Vietnam should let dong to fall up to 6 pct in 2009

Viet Nam should allow its non-convertible currency, the dong, to fall 5-6% this year to support exports, a senior government adviser wrote in an article published on Friday.

“The maximum adjustment for the dong/dollar rate between now and the year’s end should stop at between 5-6%”, Le Xuan Nghia, deputy head of the national financial supervisory committee, wrote in the article published by the Labourer newspaper.

Last year the central bank allowed the dong’s official mid-point rate it sets for interbank trade to fall 5.08%. It also widened the band in which the dong is allowed to trade on a daily basis, effectively allowing it to slide a total of 8.3% against the dollar in interbank transactions.

“The exchange rate is an extremely sensitive matter, especially in dollarised economies such as in Vietnam, where residents can switch savings from one currency to another, causing a negative impact on the allocation of financial resources,” Nghia wrote.

“Hence, the exchange rate adjustment should be studied cautiously and made at a reasonable pace.”

One year non-deliverable dong forwards, which trade in an illiquid offshore market but are seen as a gauge of sentiment, were pricing in a larger drop in the value of the closely managed currency, trading at 19,400/20,400.

Nghia, who ran the State Bank of Vietnam’s Banking Development Strategy Department until late last year, said the exchange rate should help create competitiveness and support export growth. His former committee advises the government on financial and monetary policies.

Viet Nam has projected export growth to slow to 13% this year from a rise of 29.5% last year when revenues jumped to nearly $63 billion, or 72% of the country’s gross domestic product. ($1=16,975 dong) (Reuters)