Vietnam Currency Discussion Board

[RICK C]

Vietnam Doesn't Plan to Allow Currency to Depreciate (Update1)

By Soraya Permatasari and Shamim Adam

June 15 (Bloomberg) -- Vietnam doesn't plan to let the dong depreciate because it would affect the economy, Finance Minister Vu Van Ninh said, identifying a fight against inflation as the government's biggest priority.

Vietnam's inflation rate, running at the fastest since 1992, may ease to below 10 percent next year as the government takes steps to cool surging prices, Ninh told participants at the World Economic Forum on East Asia in Kuala Lumpur today. ``We do not intend to depreciate the dong because it will have a great impact on our economy,'' he said.

Vietnam's central bank has increased borrowing costs three times this year to 14 percent, the highest in Asia, as the Southeast Asian nation seeks to tame accelerating inflation by tightening credit and cutting the supply of money. It lowered the dong's reference rate by 2 percent to prevent currency speculation on June 11.

``Our economy has been impacted especially with high inflation,'' Ninh said today. The government's biggest priority is to contain consumer price gains and ``restore economic stability.''

Consumer prices surged 25 percent in May, and analysts have warned the economy is at risk of a hard landing. The central bank increased interest rates on June 11 to 14 percent from 12 percent. It sets a daily reference rate that allows the currency to fluctuate by 1 percent on either side.

Tighter monetary policy this year has affected the stock market, Ninh said.

Political Stability

The country is experiencing ``short-term'' difficulty due to ``shortcomings'' in the economy, Ninh said. The government will need time to control inflation, which won't be an easy task; Vietnam's inflation is both ``domestically rooted'' and imported, he added.

The government, which has maintained its fuel subsidies to provide a safety net and ensure ``political stability,'' won't raise fuel costs this month and will take into account global crude prices when deciding on any increase in July, Ninh said in comments translated from Vietnamese.

``We maintain petrol prices low, so step by step we'll adjust the price,'' he said.

Vietnam may have to adjust oil and gasoline prices should global crude costs keep rising, Deputy Minister of Industry and Trade Nguyen Cam Tu said earlier this month. The government caps gasoline prices to keep fuel affordable for the country's 85 million people.

Trade Deficit

The nation's trade deficit tripled in the first five months of the year to $14.42 billion from $4.25 billion in the same period a year earlier.

Standard & Poor's, Moody's Investors Service and Fitch Ratings have all lowered their outlook on Vietnam's credit rating to negative since the beginning of May.

Vietnam's bank lending surged 50 percent last year as banks extended credit to retail investors and brokers to buy securities, and demand for mortgages increased as the real estate market boomed.

The government sees ``much potential for growth'' and will continue to implement reforms including selling state-owned enterprises, Ninh said today.

To contact the reporter on this story: Shamim Adam in Singapore at [e-mail] Permatasari in Kuala Lumpur at [e-mail] Tien Hin in Kuala Lumpur at [e-mail]