~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

[Year 1997]
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[Year 1999]
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[Year 2001]

Vietnam dong depreciation seen at a crawl in 2000

HANOI - Vietnam's glacial depreciation of the dong is unlikely to quicken next year because the country's balance of payments is expected to remain comfortable, keeping downward pressure off the currency. A poll of five foreign and local bankers in Vietnam found most believed the unit would be at 15,000-16,000 to the U.S. dollar by the end of 2000, from the current 14,000. One predicted a rate of 17,000 at the outside.

While all bankers agreed the dong was currently overvalued by 10-15 percent, they said the communist leadership would see little need to adjust the non-convertible unit downwards sharply. One factor that might change that view would be a Chinese yuan devaluation, which could force Vietnam to follow suit to maintain its export markets.
Otherwise, foreign investors seeking competitive gains from weaker currencies should look elsewhere in Asia, bankers added.

Jean-Pierre Verbiest, head of the Asian Development Bank in Vietnam, said that with little downward pressure on the dong because of adequate dollar supplies, Hanoi might ease rules that hold daily trading to 0.1 percent either side of a pivotal rate announced each day.

TIME TO ALLOW MORE MARKET FORCES

``Perhaps there might be more flexibility by widening the (trading) band...It's probably a good time to allow more market forces into play,'' Verbiest told Reuters.

A central bank official, asked if such a move would be considered, repeated Hanoi's stated aim that Vietnam would only gradually adopt market-oriented policies towards the dong. A dollar shortage has previously triggered devaluations by causing the black market to blow out, but bankers said with exports up, and overall slower economic activity and official curbs keeping a lid on import growth, greenback supplies in the near term should be sufficient.

Vietnam expects exports to grow 12 percent year-on-year in 2000, from an estimated 14.4 percent this year. The trade deficit in 1999 should be small, with no major widening seen in 2000 because economic growth is not expected to surge. The International Monetary Fund has forecast Vietnam will grow 4.0-4.5 percent next year from 3.0-3.5 percent in 1999.

FOREIGN DEBTS TO SLOW DEPRECIATION

Since Hanoi adopted a new way to set the non-convertible dong last February, the local unit has depreciated a mere 0.86 percent against the dollar. It had been devalued by some 20 percent during the 18 months prior to that change.
The rate is supposed to be based on the average of interbank transactions from the previous trading day, but some bankers believe the central bank is slowing what would be a gradual downward trend for the dong.

This lack of transparency on the rate setting and the small trading band has snuffed out most interbank market activity. Other factors likely to slow the dong's downward movement include well-connected state firms sitting on large foreign debts and the fact regional currencies have appreciated somewhat from lows seen during the Asian economic crisis.

``The government is going to keep tight control over the dong and allow only small movements. It doesn't want a sudden blow to the economy, especially on state enterprises which have foreign debts,'' said one bank treasurer.
The level of foreign debt at Vietnam's 5,500 state-owned enterprises is a state secret. Bankers said Vietnam would also move slowly on the dong to avoid a price blowout that might follow a major devaluation.

Reuters - November 2, 1999.