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NEWS UPDATES Asean Affairs       12  February 2011

Vietnam devalues currency

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Vietnam devalued its currency to 9.3 dong against the US dollar on Friday for the third time in a year to address economic problems including double-digit inflation.

The move increased concern among Thai rice exporters that their prices would become even less competitive against the lower prices quoted by Vietnam, the world's second largest rice exporter. The State Bank of Vietnam cut the dong's reference rate by 8.5 percent against the US dollar and narrowed the currency's daily trading band to 1 percent from 3 percent on either side of the reference rate.

The combined effect pulled the weak limit of the band down about 7 percent to 20,900 per dollar from 19,500, and brought official and black-market exchange rates closer to alignment. Vietnamese 5 percent white rice on Thursday was quoted at US$440 a tonne while the same grade of Thai rice was $520.Vietnam's rice exports last year totaled almost 7 million tonnes, against 9 million tonnes exported by Thailand.

Thai Commerce Minister Porntiva Nakasai said a weaker dong could also affect the competitiveness of other Thai goods including seafood, textile and wooden products in which Vietnam was a rival. However, the Visit Limprana, vice-chairman of the Federation of Thai Industries (FTI), said the impact on Thailand's farm sector would be limited because Vietnamese counterparts faced high cost pressures.

"It might be true that Vietnam's exports will gain about 7 percent in terms of dong received, but its high inflation has also pushed up costs in many areas and these will balance the gains," he said.

The dong, unlike nearly all other Asian currencies, has been weakening against the dollar. Confidence in the currency is low in Vietnam, where dollars and gold are widely used for major purchases.

Friday's devaluation was the sixth - and the biggest - in nearly three years. Economists applauded the move but said the central bank now needed to target double-digit inflation, which the devaluation could exacerbate.

The new reference rate is 20,693 dong per dollar, down from 18,932 in place since mid-August 2010.

Since June 2008 the dong reference rate has been devalued by more than 20 percent.

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