Exchange rate fluctuations affecting Vietnamese businesses

Exchange rate fluctuations affecting Vietnamese businesses

The weaker euro and lower consumer spending are making it more difficult for Vietnamese exporters to enter the European market.

Garment, footwear and seafood companies are concerned that their exports to the EU, the Vietnam’s second largest export market followed by the US, are forecast to fall sharply.

A senior executive of Garment Company No 10 said it was highly possible that European importers would cut orders due to the weaker euro, which makes imports more expensive.

Another businessman said he fears “misfortunes never come alone”. The euro depreciation will not only lead to weaker demand, but will also have negative impacts on Vietnam, because European importers would try to force the prices down.

Businessmen, at the meeting with the Ministry of Agriculture and Rural Development (MARD) earlier this week, complained about the State Bank’s policy on stabilizing the dong/dollar exchange rate.

A representative from the Vietnam Association of Seafood Exporters and Producers (VASEP) said seafood export turnover in the first quarter of 2015 decreased by 23 percent in comparison with the fourth quarter of 2014, the sharpest decline in the last five years.

He said that the decreases occurred in all three key export markets, namely the US (down by 44 percent), the EU (11 percent) and Japan (15 percent).

VASEP believes that the exchange rate policy being pursued by the central bank is the main reason behind this, warning that the central bank’s hesitancy in adjusting the exchange rate would make it impossible for Vietnam to fulfill 2015 export plans.

The US dollar, which is the currency used for payments in most export contracts, has been appreciating against the euro and the yen.

This means that the dong, pegged on the dollar, has appreciated. The stronger dong, in principle, does not benefit exports.

VASEP said if the central bank insists on following a stable exchange rate policy, it should instead slash short-term lending interest rates to help ease the burden on exporters.

Nguyen Ton Quyen, chair of the Vietnam Wooden Furniture and Forestry Product Export Association, said export turnover dropped by six percent in the first quarter of 2015 compared with the same period last year, attributing this to the strong dong.

However, the State Bank has maintained its exchange rate policy. Vo Minh Tuan, a senior official of the State Bank, said the bank needs to regulate the exchange rate policy in a way to ensure benefits for both exporters and importers and other economic sectors.

He warned that the dong devaluation, while it is expected to benefit exporters, would harm importers.

vietnamnet