Soaring Inflation Hurting Vietnam Exports-JP Morgan Chase

Vietnam’s accelerating inflation may hurt its exports growth as the Southeast Asian country allows dong to weaken in a bid to boost shipments, JP Morgan Chase & Co was cited by the Thanh Nien Daily newspaper as saying.

 

“High inflation is eroding export competitiveness despite government efforts to maintain a weak currency,” Matt Hildebrandt, a Singapore-based economist at JP Morgan Chase said in his recently released report.

 

“Competitiveness depends on inflation differentials as well as nominal currency value,” the report said.

 

A move by the State Bank of Vietnam to buy U.S. dollars leads to “unusual large depreciation” of the dong toward the end of March, JP Morgan Chase said and noted that the weakening dong policy by the government is unlikely to be effective. JP Morgan Chase also advised that a better strategy will be to allow greater currency flexibility to help temper rising consumer prices rather than merely focusing on the dong’s value against the U.S. dollar.

 

Meanwhile, HSBC called the move by the central bank part of a highly-confusing government foreign-exchange policy.

 

Vietnam’s inflation soared to 19.4 per cent on year in March, the highest since 1995, which was driven by surging food prices. The State Bank of Vietnam allowed the dong to strengthen in March as strong as VND15,810 against the U.S. dollar in an attempt to slow down inflation.

 

Former Minister of Trade Truong Dinh Tuyen said the most effective way for Vietnam to narrow the trade deficit is increasing exports.

 

This year, Vietnam targets exports revenues of US$58 billion, up 20 per cent-22 per cent on year.

 

Analysts all said that the demand for dollars is increasing. By the end of the first quarter of 2008, the trade deficit had reached US$7.36 billion, or 2.7 times higher than the export turnover. (Thanh Nien Daily)