Vietnam dong seen under little short-term pressure
HANOI -
Vietnam's dong currency is likely to
be stable over the short term, with
little pressure for any devaluation
because the country's economic
slowdown has left sufficient U.S.
dollars in the financial system,
bankers said.
They said until economic activity
picked up and imports started to
grow again, the government would
feel no need to devalue the unit, even
though most economists believe it is
overvalued by 15-20 percent.
In the past, surging imports have
resulted in periodic blowouts in the
blackmarket for the dong --
occasionally triggering incremental
devaluations of around 5-6 percent
to satisfy pent up demand for dollars.
While bankers ruled out any once-off
devaluation over the short term, they
said the only question was how slow
the unit would be allowed to move
down against the dollar under the
country's so-called crawling peg
system.
The official rate is set daily and
allowed to trade in a 0.1 percent
band, but the unit has moved a mere
64 dong against the U.S. dollar to
13,944 dong in the past five months,
when a new method of setting the
currency was introduced.
``We may see this slow devaluation
stop below 14,000 because there is
little pressure on the dong and the
market is not trading at any premium
over the official rate at the moment,''
said Pramod Bhambani, treasurer
and head of global markets at
Deutsche Bank in Ho Chi Minh City.
Vietnam has allowed the dong to
devalue by some 20 percent in three
separate adjustments during the past
two years.
Officials have long ruled out a hefty
devaluation because of the possible
social impact, especially if the move
sparked a sharp rise in inflation.
Vietnam's dollar supplies have been
helped by a combination of factors.
Besides negative import growth,
exports have picked up and foreign
aid flows have been disbursed more
promptly.
Imports fell an estimated 8.3 percent
to $6.33 billion over the first seven
months of the year, compared with
the same period last year, reflecting
official curbs on incoming shipments
and the country's economic
slowdown.
Most economists expect Vietnam to
grow three percent this year from an
official estimate of 5.8 percent in
1998.
Bankers said it was possible the
dong might soon be fixed against a
basket of currencies instead of just
the U.S. dollar, while tough rules that
require companies to convert 80
percent of dollars into dong might be
relaxed.
``There is lot of talk about policy
changes in the second half of the
year. But the question is when they
will be implemented,'' said Stewart
Hall, head of treasury at Standard
Chartered Bank.
Bankers said it was unclear what
impact these changes would have on
the country's tightly-controlled
currency.
Reuters - August 02, 1999.
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