Vietnam is considering scrapping a 49% limit on foreign ownership of non-financial companies, a senior finance ministry official told Emerging Markets yesterday on the sidelines of the ADB annual meeting.
“Except for the banks and insurance companies, we are looking at raising the limit at this moment,” Nguyen Thanh Do, the general director of external finance at the Ministry of Finance, said in Kyoto. “For the financial sector, it will take a few years longer, but we think it will be possible.”
Foreign investors are at present restricted from holding more than 30% in Vietnamese banks, but Phung Khac Ke, deputy governor of the State Bank of Vietnam, emphasized at a seminar on Saturday that the country encourages international participation in the financial sector, to improve efficiency and risk management practices.
This message was reinforced by Hoang Viet Khang, deputy director general at the Ministry of Planning and Investment, who announced the country’s intention to privatize or sell minority stakes in all the 1,807 remaining state-owned enterprises by mid-2010.
In the near term, however, a note of caution was sounded by investors, who are concerned at the risks of overheating due to the rapid growth of foreign investment, in view of inflation estimated at 7.5% in 2006 and a surge of more than 80% in the Vietnam Stock Index in the past six months alone.
Gerard Lyons, chief economist at Standard Chartered bank, told Emerging Markets that the package of measures included in the Law on the State Bank will be a crucial test of whether Vietnam can maintain economic stability. This legislation is intended to strengthen the status and powers of the central bank, and will come into force in 2008.
“They may have a problem in the near term, as they try move the economy from a period of very high growth to a phase of sustainable growth,” said Lyons.
“They need to open up at a measured pace, to avoid going too quickly. But the good news is, the Vietnamese authorities are much more aware of these risks than they were even a few years ago.”
Indeed, Pham Bao Lam, deputy director general at the State Bank, acknowledged yesterday that the monetary authority is “worried” about overheating risks, including those generated by the increased foreign exchange reserves and money supply stemming from high foreign direct investment and foreign portfolio investment.
Lam said the central bank is striving to “pursue a very tight monetary policy,” but is constrained from moving toward inflation targeting until it has improved the information and tools available.