The classical theories of interest rate policy, inflation and economic growth Definitions Inflation * Inflation is the increase

in the overall level of prices (Principles of Macroeconomics Mankiw). In an economy, we can see two contrast definition deflation and hyperinflation. Deflation is the decreasing average price (occurred in the US in 19th century). On the contrary, Hyperinflation is an extraordinary high rate of inflation (usually 50% per month). With that level of inflation, after one year the price of goods and services increases about 130 times. An example can be easily seen in Germany experienced in the 1920s. Interest rate Rediscount rate * The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their State Bank's lending facility - the discount window. It is the rate applied on the basis that the objective is valuable papers such as bonds, bills of exchange,... Commercial banks is willing to pay the owner of papers to exchange a profitable sum, which is called discount rate and receive that money from the owner at the time of due. In the case that these banks are in need of money but those papers are not due, banks re-sell those papers to State Bank to receive cash money and discount a sum to State Bank. This sum of money is called rediscount rate. * Under the primary credit program, loans are extended for a very short term (usually overnight) to depository institutions in generally sound financial condition. The lower the discount rate, the cheaper are borrowed reserves, and the more banks borrow at the State Banks discount window. Hence, a reduction in the discount rate raises the monetary base and the money supply. Refinancing rate The Refinancing Rate is defined as the rate of interest imposed by the State Bank of Vietnam on loans to its member banks when the institution exceeds its credit limit. This rate is used by the State bank to depository organisations through some ways such as: i) re-making loan through depository project ii) discount/ rediscount investment certificatse and other short-term valued papers iii) making loan with ensurance of pledging investment certificates and other short-term valued papers (term 17 - State Bank Law 06/1997/QHX) Basically, rediscount rate and refinancing rate have quite similar ways to applying for, with the exception of objectives. Refinancing rate can be applied to papers having higher value. hence, it is usually higher than rediscount rate on the account of papers having higher value, when being pledged, are more risky. For instance, from 11. 2010 on, state bank have adjusted refinancing rate from 9 per annum to 14 per annum (the highest level from 2008) for several times.

Interbank offered rate * The Vietnam Interbank Offered Rate, or VNIBOR, is the average interest rate at which term deposits are offered between prime banks in the Vietnamese who sale money market or interbank market. It is known as Interest rate for overnight lending in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks. * Bank ofered rate is the interest rate at which commercial banks set to lend others. These sums of loan is usually great so they can be treated as " wholesale". Thus, the rate is applied at the level of wholesale, which is far less than that lended to econmic organizations Economic growth * According to the business dictionary, economic growth is the positive change in the level of production of goods and services by a country over a certain period of time. Nominal growth is defined as economic growth including inflation, while real growth is nominal growth minus inflation. Economic growth is usually brought about by technological innovation and positive external forces. The inflation between interest rate, economic growth and inflation * Interest rate is a sensitive economic variable. Changes in interest rates will affect and alter the production and consumption behavior of the society, through which affects the growth of the economy. * First we have the formula for calculating GDP * Y = C + I + G + NX * The reduction in interest rates increases the attractiveness in current expenditure than future expenditure of individuals and companies. Domestic credit, the total amount of money and real money demand all increased. Credit increases sharply, so the idle capital increases to shift to households and businesses who are lacking in capital, thereby boosting consumption, and investment increases. For households, they will increase demand for housing purchase or durable consumer goods because the cost of credit to purchase goods dropped. Along with the interest rates, real deposit rates also fell. This reduction in interest rates affects the consuming decisions of the household sector in the direction of increasing current consumption and reducing savings for consumption in the future. For businesses, the reduction in interest rates reduces the cost of bank loans. This makes the required rate of return set for the investment projects using banks capital reduce, increasing the number of investment projects which be done with this low interest rate, in other words, first fixed investment will increase. In addition, low interest rates also reduce the storage cost of capital (such as inventory) and thus reducing the pressure in businesses investment. Therefore, interest rates reduction leads to an increase in consumption and investment, and increases GDP directly. The actual macroeconomic situation and the influence of interest rate policies in Vietnam in 2012 The macroeconomic situation and inflation condition in Vietnam 2012

* In 2012, the world economy continued to experience large uncertainties which reflected the downward trend and related to a lot of difficulties in recovering the economy. The general trend was that 2012 had the lowest global growth ever. To deal with the situation that the world economy declined unpredictably, the Vietnam government had the right policies focusing on macroeconomic stability, controlling inflation and ensuring a proper growth. A variety of resolutions were made for restructuring the economy, innovating growth model (HNTW3), giving the socio-economic development plan in 2012, operating in 2012 (01/2012/NQ-CP), removing difficulties for business activities, marketing support (13/2012/NQ-CP) * Inflation index reported consecutive months had been quite successfully adjusted. * * * The average CPI in 2012 increased by 9,21% in contrast to the average one in 2011. Despite controlling money tightly, the National Bank offered the decision to lower interest rate five times in 2012. This decision aimed at regulating money supply and demand reasonably in order to achieve the objective of curbing inflation and economic growth. The National Banks decisions to lower interest rates were based on the inflation situation that was progressing favorably: the CPI increased slowly, especially in June and July CPI remained lower than zero. This was the rationale for the National Banks decision to ease monetary policy flexibly, enabling commercial banks and firms to approach to capital for expanding their businesses. * Although the interest rate was lowered to reduce the pressure on banks and firms, along with a number of given policies to support economic development, Vietnams economic growth rate in 2012 still stood at 5,03% - the lowest economic growth rate in the past 13 years and did not reach the target had been set by The National Assembly at the beginning of 2012 (6-6,5%). But in the situation of global economic problems, The Government focused on priority targets to curb inflation, stabilize the macro economy, such economic growth rate was reasonable and also showed the trend that the economy was improved over each quarter, confirmed the timeliness, accuracy and efficiency of the measures and solutions of the National Assembly, the Government and the Central Committee. The interest rate policies in 2012 * In 2012, the State Bank of Vietnam issued a circular on the regulation of short-term interest rates in Vietnam dong, a resolution on solutions primarily directing the implementation of socio-economic development plan and estimating state budget in 2012 and five decisions about changing the refinancing interest rate, the rediscount rate, the overnight lending rate in inter-bank electronic payment and loans to make up for deficiencies in the clearing of the state bank of Vietnam to other banks. Date | Interest rate adjustment policies | Refinancing interest rate (%) | Rediscount rate (%) | Interest rate for overnight lending in inter-bank electronic payment (%) | 13/03/2012 | Resolution 01/NQ-CP | 14 | 12 | 15 |

10/04/2012 25/05/2012 08/06/2012 19/06/2012 21/12/2012

| Decision No. 693/QD-NHNN | Decision 1081/QD-NHNN | Decision 1196/QD-NHNN | Decision 1289/QD-NHNN | Decision 2646/QD-NHNN | 12 | 11 | 10 |9

| 13 | 10 |9 |8 |7

| 11 | 13 | 12 | 11 | 10

| 14 | | | |

As can be clearly seen, from 10/04/2012 to 21/12/2012, many adjustments in the interest rate, three types of interest rates were reduced 6% each: refinancing rate was reduced from 15% to 9% per year, rediscount rate was reduced from 13% to 7% per year, overnight lending rate in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks was reduced from 16% to 10% per year. The reason given is that businesses can not access loans due to the high interest rates or the lack of security assets. Therefore, the central bank cut interest rates by the end of the first quarter and at the early of the second quarter at the rate of 1% per year at a time. Interest rates reduction to 12% per year makes it easier for businesses to make loans for business development investment, boosting economic growth. The influence of the interest rate policies in 2012 * Due to the interest rate policies that were implemented several times in 2012 by the central bank, Vietnams macroeconomic situation improved in many aspects, especially credit, consumption and investment. * On credit: The credit growth rate in the year 2012 only reached an estimated rate of 7% (until 20/12/2012, it increased 6.45% compared with the end of 2011). That's only half the target set earlier this year. However, under difficult economic situations as last year, the growth rate of 7% is a huge effort and very commendable of the banking system in Vietnam. The State Bank said, despite the low growth rate, credit structure has shifted in the positive direction. Specifically, credit in VND in the year increased by 8.92%, while foreign currency credit fell by 3.51%; credits for exports, agriculture and rural areas increased higher than the overall credit growth. Meanwhile, the total annual payment increased by 20%, compared with the early target of 14-16%, which is a good sign. The ratio of credit to raised capital announced in detail until 10/2012 was 91.13%. Capital safety ratio of the banking system until 31/10/2012 is 13.7%. This is a high level, and it also shows that: the liquidity of the banking system has improved. * Credit growth is the result of many efforts to regulate interest rates as well as to coordinate other monetary policies by the central bank. This plays an important part in promoting the idle capital to be transferred to households and businesses which are lacking in capital. Although there are still certain delays from the application of interest rate policy until the market interest rates actually reduced and capital reached businesses and consumers, in general, consumption and investments has increased to a certain level and contributed to the country's GDP growth. Compared with the economic situation in Vietnam in 2012 in particular and the world economic situation in general, this modest growth figure remains a positive signal and demonstrates the efforts of the central bank.

On investment: Lowering interest rates helps maintain the viability of the businesses. And by doing this, we can maintain the workforce that are having great difficulty in businesses, although they operate with limited capacity and market. According to the statistics of the General Statistics Office, social investment made in 2012 at the current price level is estimated at 989.3 trillion, increased 7% over the previous year and accounted for 33.5% of GDP. Along with other economic policies, interest rate policy has made it easier for businesses to mobilize capital, thereby increase investment, and contribute to the GDP growth. On consumption, lowering the interest rates causes consumers to have a tendency to increase current consumption, enhance the purchasing of goods and services to serve the enjoyment needs. Increased consumption is also the driving force behind production, and it helps the economy recover and grow. Consumptions increase is also reflected by total revenue. According to the General Statistics Office, the total sales of retail goods and services consumption in 2012 was estimated at 2324.4 thousand billion dong, increased 16% compared to 2011 (excluding the factor that price increased by 6, 2%). Consumption increases with the increase of investment contributed to the overall increase of GDP, gross domestic product (GDP) in 2012 according to 1994s price is estimated to increase by 5.03% compared with 2011, in which quarter I increased by 4.64%; quarter II increased 4.80%; quarter III increased 5.05%; quarter IV increased 5.44%. The growth rate of 2012, although lower than the growth rate of 5.89% in 2011, but in the context of global economic problems and the countrys focusing on the priority targets of curbing inflation, stabilize the macro economy, such increase is reasonable and demonstrates the upward trend over each quarter, confirms the timeliness, accuracy and efficiency of the measures and implementations of the Partys Central Committee, the National Assembly and the Government. Propose some solutions of adjusting interest rate in order to not only promote investment but also control inflation in Vietnam in 2013 Predict general situation of Vietnam economy in the year 2013 General situation of Vietnam economy in 2013 * 2012 is the year that we faced with many difficulties. Our economy almost was frozen. But we can hope that Vietnamese economy is recovering. According to the report that Standard Chartered has just announced, Vietnam economy will recover modestly in 2013 and the foreign direct investment flows continue to enter. The reporters predict that Vietnams GDP growth in 2013 will recover at 5.5%. Investment and exports are the areas expected to be the biggest contribution to this recovery. And experts have predicted that Vietnams economy in 2013 will get brighter in spite of the difficulties it is still facing in 2012 in the Forum on Vietnams Economic Growth in 2012 jointly organized recently by the Central Institute of Economic Management of Vietnam (CIEM) and the German International Cooperation organization (GIZ). * In general, the economic situation in 2013 is judged as being better than that in 2012. However, experts hold that Vietnam should consider 2013 as the key year for the following years, so it is necessary to concentrate to maintain stability of macro economy, keep firmly

the stable growth, remove difficulties for the enterprise community and improve the issues of job. Real Estate and finance sectors will continue to contract. Saigon and Hanoi property markets will be hit hardest with catastrophic numbers of building projects stalled or abandoned. In a continued effort to avert impending failure of state banks, Vietnam will consolidate them further and significantly tighten banking regulations. There will be further crack-downs on trade in gold and currency exchange. Exports will grow slightly. The advantages * First, Vietnam becomes an important exporter, especially in EU. Forecasts are confidently predicting the EU markets promise for Vietnamese goods in 2013 as both sides maintain their traditionally stable relationship and intensify their efforts towards the signing of the Free Trade Agreement (FTA). Vietnam and EU are preparing for FTA negotiations with the aim of creating a favorable trading environment that most Vietnamese products will be granted a zero percent tax rate. That opens up prospects for Vietnamese businesses to gain access to the EU and attract its investment over the long term. FTA will help Vietnam improve the position of its economy in the global chain. * Second, Government is improving policy to attract more FDI. The latest change is in Jan. 28. 2013 The Vietnamese Ministry of Finance issued Circular No. 213/2012/TT-BTC in a move to increase the participation of foreign investors in Vietnams securities market. Under the Circular, it will be easier for foreign investors to open securities trading accounts. The new regulation will also shorten the time needed for securities trading code to be issued. At present, FDI inflow of Vietnam ranked second in Asian and it going to increase. Japanese firms are turning into Vietnam strongly, especially after the conflict with China. * Beside, the relationship between Vietnam and US becomes better than ever before. The US will continue to provide back-room support in the form of money, technology and training for Vietnams programs. * Economic growth will be closely related to domestic investment, especially in the areas of high value production. Government is helping domestic firms and especially bank to recover. In particular, investment in the low-carbon energy industry will increase dramatically in the near future. Vietnamese companies will find a lot of opportunities in the development of green products and services, meeting the essential needs of the world's energy problems in the future. The disadvantages * The sharp fall of exports from many countries due to the financial crisis in the world, leading to the weak consumption of the main export markets such as the US, EU and Japan. The Vietnam Textile and Apparel Association (VITAS) says that along with the countrys shrinking exports to other major marketsRussia and the USits exports to the EU market are also forecast to fall due to lower consumer demand and tougher pricing competition from foreign garment and textile exporters. The Vietnam Association of Seafood Exporters and Producers (VASEP) have raised concerns about the sectors ability to increase EU market export turnover in 2013. The association argues the decline in seafood export turnover to the EU market will linger through all four quarters of the year.

* Like many other developing countries facing the problem of inefficient state owned enterprises and falling into debt. Even banking system is in trouble, too. Banking loans remains difficult. This is one of the main reasons for more difficulties burdened by enterprises. * Inflation is also a big problem remain the concern in this year that challenge the government to give more suitable and powerful macro-economic policies. Propose some useful solutions of adjusting interest rate to promote investment and control inflation in Vietnam in 2013 * In the year of 2013, the world economy is predicted to be in decrease trend which will affect negatively to the economic growth of Vietnam. For that reason, we cant depend on the recovery of worlds economy; we should have owned measurement on the basis of suitable target. In the online conference of government organized 2 months ago, gathering senior officials from 63 provinces and cities, Mr. Nguyen Tan Dung, Prime Minister, have targeted to keep the inflation rate around 6% by solving bottlenecks, establish mechanisms to develop and overcome the mistake of spreading public investment. In addition to this, Professor Dr Nguyen Thanh Tuyen, in his speeches Review of solutions of control inflation and economic potential in Vietnam after crisis, have put the priority to keep the receiving interest rate not exceed 12%, in the context of the race of increasing interest rate among commercial banks, this rate may even reach 18% for short-term example Navibank. Based on their opinions, 3 following solutions are composed by our group: Supporting interest rate * State Bank should go on supporting interest rate. A good example of this measure is that: in the year of 2009 government supported 4% interest rate for people trafficking in order to decrease prices goods, continue producing and create jobs for the unemployed. As a result, our country gradually go out of economic crisis, inflation in 2010 is under 7%. * It leads to the fact that, in the year 2013, we should promote supporting interest rate more than 2012. A good sign of 2013 is: the state budget supports 100% interest rate to buy rice/paddy for reserving maximum in 3 months (from 20 Mar to 20 May 2012) Decrease interest rate * Decrease lending interest rate in order to encourage firms to import and export important goods and services. As a result, economy is not in a scarcity situation. To implement effectively, we have to tighten money policy dynamically. * Moreover, government should decrease the speed of Banks interest rate. Keeping it at the rate of 7% is quite suitable, and the maximum must not exceed 15%. Besides that, government implements stimulus measurement to develop economy. In addition, supporting interest rate policy should be given to firms in some particular basic areas with the ensurance of effectiveness. * However, beside the general trend, there are still many factors that can make the inflation boom again. As a result, the government is always thought to operate the interest rate policies carefully and flexibly, co-ordiante among monetary, fiscial and other macro policies, the procedure of decreasing interest rate must be accompanied with the conditions of

interest rate liberalization, the changes in exchange rate, the USD interest rate, t o control inflation and support economic growth. Implement positive real interest rate * Positive real interest rate means that lending interest rate must be higher than mobilized interest rate and mobilized interest rate must be higher than inflation. In many recent year, we have not been successful in implementing this policy. Banks in Vietnam ensures that lending interest rate is higher than mobilized interest rate but mobilized interest rate is lower than inflation. This leads to negative real interest rate, Vietnams currency is depreciated * For that reason, in 2013, State Bank should control lending interest rate to make effect. * Conclusion * By adjust interest rate suitably, we hope prediction below may become truth, Vietnam economic will recover well from crisis and become prosperity soon. * Here is the prediction of some basic economic indices created by some reliable organizations like: International Monetary Fund (IMF), Asian Development Bank (ADB) and Hongkong-Shanghai Bank Coporation (HSBC) * Prediction some goals of economy in Vietnam 2013 | Economic growth | Inflation |

| 2012 | 2013 | 2012 | 2013 | IMF | 5,1% | 5,9% | 8,1% | 6,2% | | 5,3% | 8% | 10,8% | 9,4% | |

HSBC | 5%

ADB | 5,1% | 5,7% | 7% * Source: Synthesis

APPENDIX * Circular 14/2012/TT-NHNN on May 4th, 2012 * According to Paragraph 1, Article 1 of Circular No. 14/2012/TT-NHNN 04/05/2012: Short-term lending rates in Vietnam dong at most equal to (=) the maximum interest rate for deposits in Vietnam dong with a term of one month or more specified by the State Bank of Vietnam plus (+) 3 % / year.

* *

* * * Resolution 01/NQ-CP on solutions primarily directing the implementation of socioeconomic development plan and estimating state budget in 2012 * According to the resolution: Reduce 1% in the operating rate of the State Bank and the dong deposit interest rate ceiling of the credit institution from the date of 03/13/2012, in order to create conditions for credit institutions to decrease lending rates. Accordingly: - The refinancing interest rate is reduced from 15% to 14% per year - The overnight interest rate in the inter-bank electronic payment is reduced from 16% to 15% per year - The re-discount rate decreased from 13% to 12% per year - The maximum interest rate applicable to non-term deposit in Vietnam dong and have a maturity of less than one month of credit institutions declined from 6% to 5% per year; maturity of less than one month or more declined from 14% to 13% per year.

* * * * * * * * * * * * * Decision No. 693/QD-NHNN 10/04/2012 * According to Article 1 of Decision No. 693/QD-NHNN 10/04/2012: - Refinancing rate: 13% / year

- Rediscount rate: 11% / year - Interest rate for overnight lending in inter-bank electronic payment and loans making up for deficiencies in the clearing of the State Bank of Vietnam to other banks: 14% / year

* * * * * * * Decision 1081/QD-NHNN on May 25th, 2012 * According to Article 1 of Decision No. 1081/QD-NHNN 05/25/2012: - Refinancing rate: 12% / year - Rediscount interest rate: 10% / year - Interest rate for overnight lending in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks: 13% / year

* * * * * Decision 1196/QD-NHNN on June 8th , 2012 * According to Article 1 of Decision No. 1196/QD-NHNN 08/06/2012: - Refinancing rate: 11% / year - Rediscount interest rate: 9% / year - Interest rate for overnight lending in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks: 12% / year

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* * * * * Decision 1289/QD-NHNN on June 29th, 2012 * According to Article 1 of Decision No. 1289/QD-NHNN 29/06/2012: - Refinancing rate: 10% / year - Rediscount interest rate: 8% / year - Interest rate for overnight lending in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks: 11% / year

* * * * * * * Decision 2646/QD-NHNN on December 21st, 2012 * According to Article 1 of Decision No. 2646/QD-NHNN 21/12/2012: - Refinancing rate: 9% / year - Rediscount interest rate: 7% / year - Interest rate for overnight lending in the inter-bank electronic payment and loans to make up for deficiencies in the clearing of the State Bank of Vietnam to other banks: 10% / year