Dollar surge, a worry all around in Vietnam

By Ngan Anh, TN News

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A laborer works at a yarn weaving plant of the Ha Nam textile company in the namesake province’s Phu Ly town, about 60 kilometers south of Hanoi. Photo: Reuters A laborer works at a yarn weaving plant of the Ha Nam textile company in the namesake province’s Phu Ly town, about 60 kilometers south of Hanoi. Photo: Reuters

Nguyen Thi Anh, head of Song Tien Seafood Company, has for the past few weeks been tracking dollar fluctuations to tweak her firm’s business plans and prices.

The company mainly exports catfish products to the EU and prices customers often in dollars.
With the dollar’s recent surge against the euro, its products have become expensive there. 

Orders are falling amid a demand from customers to cut prices, Anh said. 

“We are considering ways to minimize production costs. But it is difficult to reduce prices because of the recent increase in some input costs.  

“We would face losses if we cut prices by just 4.5-5 percent.” 

The company is keeping products in stock, hoping for higher prices, she said. "It is the optimal solution for us in the current situation." 

The dollar has jumped 12 percent in 2015 against the euro and is up 27 percent from a year ago, according to the Wall Street Journal (WSJ). 

The WSJ Dollar Index, which measures the dollar against a basket of currencies, is up 5.3 percent this year. 

The greenback’s surge against the euro has been driven by an aggressive European Central Bank monetary-easing program that has come as the US central bank is preparing to raise interest rates.

Last week the euro rose above $1.10 for the first time since March 18. 

The EU is the second biggest market for Vietnam, buying mainly seafood, garments and footwear worth some $28 billion last year. 

The soaring dollar has cut the profits of garment enterprises, which directly export their products to the EU and get payment in euros, but use US dollars to import materials from China, Japan and South Korea. 

Thus, their earnings have dropped sharply, the director of a garment company in Nha Trang said.

The foreign exchange rate is not their only problem; production costs have also risen following the recent increase in the prices of gasoline and electricity. 

Electricity prices were hiked by 7.5 percent on March 16 to VND1,622 (7.7 US cents) per kWh. 

The retail price of gasoline went up by 10.2 percent on March 11. 

Combined with the euro’s decline, it is creating a huge burden for businesses specializing in exports to Europe. 

Small firms that find it hard to diversify export markets face the most difficulties. If the euro’s free fall continues in the coming time, many of them would have to reduce production, and layoffs would be inevitable, Luong Van Thu, director of a garment firm based in Hung Yen Province, said. 

Duong Ngoc Minh, general director of Hung Vuong Seafood Company, said Vietnam’s rivals like India, Thailand and Indonesia have cut prices. 

“If we do not cut prices, we cannot not sell.” 

Prices of catfish exported to the EU have fallen by 5-10 percent from a year ago, he said. 

Some enterprises, especially those that both raise and export fish, are accepting losses to boost sales and avoid stocks from piling up.  

Vietnamese companies should find ways to cut production costs, Minh added. 

Market diversification is the preferred choice of another seafood exporter, Thanh Hai. Its director, Vu Quang Thanh, said his firm has got fewer orders from the EU this year, mainly because of the euro devaluation. 

To achieve its targets, the company has had to find new markets like the US, Japan and Middle East, Thanh said. 

Keep dong unchanged

The dollar is rising faster than any time in the last 40 years. 

The euro could continue to sink in the future, Newsweek magazine quoted Jennifer McKeown, senior European economist at Capital Economics in London, as saying. 

“Our forecast is parity within the next three months and some partial recovery after that. 

“I think in the short term it could go a bit lower [than parity] and then rise up to about 1.10 by the end of next year.” 

But it is not just against the euro that the dollar is rising. Asian currencies have also weakened against the greenback, raising expectations for a dong devaluation. 

The Japanese yen earlier this month struck 122 per dollar - its lowest level since July 2007. 

On Wednesday the dong edged up to 21,475 per dollar on the interbank market from 21,500 dong the previous day, but it has weakened 0.5 percent this year. 

However, Nguyen Thi Hong, deputy governor of the State Bank of Vietnam (SBV), said Wednesday that the central bank would keep the dollar-dong exchange rate unchanged. 

"Depreciating the dong will help exports but not much, while imports will face difficulties." 

Concern about repaying foreign loans is another reason the central bank should keep the exchange rate unchanged, a Ministry of Planning and Investment official said. 

Eighty percent of Vietnam’s overseas loans are in US dollars, and if the dong weakens by 1 percent, overseas loans will rise by VND10 trillion ($465.1 million), he said. 

A weaker dong would also raise import prices, increasing inflationary pressures, he said. 

Earlier this year the central bank lowered the reference rate by 1 percent to 21,458 dong to the dollar. The currency is allowed to trade 1 percent on either side of this rate. 

Nguyen Van Binh, governor of the State Bank of Vietnam, has said Vietnam would keep the exchange rate within a 2-percent band in 2015 – just like in 2014.

 

 

 

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