VietNam Business

Friday, December 24, 2010

WTO calls on US to cut farm subsidies

GENEVA – The World Trade Organization called on US Wednesday to cut its farm subsidies, saying that they were so "considerable" that they could affect market prices.

In a report analysing Washington 's policies since 2007, the trade body said that while promoting its exports, the United States should also reduce "distorting measures ... including ... support for agriculture."

The WTO noted that support granted to the sector under the multi-billion-dollar 2008 Farm Act are mostly "linked to prices and or production."

Thanks to this support, "producers of cereals, oilseeds, and cotton are effectively insulated from market prices while sugar and dairy have market price support programmes," said the WTO.

"The large size of the agriculture sector means that the absolute amount of support is considerable, varies from one year to another depending on prices, and can affect world prices," it added.

Brazil also hit out against the US ' farm policies during the WTO's examination of Washington 's trade policies every two years.

"Agriculture accounts for only 0.8 percent of US GDP and it employs just 1.4 percent of its labour force," noted Roberto Azevedo, Brazil 's envoy to the WTO.

"Nevertheless, this sector displays a considerable arsenal of trade-restrictive and distorting measures."

Azevedo pointed out that most of the subsidies are concentrated on crops such as cotton soybeans and rice.

"When prices drop, those subsidies will be in place again precisely at the moment when they will provoke the largest distortions and most damage to producers elsewhere," he charged.

Washington 's subsidies to its agriculture sector is a key sticking point holding up long-stalled Doha negotiations for a new global free trade deal.

Its support for cotton producers has been judged illegal by the WTO, in a complaint brought by Brazil .

Brazil however agreed to not apply reprisals after both countries decided to wait for the new Farm bill in 2012 to see what modifications would be made.

Vietnam to relax bank lending rules to boost loans

Vietnam to relax bank lending rules to boost loans Vietnam’s central bank said it would let commercial banks lend money from a wider array of sources as of Oct. 1 to assuage concerns that new regulations would dampen lending and possibly hurt the economy.

However, a senior government adviser said the measures did not go far enough.

Bankers had voiced concern about the original rules, arguing they would hinder their ability to boost credit and lower interest rates. In response, and under pressure from the government, the central bank issued amendments late on Monday.

These allow banks to lend up to 25 percent of non-term deposits raised from economic institutions instead of keeping them as reserves. Banks can also lend money they have borrowed from the interbank market for terms of three months or longer.

A central feature of the new rules – raising banks’ capital adequacy ratio to 9 percent from 8 percent – remained unchanged.

The benchmark Vietnam Index gained 1.1 percent on the news, but share traders remained wary. Many analysts had flagged the original set of rules as a potential damper on the market and economy, and had hoped for bigger changes.

“The market is unlikely to see a big rally because traders are still cautious and they will look at how commercial banks react to the new circular in the near term,” said Doan Tran Phuong Phi, a broker at Ho Chi Minh City Securities.

Le Xuan Nghia, deputy director of the National Financial Supervisory Commission, said the amendments would not really help banks expand credit or cut interest rates. “The changes are not large enough to boost lending,” he said.

Central bank Governor Nguyen Van Giau has defended the original rules, saying they would make the banking sector safer. He also warned even stricter rules would take effect from January because of amendments to the law on credit institutions.

Earlier this year the central bank asked banks to restrict their interbank borrowing to less than 20 percent of deposits.

Dong lending rates range from 13 percent to 15.5 percent, although the government wants them cut to 12 percent. Banks promised in May to get nearer that level by the end of September.

Dollar demand stable, though pressures remain

Dollar demand stable, though pressures remain Vietnamese banks have enough dollars to keep the dong from succumbing to immediate pressure from higher-than-expected inflation and a persistent trade deficit reflected in this month’s data, traders said.

But economists warn that could worsen later in the year, putting the currency under renewed downward pressure.

On Monday the Ministry of Planning and Investment estimated the trade deficit hit an estimated US$1.05 billion in September.

The deficit for the first nine months of the year rose to $8.58 billion and the government expects the full-year shortfall to reach about $14 billion.

Annual inflation this month accelerated for the first time since March, hitting 8.92 percent. September’s consumer price index rose 1.31 percent from last month, the highest monthly rise since February, the government said last week.

Nevertheless, the dollar/dong exchange rate has been steady since the State Bank of Vietnam devalued the currency by 2 percent on Aug. 18.

“Banks now have ample dollar funds so they can deal with client borrowing and trading,” said a foreign exchange manager at a Hanoi-based lender.

Official and unofficial exchange rates have been close to the 19,500 trading band limit since the devaluation. At 0250 GMT on Monday there was a 40 dong, or 0.2 percent, difference between dollar/dong bid prices on interbank and unofficial markets.

The gap is sometimes seen as an indicator of pressure on the currency to depreciate.

Overnight dollar interest rates for loans on the interbank market have ranged between 0.41 percent and 0.46 percent, Reuters data showed.

Banks have benefited from dollar inflows at businesses that tend to receive payments from overseas during the later months of the year, traders said.

Still, Nguyen Minh Phong, an economist at the Hanoi Research Institute for Socio-economic Development, said the widening trade deficit and modest foreign direct investment inflows would keep the dong under pressure.

Thursday, December 23, 2010