deficit is expected to widen due to a decline in revenues and higher cash transfers and capital spending. Fiscal support should be maintained in 2021, with improving efficiency in execution as priority.

“Over the medium-term, the emphasis should be on mobilizing revenue for financing green and productive infrastructure, strengthening social protection systems, and safeguarding debt sustainability.”

The State Bank of Vietnam, after a ‘stimulus’ debacle in 2009 led to a collapse of the dong, bad loans and a string of bankruptcies, has kept the exchange rate steady and confidence of foreign investors.

The SBV has a policy corridor with two way liquidity auctions that allows overnight rates to go up and liquidity to tighten when the currency is defended at around 23,000 dong to the US dollar, maintaining investor confidence and automatically slowing credit growth.

The policy corridor has allowed the SBV to keep gentle pressure on the peg slightly above a currency board or hard peg, and sterilize inflows to build forex reserves.

As the SBV kept the peg, maintaining domestic and international confidence during the Coronavirus crisis, collapsing private credit made rates fall across the yield curve and bond prices to soar (rate to fall).

Other countries also found their currencies strengthening as private credit fell.

The SBV did not print money in the Coronavirus crises but rates across the yield curve including in gilts, allowing the government to deficit spend without printing money, though the monetary authority cut its policy rate going with practices of floating rate central banks.

SBV’s ceiling rate has been progressively been brought down since the last currency crisis over a decade ago, which analysts say increases the vulnerability of the economy to a possible crisis when the US Fed next tightens policy or domestic credit picks up.

Most third world pegs which have long periods of stability collapse due to the ceiling policy rate being progressively brought down due to central bankers who engage in pro-cyclical policy and are notoriously reluctant to tighten in time.

“Monetary policy should remain supportive in the near term,” Dabla-Norris claimed.

“Greater two-way exchange rate flexibility within the current framework would reduce the need to build reserve buffers and facilitate the adjustment to a potentially more challenging external environment.

“The mission welcomes the authorities’ commitment to gradually modernize its policy frameworks. ”

In sharp contrast to Vietnam’s fairly credible peg, Sri Lanka which had a ‘flexible exchange rate’ allowed the rupee to fall towards 200 to the US dollar in March 2020, triggered a panic and a credit downgrades, and sovereign bond yields soared.

In an apparent ‘modernization of policy frameworks’ Sri Lanka abandoned the policy corridor and started injecting cash to target a call money rate in the middle of the corridor, triggering currency crises after only two months of recovery from the previous crisis, critics say.

The ‘flexible exchange rate’ also earned Sri Lanka a downgrade in 2018.

The country is now out of bond markets with the rating at ‘CCC’.

In 2020 Sri Lanka’s economy is expected to contract 4.6 percent, the IMF has said.

Sri Lanka GDP growth negative 4.6-pct in 2020, Bangladesh among fastest to grow: IMF

The flexible exchange rate has led to over 4 billion dollars of investments in rupee bonds fleeing Sri Lanka over the past five years, which Vietnam bonds are trading at a premium due to confidence coming from the relatively firm peg.

The central bank of Vietnam’s neighbour Cambodia, which is now dollarized has no power to destroy the currency anymore and its people are also getting their life back together after the currency collapsed to 4,000 to the US dollar.

Cambodia also followed similar Coronavirus control policies, though with fewer tourist arrivals and has had zero official deaths.

Vietnam’s currency fell sharply in the 1980s, and the economy imploded creating a second wave of boat people, until the SBV law was reformed twice to stabilize the currency around 15,000 to the dollar, driving a East Asia style growth phase.

Due to the experience as well as the bad experience of the defunct central bank of the former South Vietnam many people still hoard gold. They have made handsome profits as the Fed printed money, weakened the dollar and drove gold price up. (Colombo/Nov29/2020)

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Paris Club proposes 10-year moratorium on Sri Lanka debt, 15 years of debt restructuring

ECONOMYNEXT — The Paris Club group of creditor nations has proposed a 10-year debt moratorium on Sri Lankan debt and 15 years of debt restructuring as a formula to resolve the island nation’s prevailing currency crisis, India’s The Hindustan Times reported.

While the Paris Club has yet to formally reach out to India and China, Colombo has yet to initiate a formal dialogue with the Xi Jinping regime, the newspaper reported on Saturday December 03, inferring that the chances of the International Monetary Fund (IMF) approving its 2.9 billion dollar extended fund facility for Sri Lanka in December now ranges from very low to nonexistent.

“This means that Sri Lanka will have to wait for the March IMF meeting of the IMF before any aid is extended by the Bretton Woods institution,” the newspaper reported.

“Fact is that for Sri Lanka to revive, creditors will have to take a huge hair cut with Paris Club clearly hinting that global south should also take the same cut as global north notwithstanding the inequitable distribution of wealth. In the meantime, as Colombo is still to get its act together and initiate a dialogue and debt reconciliation with China, it will need bridge funding to sustain the next three month before the IMF executive board meeting in March 2023. Clearly, things will get much worse for Sri Lanka before they get any better—both economically and politically,” the report said. (Colombo/Dec04/2022)

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Sri Lanka’s Ceylon tea prices up amid low volumes

ECONOMYNEXT – Sri Lanka tea prices picked up at the last auction in November amid low volumes, brokers said.

“Auction offerings continued to record a further decline and totalled 4.2 million Kilograms, of which Ex-Estate offerings comprised of 0.6 million Kilograms. There was good demand,” Forbes and Walker Tea brokers said.

“In the Ex-Estate catalogues, overall quality of teas showed no appreciable change. Here again, there was good demand in the backdrop of extremely low volumes.”

High Growns

BOP Best Westerns were firm to 50 rupees per kg dearer. Below best and plainer types were Rs.50/- per kg easier on last.

Nuwara Eliya’s were firm.

BOPF Best Westerns were firm to selectively dearer. Below best and plainer teas declined by 50 rupees per kg.

Uva/Uda Pussellawas’ were generally firm and price variances were often reflective of quality with the exception of Select Best Uva BOPF’s which were firm and up to 50 rupees per kilogram dearer.

CTC teas, in general, were mostly firm.

“Most regular buyers were active, with perhaps a slightly more forceful trend from the local trade,” brokers said.

Corresponding OP1’s met with improved demand. Well-made OP/OPA’s in general were fully firm, whilst the Below Best varieties and poorer sorts met with improved demand. PEK/PEK1’s, in general, were fully firm to selectively dearer.

In the Tippy catalogues, well-made FBOP/FF1’s sold around last levels, whilst the cleaner Below Best and cleaner teas at the bottom appreciated. Balance too were dearer to a lesser extent.

In the Premium catalogues, very Tippy teas continued to attract good demand. Best were firm to selectively dearer, whilst the Below Best and cleaner teas at the bottom appreciated

Low Growns

Low Growns comprised 1.8 million Kilograms. Market met with improved demand, in general.

In the Leafy & Semi Leafy catalogues, select Best BOP1/OP1’s were fully firm, whilst the Below Best/bolder BOP1’s were barely steady.

Low-grown teas, farmed mainly by smallholders and exported to the Middle East and Central Asia, are the most sought-after and expensive Ceylon Teas.

Low-grown CTC prices have gained this week to 982.80 per kilogram this week from 934.76 per kilogram last week.

Few Select best BOP1s maintained, whilst best and below best were irregularly lower. Poorer types maintained.

BOPF’s in general, firm market.

FBOPF/FBOPF1’s select best and best increased in value, whilst the below best and bottom held firm.

Selected best BOP1’s maintained, whilst best and below best were irregularly lower.Poorer types maintained.

OP1’s selects best together with best and below best were firm to dearer. Poorer sorts were fully firm.

Medium Growns

BOPF’s, select best gained by 50 rupees per kilogram. Others maintained.

BOP1’s select best dearer by 100 rupees per kg whilst all others moved up by 50 rupees per kg.

OP1: select best gained by 100 rupees per kg whilst all others dearer by 100 rupees per kg.

OP/OPA’s in general, dearer by 50 rupees per kg whilst the poorer sorts were firm.

PEK’s Select best gained by 50 rupees per kg whilst all others maintained. PEK1: In general, dearer by 50 rupees per kg. (Colombo/Dec 04/2022)



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Sri Lanka Ports Authority East Terminal contractor paid: Minister

ECONOMYNEXT – Sri Lanka’s Ports Authority had paid a deposit for a gantry crane and made the required payment for the contractor to complete building the East Container Terminal, Minister Nimal Siripala De Silva said.

The East Container Terminal, a part of which is already built is being completed as a fully SLPA owned terminal at a cost of 480 million dollars Ports and Shipping Minister de Silva said.

“ECT we are funding with money available in the ports authority,” he said.

“Up to now we have paid an advance for the gantry crane. And for the construction we have paid all the money agreed with the contractor. So that is going on well.”

Sri Lanka is undergoing the worst currency crisis in the history of the island’s soft-pegged (flexible exchange rate) central bank which has created difficulties in funding the project.

“Every penny we collect as dollars we are keeping them separately and utilizing that for the Eastern Terminal work,” Minister de Silva said.

“We are confident that the ECT will be completed within the envisaged time. It is a difficult task in view of the dollar problem.

Banks were also not releasing the dollar deposits of the SLPA earlier but are now doing so, he said.

“Our deposits in banks they have utilized for urgent other national purposes,” he said.

“So they are releasing that money slowly. I am happy that they are releasing that money little by little. So with that we will be able to manage that.”

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