Vietnam reserves slump by 35 pct, VinaSecurities Says

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Vietnam's foreign-currency reserves declined about 35 percent to around US$15 billion by the end of last year, according to VinaSecurities Joint-Stock Co., the brokerage unit of the country's biggest fund manager,

The holdings have dropped from $23 billion at the end of 2008, the securities firm said in a report released today. The "foreign-currency reserves level is a source of concern," Alan Pham, Ho Chi Minh City-based chief economist for VinaSecurities, said last week.

Vietnam's sources of foreign currency fell last year after the country posted a deficit of $12.25 billion and direct investment pledges from abroad declined more than 64 percent to $21.5 billion. The government's foreign-exchange policies have encouraged dollar hoarding, according to research by HSBC Holdings Plc.

The country has been seeking foreign currency by pushing state-owned companies to sell dollars and raising money from international loans, as well as a $1 billion bond sale. The measures were targeted in part at easing devaluation pressure on the dong, according to a report by Australia & New Zealand Banking Group Ltd.

The currency has weakened 6.4 percent in the past four months after the State Bank of Vietnam devalued the dong twice to bring the official exchange rate closer to the black-market rate. The dong was trading at 19,075 against the dollar as of 3:30 p.m. in Hanoi.

Import coverage

The Vietnamese government expected the reserves to "bottom out" at $16 billion, Moody's Investors Service said in December.

The current level of reserves is enough to pay for about three months' worth of imports, Pham estimated. VinaSecurities is a unit of VinaCapital Investment Management Ltd., which manages about $1.7 billion.

Vietnam's foreign-exchange reserves measured in relation to import coverage are lower than those of China, India, Indonesia, Malaysia, the Philippines, South Korea, Taiwan or Thailand, according to Benedict Bingham, the International Monetary Fund's senior resident representative in Hanoi.

The government in December asked Vietnam Oil & Gas Group and Vietnam Airlines Corp. to "immediately sell" dollars to banks. "Major state-owned enterprises are still encouraged to sell dollars now that they can receive a better price," Pham wrote in the report.

Dollar hoarding

The difficulties for companies in Vietnam to buy dollars are damaging confidence in the dong, Citigroup Inc., the third- largest US bank by assets, said in February.

The devaluations "have undermined confidence in the dong and lead to expectations of similar steps in the future, which will result in a greater urge to hoard dollars," Pham wrote in the report.

The dong may weaken as much as 5 percent by the end of 2010, according to VinaSecurities.

The gap between the official rate and the free market rate has narrowed to about 2 percent to 3 percent, compared with as much as 12 percent in late 2009, according to VinaSecurities.

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