Vietnam Moving Toward Forex Crisis, May Devalue Dong

[marshbags]

By The Nation,

Bloomberg

Published on June 6, 2008

CURRENCY IN TROUBLE

VN faces 'dong crisis'

Systemic shock looms as inflation tops 25%

As Vietnam's inflation rate soared to 25 per cent in May, the highest since 1992, there are rising concerns that this may result in a financial crisis and a hefty devaluation of the currency like Thailand experienced in 1997.

"There is talk that Vietnam's currency crisis could rival Thailand's currency crisis in 1997," said website UOBKayHian.

A Thai financial executive said if Vietnam were to devalue its currency as a way out of economic distress, it might lead to competitive devaluation among other regional currencies, including the baht.

Vietnam's dong dropped to its lowest in a week after the central bank set a weaker reference rate.

The currency is headed for a fifth weekly loss as Standard & Poor's, Moody's Investors Service and Fitch Ratings lowered their outlook on the nation's debt to negative, citing a slow government response to inflation.

The State Bank of Vietnam set a rate of 16,117 dong to the dollar yesterday, compared with 16,107 on Wednesday, according to its website. The currency is allowed to trade up to one per cent on either side of that rate.

The dong had weakened by 0.07 per cent to 16,277 to the dollar as of 10.45am in Hanoi, according to data compiled by Bloomberg.

Slowing economic growth and a widening trade deficit have caused a shortage of dollars in the market, the Nguoi Lao Dong newspaper reported, citing Cao Sy Kiem, former state bank governor and now a member of the National Advisory Council for Finance and Monetary Policy.

The exchange rate in the so-called free market, used by moneychangers in Ho Chi Minh City, was 18,000 to the dollar late yesterday, the newspaper said.

Inflation accelerated to 25.2 percent in May, the highest level since at least 1992, according to the Hanoi-based General Statistics Office.

The trade deficit in the first five months of the year tripled to US$14.42 billion (Bt474 billion) from $4.25 billion in the same period a year earlier.

The government yesterday cut its growth forecast for this year from 9 per cent to 7 per cent, and said curbing inflation was its top priority.

Other Southeast Asian countries are also battling high inflation. Indonesia and the Philippines have already raised interest rates as surging food and energy prices prompt policymakers across Asia to tackle inflation even as growth slows.

"It's a real dilemma for the central banks. They are facing their most testing time since the Asian crisis ten years ago," Robert Subbaraman, chief economist at Lehman Brothers Asia, said in an interview with Bloomberg Television. Growth in Asia is slowing and "at the same time inflation has picked up".

Unquote

Taking the present political scenario here in Thailand into the equation along with the regional situation re inflationary worries ect. ect. will it happen ?

I think it will set of at least modest devaluation and looking around my local neck of the woods has to, they are borrowing credit on next years budget, never mind this one.

How the <deleted> do they the powers that be continue to allow and encourage it, when they should be refusing / turning a blind eye to the obvious ???

marshbags

Edited June 6, 2008 by marshbags

[cclub75]

Taking the present political scenario here in Thailand into the equation along with the regional situation re inflationary worries ect. ect. will it happen ?

I think it will set of at least modest devaluation and looking around my local neck of the woods has to, they are borrowing credit on next years budget, never mind this one.

There is a black swan... regarding a devaluation : oil.

All asian economies start to suffer from high prices of oil... so can you imagine what would happen if Vietnam devaluate the VND ?

The oil bill would explode.

Back to bicycles in the street of Hanoi for sure...

[quiksilva]

Good point! I can't imagine them taking that route... hmm interest rates could go sky high!

[Naam]

There is a black swan... regarding a devaluation : oil.

All asian economies start to suffer from high prices of oil... so can you imagine what would happen if Vietnam devaluate the VND ?

The oil bill would explode.

Back to bicycles in the street of Hanoi for sure...

the swan is not too black. Viet Nam is a net EXPORTER of crude oil.

[pkrv]

I think from a personal perspective that one of the most facinating things about Thaivisa is that everything is considered. I have looked at other forums but they appear to have few contributors.

It is almost as if Thailand is the first choice in destination, but also a staging post. Again personally I am sort of looking outside of Thailand but find nothing else on the horizon.

[SoCal]

There is a black swan... regarding a devaluation : oil.

All asian economies start to suffer from high prices of oil... so can you imagine what would happen if Vietnam devaluate the VND ?

The oil bill would explode.

Back to bicycles in the street of Hanoi for sure...

the swan is not too black. Viet Nam is a net EXPORTER of crude oil.

True, but no refining capacity.

Petrol is subsidized, and currently 14,500/liter in Saigon.

[PattayaParent]

But with one refinery already under construction at Dung Quat and another in the pipeline at Thang Hoa it won't be long before they are self sufficient in fuel.

(Isn't there a Shell Refinery at Ba Ria?)

[Loom]

They've got two refineries in the pipeline. One is supposed to be completed next year and the other in 2015. Total capacity will be ~300,000b/d in line with estimated crude oil production. This is their first domestic refining capacity.

A lot of their crude is processed in Singapore.

[SoCal]

1- Dung Quat- Behind schedule, estimated online 2009. 1/3 countries need.

2- Nghi Son- est 2013. 65% countries need.

3- Ba Ria- In the planning.

[cclub75]

True, but no refining capacity.

Petrol is subsidized, and currently 14,500/liter in Saigon.

What's the point with refining capacities ?

http://tonto.eia.doe.gov/country/country_e...ata.cfm?fips=VM

http://asianenergy.blogspot.com/2007/10/vi...and-import.html

Vietnam will soon be a net importer of oil. They reduce slowly but surely their exports... to serve first their increasing domestic needs (by the way, this phenomena is probably a bigger threat, than peak oil... read here).

As you said, gasoline is already subsidized. With a VND at 16 000... So my point was : if they devaluate the VND... they will have a double whami effect : oil bill with a lower currency.

[samran]

1- Dung Quat- Behind schedule, estimated online 2009. 1/3 countries need.

2- Nghi Son- est 2013. 65% countries need.

3- Ba Ria- In the planning.

there is another one which will slip into number 3 spot...

[bingobongo]

the amount of pain coming to asia (especially after the olympics no longer prop up china) will be worse than the pain some ThaiVisa members feel when they pee after visiting that "special bar girl"

those of you who think LOS wont be affected need to get out of the sun

Vietnam's Dong May Decline 10 Percent by Year-End

The dong, which is allowed to trade within 1 percent on either side of a daily fixing rate, will weaken 29 percent in the next 12 months according to trading of non- deliverable forwards.

http://www.bloomberg.com/apps/news?pid=20601087&sid=azkpXUm5di3s&refer=home

Edited June 6, 2008 by bingobongo

[marshbags]

The Nation

Published on June 7, 2008

Inflation seen peaking in q3, warning over 2nd-round effect

By Siriporn Chanjindamanee,

Wichit Chaitrong

Headline inflation is likely to peak in the third quarter and is expected to rise to 8.3 per cent or higher this month after reaching a 10-year high of 7.6 per cent in May, according to Prapas Tonpibulsak, chief investment officer of Ayudhya Fund Management.

He said yesterday that the inflation rate this month might be higher than the expected 8.3 per cent as the price of US light sweet crude had surged above the previous assumption of US$120 (Bt3,970) a barrel.

If average oil prices rise to $130 per barrel, the inflation rate in Thailand will be higher than 9 per cent before peaking in the third quarter, Prapas said. He added that foreign fund-managers in Europe and the United States were studying the possibility and impact of the depreciation of the Vietnamese dong.

The premiums of currency swap and one-year bond yields have risen by more than 40 per cent, which is a record high. The global market has been expecting the depreciation of the dong, since the Vietnamese economy has been sluggish. Its stock market recently plummeted from more than 1,000 points to 400 points.

"The Vietnamese dong is the hot issue we need to monitor, but I think it won't be as serious as the 1997 financial crisis as Vietnam doesn't have much in foreign debts. Most of the inflows have been direct investment," he said.

He added that if the dong needed to depreciate, it would affect Asian currencies, including the baht. He predicted that the baht might fall to Bt34 per dollar if the dong depreciated.

Prasarn Trairatvorakul, president of Kasikornbank, said inflation was rising because of cost-push, not demand-pull factors, so increased interest rates could have an influence. Aware of this, the Monetary Policy Committee might not increase the policy interest rate too much, he said.

Meanwhile, Deepak Bhattasali, lead economist at the World Bank, suggested Thailand and other countries needed to balance monetary polices to both deal with inflationary pressure and maintain export competition.

Countries in Asia do not want to appreciate exchange rates because they want to support export industries, he said.

Global economists warned yesterday that second-round inflation effects - rising prices for goods and wages across the board - would be become a major threat to the Thai economy and those of other developing countries.

The first-round effect of inflation caused by sharply rising fuel and food prices will soften next year, but a second-round effect is more dangerous, said Hans Timmer, manager of the World Bank's Development Prospects Group. "If inflationary pressure builds it causes rising prices of goods, services and wages, in turn causing inflation to spiral upward."

Timmer suggested countries that had a current-account surplus should appreciate their currencies while countries that had previously implemented loose monetary policy should tighten those policies.

Thailand and other Asian countries have run current-account surpluses for many years, while countries such as Argentina and Bolivia have run expansionary policies.

Stronger currencies would allow cheap imported goods and capital for investment in bottleneck infrastructure, and that plays a part in pushing inflation up, as with inefficiency in transport systems, he said. However, he admitted that there were no clear-cut answers to problems in all countries as they each faced different circumstances.

Romuald Semblat, senior economist at the International Monetary Fund, suggested that policies were needed to prevent second-round inflation and dampen inflationary expectations.

He advised the removal of subsidies on oil prices, allowing high oil prices to pass through to consumers to encourage energy conservation and efficiency. "At the same time, the most vulnerable groups should benefit from well-targeted policy support," he said.

He went further and said that countries should reduce their levels of protection and subsidies for biofuel production in order to prevent further increases in the prices of food products.

Unquote

Even if the Baht doesn.t devalue in a modest way, it must surely weaken further than 34 to the dollar, along with other Asian currencies having to follow accordingly with their respective currencies.

There is also surely, much more of the same waiting regarding the highly inflated economies, even without the price of oil to contend with.

marshbags

Edited June 7, 2008 by marshbags

[backflip]

"Apparently there was a Vietnamese gov't report released yesterday saying the official inflation number was 25.4%. "

That's correct, however the person who posted it was referring to THAILAND, not Vietnam.

[Misty]

"Apparently there was a Vietnamese gov't report released yesterday saying the official inflation number was 25.4%. "

That's correct, however the person who posted it was referring to THAILAND, not Vietnam.

Mmmm, from the context it sounded like SoCal was referring to where he or she lives--i.e., Vietnam, not Thailand.

But if I misunderstood and SoCal was referring to Thai inflation being 25%, then yes, I'd agree with you that inflation in Thailand is not 25%.

[marshbags]

GOOD I PRAISE ... DOUBTFUL ... I RAISE

Economy needs Political impasse to be resolved

By MR Pridiyathorn Devakula

Nation, Published on June 9, 2008

Since the beginning of this year, the prices of oil and rice have soared, affecting people in big cities especially salaried workers who have no extra income, forcing them to cut down on their expenses.

At the same time, prolonged political protests have dented the confidence of people living in big cities.

They feel the economy has stopped growing as a result of the lack of confidence due to the reduction of household expenditures and the slowdown of investment.

But feelings can be different from reality.

In the first quarter of this year, the economy grew at a rate of 6 per cent, which was higher than that of every quarter of last year. This was due to the fact that while oil prices rose, the price of major food crops also increased markedly. Besides rice, the prices of rubber, tapioca, sugarcane, and palm oil also escalated quickly, resulting in a record increase of income for farmers around the country.

As farmers are relatively poor and many struggle to pay for the necessities for life, the additional income provides them with the means to acquire them. As a consequence, retail sales increased in real terms by 15.7 per cent in March over the same month last year.

More pronounced is the sale of motorcycles, which jumped by 17.8 per cent in March and 35.4 per cent in April. The increase in consumer spending contributed to an overall 2.6-per-cent increase of household consumption in the first quarter in real terms, which was higher than that of any quarter of last year. There is also the possibility that consumption up country could continue to rise even though household consumption in big cities may slow down because of the increase in oil and food prices.

Besides the increase in overall household consumption, private investment is another driving force for the economy at the moment.

Private investment growth, which was negative in the first half of last year and grew at a meagre rate in the second half, grew at the rate of 6.5 per cent in real terms in the first quarter of this year.

The import of capital goods increased at more than 15 per cent in real terms in the first quarter and was even higher at 17.6 per cent in April. These were brought in for capacity expansion by various industries.

However, certain facts indicating uncertainty of further expansion of private investment have started to appear.

An 8.5 per-cent fall in cement sales in March and even bigger drop of 18.2 per cent in April shows the effect of higher oil prices on production and construction costs. It is still unclear whether the fall in cement sales was due to real estate developers waiting for a clearer picture of their cost increases or because of a slowdown in investment. This remains to be seen.

Another indicator of movement in private investment is the Business Sentiment Index which had been rising continuously since the middle of last year up to March this year. It dropped suddenly in April - at the same time as the drop of consumer confidence index - after increasing up until March.

Normally, a change in the index would not result in an immediate increase or decrease of private investment. It normally has a lead time of 3-6 months. If confidence falls temporarily and then bounces back, investment growth remains steady.

The question is, what factors led to the fall off in business sentiment from April. The surge in oil prices, which has a knock-on effect to production costs, does affect business sentiment. However, it should not be the main factor as oil prices have been going up for quite some time, yet private investment has continued to increase. Exports have been growing and household consumption has picked up. The main factor that really dragged down the Business Sentiment Index should be concerns over the political situation, where conflicts started to worsen in April and May.

Discussions with businessmen revealed their concern that the deteriorating political situation, as reported in newspapers, may get out of control. Their doubts on when and how the conflict would end and what could happen next made them nervous. At the moment, they have not stopped their investment activities. However, if the disagreements are prolonged and there is no clear sign of when they would be resolved, investment growth may slow.

The faster the situation is normalised, the better it will be for the economy, since the private-investment growth would continue and consumer confidence would improve.

Thailand this year will depend more on domestic consumption and domestic investment to drive economicgrowth.

The country cannot depend on international trade as the economies of major trading partners are slowing down. The United States is now in recession, which has already caused a manufacturing downturn in Europe and Japan in recent months. The slowdown of major economies has affected the export of IT products in Asia, namely South Korea, Taiwan and China. There are also signs of a global manufacturing slowdown.

It is therefore necessary for Thailand to make sure that domestic consumption and investment can grow at their full potential. The government has to be careful in its measures regarding agricultural production. Mistakes as in the case of rice must not be repeated.

The price of crops still remains high, which pushes up household spending. It is also necessary to make sure that political disagreements do not expand into a conflict, which would certainly have a negative impact on investor confidence. If both sides can compromise and find a peaceful way to end their differences quickly, I believe business sentiment would recover and private investment would continue to grow.

Until next Monday.

Unquote

Edited June 9, 2008 by marshbags

[junkofdavid2]

"Dong has a problem! Dong won't go up no matter what!"

Sound like an old man with a certain 'difficulty'...

[churchill]

Vietnam's interest rates up to 14% , Thailand selling dollars to strengthen baht , where are we heading ?

[bingobongo]

the amount of pain coming to asia will surprise many...........its coming........BOO!

Vietnam's Troubled Economy

http://www.time.com/time/world/article/0,8...0,00.html?imw=Y

[LaoPo]

Vietnam Raises Interest Rate to Highest in Asia, Lets Dong Fall

A -strong- depreciation of the Vietnam Dong is bad news for Thailand and it's stock market....; however, it will draw more and more Chinese (textile, shoes etc) manufacturers from Guangdong who were moving their production to Vietnam already, earlier this and last year !. * see link below

If Thailand's manufacturers don't act -NOW- they'd better forget about their future. They will never be able to compete -anymore-.

By Nguyen Kieu Giang

June 10 (Bloomberg) -- Vietnam increased the benchmark interest rate to the highest in Asia to cool the quickest inflation since at least 1992, and will allow the dong to weaken.

Governor Nguyen Van Giau will raise the base rate to 14 percent from 12 percent to stabilize the economy from tomorrow, according to a statement on the central bank's Web site. The bank also lowered the dong's reference rate for tomorrow by 2 percent to avoid currency speculation.

The rate increase may help restore confidence in the benchmark stock index, which has lost almost 60 percent this year and is the world's worst performer. Vietnam faces a potential currency crisis because of spiraling inflation, according to Deutsche Bank AG and Morgan Stanley.

``This is good news for the market,'' said Dam Bich Thuy, Hanoi-based chief executive officer of Australia & New Zealand Banking Group Ltd.'s Vietnam unit. ``The move shows that the government is taking action to address investors' concerns.''

The rate increases are the third this year. The Southeast Asian nation also raised the refinancing rate to 15 percent from 13 percent and the discount rate to 13 percent from 11 percent, the statement said.

The State Bank of Vietnam will set the dong's daily reference rate at 16,461 per dollar tomorrow, 2 percent lower than today's rate, it said. The currency is allowed to trade up to 1 percent on either side of the rate. The trading band will remain at 1 percent, the bank said.

Depreciation Pressure

``The exchange rate is under great pressure for depreciation although the Vietnamese government is trying to manage that very slowly,'' said Adam McCarty, chief economist of Mekong Economics Ltd. in Hanoi. ``They should probably do it faster than they are doing it, although they are trying to manage expectations.''

The dong fell 0.04 percent to 16,297.5 against the dollar as of 5 p.m. in Hanoi. The currency has weakened 2.7 percent in the past three months. Offshore 12-month non-deliverable dong forwards trade at 22,575 per dollar, Bloomberg data show, indicating traders are betting on a 28 percent drop in a year.

Morgan Stanley said last month that the dong is poised to weaken because Vietnam's current-account deficit may widen this year to an ``unsustainably large'' level. Vietnam will need an International Monetary Fund-style assistance program in coming months that may include a dong devaluation, Deutsche Bank said last week.

Stocks Slump

Stocks may extend this year's slump as the government raises interest rates, restraining earnings growth, Mark Matthews, Asia Pacific head of equity strategy at Merrill Lynch & Co. in Hong Kong, said in an interview last week.

The VN Index, a measure of 151 companies on the Ho Chi Minh City Stock Exchange, fell 1.61 percent to 373 today, extending its record losing streak to 24 days.

``Interest-rate increases are just one of the measures the central bank will take to reduce money in the banking system,'' said Nguyen Anh Tuan, deputy director of the investment banking division at the Vietnam Bank for Industry and Trade in Hanoi.

Central banks in the Philippines and Indonesia this month increased borrowing costs to tackle surging food and energy prices. Vietnam last week cut its growth target for this year and said it needed to prioritize getting inflation under control. Consumer prices surged 25.2 percent from a year earlier in May.

Vietnam's central bank needs to push borrowing costs higher than the rate of inflation to prevent the economy from overheating, James McCormack, Fitch Ratings' head of Asia-Pacific sovereign ratings, said on May 30.

``Asian central banks are finally waking up to the fact that the inflation threat has to be dealt with before the need to support growth,'' said Callum Henderson, head of foreign-exchange strategy at Standard Chartered Bank in Singapore.

---Bloomberg

Chinese Manufacturers Shun Low-Wage Inland for Vietnam, India:

* http://www.bloomberg.com/apps/news?pid=206...&refer=home

LaoPo

Edited June 10, 2008 by LaoPo

[klikster]

All I can say is that Thailand wipes the floor with all other 'offers' on the table for foreigners, I am afraid there are a lot of us planning for the future and IMO options are very limited, Vietnam as you say, is not one of them.

I realize that this is the SEAsia forum .. but you might want to do some research on Panama ..

[pkrv]

All I can say is that Thailand wipes the floor with all other 'offers' on the table for foreigners, I am afraid there are a lot of us planning for the future and IMO options are very limited, Vietnam as you say, is not one of them.

I realize that this is the SEAsia forum .. but you might want to do some research on Panama ..

Interesting thought, and thanks. I assume this is on a purely a monetary basis? I have clear definitions of investments - I steer well clear of countries governed by religious maniacs. You can always spot them a mile off. It is how they treat their minorities that counts. If they treat human beings like that what is the ultimate reward instore for you?

Thailand does have problems don't get me wrong - but they are not quite so 'vicious'?

[cclub75]

Vietnam suspends gold imports in move to ease growing trade deficit !

Very good article here..

A totally counterproductive idea -and so communist.

With such policy, they are going to increase the... shortage... the black market... the paralel imports, etc.

They never learn. And never will.

People buy more gold because... they just don't trust the VND anymore (25 % inflation and counting, and devaluation).

Such policy is going to increase the problem.

Edited June 24, 2008 by cclub75

[LaoPo]

Vietnam suspends gold imports in move to ease growing trade deficit !

Very good article here..

Your link doesn't work...

LaoPo

[cclub75]

Vietnam suspends gold imports in move to ease growing trade deficit !

Very good article here..

Your link doesn't work...

LaoPo

Sorry, my mistake.

http://globaleconomicanalysis.blogspot.com...ld-imports.html

[cclub75]

Dual market... and the scandalous "prime" given to state companies....

July 4 (Bloomberg) -- Vietnam's currency controls are forcing foreign investors into the black market to obtain dollars, aggravating declines in the world's worst-performing stock market and pushing benchmark bond yields above 20 percent.

Businesses that aren't controlled by the government pay about 7 percent more than the official rate when using the dong to buy dollars because the state gives its trading companies priority access to the U.S. currency, the World Bank said. The premium is reducing demand for the nation's stocks and bonds, according to PXP Vietnam Asset Management.

``There is clearly a shortage of dollars,'' said Kevin Snowball, a money manager at PXP Vietnam in Ho Chi Minh City, which oversees $117 million. ``If you have dollars and you want to buy dong, you will get the official rate, but if you have dong and you want to buy dollars it's a completely different story.''

[pkrv]

Err... I am happy with my choice in investing in a home/condominium in Thailand is that OK?

[cclub75]

Err... I am happy with my choice in investing in a home/condominium in Thailand is that OK?

Sure... But how many burned themselves ? I remember on TV some messages, even just a few months ago, with the old good trick : "real estate in Saigon is booming ! There isn't enough supply... Demand explodes because of foreign companies.... Easy..." blablala.

A few months ago.

Now, double kiss cool effect : the financial crisis will lead to a decline of nominal prices (bubble burst)... plus the valuation of their assets in VND will go through the grinder of exchange rate (I should say exchange rate crisis)... At the bottom line.... corpses in USD.

This story should teach us humility. And never say never.