VND slight depreciation believed to be the best choice
VND slight depreciation believed to be the best choice
The current factors of the national economy allow to stabilize the dong/dollar exchange rate. However, economists believe that it would be better to depreciate the local currency slightly so as to encourage exports.
Le Xuan Nghia, former Member of the National Advisory Council for Monetary and Financial Policies, now Head of the Business Development Institute, said if comparing Vietnam dong with the other 23 currencies of the countries with which Vietnam has trade relations (the countries make up 91 percent of Vietnam’s total import & export turnover), Vietnam should devalue the dong by one percent next year.
If the US government interest rates increase in 2014, the greenback would be appreciating, the devaluation would be sharper, by 2 percent.
For the immediate time, stabilizing the dong/dollar exchange rate is an important task, a part of the series of measures to stabilize the macro economy.
Nghia noted that Vietnam dong proves to be the most stable currency in Asia, which is an important factor to attract the world’s investment capital, both foreign portfolio investment and foreign direct investment.
Admitting that some investment funds have stopped their operation and left Vietnam recently, but Nghia said these were the close end funds initially planned to close at the end of 2013. Meanwhile, it takes time for new open end funds to be set up in Vietnam.
He believes that foreign investors would return to Vietnam and the Philippines, the countries with the stable currencies.
Agreeing with Nghia, Deputy Chair of the National Finance Supervision Council Truong Van Phuoc said the dong stabilization is a great advantage of Vietnam.
He stressed that it is necessary to stabilize the dong/dollar exchange rate, while the devaluation should be no more than 1-2 percent per annum.
However, Phuoc noted that the most important factor in the exchange rate policy is not how much to devaluate the local currency, but how the exchange rate looks like.
Also according to Phuoc, it would be reasonable if the State Bank of Vietnam adjusts the exchange rate by 0.25-0.5 percent by the end of the year. As Phuoc has calculated, the dong should not be devaluated by more than 5 percent in the next three years.
Nghia also thinks that if the State Bank adjusts the dong/dollar exchange rate by a little from now to the end of the year, this would help boost exports.
However, the agency needs to be cautious with the move, and it would be better if the adjustment still can help encourage export while it does not affect the measures to curb inflation.
The information that the exchange rate may be adjusted in the last two months of the year has been applauded by exporters.
Nguyen Lam Vien, General Director of Vinamit, a dried farm produce exporter, said if the dong depreciates by less than one percent, Vinamit’s turnover and profit would increase by five percent at least. If so, Vinamit would consider lowering the selling prices of products to stimulate the demand.
Son Tra, a flavor spices company, expected to obtain the export turnover of $40 million this year. And if the dong depreciates by 1 percent, its profit may increase by $500,000.
vietnamnet
