Regulations to be enacted for indirect investments abroad

HA NOI (Biz Hub) — Investing abroad through trading securities will be regulated by a decree which has been drafted by the State Bank of Viet Nam (SBV) to clarify...

HA NOI (Biz Hub) — Investing abroad through trading securities will be regulated by a decree which has been drafted by the State Bank of Viet Nam (SBV) to clarify Investment Law 2014.

The law, which will take effect on July 1, 2015, states that local individuals and organisations can carry out such investments themselves, or through securities investment funds or other intermediary financial institutions overseas.

Before this law was issued last November, Investment Law 2005 only stipulated that indirect investments abroad were to conform to legal regulations on banking and securities, as well as related rules.

The law on securities and ordinance on foreign currency remains vague about this issue, however, while only several commercial banks have so far carried out investments. They had only recently begun carrying out small-scale transactions due to the high risks, says the SBV.

The central bank says the decree is needed to reflect the current investment practice, intensify the role of management agencies, and meet the country’s demand for international integration.

The newly drafted document mainly provides guidelines for investors that are economic organisations. It states that the central bank will set specific investment issues, such as capital sources, money transfer methods and investment limits based on practical conditions in different phases.

The ministry of Finance and Planning and Investment will also take part in certain stages of the investment licencing process.

The SBV says indirect investments by individuals “should not be widely applied” within the context that the domestic economy continues to struggle with the gross domestic product (GDP) per capita staying low, compared to regional levels. The scale of the domestic stock market is still small and local investors lack knowledge about international markets.

Viet Nam also lacks foreign currency reserves that serve economic development, and the country is just in the first phase of the liberalisation process of capital accounts.

“Indirect investments abroad must be tightly and cautiously managed to avoid chaos in the foreign currency market and negative impacts on monetary and exchange rates, as well as to avoid disadvantages for the balance of international payment and other macro-economic balances,” the central bank said in a note.

The SBV added that it has studied the experience of countries that have similar economic characteristics to Viet Nam, including China, Thailand, Indonesia, Malaysia and the Philippines, to draw up the new regulations. — VNS


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