Vietnam reserves slump by 35%

Ho Chi Minh City: Vietnam's foreign-currency reserves declined about 35 per cent to around $15 billion (Dh55 billion) by the end of last year, according to VinaSecurities Joint-Stock Co, the brokerage unit of the country's fund manager,

The holdings have dropped from $23 billion at the end of 2008, the securities firm said in a report. The "foreign-currency reserves level is a source of concern," Alan Pham, Ho Chi Minh City-based chief economist for VinaSecurities, said on Friday.

Vietnam's sources of foreign currency fell last year after the country posted a deficit of $12.25 billion and direct investment pledges from abroad declined more than 64 per cent to $21.5 billion.

The government's foreign-exchange policies have encouraged dollar hoarding, according to research by HSBC Holdings.

Raising money

The country has been seeking foreign currency by pushing state-owned companies to sell dollars and raising money from international loans, as well as a $1 billion bond sale.

The measures were targeted in part at easing devaluation pressure on the dong, according to a report by Australia & New Zealand Banking Group.

The currency has weakened 6.4 per cent in the past four months after the State Bank of Vietnam devalued the dong twice to bring the official exchange rate closer to the black-market rate. The dong was trading Friday at 19,075 against the dollar in Hanoi. The Vietnamese government expected the reserves to "bottom out" at $16 billion, Moody's Investors Service said in December.

The current level of reserves is enough to pay for about three months' worth of imports, Pham estimated. VinaSecurities is a unit of VinaCapital Investment Management, which manages about $1.7 billion.

Vietnam's foreign-exchange reserves measured in relation to import coverage are lower than those of China, India, Indonesia, Malaysia, the Philippines, South Korea, Taiwan or Thailand, according to Benedict Bingham, the International Monetary Fund's senior resident representative in Hanoi.

Devaluation

The government in Dec-ember asked Vietnam Oil and Gas Group and Vietnam Airlines to "immediately sell" dollars to banks.

"Major state-owned enterprises are still encouraged to sell dollars now that they can receive a better price," Pham wrote in the report.

The difficulties for companies in Vietnam to buy dollars are damaging confidence in the dong, Citigroup, the third-largest US bank by assets, said in February.

The devaluations "have undermined confidence in the dong and lead to expectations of similar steps in the future, which will result in a greater urge to hoard dollars," Pham wrote in the report.

The dong may weaken as much as 5 per cent by the end of 2010, according to VinaSecurities.

The gap between the official rate and the free market rate has narrowed to about 2 per cent to 3 per cent, compared with as much as 12 per cent in late 2009, according to VinaSecurities.

• $15b Vietnam's GDP by end of 2009
• $12.25b budget deficit at end-20009
• 6.4% currency's rate of decline in past four months
• 5% projected currency decline by end of the year