1225周四Vietnam dong贬值3%

Vietnam devalues dong

By Tim Johnston in Bangkok

Published: December 26 2008 16:48 | Last updated: December 26 2008 16:48

Vietnamdevalued the dong by 3 per cent on Thursday in its latest attempt tokeep its export-dependent economy afloat. The government said that 2008economic growth had shrunk to 6.23 per cent from 8.5 per cent last yearand there were signs it was likely to slow further in 2009.

Severalanalysts have warned of the threats of competitive devaluations amongAsia’s exporting economies but Hanoi’s move comes after spending mostof the year trying to maintain the currency’s strength to slowspiralling inflation.

Ithas been a roller-coaster year for the Vietnamese economy, startingwith widening trade imbalances, rising inflation and a credit andproperty bubble. Hanoi’s response was effective if somewhat crude: inMarch, it engineered a severe liquidity shortage, driving up interestrates and pricking the bubble.

But as the full force of theglobal slowdown shook the economy, Hanoi has executed a rapid U-turn.However, with persistent high inflation and lacking the strong foreignexchange reserves of many of its neighbours, it has had less room tomanoeuvre.

It has done what it can: it has cut interest ratesfive times in two months – most recently by 150 basis points onDecember 22 to 8.5 per cent; it has reduced bank capital reserverequirements; it has outlined plans for a $6bn stimulus package; andnow it has devalued the dong, making its exports more competitive.

Thecentral bank said the centre point of the dong’s trading band had beenlowered by 3 per cent. It had already widened the daily trading band to3 per cent either side of the centre point, and traders expect the dongto move to the bottom of the band.

“The new reference rate willhelp increase exports, narrow the trade deficit and ensure thestability of balance of payments,” the central bank said on its website.

Severalanalysts noted that while governments have resisted pressure forprotectionist policies, there are fears they might take the short cutof devaluation. Thailand and Taiwan have recently become net purchasersof dollars, provoking the Asian Development Bank to warn against“unnecessary and excessive interventions in the currency markets,especially to depreciate domestic currencies”.

Before thedevaluation, the dong had slipped 5.5 per cent against the dollar thisyear, far less than competitors in India, Indonesia and thePhilippines. Hanoi had been hoping for gross domestic product growth of7 per cent this year, and in spite of its determination to aim for 6.5per cent next year, most analysts believe 5 per cent is more realistic,given the external challenges facing the country.

These includenot only the rapidly cooling economies of its main trading partners inthe US, the European Union and Japan, with already severe knock-oneffects in China, but also a slowdown in investment.

Copyright The Financial Times Limited 2008