Giau talked with a VietNamNet reporter and others on November 25 about a meeting including Prime Minister Dung and a group of advisors the previous evening. “We deliberated, and reached a decision to adjust the exchange rate policy.”

“The Prime Minister emphasized that Vietnam is not devaluing our currency,” Giau said. “We are only adjusting the exchange rate flexibly, up or down, to put in at reasonable levels after considering the relations between the exchange rate, interest rates, the consumer price index and our external payments balance.”

International news reports have been prone to characterize Vietnam’s move as ‘devaluation of the dong.’

In addition to forceful State Bank intervention in currency markets, Giau said that:

* The Ministry of Industry and Trade will review imports to identify unnecessary goods that influence the trade balance;

* The Prime Minister will urge a number of state enterprises that are exporters and are holding a big cache of dollars to sell these to banks [in exchange for dong];

* Responsible agencies will check the incidence and level of tariffs to remedy any loopholes in the schedule.

How much value does the State Bank of Vietnam expect the dong to lose? How will the decision affect the national economy, people and businesses?

Netting the adjustment of raising the interbank exchange rate and lowering the trading band, the dong would lose 3.44 percent of its value assuming a maximum exchange rate of 18,500 dong to the dollar.

The adjustments will increase our foreign debt burden. However, if the world’s and Vietnam’s economies stabilize and have high growth rate, the duties will gradually decrease.

The adjustments will impact businesses which borrow foreign currencies. Currently, the average interest rate on foreign currencies is five percent per annum. I think this is an acceptable level.

Of course, the adjustments will bring a lot of benefit. They will certainly support our exports. When the interbank exchange rate is adjusted, there will be less tax avoidance, which will also help to curb the trade deficit. Additionally, if our interventions are skilful, there will be a good impact on market psychology and confidence.

How do you expect the decision to affect the dong/dollar rate on the free market?

When the official exchange rate is adjusted and the central bank intervenes forcefully, the making strong intervention, the rates typically return to normal.

Regarding the Prime Minister’s ‘request’ to some state-owned corporations with big foreign currency holdings to sell them to banks. How foreign currency do they hold?

I have to say that the nation’s foreign currency reserves are sufficient to cover twelve weeks of imports, so we don’t yet have to force enterprises to sell foreign currencies. That’s not necessary at this moment

However, in order to cool off currency hoarding and speculation, the Government must ask some state owned economic groups to fulfill their responsibility to the nation. If just several big corporations, especially natural resources exporters, sell foreign currency to banks, this will result in positive changes on the market.

The total sum of foreign currency in the bank accounts of institutions and enterprises is about $10.3 billion.

Looking forward, can you comment on the outlook for exchange rates?

 In general, the exchange rate will be regulated in a flexible way based on the market supply and demand. However, the exchange rate needs to be stabilized to create favourable conditions for businesses. If the interest rates, consumer price index and the international payment balance are stable, the exchange rate will also be stable.

Why did the central bank raise the basic interest rate just after saying it would keep the rate stable?

The adjustments relating to the basic interest rate aim to control the amount and quality of credit. Credit has grown 34.5 percent so far this year, and an overly high credit growth rate will put hard pressure on the exchange rate.

Minister of Planning and Investment Vo Hong Phuc judged that the adjustments will not affect the economic growth. Higher interest rates will just increase production costs a bit.

Source: Vietnamnet