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Vietnamese evade gold export ban to put wealth outside banking system
Vietnamese Traders Beat Bullion Export Ban
By Ben Bland
Financial Times, London
Monday, March 28, 2011
http://www.ft.com/cms/s/0/4aa15524-5964-11e0-bc39-00144feab49a.html
HANOI, Vietnam -- Vietnamese gold traders have sent billions of dollars worth of high-grade gold jewellery to be smelted in Switzerland over the past two years to circumvent government restrictions on bullion exports.
Before 2008 Vietnam exported minimal amounts of gold ornaments to Switzerland, which dominates the global gold smelting industry, turning items from rings to candlesticks into international standard bullion.
But that changed over the past two years, as Vietnam became Switzerland's biggest single source of imported gold products, much of which ended up in the furnaces operated by leading refiners Argor-Heraeus, Metalor, MKS Finance, and Valcambi.
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Cameron Alexander, a senior analyst at GFMS precious metals consultancy, said: "In Vietnam, banks haven't been able to export bullion freely, so they have made jewellery out of it so they can export it. There's a loophole and people who need the dollars have taken advantage of it."
Last year, Vietnam exported nearly 61 tonnes of precious metals -- mostly gold products -- to Switzerland, generating SFr2.6 billion ($2.8 billion), according to the Swiss Federal Customs Administration. In 2009, Vietnam exported 54 tonnes, generating SFr1.9 billion, already well up from 3.2 tonnes valued at SFr71 million in 2008. The figures do not include bullion, which is treated as "monetary gold."
Hasan Demir, who works in the statistics department at Swiss customs, said: "Swiss firms enjoy an excellent reputation for smelting pure gold bars. The high level of the gold price at the moment, reinforced by the depreciation of the Vietnamese currency, has stimulated gold owners in Vietnam to sell their gold."
In recent years, gold in Vietnam has tended to trade at a premium because of import restrictions designed to stem the flow of money out of the Vietnamese currency, the dong.
Anxious consumers and businesses have hoarded dollars and gold to protect against high inflation and devaluations of the dong. Economists believe Vietnam suffers from significant unrecorded capital flight.
The sale of gold jewellery to Switzerland has spiked on the rare occasions when the onshore gold price was lower than the international price, according to Nguyen Ngoc Que Chi, chief executive of Sacombank Jewellery Co., which is owned by a local bank, as are many other jewellery and gold traders in Vietnam.
Many analysts say that government attempts to control Vietnam's gold market have been counterproductive.
"When there are restrictions, people will always smuggle it in, and over the last couple of years, we've seen a large proportion of gold coming in unofficially through Thailand, Laos, and Cambodia, as well as pretty healthy flows from China," said Mr Alexander.
Official Vietnamese data show a net gold outflow of $2 billion to $3 billion per annum over the past two years, mostly to Switzerland. But statistics from the World Gold Council, a mining industry lobby group, suggest a net inflow of $2 billion to $3 billion per year, according to Scott Robertson, founding partner of Asia Markets Group, an advisory firm.
Analysts believe this discrepancy is the result of "capital flight," with Vietnamese people selling dong to buy gold that has been smuggled in and does not appear in official statistics.
The International Monetary Fund's analysis of the "errors and omissions" in government balance of payments data suggests that last year Vietnam suffered an unidentified outflow of $12 billion to $13 billion, around 12 per cent of GDP.
"Either the current account deficit is understated or capital inflows are overstated or there's been resident capital flight that isn't picked up in the official data," said Benedict Bingham, the IMF's senior representative in Vietnam.
"All three probably contribute to the problem but only the last is likely to explain such a big discrepancy. It's basically residents shifting from dong into dollars and gold and keeping it out of the banking system."
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