State bank makes good move with dong devaluation, experts say

The central bank has weakened the dong to cool off the surging exchange rate of the domestic currency and the US dollar. Dau Tu Tai Chinh newspaper caught up with financial experts to interview then about the state bank’s move.

A woman signs papers to sell dollar to a branch of the Asia Commercial Bank in Ho Chi Minh City. The government has weakened the dong to increase liquidity in the foreign exchange market and narrow the trade deficit (Photo:Minh Tri)

Professor Nguyen Duc Thanh, Director of the Vietnam Centre for Economic and Policy Research
Devaluing the dong is good for local businesses and the economy. It is an opportunity for domestic products to overtake imported ones, which are now getting more expensive due to the increasing foreign exchange rate of the dong and the US dollar.

Local businesses should take advantage of the central bank’s move to boost their output to capture more market shares. Those who have to import materials from abroad should consider switching to domestic ones.

The dong devaluation would help increase the liquidity in the foreign exchange market and minimize the gap between the official and black market exchange rates.

Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management
Impacts of the devaluation to consumption prices are not significant as the foreign currency exchange rate has been around VND21,000 per dollar for several months.

However, it is weakening the speculation on a stronger greenback. Effects of the devaluation will depend on the macroeconomic factors, especially the inflation.

Both foreign and local institutional investors expected the economic growth rate this year would be around 7 percent higher than 2010, but the inflation would be more than 8 percent.

Therefore, it is the time for the government to focus on stabilizing the macro economy. Otherwise, local production will be slowed down as people will opt for speculation.

Dr. Le Xuan Nghia, Vice Chairman of the National Financial Supervisory Commission
The global oil price is showing some signs of rising, pilling up more pressure on the budget balance. Thus the local price will be likely to follow in the next couple months. Power price meanwhile looks set to increase either 18 percent or 11 percent.

The local coal price is also rising as the global price is 30-40 percent higher. The increasing price will boost steel prices and production expenses of companies whose output depend on the black mineral, hitting the consumption price index.

Therefore, with the dong devaluation, the government should set up appropriate policies to cope with an accelerating inflation.

The central bank should quickly announce their plans on adjusting the foreign exchange rate in the upcoming months to help curb the speculation.

Le Dat Chi, Head of the Financial Investment Faculty of the University of Economics Ho Chi Minh City
The fiscal and monetary policies have not worked well together. Since the gold price moved up to over VND38 million per tael (US$1,800), the central bank allowed to import gold to curb the surging price, which leaded the bank to sell dollar.

However, the imported gold tax of 10 percent, which took effect early this year, boosted the local gold price, leaving the bank struggle to earn dollars from exporting the precious metal. Therefore, the foreign currency reserve is in deficit.

The trade deficit has been narrowed recently thanks to the gold export. Thus it is necessary to raise the export taxes of the yellow metal in an effort to curb the shortage of the greenback.

Le Tham Duong, Head of the Business Management Faculty of the Banking University of Ho Chi Minh City
Local producers depending on imported materials would have to pay more due to the strong dollar. Therefore they would have to use domestic materials to cut production expenses.

With the dong devaluation, local consumers would opt for domestic product as the imported ones were getting more expensive.

In this situation, businesses will be likely to lower their profit targets to reduce risks. It is the time for local enterprises to change their management structure, including strategy, schedule and human resource managements.

Compiled by Minh Anh

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