The ongoing dollar shortage on the currency market has made it difficult to do business in Vietnam and could dishearten many foreign investors, experts say.
Alain Cany, Ho Chi Minh City-based chairman of the European Chamber of Commerce in Vietnam, said it was not easy to find US dollars in Vietnam.
It took a whole week for the chamber to get US$1 million for a project as it had to work with seven to ten banks, online newspaper VietnamNet cited Cany as saying at a recent conference in Hanoi.
A Reuters report last week said for the past year or so psychological and market factors have created a shortage of dollars in the official market, hitting a range of industries, especially importers.
For Ford Vietnam, for instance, one of the greatest challenges doing business in Vietnam is finding enough dollars to pay its overseas suppliers on time, as at least 85 percent of the content of its vehicles is imported.
"We've had days when the treasury guy's come in and said: 'We just can't get enough US dollars'," said Michael Pease, general director of Ford Vietnam Ltd.
"And we've had to make a choice at that point, whether it's feasible for us to get another currency or whether we need to go back to our suppliers and simply say, look, based upon the bank advice we won't be able to remit the funds on the date that we had committed."
According to an HSBC survey released early this month, the majority of small and mid-market businesses in Vietnam saw foreign exchange volatility as a top barrier to business growth.
Le Xuan Nghia, vice chairman of the government's National Financial Supervisory Commission, told the conference in Hanoi there have been many improvements in business conditions in Vietnam, "but there are two things that are getting worse: paperwork and the forex market."
Experts said the strain on the forex market has dented the confidence of foreign investors and it was one of the reasons why Vietnam has recently moved down in global rankings. It now ranks 75th out of 133 countries in the Global Competitiveness Index rankings announced by the World Economic Forum last month, down five spots from a year ago.
There has been pressure on the dong as many people continue reacting to the possibility of further weakening of the local currency later this year by hoarding dollars, experts said.
Benedict Bingham, the International Monetary Fund's Vietnam representative, said in the Reuters report the actions of millions of households shifting their personal holdings into gold and dollars amid economic uncertainty may have had a big impact on the currency market.
He said the current situation on the market is one "that monetary policy needs to respond to."
"Without a solution to deal with the forex problem once and for all, market confidence will fall further and the dollarization of the economy will worsen," VietnamNet cited Nghia as saying at the Hanoi conference.
Many economists said the dong will weaken in the coming months as the trade deficit widens, inflation rises and fast growth returns.
In a weekly review on October 9 the central bank said that liquidity on the foreign exchange market improved as banks were able to buy more dollars from clients. But on the unofficial markets, the dong fell more than 0.2 percent against the dollar over the course of last week, according to data compiled by Reuters.
Prime Minister Nguyen Tan Dung said at the opening of the National Assembly in Hanoi on October 13 that the dong's exchange rate would be managed flexibly next year to help revive Vietnam's weakening exports and reduce the country's trade deficit.
The government will "manage the foreign exchange market and the value of the currency flexibly in relation to interest rates, the inflation index, the trade balance and other investment channels in order to promote exports, reduce imports and improve the trade balance, as well as the international payments balance," Dung said.
The dong has fallen about 5 percent so far this year on official and unofficial markets. Exports are expected to drop this year by close to 10 percent, Dung said.
He said foreign exchange reserves were at an "adequate level" and sufficient to cover about 12 weeks of imports.
Vietnam does not regularly publish its monthly foreign exchange reserves, but based on January to September imports of $48.28 billion, 12 weeks of imports would be the equivalent of about $14.85 billion, Reuters calculates.
Reserves stood at $17.6 billion at the end of June, down from $23 billion at the end of last year, the Asian Development Bank said last month, after exports fell and the central bank was forced to step up dollar sales to support the currency.
Source: Thanh Nien, Reuters