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PM assures on hard currency reserves, dong   2008-06-11 - ThanhNienNews

Vietnam’s foreign exchange reserves are sufficient for the government to step in to help maintain the value of the dong, Prime Minister Nguyen Tan Dung has said, damping concern the currency will collapse.

The country is battling inflation of more than 25 percent, the fastest since at least 1992, spurring concern that the dong may lose value as the benchmark stock index extends its losing streak to a record.

Rating agencies have lowered their outlook for the nation’s debt in the past month, citing a slow government response to inflation.

The government last week cut the economic growth target this year to 7 percent from 9 percent as it tries to slow the pace of consumer price gains.

It is aiming for 2009 growth of as much as 7.5 percent, according to a statement posted on the government’s website June 7.

“With the foreign currency surplus, the government will be able to intervene to maintain the dong’s value and ensure imports,” the Prime Minister said in the statement.

“The government is now clearly making public what it thinks the problems are, and which it is doing to solve them,” said Dominic Scriven, a director at Dragon Capital, a Ho Chi Minh City-based investment firm with more than US$1.5 billion under management.

“The government is doing the right thing to help the dong regain its value.’’

The currency advanced 0.02 percent to 16,286.50 per dollar Tuesday.

The dong has declined against the dollar for three straight months, the longest losing streak since August.

The State Bank of Vietnam set a reference rate of 16,139 a dollar, compared with 16,132 Monday, according to its website.

The currency is allowed to trade up to 1 percent on either side of the rate.

Record losing streak

The Ho Chi Minh Stock Index fell 1.48 percent Tuesday, capping a record 24-day losing streak, on concern a widening trade deficit and inflation at a 16-year high will prompt overseas funds to sell local holdings, adding pressure on the dong to decline.

The benchmark has lost 59 percent this year.

The balance of payments showed a surplus of $1 billion in the first five months of the year, according to the government statement.

The surplus will increase to as much as $3 billion for the whole year, Dung said.

Morgan Stanley said on May 28 that Vietnam is headed for a “currency crisis” because the country’s current-account deficit may swell this year to an “unsustainably large’’ level.

Deutsche Bank AG is also predicting a devaluation of the dong because of accelerating inflation.

The trade gap widened to $14.42 billion in the first five months this year from $4.25 billion at the same time a year earlier, the General Statistics Office said.

The Prime Minister’s statement was released following a meeting with David Fernandez, head of emerging-market research at JP Morgan Chase & Co.

Minister of Planning and Investment Vo Hong Phuc said last week that the nation doesn’t yet need aid from groups such as the International Monetary Fund after Deutsche Bank predicted the country may be forced to seek an “IMF-style program’’ in coming months because of insufficient foreign-exchange reserves.

The country’s foreign currency reserves have increased to about $22 billion from $19 billion as of the end of 2007, according to Nguyen Thanh Do, director of external financing at Vietnam’s Ministry of Finance.

“The reserve will be much higher at the end of the year,’’ he said.

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