Vietnam Devalues Dong

[Teacher Mark 53]

Dec. 25 (Bloomberg) -- Vietnam’s central bank devalued the dong by 3 percent to help exporters after the Southeast Asian economy expanded at the slowest pace in nine years and the trade deficit widened.

The State Bank of Vietnam fixed the reference rate at 16,989 dong per dollar, versus 16,494 yesterday, according to its Web site. Policy makers maintained a currency band that allows the dong to rise or fall 3 percent a day, said Nguyen Quang Huy, director of the regulator’s foreign-exchange department.

Export growth slowed in the past three months as stagnating global economies cut demand for Vietnam’s garments and coffee and the country became less competitive after currencies in neighboring markets weakened more than the dong. Vietnam’s currency has dropped 5.5 percent this year against the dollar compared with an 18 percent slide in India’s rupee, 14 percent decline for Indonesia’s rupiah and a 13 percent slump in the Philippine peso.

“The devaluation is necessary as the government is trying to increase exports,” said Do Ngoc Quynh, chairman of the Vietnam Bond Forum in Hanoi and head of currency and debt trading at Bank for Investment & Development of Vietnam, the nation’s second-biggest lender by assets. “Other currencies in the region have considerably declined against the dollar, but the dong hasn’t dropped that much.”

The dong traded at 17,300 to 17,450 a dollar as of 3 p.m. in Hanoi, according to Bank for Agriculture & Rural Development, the nation’s biggest lender by assets.

Ensuring Stability

“The new reference rate will help increase exports, narrow the trade deficit, and also ensure the stability of balance of payments,” the central bank said on its Web site today.

At money changers, or the so-called black market, the currency traded between 17,270 and 17,350 to the dollar in Hanoi, according to a telephone directory information service, known as 1080, run by state-owned Vietnam Posts and Telecommunications. The dong has tumbled 35 percent since the end of 1994 as the central bank devalued the currency every year.

Vietnam’s VN Index of stocks fell 0.6 percent to 302.19, the lowest level in more than a week. The measure has declined 67 percent this year, the worst-performing benchmark index in Asia.

Gross domestic product grew 6.2 percent in 2008, after expanding by a record 8.5 percent last year, the government said in a statement yesterday.

Trade Deficit

Vietnam’s trade deficit widened to a record $17 billion in 2008, from $14.1 billion last year, according to preliminary figures provided by the government today.

The shortfall in the current account may grow to $12.1 billion in 2009, or 12.3 percent of GDP, from an estimated $10.5 billion this year, or 11.7 percent of GDP, according to a Credit Suisse Group research report dated Dec. 17.

“The Vietnamese dong is facing downward pressure due to the current-account deficit,” said Yuichi Izumi, an economist at Nomura Securities Co. in Tokyo. “The State Bank wants to guide the dong lower to support the export sector.”

Slower gains in consumer prices may have also provided more room for the central bank to weaken the dong. Inflation cooled for a fourth month in December to the slowest pace in nine months, with consumer prices rising 19.9 percent from a year earlier, the government said today. The rate touched 28.3 percent in August, the highest since at least 1992.

The devaluation followed five interest-rate cuts by the central bank this quarter to help bolster the economy. Policy makers last lowered the benchmark rate on Dec. 19 by the most ever this year to 8.5 percent, from 10 percent. The new cost of money became effective Dec. 22.

To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

Last Updated: December 25, 2008 03:12 EST

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Currently at 17,450 on Xe.com

[Teacher Mark 53]

Currently at 17,450 on Xe.com

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