Vietnam September Trade Deficit Widens, Signaling Dong Pressure

September 23, 2011



Vietnam September Trade Deficit Widens, Signaling Dong Pressure



Vietnam’s trade deficit widened in September from August, threatening to increase pressure on its currency and undermine efforts to boost foreign reserves.


The deficit reached $1 billion in September, up from a revised $396 million in August, according to preliminary figures released by the General Statistics Office in Hanoi today. The shortfall for the nine months through September was $6.84 billion.


A widening deficit threatens to deplete the central bank’s holdings of foreign currency and add pressure for a fifth devaluation of the dong since November 2009. The Vietnamese central bank’s foreign-exchange reserves were $15.2 billion at the end of June, a “low” figure given the country’s level of imports, the Asian Development Bank said this month.


“The trade deficit remains a huge concern,” Jonathan Pincus, a Ho Chi Minh City-based economist at the Harvard Kennedy School’s Vietnam program, said before the release. “Everyone is aware that the foreign-exchange market in Vietnam is illiquid, and when importers start running around looking for foreign exchange, that can put pressure on the currency.”


The dong was little changed today at 20,807 per dollar as of 3:01 p.m. Vietnam time. The currency was devalued in February by about 7 percent, the most since at least 1993, partly to try and narrow the trade deficit.


Gold trading can skew the trade numbers. Imports of the precious metal were responsible for the bulk of the deficit in August, according to Viet Capital Securities Joint-Stock Co.
Global Risks


Imports fell to $9.3 billion in September from $9.64 billion in August. For the nine months through September, imports climbed 26.9 percent to $76.87 billion.


“A lot of imports in Vietnam are related to machinery for foreign direct investment,” said Marc Djandji, the Ho Chi Minh City-based head of research at Viet Capital Securities. “If Vietnam stopped exporting, then imports would also drop.”


Exports slipped to $8.3 billion in September from $9.25 billion in August. For the nine months through September, exports have increased 35.4 percent to $70.03 billion.


“The concern about exports is that the global economy is weakening again, and that concern also applies to inflows of foreign investment to finance the trade deficit,” said Pincus. “If you look at the global economy now, it’s a risky time to be relying on capital inflows.” (Bloomberg)


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