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Sri lanka News – Sri Lanka President Ranil Wickremesinghe recalled his interactions with Vietnam the latest country the money printing nation looks at in envy, even as the South East Asian nation teeters on the brink following pressure from Washington to spend more.

“I recollect another personal experience of mine,” President Ranil Wickremesinghe said presenting as budget for 2023.

“In 1991, when I was the Minister of Industry, the Minister of Industry of Vietnam came to Sri Lanka. He wanted to study our open economic system and industrialization strategies. I made him aware.

“He was given the opportunity to discuss with the officials of the Greater Colombo
Economic Commission.

“In 1995, Sri Lanka’s foreign reserves were USD 2.1 billion. Vietnam’s foreign reserves were USD 1.3 billion. The minister of Vietnam studied our methods and went to his country. What is the situation today?”

He said in 2021 Vietnam had 109.4 billion US dollar in reserves and Sri Lanka had 3.1 billion US dollars.

Vietnam started reforming its central bank from around 1989 after a severe currency collapse led to an economic implosion. Its top foreign investment zone was set up with Singapore’s SEMBCORP and domestic Becamex IDC, in 1996 and opened by Singapore PM Goh Chock Tong in 1996.

Sri Lanka has the worst soft-pegged central bank in South Asia with the currency collapsing from 4.70 to 360 to the US dollar since it was set up, and policy deteriorated sharply after a flexible inflation targeting was peddled to the nation with a reserve collecting central bank.

‘Flexible’ inflation targeting allowed country’s macro-economists to mis-target interest rates for Anglo-Saxon style John Law/Keynesian stimulus (output gap targeting) using ‘data driven’ monetary policy and inflation lags.

The IMF gave technical assistance to calculate an output gap, despite its past record of suppressing rates and getting into currency crises and running to to the lender for bailouts.

Vietnam promises US it will not devalue, but dreaded Sri Lanka style ‘monetary modernization’ looms

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In South Asia there is a strong Mercantilist belief that external instability come from trade, and not mis-targeted rates with liquidity injections.

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In a shocking revelation, a World Bank survey found that only 2 percent of ‘experts’ consulted by by the agency in South Asia knew that external trouble came from monetary policy.

Vietnam also came under severe pressure from Washington and the International Monetary Fund to abandon is peg, spend more and stop running gently deflationary policy, a practice which leads to an accumulation of foreign reserves.

Though the state bank of Vietnam does not print money for deficit finance, it started to run balance of payments deficits from around the first quarter of 2022. In the second quarter the BOP deficit was 4.997 billion US dollars.

Some estimates put the country’s official reserve at 87 billion US dollars, down about 20 billion dollars from the beginning of the year due to sterilizing out flows (printing money to offset interventions in the forex market) to keep policy rates down.

Vietnam hiked its policy rate by 100 basis points in September, almost two quarters after the Dong came under pressure from domestic credit, and followed by another 100 basis point hike in October which took the rate to 6.0 percent.

Vietnam and other better soft-pegs usually collapse after two or three Fed cycles as policy rates come down after the central bank survives the second cycle.

In 2011 after the Dong collapsed from around 15,000 to 22,000 in the wake of a stimulus debacle rates were raised to 13.5 percent but were progressively brought down.

On November 03, 2022 State Bank of Vietnam Governor Nguyen Thi Hong made a strong case to protect the Dong’s peg with the US dollar, after letting it go from 23,500 to 24,800 to the US dollar.

A stable Dong’s stability has a made the country a location which had attracted foreign investment Governor Thi Hong told parliament.

Enterprises were suffering, she said but stability had to be maintained.

Vietnam came under severe pressure from Washington for maintaining relatively tight policy (deflationary policy) and collecting reserves with a firm peg. The US Treasury falsely labelled the country a currency manipulator.

The State Bank of Vietnam also came under pressure for ‘monetary policy modernization’ and abandon the very policies that made the country a stable destination for exports and domestic investment.

IMF backed ‘monetary policy modernization’ involves giving more tools for the central bank to print money, delay rate hikes, and undermining the credibility of the peg to spread panic among importers, exporters and bond investors.

Going with prevailing Washington ideology, the International Monetary also falsely claimed that SBV was ‘undervaluing its currency’ using so-called EBA-Lite methodology despite the Dong having an Real Effective Exchange Rate of close to 130 percent.


The IMF pushed the country to invest more domestically and stop running deflationary policy and spend more in the generally Western ideology of heedless spending.

“CA (current account) strength should be addressed through structural, institutional, and financial sector reforms to raise private investment and protect public investment while raising its efficiency,” the 2019 IMF staff report said.

“The modernization of the monetary framework, with greater two-way exchange rate flexibility, would also help external adjustment by facilitating nominal appreciation and reducing the need to accumulate reserves.”

Vietnam’s real estate sector is now struggling with several property companies in trouble.

There is a prospect of even higher rates required to stabilize a ‘flexible exchange rate’ whose credibility has been undermined.

Sri Lanka style petrol queus have also started.


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