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Vietnam may devalue currency next year: analysts


The dong could be devalued next year due to a worsening balance of payments situation while the government also needs to prop up slowing exports, economists said.
“The government may depreciate the dong to favor exports since boosting the economy is now its most crucial task,” said Le Dang Doanh, a research fellow at the Institute of Development Studies, an independent think-tank.

“The dong may weaken to as low as 18,000 against the US dollar in the next few months, from around VND17,000 now. I wouldn’t think it will slip 40-50 percent as some international organizations have predicted.

“The government should widen the dong’s trading band,” he said.

Last month, the State Bank of Vietnam, for the third time this year, widened the daily band within which the dong is allowed to move, increasing it to 3 percent either side of a fixed mid-point it sets each day, up from 2 percent.

Vietnam could carry out “a large realignment” of the exchange rate in 2009 to address a deteriorating balance of payments, rising nonperforming loans in the banking system and the government's external debt burden, a Morgan Stanley executive said at an international coffee conference held in Ho Chi Minh City Tuesday.

“A devaluation is inevitable,” Stewart Newnham, vice president of the bank's research unit in Hong Kong, said without giving figures.

Vietnam has been borrowing heavily abroad with debt now accounting for 25 percent of its gross domestic product, the second highest rate in Asia after the Philippines, Newnham said.

The dong has lost 6 percent so far this year against the dollar, he said.

The central bank has said it will continue to pursue a tight monetary policy to contain inflation in 2009 while allowing flexibility in line with market developments. It has not issued a forecast for the dong/dollar exchange rate in 2009.