Laos central bank ignores IMF advice

The Bank of the Lao People's Democratic Republic (PDR) in a report about the recent International Monetary Fund's visit to the central bank revealed advice to increase the reserve requirements for banks in the country will not be followed in the near future.

A media report distributed by the central bank said the IMF had "expressed concern" about rapid credit growth in the country. However, the governor of the central bank, Somphao Phaysith, said he felt that increasing the reserve requirement would be a "punishment" for commercial banks in the country.

The IMF delegation was in Laos earlier this month to carry out the annual Article IV consultation visit. The final report has yet to be released but the issue was also highlighted in the report from 2011. IMF directors praised the Laos authorities' efforts to tighten monetary policy, "including by phasing out direct lending by the central bank, and to mop up excess liquidity through additional sales of central bank securities", but said it was in this context that "consideration could be given to raising reserve requirements".

The rules in place currently ask banks to retain 5% reserves on credit offered in kip and 10% on loans given in foreign currencies. According to the report, the governor said the central bank would "carefully monitor" the financial market before making any future decisions on changing the requirements.

Phetsathaphone Keovongvichith, deputy director-general of the Monetary Policy Department at the central bank, also attended the meeting with the IMF and reported some progress on the issue, with credit growth having fallen since 2009. Nevertheless, he said the IMF delegation was not convinced. "The IMF still considered the credit value very high and wanted the government to increase the reserve requirement to help curb growth," he reportedly said.