Decision No. 1590/QD-TTg dated August 11 2016 approving the Scheme for the road map for liberalizing capital transactions of Vietnam

DECISION

APPROVING THE SCHEME FOR THE ROAD MAP FOR LIBERALIZING CAPITAL TRANSACTIONS OF VIETNAM

THE PRIME MINISTER

Pursuant to Law on the Government organization dated June 19 2015;

Pursuant to the Resolution of the 4th plenum of the Party Central Committee,10th Tenure on some major guidelines, policies for rapid and sustainable economic development when Vietnam becomes a member of the World Trade Organization;

Pursuant to the Resolution No. 49/NQ-CP dated July 10,2014 issuing the action program of the Government to continue the implementation of the Resolution of the 4th plenum of the Party Central Committee,10th Tenure on some major guidelines, policies for rapid and sustainable economic development when Vietnam becomes a member of the World Trade Organization;

At the proposal of the Governor of the State Bank of Vietnam,

HEREBY DECIDES

Article 1.To approve the Scheme for the road map for liberalizing capital transactions of Vietnam with the following contents:

I. OBJECTIVES

- To develop the road map for liberalizing capital transactions to be in line with the objectives and orientations of the economic structure of the Government, the socio-economic status of Vietnam and other international commitments to which Vietnam is negotiating or participating relating to such scheme, to promote the foreign capital attraction, to closely monitor the capital inflows and outflows, to ensure the macroeconomic stability, sustainable development and reduce the negative impact of the fluctuation of international capital flows.

- To complete the state management mechanism on the management of capital inflows and outflows in Vietnam.

- To enhance the effectiveness of the supervision of capital inflows and outflows, promptly form the precise database of capital flows to meet the requirements of policy analysis, forecast and formulation, regulate the foreign exchange market, stabilize the balance of payments and increase the foreign exchange reserves in a reasonable manner.

- To boost the development of domestic capital market to promote all domestic and overseas resources for the development of the economy, to ensure the safety and the macroeconomic stability, to enhance the supervision and forecast of capital flow fluctuations and to create the equal, transparent environment for both domestic and foreign investors.

II. DIRECTIONS FOR THE ROAD MAP DEVELOPMENT

International commitments, bilateral and multilateral trade and investment agreements that Vietnam is a signatory (the framework of the WTO Agreement, the Charter of the IMF Fund, commitments in the ASEAN Economic Community and bilateral agreements and other multilateral) do not bind Vietnam to further open its market to capital transactions and may be allowed to use legitimate defenses to deal with the potential factors of macroeconomic risks and systemic risks that may arise during liberalization.

Regarding the socio-economic development orientation, in the immediate future to 2020, the Party and the Government shall focus on the objective of developing a socialist-oriented market economy, effectively coordinate between monetary policies, fiscal policy and other policies to ensure macroeconomic stability and major balances of the economy, control inflation and stabilize money value.

In order to implement the aforementioned socio-economic development orientation, the development of the roadmap for liberalizing capital transactions should be done carefully in accordance with the level of economic development and the ability to further open up the capital market, specifically in the following directions:

1. Principles of the road map development

The direction for the liberalization of capital transactions in Vietnam is exempted from any requirement of international commitments which Vietnam is a signatory. Therefore, Vietnam is able to develop the scheme for liberalizing capital transactions on the following bases:

- The inevitable trend of integration of international investment;

- The compatibility with the readiness of the economy, the level of development and the openness of the financial system;

- The conformity to the capacity of management, competitiveness of Vietnam.

b) The road map for liberalizing capital transactions of Vietnam shall aim at the support for the effectiveness of investment, the synchronicity of the macroeconomic policies, the enhancement of the domestic capital market development for the promotion of all domestic and foreign resources for the development of the economy, the safety and the macroeconomic stability, the supervision and forecast of capital flow fluctuations and the establishment of an equal, transparent environment for both domestic and foreign investors.

c) Within the road map for liberalizing capital transactions, policies shall aim at:

- Reducing administrative interventions;

- Switching over to economic measures which affect the benefits of entities to regulate the capital flow, such as tax policies, interest rate etc. ;

- Enhancing the effectiveness of macroeconomic supervising measures (the report regime, early warning, supervision through accounts, etc.)

- Researching and completing policies which enhance the convertibility of Vietnamese Dong in international capital transactions.

d) The road map for liberalizing capital transactions of Vietnam shall carefully evaluate the risk of liberalizing each type of capital flows so as to make contingency plans that not contradict international commitments, ensure the resistance to economic shocks, control the instability and crisis caused by uncontrollable capital flows.

dd) The road map for liberalizing capital transactions need not to determine a specific time of opening to certain types of capital flows. Policies of openness to capital flows shall base on the actual condition of the economy at a specific time and context.

2. Basic directions for the development of the road map

As for capital transactions in foreign investment in Vietnam: Focus on the consolidation of the legal document system, completion of the report and information sharing mechanism between agencies for the improvement of the capital flow quality.

b) As for capital transactions in outward investment: Continue to closely and prudently control the capital of outward investment concerning the priority on socio-economic development. In case of favorable market conditions and stable economic growth, requirements for outward portfolio investment and technical barriers to trade may be relaxed and reduced provided that the macroeconomic stability is ensured and the balance of international payments and foreign exchange market are protected from adverse effects..

c) As for capital transactions in foreign loans: Study to complete legal provisions to enhance the quality of supervision and forecast on foreign loans of organizations; study the case of allowing individuals to borrow from foreign banks for study or medical treatment.

d) A for capital transaction in foreign lending: Improve the legal framework which stipulates the procedures for the Prime Minister's approval of foreign lending and granting guarantees for non-residents of economic organizations to ensure policy transparency.

dd) As for capital transactions in deposit: Continue to maintain the attraction of foreign capital flows from non-resident deposits, and consider building technical barriers to avoid instabilities which may occur due to the reversal of capital flows.

e) As for the convertibility of Vietnamese Dong: Focus on the implementation of solutions for the stabilization of the macro-economy, the enhancement of the balance of payments and the improvement of the economy’s competitiveness. In the context of stable macro-economic conditions, the financial, monetary and foreign exchange markets are strengthened, develop policies to improve the convertibility of Vietnamese Dong in the international market, such as allowing the use of Vietnam dong to invest abroad with countries which have agreements on investment and payment in local currencies with Vietnam, allowing Vietnamese dong to be used in loan transactions in case the borrower wishes to use the loan in Vietnam dong to pay directly to beneficiaries in Vietnam or make clearing for third parties.

3. Use of risk prevention measures and legitimate defenses during the liberalization of capital transactions

The development of the road map for liberalization of capital flows needs to be done simultaneously with the development of risk prevention measures and legitimate defenses to minimize adverse impacts, instability and economic risks, including:

Risk prevention measures before crises:

- Establish the supervising system of capital flows, enhance the information sharing mechanism of capital flows and macro variables between agencies to form the model of early warning system of forecasting and evaluating the fluctuation in capital flows, thereby timely proposing appropriate management policies.

- Strengthen the inspection, supervision in banking to ensure the discipline and promptly detect risks from such activities.

- Complete policies to promptly detect and handle the risk of capital transfer as money laundering, which harms the transparency and stability of capital flows.

- Consolidate the risk management system in banking and enterprises at the micro level, the macro-prudential policies of banking system.

- Develop risk prevention instruments in currency, interest rate, commodity and securities in conformity with international practices; consolidate the legal framework, the corporate and banking accounting system so as to put such instruments into practice.

b) Legitimate defenses

- Study and formulate measures to cope with capital outflow for emergencies, such as: regulating conditions of limit, investment duration, deposit , taxes on the basis of the investment term for outward portfolio investors being organizations; strictly regulating conditions for lending abroad and granting guarantees for non-residents.

- Study and formulate measures to cope with capital inflow for emergencies, such as: increasing the transparency of cash inflows; regulating the requirements for registration of short-term loans in cash, adding prudential ratios related to short-term foreign loans of commercial banks; strengthening the control of operation of foreign currency exchange points to narrow and proceed to eliminate illegal trading of foreign currency on the market.

III. IMPLEMENTATION

1. Responsibilities of the State Bank of Vietnam

a) Solutions for the monetary policy

- Proactively, flexibly and coherently manage monetary policy instruments, interest rates, foreign exchange and exchange rates to ensure the stability of the monetary market, control inflation and economic growth.

- Improve the quality of data collection and forecast for the formulation and management of monetary policy.

- Strengthen the cooperation with the Ministry of Planning and Investment, Ministry of Finance, Ministry of Industry and Trade in researching, proposing, implementing, supervising and evaluating macroeconomic policies.

- Continue to proactively and flexibly operate the exchange rate according to the market, ensure the value of Vietnamese dong; continue to synchronously deploy solutions to strictly and effectively manage the foreign exchange market in order to stabilize the exchange rate, improve the international payment balance and support the sustainable growth of the State's foreign exchange reserves and ensure liquidity.

b) Solutions for the capital flow management

- Take the lead and cooperate with relevant agencies to formulate and submit for the National Assembly's approval of Law on management of foreign exchange, Decree providing guidance on Law on management of foreign exchange and complete other documents guiding the foreign exchange management of transactions related to capital inflow and outflow; foreign loans and repayment; on-lending and recover of foreign loans.

- Cooperate with the Ministry of Finance in studying, formulating policies to boost the development of the financial system in association with expanding financial instruments within an appropriate road map, which allows participating entities to apply risk prevention measures.

- Take the lead and cooperate with relevant agencies to review conditions of foreign loans of enterprises to ensure their compliance with Law on Investments and Law on Enterprises, particularly aim to improve the quality of capital flows from foreign investment (foreign borrowing by FDI enterprises); study closely the conditions of enterprises' borrowing to ensure the compliance with the limits of foreign borrowings, self-repayment and indicators of national foreign debts.

- Undertake the formulation of legal normative documents about the conditions, procedures for approval of overseas lending activities and granting guarantees for non-residents of economic organizations which are not related to any outward portfolio investment.

- Improve the quality of the report system; complete and provide guidance on online reporting of borrowing and repayment of foreign loans for enterprises to consolidate the database of borrowing and repayment of foreign loans, which serves the forecast of capital flow fluctuation; promptly detect and warn about risks related to the safety of the financial market and the economy.

c) Solutions for the completion of the banking system

- Continue the reformation of the banking system in association with handling bad debts in a modern, sustainable manner; enhance the competitiveness and reducing the cross ownership.

- Reform and enhance the effectiveness of inspection, supervision of banking to maintain the discipline in the monetary market, foreign exchange market and safety in operation of credit institutions.

- Complete regulations on safety, control and risk management for the financial system as well as reform the model of inspection of the financial system in accordance with international practices.

- Direct credit institutions to enhance their capability of risk management, complete the information technology system in banking, take part in the formulation of policies and comply with regulations related to capital flow management.

2. Responsibilities of the Ministry of Planning and Investment:

Solutions for improving the efficiency of investment capital

- Take the lead and cooperate with relevant agencies and local governments to establish and complete the national information system of foreign investment in Vietnam and Vietnam's outward investment to meet the requirements of policy analysis, forecast and formulation .

- Undertake research, propose solutions for enhancing the long-term stability and the quality of direct investment capital, of which the attention should be paid to the group of FDI enterprises with a large proportion of loans to contributed capital.

- As the standing bodies of the ODA National Steering Committee, take the lead and cooperate with relevant authorities to closely monitor ODA loans and other concessional loans in accordance with regulations of law.

b) Solutions for improving business environment to attract investment capital

- Take the lead and cooperate with relevant agencies to review and complete the legal framework in foreign investment in Vietnam and Vietnam's outward investment.

- Accelerate and improve the quality of enterprise equitization, focusing on reducing the state capital in enterprises, renewing the business management after equitization.

3. Responsibility of Ministry of Finance

Policies related to fiscal policy

Undertake the formulation and implementation of solutions for enhancing the management of state budget revenues; restructuring state budget expenditures and actively cooperating with the State Bank to exchange information about policies, aims of managing the fiscal policy to enhance the coordination between the fiscal policy and the monetary policy.

b) Policies related to public debt

Continue reviewing the system of legal normative documents relating to the management of foreign loans of the Government, closely monitor the Government’s sponsorship for foreign loans; cooperate with the State Bank to monitor the loan limit, repayment on foreign loans of enterprise by the mode of self-borrowing and self-payment to ensure that the external debt is in the permitted limit.

c) Policies related to securities market

- Take the lead and cooperate with relevant agencies to review and complete the legal framework in securities investment to attract and promote the indirect investment capital for the development of the economy.

- Take the lead and cooperate with relevant authorities to study issues related to the management of the securities market in case Vietnam participates in the Capital Markets Initiative and Capital Markets Forum in the ASEAN cooperation framework.

d) Solutions for corporate finance to enhance the competitiveness of enterprises

Formulate and complete legal documents on corporate finance, accounting and audit standards in accordance with international practices.

dd) Solutions for tax and customs policies

Implement solutions for tax management on prices of related-party transactions, completing tax and customs policies related to investment.

Article 2.This Decision takes effect on the date of signing.

Article 3.Ministers, Heads of ministerial-level agencies, Heads of Governmental agencies shall implement this Decision.