Vietnam May Devalue Dong by 4% to Support Exports, SSI Says

Vietnam May Devalue Dong by 4% to Support Exports, SSI Says


May 10 (Bloomberg) -- Vietnam may devalue its currency by another 4 percent this year to boost exports and rein in the trade deficit, Saigon Securities Joint-Stock Co. said.

Policy makers have reduced the dong’s value twice in the past six months, narrowing the gap between the official rate and that in the black market from as much as 12 percent. Central bank Deputy Governor Nguyen Van Binh said the currency will be managed “in a flexible manner based on supply and demand.”

“The risk from the trade and balance of payments deficits remains,” Nguyen Duy Hung, chairman at the country’s second- biggest brokerage, also known as SSI, said in a May 7 telephone interview. “A weaker dong is needed to spur exports and to stabilize the foreign-currency market.”

Vietnam aims to limit the trade deficit to no more than 20 percent of exports, the State Bank of Vietnam said May 5. The gap was $4.65 billion in the first four months of the year, equivalent to 23 percent of overseas sales, and in April widened 8 percent from the previous month to $1.25 billion as an expanding economy drove an increase in imports.

“Even though the trade deficit is still high, foreign- currency sources are expected to improve this year, especially tourism and remittances,” Deputy Governor Binh said today in a phone interview from Hanoi. “Foreign indirect investment capital inflows show signs of increasing also.”

Increased Confidence

The local currency has dropped 5.9 percent to 18,995 per dollar in the past six months and reached a record low of 19,100 on Feb. 12, the day after the second of its two revaluations during the period, according to data compiled by Bloomberg. It was quoted 0.1 percent cheaper at 19,020 at money changers in Ho Chi Minh City this morning, according to a telephone information service run by state-owned Vietnam Posts & Telecommunications.

“The confidence of investors in the currency has increased a lot after the moves, and now we can see the dong black-market exchange rate is very close to the official rate,” said Hoang Nu Ngoc Thuy, researcher at treasury department at Bank for Investment and Development of Vietnam.

Devaluation would help achieve the government’s economic growth target of 6.5 percent this year, following an expansion of 5.3 percent in 2009, and stem a slide in the nation’s foreign-exchange reserves, SSI’s Hung said.

Vietnam’s reserves slid to $15 billion in 2009, from about $23 billion at the start of the year, a decline that may partly have stemmed from central-bank intervention to support the dong, Yumiko Tamura, deputy country director for the Asian Development Bank, said April 13. Policy makers can try to influence exchange rates by buying or selling foreign exchange.

--Editors: Sandy Hendry, James Regan

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To contact the reporter on this story: Nguyen Kieu Giang in Hanoi at [email protected]

To contact the editor responsible for this story: Beth Thomas at [email protected]