Socialist Republic of Vietnam

Vietnamese importers and exporters are facing significant business risks driven by the US dollar’s steep fall against major world currencies, according to financial experts.

Although the US dollar has recovered ground from recent record lows against the Euro, no one can guarantee its downward run has ended, said experts, and the unclearness has Vietnamese businesses worried.

Significant threat

The dollar’s slide has already hit domestic businesses. A plastic producer in Ho Chi Minh City said early this year his company sent a 400,000 USD shipment to the European market and asked the receiver to pay in the dollar instead of the Euro.

“At that time, one Euro was equivalent to 19,744 VND, but now the figure is about 21,100 VND.”

“If we had accepted payment in Euros, we would have earned a profit of hundreds of millions of dong,” he lamented.

Domestic entrepreneurs, particularly importers, are and will continue to incur enormous shortfalls fueled by the unstable changes in the foreign exchange rates, said Nguyen Gia Dinh, chief executive of the Vietnam Export-Import Commercial Joint-stock Bank (Eximbank).

Currently, up to 80 per cent of Vietnamese exporters and importers use the US dollar for payment, according to an official of the State Bank of Vietnam (SBV).

“At the moment, the changes in exchange rates are a significant threat to Vietnamese companies,” said Truong Van Phuoc, chief of SBV’s foreign exchange management department.

Meanwhile, a HCMC-based beverage company had to temporarily halt importing a fruit juice production facility worth millions of Euros to avoid losses of billions of dong as the Euro surged against the dollar.

Options to reduce risks

So far, a large number of companies have opened more accounts in the Euro for import and export payment, amid concerns the dollar might slide to a fresh record low of 1.45 USD against the Euro.

Businesses must decide which currency to use for payment and reserves, depending on its ability to accept and encounter risk, as the value of the Euro changes frequently, commented Dao Hong Chau, Eximbank deputy chief executive.

Companies which fear risk will likely choose the US dollar, but those which want to profit from the exchange rate changes need to calculate carefully the risk involved before predicting and choosing which currency will likely rise in value, he said.

It’s also really important for entrepreneurs to use financial protection tools like banks’ option service to minimize risk of losses, Mr. Phuoc suggested.

The option service offered by banks gives businesses the right, but not the obligation, to buy or sell a specific amount of a given stock, commodity, currency, index or debt at a specified price during a specified period of time.

However, very few Vietnamese companies use such a tool and these companies are almost unable to predict changes in exchange rates because of the lack of information, said Mr. Dinh.

On Dec. 8, the dollar started to rise slightly against the Euro, after months of declining.

“It seems the U.S. government is letting its currency plunge to recover its widening budget deficit,” noted Mr. Dinh. “A weak dollar will back U.S. exports in the competition against Japanese and European Union goods,” he said.

“It is very difficult to predict how the value of the Euro will change in the short term,” said Phan Dao Vu, deputy chief executive of Indovina, a joint-venture bank in Vietnam.

In the long term, the Euro will definitely devalue. For the short term, analysts say it will continue to rise in 2005, but it can also fall against the dollar, said Mr. Vu.

Reported by T.X & Hoang Ly – Translated by Hieu Trung
Story from Thanh Nien News
Published: 19 December, 2004, 23:51:07 (GMT+7)
Copyright Thanh Nien News