VietNamNet Bridge – Vietnam considers devaluating the dong in an effort to boost the export after a long period of keeping the dong/dollar exchange rate stable.

Answering the US Bloomberg’s interview recently, Prime Minister Nguyen Tan Dung said Vietnam plans to devaluate the dong by 2 percent at maximum from now to the end of the year. The statement has made exporters happy.

Devaluation is inevitable

Experts have many times urged the government to devaluate the dong, saying that the overvaluation of the dong would hinder the export. They pointed out that the nominal exchange rate has not changed much, while the high inflation rates in the last two years have made the actual value of the dong depreciate against the dollar.

As the local currency has been overvalued, the export-reliant industries have been meeting big difficulties. The 3-4 percent dong devaluation in 2013 would be a reasonable move to foster the economic growth.

The State Bank of Vietnam earlier this year stated that the dong would not be devaluated by more than 3 percent in 2013, while it has devaluated the dong by one percent so far.

The dong devaluation proves to be the only lifebuoy for catfish exporters now. The director of a catfish export company in Tien Giang province said if the dong depreciates by 2 percent, his company can pocket VND1,200 more from every kilo of exports. Therefore, he wishes to see the government to implement Dung’s commitment as soon as possible.

“The average export price now is $3 per kilo. If the dong depreciates by 2 percent against the dollar, every dollar enterprises can earn would bring VND400 more, if the reference exchange rate is VND20,000 for one dollar,” the director said.

He affirmed that the dong depreciation would not lead to the higher production costs, though the feed for fish are the imports. Nearly all the feed products are now at low prices. Soybean, for example, is now 10-15 percent cheaper than in mid year.

The feed products now available on the markets are made of the materials imported two months ago at low prices.

Rice, coffee and rubber exporters, who complain that the export markets have been narrowed and the prices have decreased, are also looking forward the dong depreciation, because this is the only way out for them in the current difficult conditions.

What’ll be the price for devaluation?

Experts have estimated that if the dong depreciates by one percent against the dollar, this would lead to the 0.21 percent decrease in the export price and the 0.49 percent increase in the import price.

Vietnam now has to import petroleum products to feed the domestic demand. Therefore, if the dollar price increases, petroleum importers would incur loss and have to raise the selling prices.

Analysts have warned that the one percent dong depreciation would push the banks’ dollar price up to VND21,458 per dollar. If this happens, the dollar price in the black market would be increasing further, which would cause bad consequences.

The dollar supply has become shorter, though the State Bank has not made adjustments with the exchange rate. Analysts said that businesses, banks and individuals, who have dollars, do not want to sell dollars now, because they are sure the dollar would be more expensive in the near future.

Tran Thuy