The government should not let the bond market self-regulate but instead should intervene more deeply to make it a safe channel for capital mobilization, said Nguyen Minh Cuong, principal economist for the Asian Development Bank.
Between VND150-200 trillion ($6.4-8.5 billion) in bonds are set to mature this year, and if the bond market is left to self-regulate, systemic risks could spread to the banking sector and the entire financial market, Cuong told VnExpress in an interview.
Although Vietnam concluded 2022 with a strong post-pandemic recovery, several financial problems plagued the economy last year, among them bond market issues.
As there were many high-profile arrests due to alleged misconduct in bond issuance, companies prematurely redeemed VND210.57 trillion worth of their own bonds last year, up 46% from 2021.
Although the market could be left to fix its own problems, Cuong said that it is recommended that the government intervenes with policies to ensure post-pandemic recovery, as one problem in the market could shake the market in a major way this year.
He added that in the 2008 financial crisis, the U.S. government initially let the market corrects itself, but after Lehman Brothers went bankrupt, it had to intervene.
“Letting the market handle itself would be irresponsible,” said Cuong. “The market cannot always fix itself, and sometimes the government has to intervene.”
Vietnam could learn from other governments, Cuong added. The South Korean government, for example, has set up a corporate bond buyback fund worth $11 billion.
China on the other hand is drafting a 21-point action plan and will provide $67 billion in financial support along with other debt-relief solutions.
In Vietnam, the property sector (the second biggest bond issuer after the banking sector) consists of nearly 40 economic areas with millions of workers, and therefore it should be paid attention to for the financial security of the country, Cuong said.
If the capital market is not unclogged this year, the people will suffer. Vietnam’s household debt was at 66% of GDP in 2020, surpassing the average of emerging economies (54% of GDP), and this pose financial risks.
Apart from the bond market, Vietnam should focus on other economic risks, such as inflation, Cuong said, adding that China’s reopening and U.S. Fed’s policy could pose threats to Vietnam’s inflation. He suggested that the country should strive to keep inflation under 4% instead of increasing this cap as some have proposed.
He warned that if inflation rises, banks could give out more loans and this could increase bad debt, which has been a problem for the economy for the last 10 years.
Cuong said that the impact of China’s reopening will only be clear starting from the second quarter, and it is now too early to tell how Vietnam will be impacted by it.
In agriculture, Vietnam might be able to export more agricultural products to China, but attracting Chinese tourists might be difficult as Vietnam’s visa policy is not as open as in other countries’.
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