Illegal US dollar trading activities will be punished strictly, he said at a government meeting on Tuesday (March 15).

The government's measures unveiled last month to tackle inflation and balance the economy has helped stabilise the currency and gold markets a development Dung dubbed "a very positive sign."

Existing regulations allow all Vietnamese to maintain gold holdings, according to an interview published last week on the State Bank's website. In the interview, Nguyen Quang Huy, head of the Foreign Exchange Department, said that the government plans to gradually abolish black market gold trading. Gold holdings by the public will continue to be protected under the law, he added.

Local news website VnExpress reported that officials are drafting a decree that may limit gold bullion trade to one-way sales to the central bank.

Under the decree, the State Bank will buy gold from individuals and enterprises itself, or will appoint authorised agencies to do so.

"The purchase price will be determined by the international price to make sure it's fair for the sellers," VnExpress quoted an unidentified source as saying.

Vietnamese are holding between 300-400 tonnes of gold at home, the news site said, citing the Vietnam Gold Traders' Association.

Since the government announced its plan to end unofficial gold trading on February 24, the price of gold in Vietnam has fallen 2 percent.

Following the announcement, the Tuoi Tre newspaper reported that talk about a bullion ban has inspired many consumers to buy gold rings, as a substitute. The rings, whose quality often varies, are repurchased by gold shops at a much lower rate than their selling price.

Thanh Nien - March 22, 2011

Vietnam seeks to cure growth 'addiction'

Vietnam is looking to balance its long-standing "addiction" to growth with measures to stabilise the troubled economy, but its success depends on restoring public confidence, analysts say.

The moves follow months of concern from investors and economists over the Southeast Asian nation's rising inflation, struggling currency and other economic woes that accompanied the high growth rate.

Strong action began only in February when the State Bank of Vietnam announced the country's largest currency devaluation in years, a 9.3 percent adjustment whose scale surprised experts.

The government then proclaimed fighting inflation to be its number one priority, raising key interest rates and setting a series of targets to help stabilise the economy.

"I think the government's now sending a much more clear message about giving stability a higher priority compared to growth," said Vu Thanh Tu Anh, research director of the Fulbright Economics Teaching Programme in HCM City.

Authorities have directed commercial banks to keep growth in credit, or loans, to below 20 percent this year, with the proportion lent to the "non-productive" property and stocks sectors particularly restrained.

State spending is to be cut by 10 percent, and the budget deficit reduced to below five percent. State-owned enterprises, which comprize a key part of the economy but are known for their inefficiency, have been ordered to sell foreign exchange to the banks.

And in a bid to reduce traditional reliance on gold, the government is planning to ban unofficial trade in gold bars and has proposed hefty new fines for black market foreign exchange trading.

Benedict Bingham, country representative for the International Monetary Fund, welcomed the measures, which he said are seen as "a fairly decisive shift", with growth now seemingly "subordinated to a focus on macro-stability".

He said the key would now be convincing foreign exchange markets - which include Vietnamese residents who hold dollars - that the policy would be implemented in a decisive and sustained way.

"It's not so much a discipline issue. It's a confidence issue."

Observers expect the restoration of public confidence to take some time -- with many citizens, such as odd-jobs worker Nguyen Van Thuong, keeping some of their savings as gold bars.

"It's the safest shelter," said 53-year-old Thuong. "I don't trust dong."

February's inflation rate of 12.31 percent year-on-year was the highest in two years and far above the rates in Vietnam's neighbours.

The government does not want a repeat of 2008 when annual inflation hit 23 percent, said Giang Thanh Long, vice dean at the School of Public Policy and Management in Hanoi's National Economics University.

"You cannot have high economic growth at the same time as high inflation," he said.

While economic expansion has not been discarded, the government wants more of a balance as the side-effects of growth including rising inequality become clearer, Long said.

In 1986, communist Vietnam began to turn away from a planned economy to embrace the free market, a policy which led to growth among the fastest in Asia.

GDP growth stood at 6.8 percent last year and the ruling Communist Party expects it to continue at seven to eight percent annually.

Nonetheless the expansion has led to a complicated mix of challenges, including a trade deficit estimated at $12.4 billion last year.

Citing weaknesses in the banking system, inflation and other economic risks, international ratings agencies last year lowered Vietnam's sovereign debt ratings.

During the recent five-year congress, the Communist Party announced an overhaul of its business growth model.

The nation must "restructure the economy to speed up industrialisation and modernisation with fast and sustainable development," Communist Party leader Nong Duc Manh said.

The government's shift to stability from an "addiction" to growth is welcome, but only time will tell if authorities are "willing to stick to this new marching order", said a foreign business analyst who declined to be named.

Anh, of the Fulbright Programme, said the government had done a good job in publicising its plan but he was sceptical of chances for success.

"The key thing now is implementation and... we don't see a clear vision, a clear picture", said Anh

By Ian Timberlake - Agence France Presse - March 22, 2011