Dollar demand stable, though pressures remain

HANOI - Vietnamese banks have enough dollars to keep the dong from succumbing to immediate pressure from higher-than-expected inflation and a persistent trade deficit reflected in this month's data, traders said.

But economists warn that could worsen later in the year, putting the currency under renewed downward pressure.

On Monday the Ministry of Planning and Investment estimated the trade deficit hit an estimated $1.05 billion in September, sending the deficit for the first nine months of the year to $8.58 billion.

The government expects the full-year shortfall to reach about $14 billion.

Annual inflation this month accelerated for the first time since March, hitting 8.92 percent. September's consumer price index rose 1.31 percent from last month, the highest monthly rise since February, the government said last week.

Nevertheless, the dollar/dong exchange rate has been steady since the State Bank of Vietnam devalued the currency by 2 percent on Aug. 18.

"Banks now have ample dollar funds so they can deal with client borrowing and trading," said a foreign exchange manager at a Hanoi-based lender.

Official and unofficial exchange rates have been close to the VND19,500 trading band limit since the devaluation. On Monday there was a VND40, or 0.2 percent, difference between dollar/dong bid prices on interbank and unofficial markets.

The gap is sometimes seen as an indicator of pressure on the currency to depreciate.

Overnight dollar interest rates for loans on the interbank market have ranged between 0.41 percent and 0.46 percent, Reuters data showed.

Banks have benefited from dollar inflows at businesses that tend to receive payments from overseas during the later months of the year, traders said.

Still, Nguyen Minh Phong, an economist at the Hanoi Research Institute for Socioeconomic Development, said the widening trade deficit and modest foreign direct investment inflows would keep the dong under pressure.

"Vietnam's FDI disbursement has only started to pick up and cannot significantly support the exchange rate", Phong said.

Vietnam's total balance of payments deficit may reach $4 billion this year, it said.

Higher demand for dollars for import later in the year, combined with Vietnam's thin foreign exchange reserves, would contribute to the pressures, economists said.

Foreign investors disbursed an estimated $8 billion in Vietnam in the first nine months of this year, a rise of 4.8 percent from the same period last year. Meanwhile, Vietnam's economy expanded by an estimated 6.52 percent in the first nine months of 2010 from the same period a year earlier.

Related Articles

• Greenback firmer on signs of rising demand
• PM foresees bright future for co-operation with Africa
• Brokers predict seesaw trading this week
• Most ice is unhygienic
• Vietnam sees Egypt potential market for agro-forestry, fisheries

Vietnam's Sept trade deficit hits $1.05 bln

Photo: AFP

HANOI - A growing trade gap with China and rising raw material prices helped push Vietnam's trade deficit this month to an estimated US$1.05 billion, with imports of $7.15 billion and exports at $6.1 billion, a government report said on Monday.

A persistent trade deficit has prompted Vietnam to devalue its dong currency three times since November 2009, most recently in August.

January to September exports rose an estimated 20.5 percent from the same period last year to $51.5 billion, while imports jumped 22.7 percent to $60.08 billion, bringing the nine-month trade deficit at $8.58 billion, a Planning and Investment Ministry report said.

"The trade deficit from China is still growing strongly and it accounts for nearly 80 percent of the total trade deficit. Vietnam has been suffering from a trade deficit with Asia while it still enjoys a surplus with all other continents," it said.

Imports from China leapt 23.5 percent in the nine-month period, while imports from other Southeast Asian countries were up some 20 percent and from South Korea they were up 11 percent.

The report said commodity price increases over the past year also contributed "considerably" to the increase of total imports, and noted that prices for metals, oil products, plastics and yarn had risen sharply.

"The increases in prices of these goods alone pushed the total value of imports up by about $4.2 billion," it said.

The Southeast Asian country posted a trade deficit of $6.22 billion in the first nine months of 2009, based on the ministry's report, which did not give any comparative figures for last September.

Despite September's deficit, Monday's report said exports showed "positive signals", with the increase of 20.5 percent far exceeding an initial target for the year of 6 percent.

Imports grew strongly, too, and a state-run newspaper quoted the government statistics office on Monday as saying the trade deficit could come under pressure to rise in the coming months because of a cyclical year-end increase in imports and the weakening US dollar.

"It is necessary to maintain measures to check imports," the newspaper Dau Tu reported.

September's deficit was in line with numbers from the previous eight months, which ranged between $1.3 billion and $0.8 billion.

Earlier this month, the ministry said it expected the trade deficit for the whole of 2010 to be nearly $14 billion, with exports rising 18.2 percent and imports up 16.5 percent, after a gap of $12.25 billion in 2009.

It forecast Vietnam's trade deficit to edge up to $14.55 billion in 2011 as growth of exports and imports was projected to slow to around 10 percent.

The planning ministry also said Vietnam's gross domestic product grew 6.52 percent in the January to September period. It did not give a figure for the third quarter. A state run newspaper quoted the ministry's GDP figure last week.

"The economy is still moving in a positive direction," Monday's report said.

Related Articles

• China sees Vietnam as gateway to free-trade ASEAN
• Taiwan, Vietnam move to increase trade ties
• Cashew traders yet to embrace trading center system
• ASEAN increases intra- and extra-bloc investment, trade
• Vietnam offers huge potential success: U.S. governor

Measures considered to curb trade deficit

Customs officials check imported goods at the customs b ranch in Gia Lam District, on the outskirts of Ha Noi. — VNA/VNS Photo Pham Hau

HCM CITY — Senior economists have argued for reduced investment in State-owned firms and strong development of supporting industries as key measures to help reduce the nation's rising trade deficit.

At a two-day conference in HCM City ending yesterday , Bui Truong Giang and Pham Sy An of theViet Nam Economics Institute highlighted the challenges involved in controlling the trade deficit.

In the first eight months of 2010, Viet Nam's exports were worth US$43.4 billion, while its import turnover was $52 billion, causing the trade deficit to register a year-on-year increase of 34.4 per cent.

"This figure is much higher than recorded in previous years except 2008," said Giang.

This meant that the Government's goal of keeping the trade deficit to less than 20 per cent of the total export value was hard to realise, he said.

Giang also noted that trade deficit was a long-term problem.

He said the deficit had been a regular feature of the economy over the last 10 years, but it had become "more serious" after Viet Nam's entry into the World Trade Organisation (WTO).

"These changes have created an unstable situation as well as high risks for the economy," he said.

An agreed with Giang, adding that the long-term, an increasing trade deficit could drain the central bank's foreign currency reserves and weaken its ability to intervene in the foreign exchange market.

"The serious trade deficit would also increase the economy's debt accumulation with outside economies and bring the domestic economy closer to a debt crisis," he said.

"Around the world, it has been seen that an economy with fixed forex policies and big trade deficits are more prone to face monetary crises," Giang said.

In the long-term, an increasing trade deficit could destabilise foreign currency markets and compromise the independence of the nation's monetary policy as it would be forced to focus on ways to keep the forex rate within set targets, he said.

The current trade deficit could not be settled immediately, and it needed to be tackled with specific strategies and several focused measures, he added.

Long-term measures

Giang and An suggested some long-term measures which they hoped would help reduce the trade deficit in coming years.

The Government should reduce investments in State-owned enterprises (SOEs), while further accelerating SOE equitisation to ensure that they operate according to market principles. In other words, SOEs must be treated on par with other firms.

The Government should also do away with protection and preferential treatment for SOEs involved in production and trade of essential goods.

These support policies would benefit protected enterprises and essential goods producers but harm enterprises that use their products by increasing production costs, and this would in turn affect the overall competitiveness of domestic products, the economists argued.

The Government should have a clear and comprehensive strategy to effectively develop the supporting industry in order to reduce the import of accessories, they said.

Development of infrastructure and the labour force, further administrative reforms and a flexible foreign exchange rate policy were necessary tasks for reducing the national trade deficit and protecting foreign currency reserves, the economists added. — VNS

Related Articles

• European free trade deal lifts bilateral trade
• North in deficit as south runs surplus
• Cashew traders yet to embrace trading center system
• PM foresees bright future for co-operation with Africa
• ASEAN role sought to resolve temple conflict

Ministry says trade deficit uder check

HANOI – The Ministry of Industry and Trade is confident that the country’s target to keep trade deficit under 20% of the export value this year is well within reach given the strong export growth in the year to date.

Vu Van Chinh, head of the ministry’s Import-Export Department, told an online review meeting on Monday that “keeping trade deficit at less than 20% of the total export value this year is highly probable unless there occur sharp changes in the rest of the year.”

Export value in the January-August period increased by 19.7% year-on-year to US$44.85 billion, while import expenditure in the period totaled US$52.67 billion, leaving a trade deficit equivalent to 18.32% of export earnings, Chinh said.

Trade deficit stood at US$0.9 billion in August, which is the fourth straight month the deficit is kept below the bar, according to Chinh.

Therefore, “the trade deficit target is within reach if there are no upsurges in imports due to speculation on commodities,” he remarked.

Chinh predicted that exports would remain upbeat in the rest of the year, and the total export value for 2010 would likely hit US$68.5 billion if more efforts are made to keep monthly export revenue at US$5.9 billion. Import spending is estimated at US$80-82 billion.

However, Chinh also pointed out that challenges remained to be addressed, including the lack of materials for export processing in the fishery sector, the shortage of labor in the garment, footwear and furniture industries, and technical barriers in importing countries.

Related Articles

• Vietnam Air accepts web check-in for int’l flights
• Cashew traders yet to embrace trading center system
• Firms urged to cut imports
• More counterfeit products flood Vietnamese market
• PM foresees bright future for co-operation with Africa

Ways to cut trade deficit considered

Tan Cang Sai Gon Company is one of the nation's leading logistics firms, ensuring the smooth flow of imported and exported goods. Ways to reduce the nation's large trade deficit were discussed at a workshop in Ha Noi yesterday. — VNA/VNS Photo Ngoc Giang

HA NOI — Economic experts have suggested a number of methods Viet Nam should employ to tackle its high trade deficit.

The experts were attending the workshop "International Imbalances and Unstable Financial Systems – What can we learn?" organised by the Central Institute for Economic Management and the non-profit Friedrich-Ebert – Stiftung, Viet Nam, organised in Ha Noi yesterday.

The workshop's purpose was to discuss the National Assembly Economic Committee's recommendations for the drafting of national economic development strategy 2011 – 2020.

The workshop highlighted Viet Nam's high current account deficit and its potential to become a macro economic problem with the risk of creating a financial crisis.

Viet Nam's current account deficit stood at 11.9 per cent in 2008 but was reduced to 7.8 per cent last year.

But Viet Nam's trade deficits were even more concerning, the seminar was told.

Former Central Institute for Economic Management director Le Dang Doanh argued that the high trade deficit was not the consequence of exchange-rate policy alone but the country's economic structure.

Viet Nam had to import most of the materials it needed to produce its exports.

The institute's director, Le Xuan Ba,ù and deputy director, Nguyen Dinh Cung, agreed saying Viet Nam needed to employ various methods to tackle the deficit.

Economics Professor at the Berlin School of Economics Dr Hansjorg Herr said Viet Nam's current account and trade deficit together with the high proportion of unprocessed exports such as crude oil, coffee and rice was indicative of the "Dutch disease".

The disease follows an increase in the exploitation of natural resources or inflows of foreign aid and a decline in manufacturing, the backbone of any country's development.

The Economist magazine coined the phrase in 1977 to define the decline of manufacturing in the Netherlands following the discovery of natural gas in 1959.

Dr Herr argued that while foreign direct investment had been the major source of capital for Viet Nam since the mid 1990s, policymakers could not ignore the significant increase in indirect capital investment.

FDI's potential positive impact in terms of long-term investment and technology transfer could not be expected with indirect investment, he emphasised.

And a high proportion of FDI went to the real-estate sector which did not generate much of "real growth" and might carry the potential risk of bubbles and economic instability, he warned.

FDI should have gone to manufacturing, he said.

The real estate sector ranked second for FDI last year – US$7.6 billion of the total of $21.48 billion.

Dr Herr recommended that Viet Nam become more selective in the choice of FDI projects; use taxes to reduce imports of consumer goods and appoint a national economic committee to oversee unique and appropriate long-term industrial policies. — VNS

Related Articles

• Vietnam, Laos, Thailand boost trade, investment
• Cashew traders yet to embrace trading center system
• High rice price cuts exports
• Southern localities seek new ways to attract more Japan’s capital
• Timeout with a good book

Vietnam Aug trade deficit hits $900 mln: gov’t

Vietnam, which devalued its currency last week, estimates its trade deficit would stay below US$1 billion for a fourth consecutive month.

The government on Tuesday estimated the trade deficit in August was $900 million, and revised July's figure to $978 million from $1.15 billion.

The monthly announcement of imports and exports comes less than a week after the central bank devalued the currency in a move it said was aimed at helping control the trade deficit, which has put pressure on the dong for months.

Exports surged 27.7 percent in August compared to the same month last year to $6.0 billion, while imports rose 11.3 percent to $6.9 billion, the statistics office said.

The year-to-date trade deficit, which stood at $8.16 billion, according to the statistics office, was "more than covered" by structural flows, said Prakriti Sofat, an economist following Vietnam at Barclays Capital in Singapore.

"Overall, we continue to expect the balance of payments to post a surplus, allowing the country to build FX reserves," she said.

Last Wednesday, the central bank devalued the dong's midpoint by 2 percent against the dollar in a move it said it took to help control the trade deficit. The trading band of 3 percent on either side of that rate was maintained.

After the devaluation, the dong quickly slipped to the weak end of its trading band against the dollar.

In a research note after the devaluation, ANZ noted that the outlook for exports "remains challenging with global growth set to moderate" in the second half of the year.

Related Articles

• Vietnam Aug trade deficit hits $900 mln: gov’t
• Cashew traders yet to embrace trading center system
• PM foresees bright future for co-operation with Africa
• Weaker dong enhances inflation threat: experts
• Vietnam Air accepts web check-in for int’l flights

Vietnam's trade deficit hits $900 mln in August

Vietnam, which devalued its currency last week, estimates its trade deficit would stay below a billion dollars for a fourth consecutive month.

The government on Tuesday estimated the trade deficit in August was $900 million, and revised July's figure to $978 million from $1.15 billion.

The monthly announcement of imports and exports comes less than a week after the central bank devalued the currency in a move it said was aimed at helping control the trade deficit, which has put pressure on the dong for months.

Exports surged 27.7 percent in August compared to the same month last year to $6.0 billion, while imports rose 11.3 percent to $6.9 billion, the statistics office said.

The year-to-date trade deficit, which stood at $8.16 billion, according to the statistics office, was "more than covered" by structural flows, said Prakriti Sofat, an economist following Vietnam at Barclays Capital in Singapore.

"Overall, we continue to expect the balance of payments to post a surplus, allowing the country to build FX reserves," she said.

Last Wednesday, the central bank devalued the dong's midpoint by 2 percent against the dollar in a move it said it took to help control the trade deficit. The trading band of 3 percent on either side of that rate was maintained.

After the devaluation, the dong quickly slipped to the weak end of its trading band against the dollar.

In a research note after the devaluation, ANZ noted that the outlook for exports "remains challenging with global growth set to moderate" in the second half of the year.

Official quotes put the dong at VND19,470/19,500 per dollar, while on the unofficial market, the currency was quoted at VND19,490/19,520 per dollar earlier in the day.

Related Articles

• Trade deficit passes $8 billion
• Cashew traders yet to embrace trading center system
• Vietnam sets aside $153.9 mln to train nuclear power workforce
• Exporters rush to opportunities in Myanmar
• Market drops below 450 points