Thursday, February 11, 2010

Vietnam to Devalue Dong 3.4%

By Nguyen Pham Muoi and Patrick Barta
The Wall Street Journal
Wednesday, February 10, 2010

HANOI—Vietnam said it will devalue its currency for the second time in less than three months as the Southeast Asian nation continues to struggle with a hangover from economic volatility during the past two years.

An increasingly popular destination for Western capital, Vietnam continued to post strong growth rates even through the dark days of last year's global recession. But economists say the country's strong recent performance–including growth of roughly 5.5% in 2009, according to the World Bank—masks serious underlying problems including a large trade deficit, high inflation and a shortage of U.S. dollars needed to keep the financial sector humming.

All that has put severe pressure on the Vietnamese dong as local residents lose confidence in their currency. By contrast, some other Asian countries have seen their currencies rise recently, as their economies regain their footing after the latest global financial crisis.

The State Bank of Vietnam, the country's central bank, said Wednesday it will devalue the Vietnamese dong by 3.4% effective Thursday. That comes on top of a 5% devaluation in November and two other devaluations since June 2008. Now, one U.S. dollar will buy 18,544 dong, compared to 17,941 dong earlier in the week.

The central bank on Wednesday also imposed a 1% ceiling on interest rates on dollar deposits at banks by "economic institutions," not including credit institutions, to try to flush more greenbacks into the market.

The devaluation will help make Vietnam's key exports, which include shoes, coffee and rice, cheaper than those of many other Asian countries, potentially improving its relative position in global trade. That could increase tensions with some neighbors, especially Thailand, with which it competes heavily in global markets. Thailand has already complained that some currencies in the region, including the Chinese yuan, may be undervalued.

For further reading:
"Vietnam Devalues Dong Again, This Time by More Than 3%", John Ruwitch, Reuters via Interactive Investor, February 10, 2010

1 comment:

  1. Vietnam’s currency devaluation points to continued “challenges” and it’s too soon to turn positive on the world’s worst-performing stock market this month, Credit Suisse Group AG said.