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Vietnam may intervene to maintain currency's value

China Daily | Updated: 2008-06-10 07:31

Vietnam's foreign exchange reserves are sufficient for the government to step in to help maintain the value of the dong, said Prime Minister Nguyen Tan Dung, damping concern the currency will collapse.

The Southeast Asian nation is battling inflation of more than 25 percent, the fastest since at least 1992, spurring concern that the dong may loose value as the benchmark stock index extends its losing streak to a record. Rating agencies have lowered their outlook for the nation's debt in the past month, citing a slow government response to inflation.

Vietnam may intervene to maintain currency's value

The government last week cut the economic growth target for this year to 7 percent from 9 percent as it tries to slow the pace of consumer price gains. Vietnam is aiming for 2009 growth of as much as 7.5 percent, according to a statement posted on the government's website.

"With the foreign currency surplus, the government will be able to intervene to maintain the dong's value and ensure imports," Dung said in the statement.

The currency advanced to as high as 16,246.50 per dollar before trading 0.1 percent lower at 16,290.50 as of 12:53 pm in Hanoi, according to data compiled by Bloomberg. The dong has declined against the dollar for three straight months, the longest losing streak since August.

The State Bank of Vietnam set a reference rate of 16,132 a dollar, compared with 16,124 on Friday, according to its website. The currency is allowed to trade up to 1 percent on either side of the rate.

The Ho Chi Minh Stock Index fell 1.3 percent yesterday, capping a record 23-day losing streak, on concern a widening trade deficit and inflation at a 16-year high will prompt overseas funds to sell local holdings, adding pressure on the dong to decline. The benchmark has lost 59 percent this year.

Vietnam's balance of payments showed a surplus of $1 billion in the first five months of the year, according to the government statement. The surplus will increase to as much as $3 billion for the whole year, Dung said.

Morgan Stanley said on May 28 that Vietnam is headed for a "currency crisis" because the country's current-account deficit may swell this year to an "unsustainably large" level. Deutsche Bank AG is also predicting a devaluation of the dong because of accelerating inflation.

Vietnam's Minister of Planning and Investment Vo Hong Phuc said last week that the nation doesn't yet need aid from groups such as the International Monetary Fund after Deutsche Bank predicted the country may be forced to seek an "IMF-style program" in coming months because of insufficient foreign-exchange reserves.

Agencies

(China Daily 06/10/2008 page16)

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