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Experts urge weaker dong to strengthen export growth

Update: February, 07/2013 - 00:00

HCM CITY (VNS)— Experts are calling on the Government to devalue the Vietnamese dong by three to four per cent against the US dollar, saying this adjustment would provide much-needed relief to export firms.

They say that although the forex rate has been kept stable for nearly two years, such prolonged stability in an export-oriented market is bound to hurt exporters.

A representative from the Viet Nam Association of Seafood Exporters and Producers (VASEP), who declined to be named, said that exporting the tra fish this year has involved "a hundred problems" both at home and in overseas markets.

For one, the prolonged economic downturn has seen purchasing power in overseas markets go down significantly. In this situation, the stability of the dong over the last two years, touted as a commendable achievement of the central bank, has actually put the squeeze on exporters, including seafood exporters, the VASEP representative told the Dau Tu (Investment) newspaper.

Nguyen Duc Thanh, director of the Viet Nam Center for Economics and Policy Research, noted that while the nominal exchange rate between dong and US dollars has seen little change, inflation had increased continuously. This had increased the relative value of the domestic currency (dong), creating barriers for export-reliant sectors and firms.

Thanh said the forex rate was one of the factors that have put many exporters of tra and basa fish in danger of bankruptcy.

"The real value of the Vietnamese dong is being assessed at between 20 and 21 per cent higher than its current value against the US dollar. Its value is also between three and four per cent higher than 19 other currencies of countries that Viet Nam has commercial ties with. This has caused disadvantages for Vietnamese exporters," said Le Xuan Nghia, a member of the National Monetary and Finance Policies Advisory Council.

Senior economists have said that the central bank will be able to maintain the current forex rate in 2013. However, if it kept stable for too long, it would cause difficulties for an export-based economy like VN.

Trinh Quang Anh of the Maritime Joint Stock Commercial Bank said enterprises' export activities in the last six months of 2012 was heavily affected because the forex rate was anchored for the whole year. He suggested the central bank consider adjusting the rate this year.

He felt the rate should be reduced by two to three per cent in order to ensure that export enterprises do not suffer losses any longer. Such an adjustment would also help maintain the balance of payments.

The devaluation of dong would not only protect exporters' benefits but also contribute to reducing imports of consumers goods and therefore encourage domestic production, Thanh said.

When the dong is devalued, imported goods would become more expensive and their consumption power would decrease in the domestic market.

"In my opinion, the central bank should take initiative of devaluating the dong by 3 or 4 per cent during this year. In the coming years, if the balance of payments is surplus, the central bank should buy more US dollars for reserves and aid further devaluation. If the dong is devalued by 4 per cent for three consecutive years the country's foreign currency reserves would double," Thanh said.

This level of devaluation would not upset the balance between the capital markets for local and foreign currencies since the difference between the interest rate on dong and US dollars deposits is about five per cent now. — VNS

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