Vietnam Devalues Dong by a Record 7%, Seeking to Curb Deficit

Vietnam devalued the dong by about 7 percent, the most since at least 1993, seeking to curb the nation’s trade deficit.
The dong slumped as low as 20,850 per dollar as of 9:14 a.m. in Hanoi, compared with 19,498 yesterday. The State Bank of Vietnam fixed the reference rate at 20,693 dong today, versus 18,932 yesterday, according to its Web site. The authority also narrowed the trading band, allowing the dong to rise or fall 1 percent either side of the rate, compared with 3 percent previously.
“I’m quite surprised by the size as it’s very steep,” Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong said in a telephone interview. “It seems the authorities are trying to support exports and to support growth, rather than to fight inflation. That’s very surprising because inflation in Vietnam is a major problem.”
The monetary authority devalued the dong in November 2009 and February and August last year, amid concern the nation may run short on foreign capital needed to fund a trade deficit, which reached $1 billion in January, according to the government’s figures. Currency reserves fell to $13.6 billion at the end of last year, down from $14.1 billion in September and $23.9 billion in 2008, according to Citigroup Inc.
“These measures will help to manage the exchange rate more flexibly, suiting foreign currency supply and demand,” the central bank said in the statement. It will “also help curb the trade deficit.”
Moody’s cut Vietnam’s sovereign credit rating in December, citing the risk of a balance-of-payments crisis and a drop in foreign reserves as inflation reached a two-year high and the currency weakens. Consumer prices increased 12.2 percent last month from a year earlier, compared with 11.8 percent in December, according to data from the General Statistics Office.
“One of our top priorities now is to stabilize the macro economy in order to maintain the pace of growth,” Nguyen Van Thao, deputy chief administrator of the ruling Vietnamese Communist Party’s Central Committee, said on Jan. 19. The government forecasts the economy will expand by up to 7.5 percent this year, compared with 6.7 percent in 2010.
To contact the reporter on this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net
To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net