Vietnamese Dong Devaluation: Securing the Future with a Weaker Currency?

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“The dong devaluation by the Vietnamese government aims to increase its edge in attracting foreign purchase orders and expanding export values as the global economy continues to recover.” ¹²

– Phongsak Assakul, Vice-Chairman of the Thai Chamber of Commerce, in 2009.

“As a country that relies heavily on export markets and is increasingly open to imports, Vietnam cannot afford to allow the real value of VND to rise too high... Moreover, Vietnam already has a large trade deficit. Simply increasing government spending while leaving the exchange rate unchanged will widen the trade deficit without doing much to increase domestic demand... The decision to devalue the currency by 3 per cent on 25 December 2008 was an appropriate move.”¹³

– Johnathan Pincus, Dean of the Fulbright Economics Teaching Program, in 2009.

Vietnam’s economy expanded rapidly between 2000 and 2007, with the GDP growing at an average of 7.5% a year14. In 2007, it grew by 8.5%15. Such an amazing economic growth coupled with reforms helped Vietnam attract US$15 billion16 of foreign investments. But Vietnam’s policy makers were not able to handle the massive inflow of foreign capital. Thus began the problem of inflation in the country. Then in late 2008 came the global financial crisis, which left the Vietnamese economy in tatters. Foreign direct investment dwindled and exports slumped, swelling Vietnam’s trade deficit and exposing its over-reliance on overseas markets.17...

 Dong Devaluation - Will it Work?

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