Greenback value down, exporters suffer

T. company, a construction material supplier, incurred a loss of VND1bil in the fourth quarter of 2007 and is facing a possible lawsuit because it cannot deliver goods as per their agreements.

T.’s General Director related that in November, his company signed a contract to sell steel to an Italian company, under which, his company would deliver 500 tons in December 2007. At the time of signing, the steel price was VND10,600/kg and the VND/US$ exchange rate was VND16,045/US$1.

To T. company’s surprise, the price unexpectedly soared to VND12,300/kg, while the VND/US$ exchange rate unexpectedly dropped to VND15,987/US$1. Resultantly, T. is unable to purchase the steel it needs to deliver.

To date, the greenback is used as the main export currency. Vietnamese enterprises are regretting this as they watch the dollar devaluate, day by day and as domestic input material prices keep skyrocketing. They are spending more on production cost and their turnover is lessening because of the weak dollar.

According to Nam Viet Trading Joint Stock Company (Navifico), previously, the company could get VND4bil per export order, on average; now, for the same order, it earns only VND3bil. The difference is the exchange rate: it was VND16,450/US$1 before, and it is now VND15,987/US$1.

Experts warn that losses Vietnamese enterprises may incur may increasingly rise, as the greenback shows no signs that it will stop its slump. They also say that if enterprises do not diversify the foreign currencies they use in making payments, they will face severe consequences.

In fact, import and export companies have been advised to use other foreign currencies as a dollar alternative, particularly the Euro. However, their counsel has been ignored. Over 80% of total foreign currency transactions are in US dollars, while Euro transactions are only a fraction of the remaining 20%.

Dollar supply now exceeding demand

According to Pham The Tuan, Deputy General Director of Vietcombank - HCM City Branch, the dollar demand is slightly increasing as enterprises rush for Tet imports. However, he said that the demand increase is too small when compared to the overabundance of dollars.

In fact, despite the increased demand for the dollar, its value has fell below the VND16,000/US$1 threshold. With the current exchange rate fixed at VND15,987/US$1, the greenback is at its lowest in a year. The dollar price dropped immediately after the central bank widened the VND/US$ trading band to 0.75% from 0.5%.

Meanwhile, the VND demand is increasing dramatically, which has forced commercial banks to cut the US$ deposit interest rates and raise the VND deposit interest rates.

The weaker greenback has exporters concerned because their profits margins are narrowed.

Source: NLD