The dong, unchanged last Friday at 15,990 against the dollar, strengthened 0.11 percent last week, according to prices compiled by Bloomberg.

Ever since the State Bank’s December 26 decision to widen the exchange rate margin from +/-0.5 percent to +/-0.75 percent, the dollar has been falling.

The new margin allows commercial banks to offer the dong-dollar exchange rate for 0.75 percent higher or lower than the inter-bank rate announced daily by the State Bank.

But it’s not only the State Bank’s attempt to reign in inflation that is pushing the dollar down.

Commercial banks say low market demand and high supply for the dollar has a lot to do with the current exchange rate.

Banks expect the value of the dollar to continue to fall in the weeks approaching the Tet Lunar New Year as the dollar supply increases significantly with the influx of overseas Vietnamese returning home for the holiday.

Whatever the reason, the declining dollar is eating into exporters’ profit margins.

Le Van Tri, vice chairman of Ho Chi Minh City-based rubber producer Casumina Joint Stock Company, said profit on US$6 million of export contracts in the first quarter of 2008 would be reduced by $72,000 because of the lower level of the greenback.

“I can clearly see the loss is coming,” Tri said. Other exporters agree.

They say the math is simple: an amount of $100,000 in export revenues, for instance, can only be exchanged for VND1,599 billion instead of the VND1,625 billion it was previously worth.

The exchange rate makes the target of exporting $58 billion of products by the end of 2008 seems a much less attractive proposition to exporters than it did a few months ago.

Tan Dai Hung Plastic Joint Stock Company Pham Trung Cang said the falling dollar also caused other problems.

He said exporters were already charging high prices on their export products to offset rising production costs.

“And now that the dollar is depreciating against the dong, foreign consumers will find Vietnamese products cost even more than they did before,” Cang said.

Considering the wide range of product options available, foreign consumers aren’t likely to buy expensive Vietnamese ones, he said.

In the face of a falling dollar, Cang said, Vietnamese exporters might choose to maintain production levels just to ensure employment for their workers, even though they would suffer losses as a consequence.

“But in the business world, this is certainly very risky,” he said.

Experts say Chinese exporters used to be in a similar situation.

But the Chinese government kept the value of the Yuan down to help Chinese exports, even though the policy angered other exporting countries like the US.

Experts say a cheap home currencyis also good for foreign investors whose expenses are lower because of low input costs.

But while the State Bank of Vietnam is yet to figure out another way to keep inflation in check rather than revaluating the dong, experts say Vietnamese exporters will be losing business to their foreign competitors.

Importers, however, are much happier with the currency fluctuation.

Dien Quang Light Bulb Joint Stock Company’s marketing director Nguyen Bac Son said the rising dong meant his company had saved a great deal on importing components needed to make its products.

The head of a paper bag joint venture, who asked not to be named, said his business has pocketed more than VND45 million ($2,816) so far due to lower import prices.

“We signed a contract to import material when the dollar was high.

And two weeks later when it was time to pay our foreign exporters, the dollar had gone down,” he said.

“This is great for us.”

Source: Tuoi Tre.