Vietnam devalues dong again in step to alleviate woes

TN News

Email Print

Vietnam devalued its beleaguered currency on Friday for the third time in a year, as authorities start to try to address festering economic problems.

The State Bank of Vietnam dropped the dong's reference rate by 8.5 percent against the dollar and narrowed the currency's trading band to 1 percent from 3 percent on either side of that midpoint rate.

The combined effect pulled the weak limit of the band down about 7 percent to 20,900 from 19,500, and brought official and black market exchange rates closer to alignment.

The International Monetary Fund welcomed the changes, but said authorities needed a "broader set of policies" to restore macroeconomic stability.

The dong, unlike nearly all other Asian currencies, has been weakening against the US dollar. Confidence in the local currency is low in Vietnam, where dollars and gold are widely used as currencies for major purchases and as a hedge against inflation.

Friday's devaluation was the sixth -- and by far the biggest -- in nearly three years. Exactly one year earlier, the dong was devalued by 3.2 percent, and in August there was a 2.0 percent devaluation.

The currency's slide has come during a turbulent period in which authorities have grappled with volatile inflation, wide trade and fiscal deficits, rising global gold prices along with sinking confidence in the dong.

Economists applauded the move but said it would not be a panacea and the central bank now needed to target double-digit inflation, which the devaluation could exacerbate.

"This is a bold and decisive step by the central bank," said economist and former government advisor Le Dang Doanh. "But the devaluation should be just part of a package of measures that the government should take."

Many economists and international organizations, including the IMF, had said authorities were overly focused last year on attaining high gross domestic product growth. Inflation soared to near two-year highs.

More Business News