In his report, Mr Giau acknowledged the efficiency of the subsidised loan programme, saying it has helped businesses and household traders take out bank loans, maintain and expand production and create jobs in the context of the economic slowdown.

However, he said that the programme has been slow going in the rural areas, failing to meet farmers’ expectations. In addition, it has been carried out across the country in a short period of time, making it difficult for ministries and sectors to oversee the efficiency. The subsidized interest rates were lower than the deposit interest rates, driving up credit growth and putting pressure on the interest and exchange rates.

Mr Giau said since early this year the State Bank of Vietnam has introduced a number of solutions to stabilize the foreign currency market. It has adopted an appropriate interest management mechanism in line with the government’s goal of preventing an economic slowdown and a possible return of high inflation.

As a result, the foreign currency market has been relatively stable; total cash and credit payment has increased within limits, and the consumer price index (CPI) has rose by 4.49 percent in the past 10 months. Yet, the application of a loose monetary policy and the subsidized loan programme has made an unfavourable impact on the control of the inflation rate and market interest rates in the remaining months of 2009 and early 2010. In addition, an increase in the deposit interest rates due to the recovery of the economy, and the shifting of deposits from banks to stock and property markets have prompted commercial banks to adjust the rates, making it difficult for them to establish risk funds.

Deputy Danh Ut from Tien Giang province complained about cumbersome procedures, preventing farmers from getting access to subsidized loans.

In reply, Mr Giau said the central bank has proposed simplifying procedures to ensure eligible farmers can take out bank loans. It has also completed drafting a decree on credit investments for agriculture and rural development to benefit farmers in accessing loans easier. The decree has been transferred to the Ministry of Justice for appraisal and will be submitted to the PM for approval.

Deputy Le Thi Nga from Thai Nguyen province questioned Mr Giau over the responsibility of the central bank and the governor himself following the recent depreciation of the Vietnamese currency.

Mr Giau affirmed that Vietnam’s consistent policy is to stabilize the value of the domestic currency amidst market fluctuations. However, he pointed to the fact that the Vietnamese currency has depreciated slightly year on year. To stabilise the Vietnamese Dong (VND), he said it is necessary to take into account many factors, including the efficiency of the economy and the economic restructure.

“When commodity prices are regulated by the market economy, they will affect the currency rate policy. We will work closely with relevant ministries and sectors to stabilise the domestic currency market,” said Mr Giau.

He also explained why the central bank recently decided to allow some businesses to import gold to cool down the heated domestic gold market. He said the galloping gold prices were not caused by an imbalance in the market law of supply and demand. Between 2005-2008 Vietnam imported a total of 279 tonnes of gold and only exported 37 tonnes in late 2008. This means the bank has big gold reserve to cope with any fluctuations. After weighing the pros and cons, the central bank decided to import gold in small amounts and the governor described the decision as a “prompt response” in the bank’s market management policy.

He also affirmed that the current development of gold trading floors in Vietnam is out of control and there is no State agency assigned to manage these floors. The government is establishing a research group to create a legal framework for the operation of these floors. 

The governor also admitted that the production of coins has not proven efficient. He said when he took over the post at the central bank, he carefully examined the project and attentively listened to leaders and people. Finally, he decided to stop producing such coins and took back poor quality ones in circulation. However, he affirmed that the quality coins remain in circulation. 

Mr Giau said that managing the foreign currency market is a “big problem” for the bank given the fact that Vietnam has faced trade deficit for many years. An effective solution to this problem is to tighten the credit policy and reduce imports. However, this solution contradicts the government’s goal of achieving high economic growth.

In the afternoon, Minister of Information and Communications Le Doan Hop was the second cabinet member taking the floor and answering the deputies’ questions.