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Vietnam’s currency move unlikely to boost exports, says Dragon
Vietnam’s move to weaken its currency to boost shipments abroad is unlikely to help exports in 2009, given its dependence on trade in commodities, a fund manager said in a monthly note.
The State Bank of Vietnam devalued the dong by 3 percent on December 25, citing goals of increasing exports and reducing the country’s record trade deficit. The dong, which Saturday traded at VND17,481 per dollar, has lost about 8 percent of its value against the US currency since the end of 2007.
“We’re skeptical that a small, price-taking country, trading mostly in commodities, can support exports through currency movements,” wrote Scott Robertson, chief economist at Dragon Capital in Ho Chi Minh City, in a note dated January 7.
The government fears that slower growth in exports, which rose 30 percent in 2008, may prevent the country from meeting a 6.5 percent economic growth target, with Prime Minister Nguyen Tan Dung saying last week that authorities will take measures to support shipments.
Crude oil was Vietnam’s top export last year, accounting for one-sixth of total shipments by value. Rice was fifth, coffee was eighth, rubber was ninth and coal was the 10th biggest by value. While crude oil shipments declined 8 percent by volume last year, the value of exports of the commodity jumped 23 percent to $10.45 billion because of higher prices.
Credit to exporters
Vietnam will probably see better results from a current program to increase access to credit for exporters, Robertson said in the note.
“The depreciation is appropriate,” Robertson said in e-mailed comments, citing a greater supply of dong that together with a stronger dollar globally had left the Vietnamese currency “misaligned” with other regional currencies. “But don’t expect it to impact competitiveness and exports for 2009.”
Vietnam’s economy has become more export-dependent, with the contribution that shipments abroad make to economic growth doubling between 2001 and 2006, according to the International Monetary Fund. Vietnam also joined the World Trade Organization in 2007.
“Our faith is in targeted policies and better trade agreements,” Robertson wrote in the note to clients. “Vietnam is bucking protectionist trends by advancing new trade treaties, such as a free-trade agreement with Japan, and progressing on generalized-systemof-preferences status with the US.”
Vietnam’s government asked the US in May to make it eligible for the Generalized System of Preferences (GSP) program, which promotes growth in poorer countries by eliminating American tariffs on some imports.
Senate Finance Committee Chairman Max Baucus said in an interview last month in HCMC that he supports Vietnamese inclusion.
Bloomberg
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