Vietnam posts August trade deficit, signaling dong pressure

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Vietnam's trade balance swung into deficit in August from a surplus the previous month, threatening to revive pressure on the nation's currency following a devaluation of about 7 percent in February.

The shortfall was $800 million, compared with a revised $1.1 billion surplus in July, based on preliminary figures released by the General Statistics Office in Hanoi Thursday. For the eight months through August, Vietnam posted a trade deficit of $6.2 billion, the report showed. July's surplus was the first since 2009, based on previously released data.

The State Bank of Vietnam, striving to avert a fifth devaluation since November 2009, has sought to boost its foreign reserves to ensure sufficient funds to cover the trade gap. The government is also struggling to tame the highest inflation in Asia, even as faltering recoveries in the US and Europe threaten to slow economic growth.

"The dong remains fundamentally overvalued at current levels, partly because of the chronic trade deficit that Vietnam is running," said Vishnu Varathan, an economist at Capital Economics (Asia) Pte in Singapore. "Also you have a lot of global uncertainty, which is not positive for certain high- risk currencies."

The dong was little changed at 20,832 per dollar as of 9:26 a.m. local time, according to data compiled by Bloomberg. It has declined 1.2 percent this month, and was devalued by the most since at least 1993 in February. The benchmark VN Index of stocks climbed 0.9 percent.

Gold shipments

Shipments of gold contributed to July's surplus, according to JPMorgan Chase & Co. Exports of precious metals fell to $200 million in August from a revised $1.1 billion in July, Thursday's data showed, following the widening this month of a tax on overseas sales of gold jewelry.

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"The surge in gold exports appears to be due to front- loading of exports, and it is unlikely to persist," Matthew Hildebrandt, a Singapore-based economist at JPMorgan Chase, wrote on Aug. 19.

Rising purchases from overseas by foreign companies operating in Vietnam offer "circumstantial evidence that foreign direct investment is fueling imports," Fitch Ratings said this month. The trade shortfall isn't due to a "runaway consumer boom," and exports have been "robust," the ratings company said.

Price pressures

Vietnam's balance-of-payments surplus may be $2.5 billion to $4.5 billion by the end of 2011, the central bank said Aug. 23. Foreign reserves have risen "significantly" on export earnings and remittances, it said, without giving a figure.

Vietnamese consumer prices jumped 23.02 percent in August from a year earlier, the quickest pace in a basket of 17 Asia- Pacific economies tracked by Bloomberg.

The nation has raised interest rates this year and sought to curb credit growth and the budget deficit to tame inflation. The central bank is likely to increase rates further over the coming months "despite the backdrop of a weak global economy," Varathan said in a research note Thursday.

Still, the State Bank of Vietnam cut its repurchase rate on July 4 to 14 percent from 15 percent after the spate of increases. The reduction risked confusing the market about the government's desire to fight the climb in prices and restore economic stability, the International Monetary Fund has said.

Exports in August fell to $8.3 billion from a revised $9.32 billion in July. For the first eight months of the year overall, shipments climbed 33.7 percent to $60.8 billion.

Imports in August rose to $9.1 billion from a revised $8.22 billion in July. For the first eight months of the year overall, purchases from abroad advanced 25.4 percent to $67 billion.

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