Q: Most economists think that Asian currencies have been very weak relative to the U.S. dollar for the past six months amid speculation that the U.S. will increase interest rates this year. Does the devaluation of the Vietnamese dong reflect this trend?
A: The Vietnamese dong was quite stable compared to the U.S. dollar in 2014. This was because the dong was devalued only by two percent, while average annual inflation was four percent. If we factor in inflation from the previous years, economists calculate that the value of the Vietnamese dong, in fact, had increased in relation to the U.S. dollar by 30 percent. This really makes Vietnamese exports more difficult. The exports of goods manufactured in Vietnam encountered many difficulties, so the State Bank's decision to devalue the dong by one percent at the beginning of 2015 is understandable and is not something we should worry much about. However, the concern right now is that Vietnam has a lot of foreign debt. When we devalue the dong, we will have to spend more to pay our debt. With respect to its effects on exports, this only helps the exports of local enterprises, not foreign-invested ones because they still have to import materials for their production in Vietnam. Therefore, the direct effects of this move on the exports of foreign-invested enterprises are very limited.
Q: Does this second devaluation of the Vietnamese dong have anything to do with Vietnam's oil exports, because oil exports contribute quite a lot to our GDP?
A: The oil price decrease, obviously, has had adverse effects on our budget, and this has been mentioned several times by the finance ministry. The issue here is that the decrease in oil prices also means a decrease in the prices of other goods that Vietnam imports such as gas, plastics, fertilizer and polyester fiber, which are all oil products. So when the prices of those goods drop, the effects on Vietnam's economy will be more positive. I think the oil price drop has had a positive effect on our economy and people's consumption power. When the gas price is down, people can spend their savings on other things.
Q: Besides what you just said about the oil price drop, what are the other effects of the dong's devaluation this time?
A: The devaluation of the dong in this situation also meets market demands. At the end of the year, companies have to finalize their operations, and they need more dollars. This drives up the price of dollars on the black market. So when the State Bank adjusted the rate, the price of the dollar immediately increased to a new level. I think this shows that the one-percent devaluation of the dong will not have a strong effect on inflation or our macroeconomy.
Q: The devaluation of the dong is a way to fight inflation. Does this mean that Vietnam's economy is in a downturn after some years of growth?
A: No, Vietnam's economy has regained very strong growth in recent years. In 2014, our growth was almost six percent. At the moment, there is no sign indicating that Vietnam's economy is in downturn. Hopefully, in the near future, the government will push ahead with the reform process and the foundations of Vietnam's economy will improve. The adjustment of the rate will help to ease pressure on banks. I don't think it will create any difficulties.
Q: You said the dong's devaluation can contribute to concern about our foreign debt. How would you suggest we reduce the burden of public debt when the dong is devalued?
A: In the current situation, there is no measure that can make everybody happy. The dong was devalued by one percent, meaning that our debt has increased by one percent. This is worrisome, but to me it is not a big deal. One percent is not so significant compared to what Vietnam has gone through before.
original source: http://www.bignewsnetwork.com/index.php/sid/229210505