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Currency adjustment to boost exports
The State Bank of Viet Nam last Friday devalued the dong by 9.3 per cent against the US dollar, the strongest move in recent years, with a fluctuation band of 1 per cent.
Commercial banks nationwide have since been selling the dollar at VND20,900.
The devaluation was the sixth in less than three years, a turbulent period during which authorities have grappled with inflation, large trade and fiscal deficits, rising global gold prices and falling confidence in the dong.
Experts agree that the move will create favourable conditions for economic growth. They also say the narrowed gap between the official and unofficial rates will help reduce the scale of black market operations and make deals between banks and businesses more transparent.
With the higher rate, supply of the greenback is expected to rise as businesses will be willing to sell theirs to banks, according to Eximbank's general director Truong Van Phuoc.
"Exporters will increase requests for dollar loans as they will be able to sell their dollars collected from sales abroad at a higher price," Phuoc said.
"Businesses with dollar reserves will change them into dong for business operations rather than taking dong loans, which will in turn help lower the interest rate on dong loans."
According to Tran Hoang Ngan, a member of the National Financial and Monetary Advisory Council, the foreign exchange rate adjustment is a necessary step to reduce the public desire to hoard US dollars, and would reflect the real level of dollar demand.
Late last year, several foreign investment funds brought capital into Viet Nam but no disbursements were made, possibly in the expectation of a higher rate, he said. The latest move by the central bank might persuade these funds to go ahead with their disbursement plans, he added.
Exporters upbeat
A weaker dong will help exporters as their products will become more competitive and discourage imports, helping reduce the national trade deficit.
"This development will benefit all exporters as they have to change their foreign currency into dong to pay costs," said Dinh Van Tien, Head of the import-export division of the Viet Nam National Rubber Corporation.
Nguyen Van Kich, General Director of Cafatex, a leading seafood processor and exporter based in the Cuu Long (Mekong) Delta, echoed his opinion saying his firm's products will now become more competitive in the export market.
However, he added: "It is good for exporters but importers and farmers will suffer."
He was referring to the fact that Viet Nam imports 60 per cent of its fertiliser needs.
According to the Viet Nam Gas Association, the change in foreign exchange rate has made gas prices higher for them.
Its members have agreed to increase LPG (Cooking gas) prices by VND17,000 per 12kg cylinder, which will now cost between VND318,000 and VND325,000.
A petroleum business official said companies importing petrol were suffering losses of almost VND2,000 per litre and a stronger dollar would surely cause more difficulties if they were not allowed to increase their selling prices.
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