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Businesses take hit from dong depreciation
The State Bank of Viet Nam's decision to devalue the dong by 2.1 per cent will have an impact on the operations of local businesses, especially importers and exporters.
Dien Quang Hiep, Director of Minh Phat Company, says whenever there is a currency devaluation, suppliers of raw materials increase prices, normally by a higher rate than the devaluation.
"But we cannot increase the prices of our products because we signed contracts months earlier."
Companies selling their products in the domestic market will suffer more than those that export them since now they get more dong for every dollar of sales abroad.
But the devaluation will put pressure on those who have borrowed in US dollars, Le Thanh Duong, General Director of Truong Son Company, says.
If his company had borrowed US$1 million for six months at an interest rate of 6.5 per cent, it will have to pay $32,500 or VND637 million in interest.
But to repay the principal, it will have to shell out an additional VND500 million since a dollar is now worth VND19,600 rather than VND19,100.
If the loan had been in dong, it would have to repay VND1.337 billion in six months, still almost VND200 million more.
Duong explains that the two amounts will draw level if the dollar rises to VND19,800 to the dong. At VND19,900, dong loans will become cheaper.
Tran Tuan Duong, Director of steel production at Hoa Phat Group, says exchange rate fluctuations are unavoidable and a constant risk companies have to face.
Since his company requires large quantities of US dollars, of $10-20 million a month, it cannot hoard the greenback every time there is a sign of fluctuation.
Besides, exchange rate fluctuations are similar to other risks like petrol or electricity price increases. "Businesses need to anticipate risks to make suitable business plans," he says.
Le Hung vuong
vietnamnews
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