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.
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