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Trade gap: problem not solved to the core
Vietnam’s trade gap was $15.49bil at the end of August 2008, or 1.24 times more than at that juncture in 2007. A lot of measures have been undertaken to narrow the trade gap, but experts have warned that the measures carry side effects.
Weak local currency, the threat of inflation
One of the measures that countries, including Vietnam, always use to try to boost exports and restrain imports is to keep the local currency weak against the dollar. China, for example, tried to keep the yuan weak for a long time to encourage exports.
However, according to Prof Ngo Tri Long from the Market and Price Researches Institute, there are problems with this. Vietnam has been importing more than exporting, but foreign currencies have been increasing since the beginning of 2007. Moreover, as the US FED’s US$ interest rate has been decreasing, the rate in Vietnam has been increasing. This has led to the fact that the production costs of Vietnamese export commodities have become higher, which means lower profit. Vietnam’s export products and services, which use US$ capital, have become less competitive than other rivals in the region.
Long said that Vietnam tried to keep the VND/US$ exchange rate stable with the weak VND for a long time, thus the exchange rate failed to keep pace with the happenings in the international foreign currency market. That explains why, when the greenback’s value decreased in the world’s market, it increased in Vietnam.
According to him, the fact that Vietnam insisted on keeping the VND weak to encourage exports was a primary reason for the high inflation rates in recent months.
Long said that exchange rate policies should be flexible in the context of multilateral trade nowadays.
A threat of lawsuits?
Luong Hoang Thai, MA, Deputy Director of the Multilateral Trade Department under the Ministry of Industry and Trade, said that Vietnam should be wary about promulgating measures to limit trade, reasoning difficulties in payment balance.
Thai said that in the current conditions, the possibility of getting measures on trade limitations approved by the WTO and IMF is not high, and the measures may be pronounced – illegal.
Experts said that there are many ways for Vietnam to restrain imports and boost exports. Vietnam is now heavily relying on equipment and material imports. If it can develop supporting industries, it can use domestically-made products instead of imports, which would allow it to avoid price storms and save foreign currencies.
Experts say that Vietnamese imports mostly come from Asian countries, especially China, and are mainly mid-level equipment and technology. Therefore, experts have suggested that Vietnam think of importing technologies from modern countries like the US or Europe.
They also say that the currently applied measures to boost exports and reduce imports (keeping the VND weak and issuing decisions to limit imports) are just temporary solutions, and cannot fix the problems at the core.
VNN
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