On January 9, commercial banks quoted the exchange rate at VND15,990-15,992/US$1, down by VND82,000/US$ over the previous price level, and by 1.6% (VND263/US$.41) compared to the highest peak seen in mid August 2007

Importers cheer

Director of a packing joint venture said that his company has had huge success. In August, they borrowed $200,000 in dollars when the VND/US$ exchange rate was at VND16,243/US$1, to import materials for local production. The company bought dollars at the end of December to pay off the loan, when the exchange rate was VND16,015/US$1. As such, the company saved and pocketed VND45mil thanks to the trade band widening.

The Director also revealed that he is making huge profit from deferred payment contracts. “We signed the contracts when the dollar price was high, and we made payment when the dollar price was low,” he explained.

Nguyen Bac Son, Marketing Director of the Dien Quang Lamp Joint Stock Company, also said the exchange rate fluctuation has helped his business reduce the expenses of importing materials for local production.

Exporters cry

While importers cheer, exporters cry; revaluation has hit them the hardest.

Two enterprises earned $100,000 from an export deal, but the business that got the payment in August 2007 reeled in VND1.625bil, while the other earned VND1.599bil when it got paid in January 2008, losing VND26mil due to the exchange rate change.

Analysts say the losses exporters will incur will be substantial, noting that Vietnam expects to export $58bil worth of goods in 2008.

Pham Trung Cang, Chairman of the Tan Dai Hung Plastics Company, said that the devaluation of the dollar has resulted in big losses to his enterprise.

In the short-term, the dollar devaluation will badly affect businesses’ operations, and in the long-term, it will make Vietnamese-made products less competitive on the global market, said Mr. Cang, who hopes the central bank will interfere in the market to ‘rescue’ the dollar price.

Le Van Tri, Deputy General Director of Casumina, said that his company has signed contracts to export $6mil worth of products in the first quarter of 2008. As the dollar price has lost 1.2% of its value, $72,000 of Casumina’s profit has vanished into thin air.

In order to ensure profits despite the weaker dollar, exporters have to raise prices. However, Mr. Tri says this is a risky move because it may make Vietnam’s products less competitive.

Exchange rate loosening may stunt economic growth

The State Bank of Vietnam widened the VND/US$ trading band in late December from 0.5% to 0.75%; the move was aimed at curbing rising inflation. However, analysts have warned that the move may slow down economic growth, which will concurrently affect Vietnam’s exports.

Moreover, Vietnam’s investment environment may also lose favor among foreign investors. With the same amount of foreign currencies, foreign investors will be able to buy less commodities and services.

Source: Tuoi tre.