Vietnam 2010 trade gap seen at $13.5 bln

HANOI - Vietnam on Wednesday projected a stubbornly wide US$13.5 billion trade deficit this year despite a rise in exports of 19.1 percent, three times the initial target, adding to pressure on the authorities to devalue the dong again.

Prime Minister Nguyen Tan Dung, reading a report to the opening session of the National Assembly, also forecast economic growth of 7.2 percent in the fourth quarter from a year before, after 7.16 percent in the third quarter.

The government report seen by Reuters forecast gross domestic product would rise next year by between 7 percent and 7.5 percent, following a projected 6.7 percent this year.

This year's projected trade deficit would be up 9.8 percent from the $12.3 billion gap in 2009. A Reuters poll of 12 economists this month had forecast $12.2 billion for this year.

Vietnam's large trade and budget deficits, plus low foreign exchange reserves, make it vulnerable to another devaluation in the dong, which is pegged to the US dollar.

The central bank devalued the currency on Aug. 17 for the third time since November, cutting the reference rate by 2 percent in what it said was a bid to control the trade deficit.

Speculation of another devaluation has been putting pressure on the currency, making businesses reluctant to sell dollars.

State Bank of Vietnam Governor Nguyen Van Giau was quoted on Tuesday as saying the central bank had no plans to adjust the rate even though the dong has been dropping on the unofficial market, according to a state-run newspaper.

Inflation would be at around 7 percent in 2011, the government report said. The government is aiming for 8 percent this year.

With imports in 2010 seen climbing 16.5 percent, the trade deficit would stay below 20 percent of the country's export revenue, it said.

The government targets for 2011 need approval by parliament, which had approved a target for exports to grow 6 percent this year.

Dung said he expected foreign debt this year to rise to 42.2 percent of gross domestic product from 30 percent last year. Government debt would be 44.5 percent of GDP while public debt would hit 56.7 percent of GDP, he said in the report.

Vietnam's credit growth is expected to be 25 percent this year and money supply would grow 20 percent from 2009, fuelling economic growth of 6.7 percent for the whole year, Dung said.

He estimated the bad debt ratio for the whole of 2010 would be kept below 3 percent of loans, against 2.03 percent at the end of 2009.

The annual trade deficit for 2011 would be kept at less than 20 percent of exports, while the budget deficit would be 5.5 percent of GDP, Dung said in televised remarks.

Vietnam's investment for development is projected to be equivalent to 40 percent of GDP in 2011, slightly lower than this year when investment would jump 12.9 percent from last year and make up 41 percent of GDP.

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Vietnam probably won’t devalue again in 2010, ANZ says

Vietnam probably won’t devalue the dong again until next year, Australia & New Zealand Banking Group Ltd. predicted, after three moves by the nation’s central bank to reduce the value of the currency in the past year.

The dong was devalued in August, when the reference rate for the currency was weakened by 2 percent to 18,932 per dollar, following such moves in February and in November 2009.

Vietnam faces an “embedded expectation” of a weakening dong, Benedict Bingham, the International Monetary Fund’s Hanoi representative, has said. Recent wage increases in China as well as a stronger Chinese currency should underpin the dong for the rest of 2010 by making investment in Vietnam more attractive, Tamara Henderson, the Singapore-based head of Asia foreign- exchange research at ANZ, wrote in an Oct. 1 note.

“They have a little breathing space, particularly given that they recently devalued,” Henderson said by phone today.

Vietnam may win more foreign investment and experience a pickup in exports following China’s June 19 pledge to allow the yuan to trade more freely, PXP Vietnam Asset Management said at the time. The Chinese yuan has strengthened 2.1 percent against the dollar since then, while the dong has weakened 2.6 percent.

Exports climb

Vietnam’s exports increased 23 percent from a year earlier in the nine months through September, according to preliminary figures released on Sept. 27 by the General Statistics Office in Hanoi. That marks an acceleration from the 16 percent growth reported for the first half of 2010.

“Lower inflation and improved competitiveness should keep devaluation pressures at bay into year-end,” Henderson wrote.

The dong will probably be devalued again in the first half of 2011, she wrote, predicting that the currency will move to about 20,000 per dollar and citing Vietnam’s “ballooning” trade deficit as contributing to the dong’s weakening trend.

“Sizable” trade deficits have contributed to putting “downward pressure” on the dong, the Asian Development Bank said last week.

Vietnam’s cumulative trade deficit in the nine months through September reached $8.58 billion, according to the General Statistics Office. For September alone, the gap widened to $1.05 billion from $395 million in August.

‘Structural’ deficit

The trade gap “needs to come down,” Robert Prior- Wandesforde, a Singapore-based economist at Credit Suisse Group AG, wrote in a note dated Sept. 29. “The deficit partly reflects strong imports of capital goods, but also a penchant for consumer products.”

Vietnam’s trade deficit is “structural,” with exports largely consisting of lower value-added items such as commodities, footwear and garments while imports are primarily industrial machinery needed to build the country’s manufacturing base, Deutsche Asset Management (Asia) Ltd., which manages DWS Vietnam Fund Ltd., said on Sept. 27.

“It is common practice for emerging-market economies to devalue their currency to maintain competitiveness while running a trade deficit as they acquire capital for industry,” Deutsche Asset Management (Asia) said in a monthly note. “A currency equilibrium point will be reached as the economy matures.”

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Dollar demand stable, though pressures remain

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 US$1.05 billion in September.

The deficit for the first nine months of the year rose to $8.58 billion and 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 19,500 trading band limit since the devaluation. At 0250 GMT on Monday there was a 40 dong, 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 Socio-economic Development, said the widening trade deficit and modest foreign direct investment inflows would keep the dong under pressure.

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Dollar demand stable, though pressures remain

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 US$1.05 billion in September.

The deficit for the first nine months of the year rose to $8.58 billion and 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 19,500 trading band limit since the devaluation. At 0250 GMT on Monday there was a 40 dong, 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 Socio-economic Development, said the widening trade deficit and modest foreign direct investment inflows would keep the dong under pressure.

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Vietnam’s economic growth quickened to 7.16 pct

Vietnam’s economic growth accelerated in the third quarter indicating full-year expansion may be the fastest since 2007, boosted by gains in industrial production.

Gross domestic product advanced 7.16 percent in July through September from a year earlier, according to figures released Tuesday by the General Statistics Office in Hanoi. The economy expanded at a 6.4 percent pace in the second quarter.

Industrial output, retail sales and credit growth have fueled Vietnam’s recovery from last year’s global recession. The economic expansion may exceed the government’s 6.5 percent target for 2010, with the ruling Communist Party aiming for a 7.5 percent increase in GDP next year even as inflation quickens and the trade deficit widens.

The nation’s third-quarter acceleration “contrasts with just about everywhere else” in Southeast Asia as the region is losing growth momentum, Kevin Grice, a London-based economist at Capital Economics Ltd., said in a Sept. 27 note. “On the output side, the upswing is being led by industry and construction.”

The State Bank of Vietnam weakened the dong’s reference exchange rate by 2 percent in August in a bid to curb the trade gap. The shortfall widened to $1.05 billion in September even after the devaluation, while inflation accelerated for the first time in six months to 8.92 percent, more than the government’s 8 percent goal, recent reports showed.

The dong traded at 19,490 per dollar at 3 p.m. Tuesday in Hanoi from 19,099 before the devaluation was announced. The Ho Chi Minh City Stock Exchange’s VN Index rose for a second day, closing up 1.1 percent to 455.13.

‘Strong growth’

The economy grew 6.52 percent in the first nine months of 2010 compared with a year earlier, Tuesday’s data showed. A full- year gain of more than 6.2 percent would be the fastest since 2007’s 8.5 percent.

“The economy continues to show strong growth momentum,” Johanna Chua, the Hong Kong-based head of Asian economic research at Citigroup Inc., said in a note this month. “Domestic demand remains resilient.”

Vietnam’s government has been urging banks to cut interest rates to bolster lending, which increased 16.3 percent in the first eight months of 2010 from the end of last year, according to central bank data.

“Bank credit growth has picked up again, after slowing sharply at the beginning of 2010, and is now expanding at a pace close to the 25 percent” government target for this year, Capital Economics said last week. The nation’s GDP may increase 7 percent in 2011, the UK-based company said.

IMF analysis

While the government is concerned that high lending rates could affect industrial activity, “premature” monetary loosening may cause a “deterioration” in the trade deficit and boost inflation, the International Monetary Fund said in a report this month.

Such an outcome may lead to “sharp tightening measures at a later date with high costs to the economy,” the IMF said.

Inflation has remained above the government’s target for eight straight months, while the trade deficit reached $8.58 billion for January through September.

Industry and construction, which accounted for 41 percent of GDP, grew 7.29 percent in the first three quarters, the statistics office said today. Construction by itself expanded 10.25 percent during the nine-month period.

Services, which comprised 38 percent of the economy, grew 7.24 percent in the first nine months. Hotels and restaurants expanded 8.28 percent, as the number of foreign visitors to Vietnam advanced 34.2 percent from the same time a year earlier. Financial services gained 7.94 percent.

Agriculture, forestry and fisheries, which made up the remaining 21 percent of the economy, expanded 2.89 percent in the first three quarters. Vietnam is the world’s second-biggest exporter of both rice and coffee.

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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.

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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.

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North in deficit as south runs surplus

Hanoi's trade deficit reaches nearly US$10 billion, while Ho Chi Minh City reaps a trade surplus of about $300 million in the first nine months of this year, statistics offices in the two cities stated.

In Hanoi, the trade deficit almost doubles the export value, the statistics office reports, adding that in the first nine months of this year, the city is expected to earn an export revenue of $5.5 billion, a year-on-year increase of 19.5 percent.

Meanwhile, the import value rises by 18.2 percent to $15.5 billion.

In September alone, Hanoi's trade gap is predicted to hit $1.08 billion, up $70 million over August. Export revenue is expected to drop 0.3 percent against the previous month to $680 million, while import turnover is expected to rise 1.3 percent to $1.76 billion.

“It is easy to understand why Hanoi has a big trade gap. It is a large developing city with a high demand for machinery, equipment, accessories and materials for construction projects," said an official from the statistics office's trade section.

She, however, added that in the first nine months of the year, huge sums are spent on imported luxury goods such as cars, wine, cigarettes and interior furnishings.

The Hanoi Statistics Office earlier forecast that the capital would suffer a trade deficit of $13.8 billion in 2010, with exports earning just $7.6 billion and imports $21.4 billion.

From January to September 2010, HCMC's import turnover is estimated to reach nearly $15.5 billion, a year-on-year increase of 12.6 percent. Its export value is predicted to reach $15.8 billion, representing a year-on-year increase of just 1 percent.

In the coming months, export turnover should rise as market demand would typically rise in the last months of the year, the city's Statistics Office stated. Although HCMC experiences a trade surplus, the office reports that exporters are encountering persistent difficulties.

Officials said the price of raw materials is increasing, which would affect exporters' competitiveness. They also said the city is suffering a shortage of skilled workers and that some industries are facing material shortages, both of which are hitting exports.

In September alone, the city's export revenue month-on-month drops 9.7 percent to $1.7 billion.

Meanwhile, the decrease in gold and crude export volumes also contributed to the fall in the city's total export value, officials said.

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North in deficit as south runs surplus

Hanoi's trade deficit reaches nearly 10 billion USD, while HCM City
reaps a trade surplus of about 300 million USD in the first nine months
of this year, statistics offices in the two cities stated.

In Hanoi, the trade deficit almost doubles the export value, the
statistics office reports, adding that in the first nine months of this
year, the city is expected to earn an export revenue of 5.5 billion USD,
a year-on-year increase of 19.5 percent.

Meanwhile, the import value rises by 18.2 percent to 15.5 billion USD.

In September alone, Hanoi's trade gap is predicted to hit 1.08 billion
USD, up 70 million USD over August. Export revenue is expected to drop
0.3 percent against the previous month to 680 million USD, while import
turnover is expected to rise 1.3 percent to 1.76 billion USD.

“It is easy to understand why Hanoi has a big trade gap. It is a large
developing city with a high demand for machinery, equipment,
accessories and materials for construction projects," said an official
from the statistics office's trade section.

She,
however, added that in the first nine months of the year, huge sums are
spent on imported luxury goods such as cars, wine, cigarettes and
interior furnishings.

The Hanoi Statistics Office
earlier forecast that the capital would suffer a trade deficit of 13.8
billion USD in 2010, with exports earning just 7.6 billion USD and
imports 21.4 billion USD.

From January to September
2010, HCM City's import turnover is estimated to reach nearly 15.5
billion USD, a year-on-year increase of 12.6 percent. Its export value
is predicted to reach 15.8 billion USD, representing a year-on-year
increase of just 1 percent.

In the coming months,
export turnover should rise as market demand would typically rise in the
last months of the year, the city's Statistics Office stated. Although
HCM City experiences a trade surplus, the office reports that exporters
are encountering persistent difficulties.

Officials
said the price of raw materials is increasing, which would affect
exporters' competitiveness. They also said the city is suffering a
shortage of skilled workers and that some industries are facing material
shortages, both of which are hitting exports.

In September alone, the city's export revenue month-on-month drops 9.7 percent to 1.7 billion USD.

Meanwhile, the decrease in gold and crude export volumes also
contributed to the fall in the city's total export value, officials
said./.

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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

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North in deficit as south runs surplus

HA NOI — Ha Noi's trade deficit reached nearly US$10 billion, while HCM City reaped a trade surplus of about $300 million in the first nine months of this year, statistics offices in the two cities stated.

In Ha Noi, the trade deficit doubled in export value, the statistics office reported, adding that in the first nine months of this year, the city was expected to earn an export revenue of $5.5 billion, a year-on-year increase of 19.5 per cent. Meanwhile, the import value rose by 18.2 per cent to $15.5 billion.

In September alone, Ha Noi's trade gap waspredicted to hit $1.08 billion, up $70 million over August. Export revenue was expected to drop 0.3 per cent against the previous month to $680 million, while import turnover was expected to rise 1.3 per cent to $1.76 billion.

"It is easy to understand why Ha Noi has a big trade gap. It is a large developing city with a high demand for machinery, equipment, accessories and materials for construction projects," said an official from the statistics office's trade section.

In the first nine months of the year, huge sums were spent on imported luxury goods such as cars, wine, cigarettes and interior furnishings, she said.

The Ha Noi Statistics Office earlier forecast that the capital would suffer a trade deficit of $13.8 billion in 2010, with exports earning just $7.6 billion and imports $21.4 billion.

From January to September 2010, HCM City's import turnover is estimated to reach nearly $15.5 billion, a year-on-year increase of 12.6 per cent. Its export value is predicted to reach $15.8 billion, representing a year-on-year increase of just 1 per cent.

In the coming months, export turnover should rise as market demand would typically rise in the last months of the year, the city's Statistics Office stated. Although HCM City experienced a trade surplus, the office reported that exporters were encountering persistent difficulties.

Officials said the price of raw materials was increasing, which would affect exporters' competitiveness. They also said the city was suffering a shortage of skilled workers and that some industries were facing material shortages, both of which were hitting exports.

In September alone, the city's export revenue month-on-month dropped 9.7 per cent to $1.7 billion. — VNS

Meanwhile, the decrease in gold and crude export volumes also contributed to the fall in the city's total export value, officials said. — VNS

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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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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.

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Standard Chartered forecasts stable months ahead

Following the government’s tightening of prices for essential industrial and consumer products, inflation is expected to remain stable in the coming months, an expert at Standard Chartered say.

“Inflation in the immediate future should remain under control, especially if global food and energy prices do not surge significantly,” Tai Hui, Southeast Asia Regional Head of Research under Standard Chartered Bank, said in a statement. “However, we do not believe price controls will be effective in the event of a sustained surge in input prices.”

Vietnam’s latest economic data for August shows a continuation of the trend during the first half of 2010. Inflation is expected to remain relatively calm at 8.2 percent year-to-year, or 0.2 percent from month-to-month.

Meanwhile, the trade balance is expected to maintain an even keel. “We expect Vietnam’s trade deficit to persist in the medium term, further devaluation of the dong is on the cards for 2010 and 2011,” Tai Hui said.

On August 18, the State Bank of Vietnam devalued the dong by revising the US dollar-dong reference from 18,932 from 18,544. The bank maintained the daily trading band of 3 percent on either side of that rate.

The trade deficit has hung around $1 billion per month for much of 2010, he said. He attributes the even keel to strong export growth and cooling import growth.

Meanwhile, disbursed foreign direct investment, aids and remittance flows have been recovering steadily. Hence, the overall depreciation pressure on the dong ought to be lower than in previous years when inflows were waning on the back of the 2008 global financial crisis, Tai Hui said. Firm domestic demand is absorbing imports, he added.

Given the Vietnamese authorities’ growth bias, Hui believes that further devaluations are likely in order to support exporters. “The timing of further moves will be politically driven,” he said. “But we believe that a rise in commodity prices, which will in turn drive inflation and the trade deficit higher, could be a trigger.”

Sharp rises in gold prices and the dollar could also prompt dong depreciation to intensify. “In line with these predictions, we have adjusted our dollar-dong forecasts without altering our overall profile,” he said. “We now predict that the dollar-dong ratio will hit 19,500 at end of the third quarter; and 19,900 at the end of the fourth quarter.”

Another important implication of the dong devaluation is that the authorities will not be able to push interest rates lower, despite stable inflation. The government has, for some months, been trying to persuade commercial banks to reduce lending rates in order to promote lending and facilitate growth, Tai Hui said.

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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

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Weaker dong enhances inflation threat: experts

Relatively low incremental increases in prices over the last few months have lulled consumers and others into a sense of false security, experts say, warning that inflation continues to be a serious threat in the coming months.

The recent devaluation of the dong against the dollar only enhances the threat, they add.

Production enterprises dependent on imported materials have to bear higher input costs and are likely to increase prices.

The State Bank of Vietnam on August 18 set the daily reference rate of the dong two percent lower at 18,932 to a dollar, the third devaluation since last November, in a move aimed at reducing the trade deficit.

The dong was little changed at 19,485 per dollar as of 9:10 a.m. Thursday in Hanoi, compared with 19,490 a week ago, according to data compiled by Bloomberg.

Dao Duy Kha, deputy general director of the Vietnam Plastics Corporation, said up to 90 percent of materials for the country’s plastic production was imported, thus the lower value of the dong was a big blow.

The gasoline price hike early this month had already pushed up their production costs and the higher dollar prices now make an increase in selling prices “unavoidable,” he said.

Some association members have already increased their prices, while others will do so soon, with an average increase at 1-2 percent, he added.

Kha said firms have not increased their prices sharply because current purchasing power in the market was still low. “However, the prices will continue to rise in coming months when the demand for products goes up.”

Tran Trung Hieu, general director of Hanoi Investment and Footwear Export-Import Company, which imports materials for footwear production and sells them to local producers, said he will increase prices to match the dollar hike.

However, he cannot raise prices under contracts signed months ago that are due to be delivered now. “We are suffering losses from the contracts,” he said. His company imports materials worth US$100,000-200,000 each month.

Meanwhile, the price hike has also affected a number of customers. “Some customers have cancelled their orders, while others have cut their buying volumes,” Hieu said. His company has had to lower its profits significantly to keep their traditional customers, he added.

The increase in costs of imported materials has also prompted many supermarkets to announce plans to increase their retail prices.

Nguyen Thanh Huyen, public relations manager for the Big C supermarket chain, said some distributors have proposed to raise their products’ prices by 5 to 10 percent.

Another supermarket chain, Maximark, has received proposals from over 100 distributors on increasing, by 3 to 10 percent, prices of 500 kinds of products, mainly food, cosmetics and home appliances.

The price increases have sparked inflation fears.

Vietnam’s consumer price index rose 8.18 percent in August from a year earlier, and 0.23 percent from a month earlier, the General Statistics Office said. In July, the index rose 8.19 percent from a year earlier.

“A very important implication is that the outlook for inflation is likely to be affected by the devaluation. The devaluation, of course, is going to raise the risk of imported inflation in the months ahead,” Bloomberg quoted Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore, as saying.

The dong will trade near 19,500 per dollar for “at least the next several weeks,” he said.

If inflation accelerates or the trade deficit deteriorates, “you may see more selling pressure on the dong. But, of course, that’s very much down to the upcoming data that we expect to see at the end of the month,” he said.

Vu Dinh Anh, deputy head of the Institute of Market and Price Research, said: “Inflation control should be the most important target for the end of this year. There is now a subjective complacence as consumer prices have only seen small hikes in recent months.”

The government aims to cap inflation at 8 percent this year, though many local analysts say that will be difficult to achieve.

Firms should carefully watch for changes in the exchange rate. They should prepare sources of the greenback to repay dollar loans on schedule, and use other foreign currencies, which have lower exchange rates, Anh said.

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Weaker dong enhances inflation threat: experts

Relatively low incremental increases in prices over the last few months have lulled consumers and others into a sense of false security, experts say, warning that inflation continues to be a serious threat in the coming months.

The recent devaluation of the dong against the dollar only enhances the threat, they add.

Production enterprises dependent on imported materials have to bear higher input costs and are likely to increase prices.

The State Bank of Vietnam on August 18 set the daily reference rate of the dong two percent lower at 18,932 to a dollar, the third devaluation since last November, in a move aimed at reducing the trade deficit.

The dong was little changed at 19,485 per dollar as of 9:10 a.m. Thursday in Hanoi, compared with 19,490 a week ago, according to data compiled by Bloomberg.

Dao Duy Kha, deputy general director of the Vietnam Plastics Corporation, said up to 90 percent of materials for the country’s plastic production was imported, thus the lower value of the dong was a big blow.

The gasoline price hike early this month had already pushed up their production costs and the higher dollar prices now make an increase in selling prices “unavoidable,” he said.

Some association members have already increased their prices, while others will do so soon, with an average increase at 1-2 percent, he added.

Kha said firms have not increased their prices sharply because current purchasing power in the market was still low. “However, the prices will continue to rise in coming months when the demand for products goes up.”

Tran Trung Hieu, general director of Hanoi Investment and Footwear Export-Import Company, which imports materials for footwear production and sells them to local producers, said he will increase prices to match the dollar hike.

However, he cannot raise prices under contracts signed months ago that are due to be delivered now. “We are suffering losses from the contracts,” he said. His company imports materials worth US$100,000-200,000 each month.

Meanwhile, the price hike has also affected a number of customers. “Some customers have cancelled their orders, while others have cut their buying volumes,” Hieu said. His company has had to lower its profits significantly to keep their traditional customers, he added.

The increase in costs of imported materials has also prompted many supermarkets to announce plans to increase their retail prices.

Nguyen Thanh Huyen, public relations manager for the Big C supermarket chain, said some distributors have proposed to raise their products’ prices by 5 to 10 percent.

Another supermarket chain, Maximark, has received proposals from over 100 distributors on increasing, by 3 to 10 percent, prices of 500 kinds of products, mainly food, cosmetics and home appliances.

The price increases have sparked inflation fears.

Vietnam’s consumer price index rose 8.18 percent in August from a year earlier, and 0.23 percent from a month earlier, the General Statistics Office said. In July, the index rose 8.19 percent from a year earlier.

“A very important implication is that the outlook for inflation is likely to be affected by the devaluation. The devaluation, of course, is going to raise the risk of imported inflation in the months ahead,” Bloomberg quoted Tai Hui, head of Southeast Asian economic research at Standard Chartered Plc in Singapore, as saying.

The dong will trade near 19,500 per dollar for “at least the next several weeks,” he said.

If inflation accelerates or the trade deficit deteriorates, “you may see more selling pressure on the dong. But, of course, that’s very much down to the upcoming data that we expect to see at the end of the month,” he said.

Vu Dinh Anh, deputy head of the Institute of Market and Price Research, said: “Inflation control should be the most important target for the end of this year. There is now a subjective complacence as consumer prices have only seen small hikes in recent months.”

The government aims to cap inflation at 8 percent this year, though many local analysts say that will be difficult to achieve.

Firms should carefully watch for changes in the exchange rate. They should prepare sources of the greenback to repay dollar loans on schedule, and use other foreign currencies, which have lower exchange rates, Anh said.

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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.

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Vietnams’ trade deficit passes $8 bln

Vietnam trade deficit hit a record US$8.15 billion in the first eight months of the year, an increase of $700 million compared with last month's figure, according to the General Statistics Office (GSO).

Excessive imports helped push the total to 18.3 percent of the year's total export turnover.

The country imported products worth $52.68 billion in the first eight months, a rise of 24.4 percent over last year. The domestic sector accounted for $30.3 billion of the imports, an increase of 13.2 percent, while the foreign direct investment sector imported $22.37 billion worth of goods, a rise of 43.6 percent.

Import turnover in August was $6.9 billion.

Imported commodities with the highest import turnover included materials for industrial export production such as mechanical machines (14.9 percent); electronics, computers and accessories (31.5 percent); clothes (26.6 percent); textile and garment materials (38.1 percent), and metals (79.9 percent).

Imported automobiles and fertilizer decreased by 30.5 percent and 10.8 percent, respectively.

The general export turnover was estimated at $44.52 billion during the period, an increase of 19.7 percent compared to the same period last year. The domestic sector contributed 46 percent, or $20.56 billion, of the turnover, while the remaining $23.96 billion was imported by foreign invested companies.

GSO's Acting Director of Trade Department Le Minh Thuy said that August exports were slower, decreasing 0.5 percent in comparison with last month. However, the export of gold contributed significantly to the export turnover in helping to keep the total turnover steady.

"If we did not count gold exports, the trade deficit in the first eight months would be $9.8 billion instead of $8.15 billion, and would make up 22 percent of the total export turnover," she said.

Commodities that experienced a significant increase in export turnover included steel, 220 percent ($466 million); rubber, 89.3 percent ($543 million); chemical products, 83.9 percent ($185 million); transportation and accessories, 83.0 percent ($458 million); and electric wire and cable, 72.2 percent ($347 million).

Other industries that experienced export turnover included textiles and garments (17.8 percent), wood and wood products (36.1 percent), rubber (89.3 percent), footwear (18.8 percent), electronics and computers (30.2 percent); and mechanical machines and accessories (61.2 percent).

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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.

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