VN news (June 30)

[Dam Son <son@fermi.phys.washington.edu>]

Vietnam praises HK handover and vows to deepen ties with China
Vietnam defends its prison record 
Vietnam Central Bank: Low Inflation Cited 
Vietnam: State Bank Denies It Ordered Loan Deferment 
Vietnam: Vietcombank seeks to quell debt fears 
Vietnam Central Bank Admits Trade Credit Problems 
Vietnam Lowers Monthly Lending Interest Rate to 1.0 Percent 
E.U. targets Vietnam's energy sector to boost economic ties 

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Vietnam praises HK handover and vows to deepen ties with China

Hanoi (dpa) - Vietnamese leaders highlighted the historical significance
of Hong Kong's handover to China and vowed to deepen ties with the country's
northern neighbour, Vietnam's official media said Monday.

"July 1, 1997 is going to become a great event in China's history, ending
more than a century of foreign rule in Hong Kong", said a joint message
of greetings signed by Vietnam's Communist party General Secretary Do
Muoi, President Le Duc Anh, Prime Minister Vo Van Kiet and National Assembly
chairman Nong Duc Manh.

Vietnamese leaders expressed their confidence in Hong Kong's further
development within the frames of "one country - two systems" arrangement
and wished China further successes in pursuing economic reforms and open-door
policies.

The message, published by the official media Monday, said that Communist
party, the government and the people of Vietnam will always prioritize
further development of friendship and cooperation with China in general
and Hong Kong in particular.

Vietnam's foreign minister Nguyen Manh Cam arrived in Hong Kong Sunday
to take part in handover ceremonies.

However, last week Hanoi blamed Hong Kong and British authorities for
their alleged failure to repatriate some four hundred Vietnamese boat
people before the colony's handover to China on July 1.

The foreign ministry spokesman said in a statement that Vietnam was ready
to receive all those Vietnamese boat people, who had not been granted
a refugee status, but British and Hong Kong authorities failed to arrange
repatriation as requested by Hanoi.

More than 110,000 Vietnamese boat people have been returned to their
homeland from around the Asian region, of which more than half rom Hong
Kong, since Hanoi agreed to a UN-supervised repatriation programme in
1989.

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Vietnam defends its prison record 

HANOI, June 30 (AP) - Dismissing a human rights report on alleged abuses
in its prisons as "slanderous," Vietnam defended its expanded use of
the death penalty on Monday.

Last week, a French human rights group criticized Hanoi for extending
the death penalty to economic crimes, including fraud and embezzlement.

The Foreign Ministry said the expanded use of the death penalty "shows
the strictness of the law and the government's determination in the intolerable
fight against crimes."

Last year, Vietnam condemned 113 people to death. At least 16 people
were executed, said the Paris-based Vietnam Committee on Human Rights.

The Vietnam Committee on Human Rights was citing a report from International
Prison Watch, which conducts an annual survey of the penal systems in
dozens of countries around the world. Its 1997 report included Vietnam
for the first time.

In the survey, International Prison Watch said torture, forced labor
and unlawful arrests were common in Vietnam.

The Foreign Ministry said those claims were unfounded.

"The report is completely groundless, slanderous with the ill intention
of opposing Vietnam," it said.

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Vietnam Central Bank: Low Inflation Cited 

By Faith Keenan

Hanoi (AP-Dow Jones)--The State Bank of Vietnam, the country's central
bank, announced that it was lowering maximum interest rates from July
1. The new rates for dong-denominated loans are 1% a month for short-term
loans and 1.1% a month for medium- and long-term loans. Both are down
0.25 percentage point from their previous level. The maximum lending
rate to rural areas dropped 0.3 percentage point to 1.2%. The rate for
U.S. dollar loans was reduced 1 percentage point to 8.5%.

Among the reasons cited for the move were low inflation, a slowdown in
industrial production, and lower-than-expected liquidity growth. 'In
these circumstances, we see a need for adjustment in the interest-rate
level to facilitate adjustment of economic entities and households,'
Duong Thu Huong, a state bank official responsible for economic research,
told Dow Jones.

Deposit rates will also fall because Vietnamese law dictates a 0.35%
per month spread between lending and borrowing rates. Similarly, interest
rates on overdue loans - set at 150% of the ceiling rate - will decline,
thus easing what is believed to be a very heavy burden on state-owned
enterprises.

The figures were announced at an unusual press conference convened by
Le Duc Thuy, the bank's deputy governor and former assistant to Communist
Party chief Do Muoi. Banking officials also addressed the issue of overdue
letters of credit that have damaged international confidence in Vietnam's
banking sector in recent days. Government officials told Dow Jones that
the overdue amount doesn't exceed $50 million.

The issue drew attention in recent weeks when the Bank of Foreign Trade
of Vietnambank failed to make a payment due and blamed Vietnam's regulatory
procedures for the holdup. Vu Viet Ngoan, deputy director-general of
Vietcombank, said the bank would 'honor the obligation as soon as possible
in the near future.' The bank holds $5 million in overdue letters of
credit.

Ngoan also denied a June 13 Financial Times report that stated that the
Ministry of Finance instructed Vietcombank to withhold payment. 'Vietcombank
never rejected payment to a foreign bank but only requested a temporary
postponement on repayment to complete its procedures,' he insisted. The
procedures relate to accounting measures required to draw dawn the bank's
capital, he said.

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Vietnam: State Bank Denies It Ordered Loan Deferment 

Hanoi (Dow Jones, AP)--Vietnam's central bank on Monday denied a report
that it ordered commercial banks to stop paying overdue loans.

The report led to a dramatic drop in confidence in the country's banking
industry.

The London-based Financial Times reported earlier this month that Vietnam's
commercial banks were instructed by the Finance Ministry to defer payments
to foreign banks on late loans.

In a rare press conference opened to foreign press in Hanoi, State Bank
Deputy Governor Le Duc Thuy said the Financial Times report was wrong.

'The Ministry of Finance have not instructed any commercial banks to
stop paying their loans,' he said.

The Financial Times report came amid a growing banking crisis in Vietnam,
where between 5% and 10% of loans are reportedly overdue.

Shortly after the report appeared, New York-based Thomson BankWatch downgraded
its risk assessment of nine Vietnamese banks from B ratings to C. The
rating indicates a greater perception of risk in dealing with Vietnamese
banks.

By the end of March, $1.3 billion worth of letters of credit had been
opened by commercial banks on behalf of Vietnamese businesses.

An additional $800 million to $1 billion in loans are coming due soon,
Thuy said.

State-owned Vietcombank, the country's largest commercial bank, is trying
to pay off more than $5 million in overdue debts its customers have deferred
from foreign lenders.

A panel of senior banking officials on Monday assured reporters of Vietnam's
commitment to paying back the overdue debts.

'Any Vietnamese commercial bank unable to pay the loans will have to
negotiate with their foreign partners for deferment, or execute their
commitment,' Thuy said.

Last week, State Bank Governor Cao Sy Kiem ordered all commercial banks
to submit detailed reports on overdue loans to help study the cause of
the problem. The figures were due by the end of Monday.

He said central banking authorities want to determine if any of the bad
loans were the result of banking errors, fraud or misuse of funds.

Several banks, including Vietcombank and Vietnam Bank for Industry &
Commerce, have been implicated in past and current loan scandals that
caused the loss of millions of dollars in state funds.

In Ho Chi Minh City, troubled textile exporter Ming Phung is being investigated
for allegedly securing about $357 million worth of loans using falsified
sales receipts and other forged documents.

Earlier this month, seven bank executives from Industry & Commerce Bank
and the Vietnam Bank For Foreign Trade were arrested in connection with
the Ming Phung scandal.

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Vietnam: Vietcombank seeks to quell debt fears 

By Jeremy Grant in Hanoi
Financial Times
June 30, 1997

Vietnam's biggest bank, Vietcombank, has reassured foreign bankers that
its recent failure to pay short-term trade debts was simply due to kinks
in the legal system, and that the country's balance of payments is improving.

Confidence in the financial system was hit last week after revelations
that Vietcombank, a quasi-sovereign risk, had not paid a series of short-term
trade debts owed to foreign banks.

Vietcombank told bankers it could not pay because domestic banking rules
prevented it from doing so as its clients were in difficulty - despite
international conventions saying this is irrelevant to bank-to-bank deals.

However, Mr Vu Viet Ngoan, deputy director general, said: "Vietnamese
laws do not take precedence over international conventions. We never
had any intention to place them higher. We never refuse to pay foreign
banks."

He conceded that Vietcombank had missed payments of about $5m under letters
of credit owed to "several" banks and that the bank had asked for more
time.

The root of the problem was lack of clarity in a regulation on guarantees,
issued by the central bank governor in 1995. "The Vietnamese legal system
is not yet complete and I think our clients and [foreign] investors understand
this and have sympathy with us," Mr Ngoan said.

He strongly denied that Vietcombank had acted on the instructions on
the finance ministry, as earlier reports had said.

However, bankers still question why Vietcombank - which most agree has the
funds to be able to pay - had chosen not to pay, in defiance of
international banking conventions. The case highlights the contradiction
between Vietnam's ambitions to be a player in international financial
markets and slow progress on improving its often dysfunctional legal system. 

The World Bank and the Asian Development Bank (ADB) have called for a
radical overhaul of Vietnam's banking system. But a landmark banking
law was unexpectedly shelved by the country's parliament this year.

A $49m World Bank funded banking reform scheme is a year behind schedule
and a similar ADB programme is also looking shaky.

A second, $45m tranche of ADB funding for its programme is due for release
early next year. That depends on Hanoi finally adopting the new banking
law, and introducing rules on bills of exchange and collateral by early
next year.

Diplomats say some movement on this could come later this year once a
new government team is in place. But one ADB official said: "At the moment
we are far from having those conditions met."

Vietcombank's troubles coincide with worries over the country's foreign
exchange reserve position, which economists say is fragile at about $1.7bn.

However, Mr Ngoan said the government expected foreign investment and
official development assistance inflows to add $500m to reserves by the
end of this year. "The trade deficit has fallen. The overall balance
of payments is positive."

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Vietnam Central Bank Admits Trade Credit Problems 

HANOI, June 30 (AFP) - The deputy governor of Vietnam's central bank
acknowledged Monday that local banks had failed to repay letters of credit
but denied reports that payment delays were at the behest of the government.

"Some banks have delayed payment of letters of credit ... but the government
and the State Bank of Vietnam have requested commercial banks and entities
to honour their commitments," Le Duc Thuy, deputy governor of the State
Bank said.

He said that as of March 31, Vietnam had roughly 1.3 billion dollars
in outstanding letters of credit of which about 5 percent, or 65 million
dollars was overdue.

While admitting banks had reneged on their international obligations
to honour letters of credit, Thuy did not offer a specific reason for
the delay.

The state bank and Vietnam's flagship bank, the Bank for Foreign Trade
of Vietnam, or Vietcombank, called a media conference to shore up confidence
in the banking system and correct reports that the Ministry of Finance
and state bank had instructed commercial banks to delay payments to foreign
creditors.

"The State Bank of Vietnam totally and completely rejects this information,"
Vu Truong of the state bank foreign exchange department said.

Vietcombank deputy general director Vu Viet Ngoan told media his bank
had four or five overdue letters of credit worth a total of five million
dollars.

He blamed the failure of his bank to honour these commitments on "a number
of unclear points in regulations and other procedural matters."

International bankers say Vietnam must comply with international conventions
on repayment of letters of credit (LC) if it wants to borrow in the global
arena.

They say Vietnamese banks have delayed payments abroad until they can
collect from their own customers, ignoring their fiscal responsibility
as issuers of the LC.

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Vietnam Lowers Monthly Lending Interest Rate to 1.0 Percent 

HANOI, June 30 (AFP) - Vietnam is to lower the ceiling on lending interest
rates from 1.25 percent per month to 1.0 percent a month, the State Bank
of Vietnam announced on Monday.

Effective Tuesday, banks may not charge in excess of the 1.0 percent
per month ceiling for short term loans denominated in local currency,

the bank said at a media conference.

The ceiling rate on US dollar denominated loans was also reduced from
9.5 percent a year to 8.5 percent.

Local dong denominated lending for medium and long term loans must not
exceed 1.1 percent a month, down from 1.35 percent, the bank said.

Banks in rural areas, where the cost of granting credit is generally
higher, may charge 1.2 percent a month, down from 1.5 percent.

The rate charged by the Vietnam Bank for the Poor must not exceed the
ceiling of 0.8 percent a month, down from one percent per month.

Overdue loans will be charged a penalty of 150 percent of the contracted
interest rate.

The State Bank said it decided to lower the ceilings to bring local borrowing
rates more in line with international levels, and because of low inflation.

Prices rose just 1.1 percent in the first six months, and according to
State Bank estimates, will not exceed seven percent this year.

The rate of borrowing in local currency is still considered high relative
to inflation and the return on investments in Vietnam, the bank said.

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E.U. targets Vietnam's energy sector to boost economic ties 

Hanoi (dpa) - The European Union is looking for enhanced participation
of the European energy industry in Vietnam's market, said a senior European
envoy on Monday.

"We encourage European energy industry to invest in Vietnam", said
Christos Papoutsis, the European Commissioner responsible for energy
as he completed a three-ay official visit to Vietnam. He urged Hanoi
"to remove all obstacles, legislative and fiscal, so as to make Vietnam's
energy market more attractive for European investors".

During his stay in Vietnam, Papoutsis met with Vice Prime Minister Tran
Duc Luong, Minister of Planning and Investment Tran Xuan Gia.

Papoutsis also emphasized the key role the European Investment Bank (EIB)
could have in providing funding for energy projects in Vietnam. EIB is
expected to become operational in Vietnam later this year as soon as
framework agreement is signed with the State Bank of Vietnam.

Vietnam and the E.U. signed a cooperation framework agreement in July
1995 which has paved the way for the stepped up the E.U.'s engagement.

The E.U. also has several ongoing technical asistance projects aimed
at facilitating Vietnam's transition to a more market-based economy,
including one designed to upgrade accounting and auditing practices and
another intended to liberalize the insurance sector.

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