Vietnam May Intervene to Maintain the Value of Dong (Update3)
By Nguyen Dieu Tu Uyen
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June 9 (Bloomberg) -- Vietnam has enough foreign-exchange reserves for the government to step in to maintain the value of the dong, said Prime Minister Nguyen Tan Dung, acting to damp concern the currency will collapse.
``With the foreign-currency surplus, the government will be able to intervene to maintain the dong's value and ensure imports,'' Dung said a statement posted on the government's Web site.
The Southeast Asian nation is battling inflation of more than 25 percent, the fastest since at least 1992, spurring concern that the dong may lose value as the benchmark stock index extends a record losing streak. Rating agencies have lowered their outlook for the nation's debt in the past month, citing a slow government response to inflation.
``The government is now clearly making public what it thinks the problems are, and what it is doing to solve them,'' said Dominic Scriven, a director at Dragon Capital, a Ho Chi Minh City-based investment firm with more than $1.5 billion under management. ``The government is doing the right thing to help the dong regain its value.''
The government last week cut the economic growth target for this year to 7 percent from 9 percent as it tries to slow the pace of consumer price gains. Vietnam is aiming for 2009 growth of as much as 7.5 percent, according to a statement posted on the government's Web site June 7.
Vietnam's balance of payments showed a surplus of $1 billion in the first five months of the year, according to the government statement. The excess will increase to as much as $3 billion for the whole year, Dung said.
Record Losses
The Ho Chi Minh Stock Exchange's benchmark VN Index fell 1.3 percent today, capping a record 23-day losing streak, on concern a widening trade deficit and inflation at a 16-year high will prompt overseas funds to sell local holdings, adding pressure on the dong to decline. The benchmark has lost 59 percent this year.
Morgan Stanley said on May 28 that Vietnam is headed for a ``currency crisis'' because the current-account deficit may swell this year to an ``unsustainably large'' level. Deutsche Bank AG also predicts a dong devaluation because of quickening inflation.
Vietnam's trade gap widened to $14.42 billion in the first five months this year from $4.25 billion at the same time a year earlier, the General Statistics Office said on May 26.
The Prime Minister's statement was released following a meeting with David Fernandez, head of emerging-market research at JPMorgan Chase & Co.
Devaluation `Unlikely'
``Our own view is that Vietnam is close to the peak of the recent bad macro news on inflation and the trade deficit,'' Singapore-based Fernandez said in a research note meeting after the meeting. ``A currency devaluation is unlikely to occur due to foreign-capital flight.''
The dong advanced to as high as 16,246.50 per dollar before closing 0.1 percent lower at 16,290.50 as of 6 p.m. in Hanoi, according to data compiled by Bloomberg. The dong has declined against the dollar for three straight months, the longest losing streak since August.
The State Bank of Vietnam today set a reference rate of 16,132 a dollar, compared with 16,124 on June 6, according to its Web site. The currency is allowed to trade up to 1 percent on either side of the rate.
Minister of Planning and Investment Vo Hong Phuc said last week that the nation doesn't yet need aid from groups such as the International Monetary Fund after Deutsche Bank predicted the country may be forced to seek an ``IMF-style program'' in coming months because of insufficient foreign-exchange reserves.
The country's foreign currency reserves have increased to about $22 billion from $19 billion as of the end of 2007, according to Nguyen Thanh Do, director of external financing at Vietnam's Ministry of Finance. ``The reserves will be much higher at the end of the year,'' Do said. |
