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Monetary policy expert discounts talk of dong depreciation
In the context of a growing trade deficit, Associate Professor Dr. Tran Hoang Ngan, a member of the National Advisory Committee for Monetary Policy, talked with Tuoi Tre newspaper about the outlook for the value of Vietnam’s currency, the dong, against foreign currencies.
Ngan said recent data showing an increasing trade deficit has raised expectations that the dong will lose value against foreign currencies. However, he explained, “it is necessary to see the overall context of our trade deficit.
In the first six months of 2009, Vietnam’s exports were valued at $27 billion, while imports were over $29 billion, in other words, the trade deficit was $2.1 billion. That figure is not worrying. Our export turnover was 10 percent below the same period of 2008, while the import turnover decreased more sharply -- 34 percent, so the first half 2009 trade deficit was in fact smaller than in the past.
“Remember, we anticipated that our full year 2009 trade deficit will reach $8-10 billion. So, considering that it was only $2 billion in the first six months, even if it rises in the second half of 2009 we will hold the deficit below the target, and the deficit will not cause worries like in 2008.
“A trade deficit is a situation where the amount of foreign currencies we spend to import commodities is bigger than the amount we get from exporting commodities. However, we can make up the deficit with other sources of foreign currencies, including remittances, that is, money sent to Vietnam by overseas Vietnamese, foreign direct investment and official development assistance. Remittances alone are expected to reach $6 billion in 2009.”
Tuoi Tre: A lot of businesses are finding it difficult to acquire foreign exchange. Is that the result of the effort to control trade deficit or of a foreign currency shortage?
Professor Ngan: Importers of essential goods still have enough foreign currency to import products. It is true that some businesses here and there are short of foreign currencies.
It is because businesses try to hoard foreign currencies, not converting them into dong, because they expect the dong to lose value against those foreign currencies.
The exchange rate performance in the first half of the year
As the result, commercial banks are short of dollars, pounds, yen, marks and so forth to sell to other businesses. Meanwhile, they have plenty of foreign currency to loan to businesses, but no one wants to borrow in foreign currencies at this moment.
This situation is also in part a result of Government efforts to control the trade deficit and encourage people to use domestically made products. It is understandable if the enterprises which import luxury products arrange to buy dollars on the free market . This has pushed up the free market price of dollars and caused people to expect that the exchange rate will increase further.
I think that the enterprises, instead of breaking the law by purchasing foreign currencies on the free market or purchasing foreign currencies at the prices higher than the official ceiling, should think of borrowing dollars from banks. The lending interest rate on dollars has decreased to 3 percent per annum, a relatively low level.
TT: Why have foreign currencies been selling for higher than the official ceiling, while the exchange rate is still being controlled by the State Bank of Vietnam?
Professor Ngan: Beginning July 1, the State Bank will conduct inspections to ensure that all businesses and individuals obey the laws on foreign currency management. As far as I know, some bank directors were dismissed recently, after the State Bank audited their implementation of the regulation on ceiling lending interest rate. I think that first of all, we need to be sure that all members of society obey the current laws, and then we can think of intervening to stabilize the market .
TT: Many businesses believe that the dollar will appreciate, because they think the State will follow a policy of devaluing the dong to encourage exports. What do you think about this?
Professor Ngan: Exports have been decreasing because of the lower demand in the world, not because of our monetary policy. Therefore, we should not think of encouraging exports by devaluing our currency, but with trade promotion and other measures.
I don’t think inflation is a problem in 2009. The increase in goods prices was only 2.68 percent in the first half of 2009. The government target is to keep inflation below 10 percent this year, so it’s not likely to influence the exchange rate.
VietNamNet, TT
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