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Experts suggest VND devaluation
An exchange rate policy, which leans towards the devaluation of the local currency against the dollar in accordance with the currency value decrease in the world, proves to be the best choice for Vietnam in 2009, experts say.
VND devaluation is one of the policy suggestions mentioned in the report about Vietnam’s economy prospects in 2009 which has been released by the National Socio-Economic Information and Forecasting Centre under the Ministry of Planning and Investment.
The experts believe that a reasonable VND devaluation against the greenback would be between 4% and 10%, which means that the VND/US$ exchange rate would fluctuate between VND17,300 and VND18,500/US$1.
The devaluation of the local currency, according to the experts, will support the competitiveness of export products, while it will not lead to increases in import products prices and will not badly influence domestic prices.
This should be done for a few reasons:
Firstly, Vietnam needs to support exports in the economic downturn period. The State Bank of Vietnam should raise the trading band, now staying at 3%.
Secondly, the VND has been revaluating against many other currencies. The stable VND/US$ exchange rate in the last time, when the greenback increased in value in comparison with other hard currencies, also meant the revaluation of the VND against the hard currencies. The VND has revaluated by 10% against the euro, and 5-7% against regional currencies.
Meanwhile, Vietnam is facing risks of seeing foreign currency supplies decrease: Income from exports may decrease due to lower exports while foreign investment may decrease.
Experts say that the current foreign currency reserves, which were estimated at $22bil by November 2008, are just equal to 12 weeks of imports, lower than 2007’s 17 weeks.
“If the trade deficit remains high, and if foreign investors continue selling bonds and shares to withdraw capital, the foreign currency demand will increase,” the experts said.
However, the experts have also warned that the devaluation of the VND against the greenback will have negative impacts on the efforts to curb inflation. They said that if the VND/US$ exchange rate increases by 1%, the inflation rate may increase by 0.65% right in the first year.
The suggestion of devaluating the VND seems to echo the recommendations of policy analysts from the Harvard Kennedy and Fulbright Economic Teaching Programme in a recently released report.
The above report also said that the government should give high priority to the gradual devaluation of the VND. However, it did not say exactly how many percent the VND should be devaluated.
They said that the government needs to convey a clear message to the public about the exchange rate policy so that people and businesses have enough time and information to adjust their business plans.
Both reports have been sent to the government and the VND/US$ exchange rate still has not shown any big changes.
VietNamNet, Saigon tiep thi
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