Vietnam Q2 Growth Quickens on Back of Dong Devaluation
HANOI – Vietnam’s economic growth quickened in the second quarter as exports improved after the first devaluation of the dong, Vietnam’s currency, in 2014.
According to data released by the Vietnam General Statistics Office, gross domestic product rose 5.25 percent in the second quarter from a year earlier. However, World Bank still estimates that Vietnam will see an expansion of 5.4 percent this year, below the government’s target of 5.8 percent.
The State Bank of Vietnam devalued the dong in an effort to jumpstart exports after anti-China protests in May halted production at foreign-owned factories and caused Chinese workers to flee.
On June 18, after the protests, Vietnam’s central bank devalued the dong by weakening its reference rate for the currency by one percent to 21,246 per U.S. dollar. The change allows the dong to fluctuate as much as one percent on either side of the central bank’s reference rate. The currency has slipped more than one percent this year.
Usually at the end of the second quarter demand for dollars increases, as Vietnamese enterprises need dollars to make payment for imports, while foreign invested enterprises in Vietnam need to buy dollars to transfer part of their profits abroad.
From the middle of June, commercial banks raised the dollar, quoting prices from VND21,340-21,380 per dollar.
However, the upturn stopped in July, the U.S. dollar price has been decreasing thanks to an abundant dollar supply from ODA (official development assistance), foreign direct investment (FDI) and foreign portfolio investment (FPI).
On July 15, the State Bank Exchange unexpectedly raised the dollar buy price by VND100 per dollar to VND21,200 per dollar. The selling price stood at VND21,400 per dollar.
Vietnam has also stepped up efforts to overhaul its debt-laden banks and spur lending to businesses. Prime Minister Nguyen Tan Dung has repeatedly called on the central bank to lower lending rates and do more to help companies.
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