Bui Quang Tin, a finance expert, said that dong-linked bonds the State Bank is considering issuing are a form of borrowed foreign capital.

The central bank would borrow roughly $100 million from the international market. The amount would be later sold to commercial banks, as businesses cannot buy in large quantities.

Tin believes this would have a big impact on Vietnam’s production and export activities.

Once US dollars are pumped into circulation, Vietnam dong will be withdrawn from circulation. Because of the dollar supply, the dollar price would go down, and the Vietnam dong would appreciate. A strong dong, however, will not facilitate Vietnam’s exports.

Vietnamese exporters repeatedly have urged the government to devalue the local currency to boost exports.

Once international bonds are issued, the bonds will be guaranteed by the national credit rating. If the rating is high, the bond interest rate will be low, and vice versa.

Meanwhile, though Vietnam is listed among the countries with stable macroeconmy, high GDP growth rate and controlled inflation rate, its national credit rating is still low compared with other developing countries in the region and the world.

At present, the Vietnam dong is unconvertible in the world market. When issuing international dong-linked bonds, Vietnam would face certain restrictions in seeking investors.  Besides, it would not be able to set the interest rates as low as it wants.

Bui Ngoc Son from the World Political Economy Institute also warned that it would be difficult to attract new investors because of the low national credit rating, unconvertible dong, the warnings about the high public debt, and ineffective use of loans.

“It is highly possible that those who are interested in Vietnam’s bonds are investors who are doing business in Vietnam. They need more capital to scale up their business and production and they are willing to buy bonds,” he explained.

The issuance of hundreds of millions of dollars worth of bond may not bring the expected results, he said.

Both Son and Tin are concerned about how the borrowed capital would be used.

Noting the big losses incurred by Vinashin, Vinalines and 12 unprofitable projects of the Ministry of Industry and Trade, they said these cases had left a bad reputation which cannot erased. 

In order to succeed in issuing international bonds, Vietnam, first of all, needs to apply necessary solutions to improve the national credit rating which would help reduce the capital cost.

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Mai Thanh