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Cablegate: Sbv Can't See the Forex for the Trees

VZCZCXRO8854
PP RUEHCHI
DE RUEHHI #0774 1840934
ZNR UUUUU ZZH ZDK
P 020934Z JUL 08
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC PRIORITY 8092
INFO RUEHHM/AMCONSUL HO CHI MINH 4899
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS HANOI 000774

SENSITIVE
SIPDIS

SINGAPORE FOR TREASURY
TREASURY FOR SCHUN
USTR FOR DBISBEE
STATE FOR EEB/IFD

E.O. 12958: N/A
TAGS: EFIN ECON ETRD VM
SUBJECT: SBV CAN'T SEE THE FOREX FOR THE TREES

REF: Hanoi 634

1. (SBU) On June 26, the State Bank of Vietnam (SBV) issued
Official Letter 5728 prohibiting banks from performing dollar-dong
trades through a third currency. Previously, some banks had been
trading from dong to a third currency (often Euros) and then into
dollars in an attempt to circumvent the official dong/dollar
exchange rate established by the SBV. The SBV also widened the
dollar-dong trading band from one percent to two percent, a move
pledged by the Prime Minister months ago but not implemented until
now. At the same time, the SBV declared that it will "inspect and
supervise" all banks to ensure compliance with these new
regulations. In line with this most recent announcement, contacts
at the commercial banks tell us that the SBV has been sending teams
of inspectors and police out to "interview" banking officials since
the dong devalued a few weeks ago (reftel).

2. (U) Reaction to the widening of the trading band has been
generally positive, with analysts noting that it will bring the
value of the dong closer to the more realistic black market rate.
The black market seems to have settled since the announcement,
hovering around 17,500 dong per dollar, down from 18,000 to 18,500
and even 19,000 in the weeks prior. Conversely, the prohibition on
third currency trades has been widely criticized for closing one of
the last loopholes available for those who need dollars but cannot
get them via official channels. As reported previously, the SBV is
tightly controlling dollar lending, doling out dollars only for
certain preferred imports such as petroleum products and
pharmaceuticals or to certain state owned enterprises (SOEs). The
use of gold as an intermediary between dong and dollar exchanges
seems to be the last safety valve available to meet the foreign
exchange needs of individuals/firms who do not qualify under normal
trading rules. Press reports in HCMC indicate that exporters,
particularly smaller ones, are using gold to pay export shipping
fees. In response to the shift towards gold, the GVN suspended the
importation of gold last week, although it is not clear how long the
suspension will be in effect.

3. (SBU) Expatriates paid in local currency also paint a
discouraging picture: the amount of dollars they are allowed to buy
is limited by the banks (e.g., HSBC HCMC retail customers can
convert 500 USD/day); when they buy dollars, many banks charge
additional "transaction fees" and "documentation fees" that raise
the official rate to something suspiciously close to the black
market rate; and the amount of dollars they are allowed to
repatriate is strictly controlled by the banks (e.g., HSBC HCMC
retail customers can repatriate 500 USD/day). Banks tell customers
these regulations are the result of GVN regulations and monetary
policy. In turn, customers look for ways around the official rates,
for example, taking advantage of the fact that locally issued credit
card charges in dollars must be converted to dong at the official
rate for payment in Vietnam, shifting the conversion cost from
customers to the banks.

ALOISI

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