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Two scenarios for VND/US$ exchange rate
The VND/US$ exchange rate in 2009 will be influenced by macroeconomic policies; the economic growth rate will be 4.5-4.7% and high inflation is likely to break out again by the end of the year, experts predict.
VND/US$ exchange rate on the rise
Dr Nguyen Duc Thanh, Director of the Centre for Economic and Policy Research (CEPR), has given two scenarios for the VND/US$ exchange rate after considering the possible payment balance of the national economy.
In the first scenario, the VND/US$ exchange rate stabilises. With this scenario, the current balance deficit is expected to be $14.7bil, while Vietnam’s income sources can offset $12.3bil. Vietnam may successfully borrow $1bil in medium-and long-term loans and $0.5bil in short-term loans from the international market.
This proves to be the optimistic scenario with the general deficit at $2.4bil only. The national reserves by the end of 2009 are estimated to reach $20bil, which will help the State Bank of Vietnam stabilise the exchange rate.
In the second scenario, the VND devaluates. The general deficit increases rapidly from $4.5bil to $7bil, as the borrowing from foreign sources is unsuccessful. With such a big deficit, the State Bank of Vietnam will have to either devaluate the VND to stabilise monetary policies or take a risky step by financing the deficit in the national reserves fund to stabilise the exchange rate.
VND should be appreciated?
Associate Prof Dr. Nguyen Thuong Lang from the Hanoi Economics University believes that it is necessary to appreciate the VND in the recession period.
In principle, devaluating the VND helps boost exports. However, Lang does not think that this would help much at present as Vietnam’s key export markets, including the US, Japan and EU, are bearing strong impacts of the economic recession. Lang said that Vietnam would not be able to boost exports if it only devalued the local currency.
“It would be better to appreciate the VND instead of depreciating it just to improve the competitiveness of Vietnam’s export items,” Lang said.
First, the VND’s appreciation would help reduce the value of foreign debts, thus helping ease the pressure on the state budget.
Second, the VND’s appreciation would encourage people to accumulate assets in VND instead of dollars, thus helping reduce dollarisation. This would also help minimise gold and foreign currency speculation.
Third, the VND’s appreciation would encourage outward investment by Vietnamese enterprises. In the long term, this would help Vietnamese enterprises more deeply integrate into the world’s economy.
Fourth, the VND’s appreciation would create confidence and strengthen the position of the VND among other currencies.
According to the International Monetary Fund (IMF), Vietnam’s foreign currency reserves are some $20 billion. In order to stabilise the VND/US$ exchange rate, it is necessary to effectively use foreign currencies from the channels of overseas remittance, foreign direct investment and ODA (official development assistance).
The VND/US$ exchange rate announced by the State Bank of Vietnam on May 9 was VND16,939/US$1.
VietNamNet, LD
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