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Vietnam may devalue currency next year: analysts
The dong could be devalued next year due to a worsening balance of payments situation while the government also needs to prop up slowing exports, economists said.
“The government may depreciate the dong to favor exports since boosting the economy is now its most crucial task,” said Le Dang Doanh, a research fellow at the Institute of Development Studies, an independent think-tank.
“The dong may weaken to as low as 18,000 against the US dollar in the next few months, from around VND17,000 now. I wouldn’t think it will slip 40-50 percent as some international organizations have predicted.
“The government should widen the dong’s trading band,” he said.
Last month, the State Bank of Vietnam, for the third time this year, widened the daily band within which the dong is allowed to move, increasing it to 3 percent either side of a fixed mid-point it sets each day, up from 2 percent.
Vietnam could carry out “a large realignment” of the exchange rate in 2009 to address a deteriorating balance of payments, rising nonperforming loans in the banking system and the government's external debt burden, a Morgan Stanley executive said at an international coffee conference held in Ho Chi Minh City Tuesday.
“A devaluation is inevitable,” Stewart Newnham, vice president of the bank's research unit in Hong Kong, said without giving figures.
Vietnam has been borrowing heavily abroad with debt now accounting for 25 percent of its gross domestic product, the second highest rate in Asia after the Philippines, Newnham said.
The dong has lost 6 percent so far this year against the dollar, he said.
The central bank has said it will continue to pursue a tight monetary policy to contain inflation in 2009 while allowing flexibility in line with market developments. It has not issued a forecast for the dong/dollar exchange rate in 2009.
Dong to fall by 5 percent next year: BIDV
According to a research report by Hanoi-based lender Bank for Investment and Development of Vietnam (BIDV), the dong will weaken by as much as 5 percent against the dollar next year as dollar supply is expected to fall in the wake of global turmoil.
The exchange rate will jump to VND18,000-18,200 per dollar at the end of the second quarter and then weaken to VND17,600-17,800 at the end of the year, a report by BIDV, the country’s second-largest lender, says. The rate was at VND16,953.50 per dollar in Hanoi Tuesday.
Dollar supply will drop next year as exports, foreign direct investment and overseas remittances are expected to reduce as a fallout from the global economic slowdown, especially of giant economies like US, EU and Japan, the report says.
Meanwhile, demand for dollars will remain high as consumption and investment demand is still strong, it says.
Many foreign portfolio investors will withdraw and repatriate their capital to ensure liquidity there, sending the dollar demand higher, it says.
The dong has fallen since September when foreign investors sold bonds and stocks, it says.
The report projects three possible exchange rate scenarios but says the second, in which the dong will fall by 3.5-5 percent, is the most likely.
This scenario also envisages exports to continue growing by 13 percent and imports by 14 percent.
The government has also predicted export growth to slow to about 13 percent next year from 33 percent this year.
It expects the trade deficit to widen to $19 billion this year, or a quarter of the GDP, from $12.4 billion last year.
Vietnamese coffee exporters, responsible for supplying nearly a fifth of the world's green robusta bean exports in the 2007/2008 crop, say they are increasingly worried the central bank would devalue the dong early next year.
“We are reluctant to buy or stock now because of the risk we may have to repay dollar loans after the central bank devalues the dong,” a trader at a big export firm based in Daklak Province said.
Companies resorted to taking dollar loans earlier this year because the interest rate was as low as 5-5.5 percent a year compared with 15-16 percent for dong loans.
Exporters' coffee stocks are running low even though farmers have already harvested about 80 percent of their crop. Vietnam is the world's largest producer of robusta coffee.
In the report it sent to Prime Minister Nguyen Tan Dung last Friday, BIDV also asked for lifting of the lending interest rate cap and allowing banks and borrowers to negotiate the rates instead.
A BIDV executive said the benchmark interest rate should be a guide and not a base on which to assign the same lending rate to all loans since they involve different risk levels.
TN, Agencies
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