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Dong should be more flexible, says government adviser
Vietnam should make the dong more flexible and allow the market to determine the exchange rate, according to the former head of a state-run research institute.
Policy makers must also give lenders freedom to run their business, Nguyen Van Nam, former director of the Hanoi-based Ministry of Industry and Trade’s Institute for Trade, said in an interview Thursday.
The dong is allowed to move by up to 2 percent on either side of a daily reference rate set by the central bank.
Vietnam has raised the benchmark interest rate three times this year to the highest in Asia as inflation quickened to the fastest in at least 16 years.
It doubled the daily dong trading band to 2 percent and capped this year’s credit growth at 30 percent against 54 percent last year.
“I am concerned Vietnam will have more chaos with this kind of government control and unpredictability in policy making,” Nam, who is leading a team to study and advise the government on economic management, said.
He will submit a report to the prime minister at the end of 2009.
The controls on the currency forced foreign investors into the black market to obtain dollars, with the gap between the official rate and the street rate as wide as 7 percent in early July.
Capital shortage
The dong has advanced 1.8 percent in the past month, trimming this year’s losses to 3.3 percent, after the central bank on July 21 assured investors it had sufficient reserves, without revealing details, and urged people not to rush in to buy dollars.
The dollar traded at VND16,450 on the street at 3:36 p.m. in Hanoi, according to a telephone information service run by state-owned Vietnam Posts and Telecommunications, compared with the official rate of VND16,550.
Companies are facing severe capital shortage while banks can’t lend money even though some banks have sufficient reserves, according to Nam.
He is leading a team to study the country’s economic management to advise the government on its strategy.
Daniel Hui, a Hong Kong-based currency strategist at HSBC Holdings Plc, concurred saying, “The authorities should let supply and demand determine the exchange rate rather than use the official fixing rate as a signal where the bank desires the rate to be.”
The dong, the third-best performer among the 16 most-traded currencies in Asia outside Japan in the past month, rose 0.2 percent to VND16,555 a dollar as of 12:24 p.m. in Hanoi, the strongest since June 11.
The central bank has set a stronger reference rate for dong trading each day this month.
When the economy shows signs of improvement, Nam said, the government should reduce its control and encourage free-market principles.
Thanhnien
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