VN asked to stabilize exchange rate to minimize risks of public/private projects Vietnam is considering new policies on foreign exchange management in order to help minimize exchange rate fluctuation risks for PPP (private public partnership) project developers.   Hiroshi Wantanabe, general director of JBIC, the Japan international cooperation bank, said at a meeting on July 16 with the Ministry of Planning and Investment that Vietnam should apply measures to stabilize the exchange rate to attract foreign investment for infrastructure projects implemented under the mode of PPP. He said while the Vietnam’s foreign exchange reserve has increased to $35 billion, the risks in the exchange rate fluctuations and the restrictions in foreign currency conversion remain big barriers that keep private investors away from infrastructure projects. In principle, investors will consider the exchange rate fluctuation risks when calculating the prices of the products. However, with PPP mechanism, the risks should be allocated to the parties which can handle the problems in a best way. Therefore, he said, Vietnam needs to consider applying reasonable mechanisms to be sure that the foreign exchange risks can be minimized. Wantanabe from JBIC also said that foreign investors want the State Bank of Vietnam to ensure the stability and the predictability of the exchange rates. If policies change regularly without predictions in advance, investors find it difficult to calculate expected profits and figure out the measures to apply when necessary. The current strict regulations on foreign currency conversion have also caused foreign private investors to hesitate to implement projects in Vietnam. When developing thermal power projects in Vietnam, investors have to borrow money in foreign currencies and pay debts in the same currencies. However, under the current regulations, they can only receive VND when selling electricity to Electricity of Vietnam. This means that investors will have to convert VND into foreign currencies to transfer profits abroad and pay bank debts. Meanwhile, they face many difficulties in converting dong into other currencies due to current strict regulations. This is the reason why foreign institutions have been insisting that the government of Vietnam guarantee currency conversion, since international financial institutions cannot take this work as well as Vietnamese agencies. Le Van Tang, Head of the Bidding Management Agency, said the responsibility of the government of Vietnam related to foreign investors’ currency conversion is being considered by competent agencies and will be legalized in a decree on PPP project management. However, Tang said Vietnam will have to think carefully about ensuring exchange rate stabilization. “We have referred to international laws and consulted with experts and found that no one can ensure the exchange rate would not fluctuate after 40 years, and that it is the job of investors to consider risks before making investment decisions,” Tang said. An expert who asked to remain anonymous also commented that no government in the world can commit to keep the exchange rate unchanged for many years. He said it would be better for investors to count on the exchange rate risks when calculating the contracts’ value. VNE