Vietnam's dong stable on economic slowdown
HANOI - Vietnam's dong currency remained
stable over the last month as a slowdown in the communist-run
country's economy had left plentiful supplies of U.S. dollars and
the local unit, bankers said.
They said economists still considered the dong overvalued, but
any immediate market pressure for devaluation had evaporated
due to a lack of demand for both dollars and dong.
``At the moment the market is generally dead and I don't think
there is any pressure on the exchange rate,'' said the treasurer at
one foreign bank.
``Foreign currency supply is meeting demand and that is a
reflection of a lack of demand based on the state of the
economy -- imports have dropped and there really is not any
demand (for dollars),'' he added.
The official dong/U.S. dollar rate is set daily and allowed to
trade in a 0.1 percent band, but the local unit has slid a mere 81
dong against the dollar to 13,961 dong in the past six months,
when a new method of setting the currency was introduced.
Wong Yit Fan, chief economist in Southeast Asia for Standard
Chartered Bank, said he expected a further marginal dong
depreciation of three to four percent over the next 12 months.
``Because partly the dong is pegged to a weakening U.S. dollar
and since other regional currencies are likely to appreciate
(against) the weakening U.S. dollar, you are getting a de facto
depreciation anyway,'' he told Reuters.
He said the expected enactment of a comprehensive trade pact
between Hanoi and Washington this year would also support
the dong through increased Vietnamese exports to the U.S.
But the bank treasurer urged caution and said the dong could
weaken. ``I think going forward we may see a touch of
weakness in some of the regional currencies which may reassert
some competitive export pressures on the dong again,'' he said.
Vietnam has devalued the dong by some 20 percent in three
separate adjustments during the past two years.
Officials have ruled out a hefty devaluation because of the
possible social impact, especially if the move sparked a sharp
rise in inflation, which has remained well in single figures over
Vietnam's dollar supplies have been helped by both a
slowdown in import volumes and recent export growth.
Hanoi estimates that imports for the first eight months this year
were 5.7 lower than for the same period in 1998, while exports
grew 15 percent.
Reuters - August 31, 1999.