Vietnam has no devaluation plans: newspaper

The State Bank of Vietnam has no plans to adjust the dong exchange rate against the US dollar, even though the dong's value has been dropping on the unofficial market, a local newspaper reported on Tuesday.

"At present the State Bank does not have any plans for exchange rate adjustment," Governor Nguyen Van Giau was quoted by the Saigon Giai Phong daily as saying, rejecting market rumors of a dong devaluation.

The central bank has devalued the dong three times since November and speculation of another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.

Dollar demand has also been rising as businesses need the currency for loan repayments and importers need dollars for settlements.

However, the dong edged up to 19,870/19,920 per dollar on the unofficial market on Tuesday morning from 19,920/19,970 on Monday, while it was steady at VND19,490/19,500 on the interbank market, with the selling rate at the permitted ceiling.

Victoria Kwakwa, the World Bank's representative in Vietnam, told reporters on Tuesday that "we think that broadly the government has been moving in the right direction" on monetary and fiscal policy.

However, she said more could be done by the authorities to communicate their policy stance and give more information on indicators, so as to build up confidence in overall macroeconomic management.

This would help "address some of the left-over expectations of inflation and continued instability that are underpinning some of the challenges".

The Bank's lead economist for Vietnam, Deepak Mishra, said he expected pressure on the dong to ease over time, but how the market reacted would depend on the government putting forward a "credible road map" for dealing with the problem.

The International Monetary Fund warned in September that Vietnam needed to concentrate on maintaining the level of the dong, and said that repeated comments from the government about the need to lower lending rates was counter-productive.

"A lack of coordination between monetary and fiscal policies, or the appearance thereof, would amplify market skepticism," it said.

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Unusual cash stocks pressuring Vietnam's dong: WB

An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.

"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.

Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.

The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.

In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.

It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.

Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."

Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.

This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."

But he said it is not easy to say the dong is necessarily overvalued.

In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.

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Unusual cash stocks pressuring Vietnam's dong: WB

An unusually large amount of money held outside Vietnam's official foreign exchange reserves is continuing to pressure the dong while most other regional currencies strengthen, the World Bank said Tuesday.

"While many currencies are experiencing appreciation of their exchange rate, in the case of Vietnam the reverse is true," the World Bank's lead economist in Vietnam, Deepak Mishra, told reporters.

Vietnam in August devalued the dong for the third time since late last year, saying it was trying to control the trade deficit.

The official exchange rate is at VND18,932 per US dollar, down from VND17,034 or more than 11 percent since late November when the series of devaluations began.

In contrast, regional exchange rates are 10-15 percent stronger than before the 2008 global financial crisis, the Bank said Tuesday in its latest East Asia and Pacific Economic Update.

It said East Asia's success in leading the global recovery has attracted a surge of capital that has inflated the currencies, spelling a risk to exports and future growth.

Vietnam's recovery has also been rapid, but uneven, the Bank said. It noted "the current account deficit remains high and households and firms appear to continue to stockpile foreign currency and gold, putting persistent pressure on the local currency."

Mishra, in a briefing for reporters, said Vietnam has enough foreign exchange to pay for its current account deficit but "the real issue" is the amount of foreign exchange held in such forms as savings that are not with the State Bank of Vietnam.

This figure amounts to about 12 percent of gross domestic product (GDP), he said, adding: "That's the reason why there's pressure on the exchange rate."

But he said it is not easy to say the dong is necessarily overvalued.

In its latest report, the Bank estimated Vietnam's full-year real GDP growth at 6.5 percent, inflation at 8.0 percent, and a current account deficit of US$9.3 billion.

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ADB finds dollars dull SE Asian financial controls

Vietnam has made progress in dealing with dollarization but more efforts are needed to enhance confidence in the local currency, the Asian Development Bank said in a statement last week.

The Manila-based bank just published a study about the economic impact of having multiple currencies circulate in Vietnam, Laos and Cambodia. In these countries, the bank found, foreign currencies are widely used, particularly the US dollar.

“The share of foreign currencies ranges from around 20 percent of all currency in circulation in Vietnam, about 50 percent in Lao PDR, and more than 90 percent in Cambodia,” the bank said.

ADB said that, aside from certain benefits, the use of multiple currencies reduces economic authorities’ control over monetary and exchange rate policies.

“Dollarization blunts the tools for macroeconomic stabilization, especially monetary and exchange rate policy, that a country like Vietnam needs in order to tackle a variety of economic and developmental challenges, such as rising inflation,” said Jayant Menon, Principal Economist in ADB’s Office of Regional Economic Integration.

“Vietnam has made good progress in de-dollarization,” says Ayumi Konishi, ADB Country Director. “Yet, authorities, especially the State Bank of Vietnam, are fully aware that administrative measures alone cannot be effective… it is essential to enhance people’s confidence in Vietnamese dong through sustainable and high economic growth, stabilization of the foreign exchange rate, reforms in monetary policies, and strengthening of the capacity of financial institutions.”

The study also suggested that “sharing information and experiences would help the monetary authorities of Cambodia, Lao PDR, and Vietnam to find a solution to the dollarization issue.” The three countries have a lot to gain from closer cooperation, it added.

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Vietnam has no devaluation plans

HANOI - The State Bank of Vietnam has no plans to adjust the dong exchange rate against the US dollar, even though the dong's value has been dropping on the unofficial market, a state-run newspaper reported on Tuesday.

"At present the State Bank does not have any plans for exchange rate adjustment," Governor Nguyen Van Giau was quoted by the Sai Gon Giai Phong daily as saying, rejecting market rumors of a dong devaluation.

The central bank has devalued the dong three times since November and speculation of another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.

Dollar demand has also been rising as businesses need the currency for loan repayments and importers need dollars for settlements.

However, the dong edged up to VND19,870/19,920 per dollar on the unofficial market on Tuesday morning from VND19,920/19,970 on Monday, while it was steady at VND19,490/19,500 on the interbank market, with the selling rate at the permitted ceiling.

Victoria Kwakwa, the World Bank's representative in Vietnam, told reporters on Tuesday that "we think that broadly the government has been moving in the right direction" on monetary and fiscal policy.

However, she said more could be done by the authorities to communicate their policy stance and give more information on indicators, so as to build up confidence in overall macroeconomic management.

This would help "address some of the left-over expectations of inflation and continued instability that are underpinning some of the challenges".

The Bank's lead economist for Vietnam, Deepak Mishra, said he expected pressure on the dong to ease over time, but how the market reacted would depend on the government putting forward a "credible road map" for dealing with the problem.

The International Monetary Fund warned in September that Vietnam needed to concentrate on maintaining the level of the dong, and said that repeated comments from the government about the need to lower lending rates was counter-productive.

"A lack of coordination between monetary and fiscal policies, or the appearance thereof, would amplify market skepticism," it said.

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Call to boost faith in dong

US dollar transaction at Quoc Trinh Gold Shop in Ha Noi. About 20 per cent of all currencies in circulation in Viet Nam are foreign. — VNS Photo Truong Vi

HA NOI — Viet Nam should expend more effort in raising people's confidence in the dong, while co-operating with neighbouring countries on resolving overuse of foreign currencies, the Asian Development Bank said in its latest study.

Regional co-operation on monetary and financial issues to exploit economies of scale, introduce good practices and facilitate the adoption of common regulatory standards will help the country tackle economic and developmental challenges posed in the transitional period, the book Dealing with Multiple Currencies in Transitional Economies: The Scope for Co-operation in Cambodia, the Lao People's Democratic Republic, and Viet Nam, stated.

"Dealing with dollarisation and multiple currencies is ultimately an issue of national economic policy, and in this regard, Viet Nam has made good progress in de-dollarisation," Ayumi Konishi, ADB Viet Nam country director said at the book's launch in Ha Noi last Friday.

"Yet, authorities, especially the State Bank of Viet Nam, are fully aware that administrative measures alone will not be effective."

In order to de-dollarise the Vietnamese economy, it is essential to enhance people's confidence in the Vietnamese dong through sustainable and high economic growth, stabilisation of the foreign exchange rate, reforms in monetary policies, and by strengthening the capacity of financial institutions, the ADB representative said.

The study shows other countries' currencies, particularly the US dollar, are in wide use in the three Indochinese countries – Laos, Cambodia and Viet Nam.

In Viet Nam, about 20 per cent of all currencies in circulation are foreign; in Laos the figure is 50 per cent; while in Cambodia it is 90 per cent.

The study highlighted the costs and benefits of dollarisation. On the plus side, dollarisation can impose discipline on governments since they cannot easily finance budget shortfalls by printing money. In addition, if dollarisation leads to a near fixed exchange rate, prices can be less volatile.

However, the use of multiple currencies reduces the control of economic authorities over monetary and exchange rate policies. It also restricts the power of central banks to act as "the lender of last resort" in the event of a banking crisis, the study said.

"Dollarisation blunts the tools for macroeconomic stabilisation, especially monetary and exchange rate policy, that a country like Viet Nam needs in order to tackle a variety of economic and developmental challenges, such as rising inflation," the book's co-editor Jayant Menon, principal economist at ADB's Office of Regional Economic Integration, said.

Meanwhile, sharing information and experiences would help the monetary authorities of Viet Nam, Lao and Cambodia find a solution to the dollarisation issue, said co-editor Giovanni Capannelli, principal economist at the ADB. — VNS

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China warns US bill on yuan could hurt trade ties

Photo: AFP

BEIJING - China on Thursday rejected US legislation seeking to punish Beijing for allegedly manipulating its currency, warning that pressure on the yuan issue could "severely damage" trade ties.

Beijing also said the bill -- overwhelmingly approved by the US House of Representatives on Wednesday -- violates World Trade Organization rules, and insisted it has not deliberately undervalued its currency.

Angry US lawmakers, who accuse Beijing of keeping the value of the yuan artificially low to give its exporters an unfair competitive edge, blamed the weak yuan for the loss of US jobs, just weeks ahead of key midterm elections.

"We firmly oppose the US Congress approving these bills," Chinese foreign ministry spokeswoman Jiang Yu told reporters.

"Exercising protectionism against China under the excuse of the renminbi exchange rate will only severely damage China-US trade and economic ties and have a negative impact on the two countries' economies and the world economy."

The legislation was passed even as the United States announced a resumption of military ties with China after a 10-month break, saying the two powers both wanted to avoid miscalculations in an increasingly tense region.

In Beijing, commerce ministry spokesman Yao Jian said the US bill was "inconsistent with relevant rules of the World Trade Organization to conduct an anti-subsidy investigation based on exchange rate reasons".

"China has never undervalued its currency in order to gain a competitive advantage. The US cannot use its trade deficit with China as an excuse to adopt trade protectionist measures," Yao said, state media reported.

The House bill calls on the US government to consider Beijing's currency policy as an improper trade subsidy, and expands the powers of the Commerce Department by allowing it to slap retaliatory tariffs on Chinese goods.

The chamber passed the bill by a 348-79 margin, one of its strongest showings against China in years, fuelled by voter anger at the struggling economy and joblessness near 10 percent ahead of November 2 elections.

Some critics say the yuan could be undervalued by as much as 40 percent.

"The US-China relationship is an important one in every way -- culturally, politically, diplomatically, economically, commercially -- but we need to have them play by the rules," said Democratic House Speaker Nancy Pelosi.

The US Senate has signaled it will take up a companion bill after the elections, but the legislation's fate is unclear and President Barack Obama has not formally taken a position on whether he supports it.

Ahead of the vote, Obama said at a campaign-style event in Iowa that the yuan was "undervalued" and was "a contributing factor" to the yawning US trade deficit with China -- the world's second biggest economy.

"People generally think that they are managing their currency in ways that make our goods more expensive to sell and their goods cheaper to sell here," he said.

China pledged in June to loosen its grip on the yuan, which had been effectively pegged at about 6.8 to the dollar since mid-2008. Since then, the currency has gained less than two percent against the greenback.

The central bank on Thursday set the central parity rate -- the middle of the allowed trading band for the currency -- at 6.7011 to the dollar. The yuan can move up or down 0.5 percent from that rate during the trading day.

That was weaker than the 6.6936 rate set Wednesday, which was the strongest against the greenback since June's pledge.

Last week, before meeting Obama, Chinese Premier Wen Jiabao rejected a drastic appreciation of the yuan, warning that it would cause Chinese companies to go bankrupt and workers to lose their jobs.

Ahead of the House vote, China's central bank issued a statement pledging to increase the flexibility of the yuan and "gradually improve the exchange rate setting mechanism" -- near-identical to the wording it used in June.

A group representing US businesses in China criticized the bill, saying it puts thousands of American jobs in export-related industries at risk and would not spur growth in the world's biggest economy.

"Blaming China won't help the US economy but this legislation may cost American jobs," John Watkins, chairman of the American Chamber of Commerce in China, said in a statement.

"We call on the US Senate to thoroughly review the proposed legislation and we hope it does not move forward in the legislative process."

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Vietnam must address concern dong may slide: IMF

Vietnam must work to address expectations its currency will depreciate further, according to the International Monetary Fund’s representative in the country.

The Southeast Asian nation faces an “embedded expectation of a declining trend in the dong,” Benedict Bingham, the IMF’s senior resident representative in Hanoi, said in prepared comments for a presentation. It was delivered at a seminar in Ho Chi Minh City on Sept. 21 organized by a National Assembly committee, and posted on the IMF’s website this week.

Vietnam’s central bank devalued the dong last month for the third time in the past year, citing the need to curb the trade deficit. Further pressure on the currency “would be negative” for financial stability, Fitch Ratings said in July when it lowered the nation’s debt rating.

The state of the country’s foreign-exchange market has “undermined confidence in the dong” in part because it has “increased transaction costs and uncertainty for Vietnamese businesses,” Bingham said. The currency market has also “impaired Vietnam’s standing among international investors,” he said.

The State Bank of Vietnam weakened the dong’s reference exchange rate by 2 percent on Aug. 18 to 18,932 per dollar. The currency can fluctuate 3 percent on either side of the figure.

Concerns about an overheating economy, the balance of payments and a high inflation rate will probably “keep the currency under stress,” Capital Economics Ltd. analysts said in a research note sent yesterday, predicting an exchange rate of 20,400 per dollar by the end of 2011.

The Vietnamese have shifted from dong to US dollar assets or into gold because of expectations of dong devaluations, the IMF said in a report this month.

Vietnam’s financial system has faced excessive volatility, Bingham said. A lack of transparency has hurt confidence in the country’s macroeconomic management, partly due to a reluctance to adjust the central bank’s benchmark interest rate, he said. The benchmark was left unchanged at 8 percent for the ninth consecutive month in September.

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Vietnam must address concern dong may slide: IMF

Vietnam must work to address expectations its currency will depreciate further, according to the International Monetary Fund’s representative in the country.

The Southeast Asian nation faces an “embedded expectation of a declining trend in the dong,” Benedict Bingham, the IMF’s senior resident representative in Hanoi, said in prepared comments for a presentation. It was delivered at a seminar in Ho Chi Minh City on Sept. 21 organized by a National Assembly committee, and posted on the IMF’s website this week.

Vietnam’s central bank devalued the dong last month for the third time in the past year, citing the need to curb the trade deficit. Further pressure on the currency “would be negative” for financial stability, Fitch Ratings said in July when it lowered the nation’s debt rating.

The state of the country’s foreign-exchange market has “undermined confidence in the dong” in part because it has “increased transaction costs and uncertainty for Vietnamese businesses,” Bingham said. The currency market has also “impaired Vietnam’s standing among international investors,” he said.

The State Bank of Vietnam weakened the dong’s reference exchange rate by 2 percent on Aug. 18 to 18,932 per dollar. The currency can fluctuate 3 percent on either side of the figure.

Concerns about an overheating economy, the balance of payments and a high inflation rate will probably “keep the currency under stress,” Capital Economics Ltd. analysts said in a research note sent yesterday, predicting an exchange rate of 20,400 per dollar by the end of 2011.

The Vietnamese have shifted from dong to US dollar assets or into gold because of expectations of dong devaluations, the IMF said in a report this month.

Vietnam’s financial system has faced excessive volatility, Bingham said. A lack of transparency has hurt confidence in the country’s macroeconomic management, partly due to a reluctance to adjust the central bank’s benchmark interest rate, he said. The benchmark was left unchanged at 8 percent for the ninth consecutive month in September.

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Nation must ‘ensure balanced development'

by Mi Bong

Tam Binh Street in HCM City's Thu Duc District is flooded after heavy rains. Experts say Viet Nam should take more steps to minimise the impacts of climate change when formulating its socio-economic plans. — VNA/VNS Photo Trang Duong

HCM CITY — Viet Nam should ensure that its economic and social needs are balanced, and that its development vision is long-term, experts said at a conference in HCM City on Tuesday.

While agreeing that the priority should be accorded in coming years to maintaining macroeconomic stability and sustaining the growth momentum, both national and international experts said this cannot be achieved at the expense of the natural environment.

The impacts of climate change on socio-economic development were also discussed at the two-day seminar organised by the United Nations Development Programme, Viet Nam's Academy of Social Science and the Committee for Economic Affairs of the National Assembly.

Do Hoai Nam, chairman of the Viet Nam Academy of Social Science, said the nation should develop long-term strategies that take into consideration the world economic situation in the future and its likely impacts on the Vietnamese economy.

Referring to the overall socio-economic development goals for the 2011-15 period with a vision to 2020, Nam said key tasks included inflation control, effective implementation of monetary and fiscal policies, land law amendments, and policies for developing high-quality human resources.

"A social security system that covers the entire country, especially its remote areas, is also vitally important," he said.

He called on the State Bank of Viet Nam to follow a cautious monetary policy to control credit growth and money supply. The central bank should also continue improving its capacity to supervise the financial-monetary system effectively, he added.

Climate change

Measures to protect the environment and cope with climate change were vital for sustainable economic development, he said.

Nam also stressed the important role of State management in the economic restructuring process.

John Hendra, United Nations Resident Coordinator in Viet Nam said in the current domestic and international context, achieving the two objectives of stability and growth required monitoring of all relevant indicators, including inflation, exchange rate, the level and structure of public debt, and the amount of foreign reserves.

"While we all recognise the importance of macroeconomic stability and growth, it is also important to recall that sound development is one that balances economic and social needs," he said.

He also spoke of the need to strengthen links between the National Assembly and research institutions, academic circles and individual experts.

In the first nine months of this year, Viet Nam has seen some recovery from the economic downturn. The GDP grew by 6.4 per cent in the second quarter, up from 5.83 per cent in the first, with sustained high monthly industrial output growth rates of over 14 per cent compared to the same period of last year, the seminar noted.

Inflation has cooled down in the second and third quarter. The accumulative inflation rate was 4.99 per cent till the end of August, possibly enabling the containment of annual inflation rate within the target range of 8-8.5 per cent.

Deficit concerns

However, the lending rate of over 13 per cent has created difficulties for businesses in a market that is not expanding rapidly, speakers noted.

Macroeconomic stability could be threatened if inflation is extended alongside increased pressure of trade deficit, foreign exchange and possible widening of the budget deficit, according to the speakers.

Over the last 10 years, public investments, including State budget investments and investments by State-owned enterprises have increased significantly, absorbing a lot of credit and making it very difficult to curb budget deficit, experts noted.

Vo Dai Luoc of the Viet Nam Asia-Pacific Economic Centre suggested that Viet Nam prioritises development of the private sector as a key motivating force for national economic development; and also ensure greater transparency in its financial system.

Nguyen Minh Phong of the Ha Noi-based Academy of Economic and Social Development Research said the adjustment of exchange rates effected in the recent past was necessary and correct as a measure to curb inflation.

He said that in the coming time, there was a need to adjust the exchange rate flexibly according to market situations. Businesses need to watch out for exchange rate fluctuations and accommodate them in their dealings to avoid losses, he said. — VNS

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China says pressure on yuan will not help

An employee counts Renminbi yuan banknotes next to US dollars at a branch of Bank of China in Hefei, Anhui province September 15, 2010.

Photo: Reuters

BEIJING - Pressuring China about its yuan exchange rate could backfire, the Chinese Foreign Ministry said on Thursday, maintaining that Washington is wrong to blame the yuan for US economic woes.

"I want to stress that appreciation of the renminbi would not resolve the problem of the deficit between the US and China and will not resolve the US domestic unemployment problem," Chinese Foreign Ministry spokeswoman Jiang Yu told a regular news conference, using the currency's formal name.

"Trade and economic cooperation between China and the United States is mutually beneficial and a win-win proposition. We have always maintained that problems in trade and economic relations between our two countries should be appropriately resolved through consultation on an equal basis. I believe that pressure not only would fail to solve the problems; on the contrary, it could have the opposite effect."

Jiang's comments were Beijing's first official statement on the yuan after sharpened criticism from US Treasury Secretary Timothy Geithner, who said on Wednesday that the appreciation of the Chinese currency has been too slow and limited.

The Chinese Foreign Ministry does not have a direct hand in setting exchange rate policy, and can only voice broad official positions on the issue.

US lawmakers are considering a tough new trade law aimed at pressing Beijing to raise sharply the value of the yuan, which many of them say is behind the gaping US trade deficit with China, worth $226.9 billion in 2009.

Asked about US Congress bills on the yuan, Jiang said China had been improving the currency's flexibility since June, when Beijing announced it was ending a currency peg. The yuan has risen about 1.4 percent against the dollar since then, most of that coming in the last 10 trading sessions.

"I can tell you that since June China has been advancing reform of the mechanism of renminbi exchange rate formation based on domestic and external economic and financial conditions and China's international balance of payments, and has been enhancing the elasticity of the renminbi," she said.

"The direction of reforming the renminbi exchange rate that we're adhering to will not change," Jiang added.

Geithner said he wanted China to achieve a "significant, sustained appreciation over time" and for the yuan to "fully reflect market forces."

In recent days, the yuan has scored its fastest rise since February 2008 -- a move that some analysts view as a concession to growing US rancor over the issue.

This year, Beijing and Washington have also gone through bouts of tensions over Chinese Internet censorship, US arms sales to Taiwan, Tibet and human rights, and China's disputed maritime territorial claims.

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Banks send mixed signals on forex

HCMC – Two foreign banks have offered different forecasts of the Vietnam dong/U.S. dollar exchange rate for late this year and early next year, with one saying the local currency would stabilize and the other believing  the dollar would get firmer.

The chief executive officer of HSBC Bank (Vietnam) Ltd. on Wednesday projected the exchange rate between the dong and the dollar would be stable toward the end of this year and early next year.

Tom W. Tobin was speaking in response to a question from the audience about the possibility of further depreciation of the dong at the “Vietnam Business Climate Outlook 2010-2011” luncheon organized by the European Chamber of Commerce in Vietnam (EuroCham) in HCMC.

The exchange rate will be “stable and below VND20,000 to the U.S. dollar this year and early next year. So, the next six months will be pretty stable,” Tobin said, referring to the HSBC projection that he presented at the event.

Meanwhile, the news site VnExpress.net on Wednesday quoted a Standard Chartered Bank research report as saying the dong would be trading at VND19,900 per dollar by the year-end but the rate would surge to VND20,000 early next year and VND20,800 by the end of the same year.

Last month, the State Bank of Vietnam devalued the dong by 2.09% to allow commercial banks to raise their dollar price to the highest level of around VND19,500. This was the second depreciation this year.

Tobin said the adjustment was “reasonable and realistic” as it took some pressure off the market and that the change would take effect for the rest of the year. The U.S. economy still coped with challenges and this is why the greenback is forecast not to put much pressure on further depreciation of the dong.

Furthermore, Vietnam is increasingly trading with non-U.S. counterparts and a lot of its trade is now intra-Asia. But, Tobin noted the dong stability would depend on macro-economic issues.

Tobin told reporters after the event that the Vietnamese Government and the State Bank of Vietnam had taken effective measures to balance macro-economic factors. “So, I think we will see more of the same for the second half of this year… more stability in the foreign exchange market and the money market.”

Tobin told the Daily about a number of proper actions by the Government and the SBV. They have helped the market by injecting more liquidity and regulating the gold market to curb speculation and putting some pressure on State-owned enterprises to sell their surplus dollar funds into the market.

“So, all these things help stabilize the market. I think they have given a very clear idea that they want that macro-economic stabilization is one of the priorities so that it gives the market a bit of comfort and they are acting according to that objective,” he said.

Tobin described the regulations governing safety ratios and charter capital increase at credit institutions as good objectives to make the banking sector stronger and more robust.

“Making it stronger is to make it better capitalized which would be better able to withstand shocks. Just look at the global financial crisis, some of the banks are not adequately capitalized to meet the shock of the system,” he said.

But according to the Standard Chartered report, achieving the growth target remains a priority for Vietnam, so the possibility of the dong being further devalued to prop up the export sector is high.

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IMF warns Vietnam against rapid rate cuts

The International Monetary Fund warned Vietnam on Wednesday that it risks hard-won market stability by trying to cut lending rates too fast, and said it should maintain the level of the dong currency to safeguard financial calm.

"The repeated announcements by the government about the need to lower the commercial lending rates may be counter-productive," the IMF said in a regular review of Vietnam's economic health.

"A lack of coordination between monetary and fiscal policies, or the appearance thereof, would amplify market skepticism," it said in a statement.

"The government, therefore, needs to convince market participants that its priority rests with macroeconomic stability. For this purpose, staff believes that maintaining the current stable exchange rate ... should be the immediate goal for the government," the IMF said.

State Bank of Vietnam governor Nguyen Van Giau said last week that lending rates were expected to drop. But Giau said they were not falling quickly at present because banks were cutting deposit rates slowly.

The IMF said Vietnam's exchange rate regime policy should be reformed over the medium term.

"A move from the current system that is based on a basket of currencies including those of regional trading partners may be appropriate," the report said.

The IMF review also said there was room for further reduction in Vietnam's budget deficit. Total investment spending was expected to fall this year by three percentage points of GDP from the 2009 level to about 11 percent of GDP, the report said.

The IMF projected GDP growth of 6.5 percent this year and 6.8 percent in 2011.

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Vietnam 2011 trade gap seen up at $14.5 bln

HANOI - Growth in Vietnam's exports and imports is projected to slow to around 10 percent next year, and the country's trade deficit would edge up to $14.55 billion, a state-run newspaper reported on Thursday.

Exports in 2011 would rise 10 percent to $74.25 billion and imports would increase 9 percent to $88.8 billion, the online version of the Vietnam Economic Times newspaper said, citing a report by the Planning and Investment Ministry.

The trade deficit this year would be nearly $14 billion, with exports rising 18.2 percent and imports up 16.5 percent, the report said, after a gap of $12.25 billion in 2009.

The International Monetary Fund has forecast Vietnam's exports would grow 16.9 percent next year after rising 14.5 percent in 2010, while imports would increase 14.3 percent in 2011, slowing from an expansion of 16.2 percent projected for this year.

The MPI report to a cabinet meeting projected economic growth of 7-7.5 percent for 2011, average inflation of under 8 percent and a slightly weaker exchange rate of VND20,000 per dollar, the newspaper reported.

It did not specify the exact timing for the exchange rate and stopped short of saying if the rate was for the unofficial markets or in interbank transactions, which stood at VND19,480/19,500 on Thursday.

The government has projected inflation next year at 7 percent and economic growth would accelerate to 7.5 percent, from an expansion of 6.7 percent expected for this year.

On Aug 18 the central bank cut the dong exchange rate by around 2 percent against the dollar, saying the move was to help control the trade gap.

The devaluation of the dong reference rate was the third since last November by the State Bank of Vietnam.

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Dollar borrowers still wary, dong rates high

HANOI - Potential US dollar borrowers in Vietnam remain gun shy about taking out greenback loans three weeks after the central bank devalued the dong, despite signs that lenders have ample supplies, bankers said on Monday.

Demand for dollars was expected to pick up later in 2010, they said, likely piling renewed pressure on the currency.

"There could be a light fever this year," a currency dealer in Ho Chi Minh City said, noting that most of the demand came from importers.

The central bank cut the dong exchange rate by around 2 percent against the dollar on Aug. 18, saying the move was to help control the trade gap. It was the third devaluation since last November.

While rates on dollar deposits and loans remained stable in the second half of August, according to central bank reports, Eximbank said it had raised its dollar deposit rate by 0.2 percentage points to 4.65 percent as of last Wednesday.

It was the lender's second rate increase for dollar deposits since Aug. 18, a move bankers said was taken to catch up with the rising demand for dollar loans.

Banks in Vietnam had built up their dollar holdings before the devaluation so they were now long the dollar, the HCMC-based dealer said.

"We have dollars now sitting idle but have not found borrowers because they are afraid of the exchange rate risk," a Hanoi-based domestic bank executive said.

Industry officials have suggested that banks increase dong loans between now and year-end to meet an annual credit growth target of 25 percent set by the central bank. Loans at the end of July grew nearly 13 percent against last December, the central bank has said.

Bankers, however, said it was tough to increase dong lending now, given relatively high rates banks were paying to depositors.

"It is difficult to lower interest rates because banks have to maintain their market share and protect depositors, but in doing so they cannot cut deposit rates," the Hanoi-based bank executive said.

Banks were paying between 11.0 percent and 11.2 percent for dong deposits with terms from three months to one year, and lending the domestic currency at 13-15.5 percent.

Market rates were above a government goal which envisaged banks cutting dong deposit rates to 10 percent and lending rates to 12 percent to spur an expansion of credit to support economic growth.

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Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to 18,932 dong per dollar on Aug 18 from 18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilise the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong’s 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

“After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term,” he said.

“There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change.”

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said on Aug. 25, quoting the central bank data.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to 18,932 dong per dollar on Aug 18 from 18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilise the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong’s 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

“After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term,” he said.

“There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change.”

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said on Aug. 25, quoting the central bank data.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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Dollar lending rises post-devaluation

Companies in Vietnam may be finding it harder to repay dollar debt in the wake of its latest dong devaluation but demand for greenback loans is rising on speculation that the exchange rate will be stable in the short term, bankers said.

The State Bank of Vietnam cut the interbank reference rate to VND18,932 per dollar on August 18 from VND18,544 previously, aiming to help control the trade deficit.

The move took some pressure off the dong and helped stabilize the foreign exchange market, traders said, but bids offered by banks were hovering near the ceiling allowed within the dong's 3 percent trading band.

It also put an expected squeeze on certain businesses, including importers and those with dollar loans coming due, state media reported.

Nevertheless, demand to borrow dollars has risen since the move, bankers said on Monday.

A treasury manager at a Hanoi-based lender, who declined to be identified, said the demand for dollar loans at his bank started to edge up again following two months on a downward path.

"After the latest devaluation, borrowers seem to think that the exchange rate will stay unchanged for three to four months. This makes them feel confident enough to take loans in the short term," he said.

"There is also speculation there may be future changes in the rate and that this latest devaluation is a sign of that. In such a case, it would be beneficial to borrow now and settle the loans before the next change."

A currency trader in another Vietnamese bank confirmed the rising demand for dollar loans, saying most of loans were short term and would be due in a few months.

Dollar credit jumped 34.4 percent in the first seven months from the end of last year, the Vietnam Economic Times said last Wednesday, quoting the central bank data.

Total credit was up just 12.97 percent, the central bank said in its July monthly report.

The central bank in June tried to slow dollar lending by requesting lenders monitor their dollar loans. In June and July, dollar loan demand was falling as the gap between dong and dollar rates narrowed, bankers said.

With dollar loan demand increasing, banks recently announced they would raise the interest rates on dollar deposits to as high as 5.5 percent from around 4 percent, state media reported.

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Capital's CPI rises slightly this month

Customers buy goods in Intimex supermarket in Ha Noi. Most groups of commodities in Ha Noi increased in price from 0.06-0.79 per cent, led by food and restaurant services, transport, garments and footwear. — VNA/VNS Photo Tran Viet

HA NOI — Ha Noi's consumer price index in August rose slightly by 0.15 per cent over July, the smallest increase in the last four months, the city's Statistics Office reported.

On aggregate, the index was up 8.09 per cent over the same period last year.

During the month, most groups of commodities saw a small increase in price, ranging from 0.06-0.79 per cent, led by food and restaurant services, transport, garments and footwear. In particular, housing, electricity, water and fuel enjoyed a small drop in price over the previous month, while post and telecoms servicess a was harper fall of 4.71 per cent.

This month, the price of gold increased by 1.01 per cent against last month. However, the US dollar rose 0.73 per cent over July.

The interbank exchange rate went from VND18,544 to VND18,932 per US dollar, effective August 18.

Prices of iron, steel and gas have increased, and many types of goods are expected to cost more in the near future, according to some producers and traders in HCM City.

Do Duy Thai, general director of Thep Viet Joint Stock Company, said the Viet Nam National Petroleum Corporation (Petrolimex) on August 9 increased the price of petrol by VND350-450 per litre, causing a production cost hike.

"With the increase of the US dollar interbank exchange rate, and the rise in price of imported steel, steel companies have raised steel prices by VND300,000 per tonne," he said.

Thai said these companies were still suffering a loss of VND700,000 per tonne.

"These companies had been afraid to let the steel prices climb because power consumption remains weak," Nguyen Tien Nghi, deputy chairman of the Viet Nam Steel Association (VSA), said.

"But a continuous rise in steel prices is inevitable," Nghi said.

Soon after the SBV decision, gas companies raised the price of gas by VND4,000-6,000 per 12-litre tank, although they usually announce price changes early in the month.

The gas prices are increasing largely due to the rise of the US dollar interbank exchange rate. These companies all buy domestic gas or imported gas with US dollars.

Le Phuc Dai, general director of the Vinagas Dai Viet Energy Joint-Stock Company, said both domestic and imported gas contracts were not signed with a fixed price, but with a floating exchange rate.

"The rise of exchange rates can directly affect the spending of gas companies," Dai said, adding that it would also affect the electricity market.

The prices of electric household products in HCM City have increased by 2 per cent, refrigerators and air conditioners by 3 per cent, and laptops by 7 per cent.

In early August, supermarkets in HCM City began raising prices on some products, including plastic household goods by 4 per cent, garments by 10 per cent, and food, canned food and candy by 5 per cent to 10 per cent.

Huynh Huu Tuan, manager of Citimart supermarket, said distributors had told him that they would raise the price soon because of the US dollar-Vietnamese dong exchange rate and petrol price.

Many products not influenced by the US dollar exchange include vegetables, fruit and fresh food. In cases where prices have risen, it has occurred because some companies are reflexively following the hikes imposed by other retail traders who raised prices after the SBV decision.

At wholesale agricultural markets in HCM City, vegetable prices have increased by VND500 – VND1,000 per kg, while the price at retail markets has increased by several thousand dong. — VNS

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Shipping taxes to be waived

HA NOI — All export-import express packages will be tax exempt from, October 1.

The exemption is embodied in Government Decree 87/2010/ND-CP which regulates the prices at which tax applies; the exchange rate to caculate tax; tax payment schedules and tax exemptions and refunds.

The decree also exempts imported raw materials or devices dedicated for privileged investment sectors or which are not made in Viet Nam for five years from the day of their production.

But some goods - automobile assembly parts and such household appliances as air-cond-itioners, electric heaters, refrigerators, washing machines, electric fans, hair driers and smoothing irons - will not be tax exempt.

Tax for materials imported to make exports or for export to tariff-free zones will be refunded calculated on the final export product.

Products proved as entirely built with imported materials will not be taxed.

The State Bank of Viet Nam's interbank exchange rate will be used to calculate tax. Bridging rates will be used if the currency to calculate tax is not included in the rate. — VNS

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