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February 11, 2009

Vietnam aims stability in foreign exchange
Vietnam's central bank said on Tuesday it would work to keep foreign exchange rates stable this year as part of efforts to prevent an economic slowdown, reported Reuters.

The comments by Deputy State Bank Governor Nguyen Van Binh come after a dramatic 2008 when Vietnam devalued its closely managed currency twice and widened the trading band for the unit three times to help the economy deal with an economic slump.

"The objective of foreign exchange policy management in 2009 is stability, to create market confidence and contribute to the recovery of the macro economy," Binh said in a central bank report.

The central bank would "apply all measures" to keep the mid-point of the dollar/dong exchange rate in 2009 stable at around 16,989 dong per dollar, the rate it set when it devalued the dong by 3 percent on Dec. 25, its second devaluation of 2008.

The currency is permitted to trade 3 percent either side of a level set by the central bank each day.

Still, Binh acknowledged that the global economic slowdown would hurt Vietnam's main sources of foreign currency, including exports, foreign direct investment and remittances from Vietnamese living abroad.

The Southeast Asian country's economic growth slowed to 6.2 percent last year from 8.5 percent in 2007. The government hopes to keep it at 6-6.5 percent this year, although the International Monetary Fund and others forecast growth will be closer to 5 percent.

The State Bank of Vietnam, the central bank, has repeatedly said its first priority in 2009 was to help the government stave off an economic downturn.

"Monetary policy this year will closely pursue the objective of preventing an economic slowdown and containing inflation at a reasonable level," Governor Nguyen Van Giau said in a separate statement issued on Tuesday.

Deputy Governor Binh said the central bank and ministries had looked at various scenarios for the economy.

"But in any circumstances, the government is completely capable of balancing foreign exchange supply to serve demand to boost the economy," he added.

Prime Minister Nguyen Tan Dung said last week there was no need to devalue the dong because there were plenty of dollars in the banking system and a devaluation would affect the country's foreign debt position.

The government let the tightly controlled currency depreciate by about 8 percent against the dollar last year in the face of tough economic conditions, and economists had expected Hanoi to allow it to slip further this year to support exports.

Citigroup forecast in January the dong would depreciate to 17,948 dong per dollar by the end of 2009 -- around 2.6 percent below the current interbank rate of 17,484 dong -- due to a decline in exports, tighter foreign direct investment inflows and lower remittances from overseas Vietnamese.

Other foreign banks were even more pessimistic. ANZ forecast last week the dong would fall as low as 18,500 dong per dollar by the end of the year due to a drain on foreign exchange reserves.

Governor Giau has said Vietnam's foreign reserves stood at $22 billion in early February, slightly up from $21.9 billion estimated last October.

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