3. Vietnam: Shoul we devalue the exchange rate?

Currently, the State bank of Vietnam adjusts USD / VND rate with increasing by 1-2% / year, but
VND is overvalued more than 20%, some ideas that should devalue VND at 3 usd -4% / year.
Then Should we devalue the rate? According to recent documents on economic newspapers
such as vneconomy.vn, intestment, VOV,.... our group concluded 6 basic reasons for not
devaluating VND
First, theoretically, adjusting exchange rate is to be comparable to the inflation rates between 2
countries. Practically, Vietnam and the United States have disparate infation rates, therefore, It
should not be based on inflations for exchange rate adjustment:
Infations of Vietnam and USD from 2009 - 2013
2009 2010 2011 2012 2013
The USA -0.4 1.6 3.2 2.1 1.5
VN 6.8 11.75 18.12 6.81 6.04

Second, though some argue that exchange rates should be adjusted to support exports,
Vietnam's experience showed that exchange rate adjustment had no significant impact to the
international trade. The reason is that Vietnam is a small economy with a large aperture. Many
essential items meeting the needs of domestic consumption is imported, but domestic
production is not enough to replace; over 70% of imported goods is to serve domestic
production and exports.
Third, Vietnam's foreign debt index is not good, according to the Ministry of Finance, Vietnam's
foreign debt by the end of 2013 was 56.2 % GDP Therefore, the exchange rate devaluation
would also increase the burden of foreign debt, make significant impacts to the national
financial security and sustainability of macroeconomic stability
Fourth, foreign bank's experts themselves also said that Vietnam dong is not overvalued. If
foreign investors considered Vietnam dong overvalued, they woul do "speculation", but now
they have no moves whatsoever.
Fifth, exchange rate adjustment will increase inflation and hamper Goverment's efforts to
stabilize the macro-economy
Finally, during this time, the Sate bank of Vietnam has kept exchange rate market sentiment
stable and trust in VND. If the central bank devalue VND 3-4% annually, there will be inceasing
in expected rates, will disrupt the State bank of Vietnam's effort to stabilize the exchange rate
and market sentiment; which lead to turbelent market and the trust in the value of USD is
easily abraded
Vocabulary
ENGLISH DEFINITION VIETNAMESE
disparate There are a lot differences Khc bit ln
aperture An opening to allow something m
domestic Inside the country Ni a
sustainability Can countinue for a long time Tnh bn vng
macroeconomy Large economic systems Kinh t v m
speculation Buy much goods because of
expecting it to have high price
u c
Whatsoever Not at all Chng g ht
hamper Prevent from achieving something Ngn cn
disrupt Prevent from doing somthing Ngn cn
Market sentiment The way market reacts with changes Tm l th trng
abrade damage Bo mn

LM POWER POINT
3. Vietnam: Should we devalue VND?
=> NO
6 reasons:
- Have disparate inflation rates
- Wont support International trade
- Foreign debt
- Foreign experts point of view
- Increase in inflation
- Disrupt ecnomony stability

( Ci ny l i vo c th, mi l do th hin bng s liu, con s tng ng, mi l do/slide)
- Have disparate infation rates:
2009 2010 2011 2012 2013
The USA -0.4 1.6 3.2 2.1 1.5
VN 6.8 11.75 18.12 6.81 6.04

- Wont support International trade: 70% of imported goods is to serve domestic production and
exports.
- Foreign debt: by the end of 2013 was 56.2 GDP- PV
- Foreign experts: dont have the same point of view + have no "speculation", no moves
whatsoever
- Increase in inflation ( cho hnh mi tn i ln g )
- Disrupt ecnomony stability: devalue VND 3-4% => lose trust, make market disruptive