The headquarters of the State Bank of Vietnam (Photo: VNA) Hanoi (VNA) - The US Treasury Department’s labelling of Vietnam asa currency manipulator is biased, as it is only based on US standards and lackssuitable consideration as well as recommendations from internationalorganisations, according to experts.
Vietnam does not depreciate Vietnam dong
BIDV Chief Economist Can Van Luc and experts from the BIDV Training andResearch Institute described the labelling as a unilateral action that fails tolook into the characteristics of Vietnam’s economy and the recommendations of internationalinstitutions regarding its economy.
Economic tools are necessary for Vietnam to sustainably develop and be resilientto external shocks, they said, adding that such tools are used in accordancewith international rules.
According to the Macroeconomic and Foreign Exchange Policies of Major TradingPartners of the US report, the US Department of Treasury examined tradepartners based on three criteria: a bilateral trade surplus with the US of atleast 20 billion USD, a material current account surplus equivalent to at least2 percent of GDP, and engagement in persistent one-sided intervention in theforeign exchange market, with net purchases of foreign currency conducted in atleast six out of 12 months and with net purchases totalling at least 2 percentof GDP over a 12-month period.
The US Department of Treasury determined that under the Omnibus Trade andCompetitive Act of 1988, Vietnam is a currency manipulator.
Truong Van Phuoc, former acting Chairman of the National Financial SupervisoryCommission, said there are several points in the Treasury’s report that need tobe clarified.
Truong Van Phuoc, former acting Chairman of the National Financial Supervisory Commission (Photo: VNA) Regarding the large trade surplus with the US, Phuoc, who is also a former headof the Foreign Exchange Management Department at the State Bank of Vietnam(SBV), said the country’s trade activities in the past three decades reflectits transition process to a market-oriented economy, with the distinguishing featuresof cheap labour costs, labour-intensive growth, inflows of foreign investment,and exploitation of natural resources resulting in cheap exports. Therefore, itis unreasonable to say that Vietnam uses foreign exchange to make its products evenmore of a bargain.
With a material current account surplus, Vietnam has enjoyed a trade surplus inrecent years, but the actual amount is not significant, at around 5-10 billionUSD each year and over 20 billion USD in 2020 in particular. As most of the country’scurrent account comes from remittances, foreign exchange is not the elementthat makes the current account surplus exceed 2 percent of GDP.
Regarding interventions in the foreign exchange market, Vietnam does not allowforeign currencies to be used as a means of payment, which means foreigninvestors and exporters must exchange their money into Vietnam dong to conduct businessactivities.
For this reason, it is compulsory for the SBV to purchase foreign currencies,since it facilitates business activities of people in Vietnam, Phuoc stressed.
Another issue is that the US perceives thatVietnam has bought foreign currencies to set the value of the Vietnam dongbelow its real value.
Phuoc said Vietnam should explain to the US moreclearly about its currency’s parity with the US dollar.
This parity largely depends on the inflation difference between Vietnam and itsmajor trading partners, especially the US, he elaborated, adding that annualinflation in Vietnam has averaged 4 percent in recent years, with 5 percent thehighest, while exchange rate growth has been maintained at 1-1.5 percent, or 2percent in certain years. Compared to inflation, the exchange rate hasincreased at a much slower pace.
There is no such thing as currency devaluation, but the Vietnam dong’s currentvalue is even higher than its real value.
“These are factors indicating that Vietnam hasnot manipulated its currency,” Phuoc stated.
BIDV Chief Economist Can Van Luc (Photo: VNA) Echoing this view, Luc said the SBV’s regulationson exchange rates have always been in line with common monetary policy so as toachieve the consistent targets of keeping inflation under control and ensuringmacro-economic stability, not to create an unfair competitive edge ininternational trade.
He noted that in contrast to the US Treasury’s view, calculations by expertsfrom the BIDV Training and Research Institute show that the real value of theVietnam dong appreciated by 2.6 percent between 2017 and 2019. Subsequently,Vietnam’s trade with the US may have been negatively affected due to the dong’sappreciation against the dollar during these three years, instead of creating areal export advantage for the country.
Therefore, the US Treasury’s view that the Vietnam dong devaluation hasprovided an export advantage for Vietnam needs to be considered in a morethorough and precise manner, according to Luc.
In addition, the trade surplus with the US andthe material current account surplus are the result of many factors relating tothe particular characteristics of Vietnam’s economy, and the depreciation ofthe dong has not overly benefited exports.
Exporting large volumes also means importing large volumes, Luc explained,noting that Vietnam’s export and import activities are dominated by the FDIsector, which made up 70 percent of exports and 59 percent of imports in 2017-2019,according to data from the General Statistics Office of Vietnam.
As local support industries remain weak, toproduce export commodities, FDI firms still have to import input materialsregardless of whether the exchange rate is high or low, he added.
Meanwhile, the SBV’s purchase of foreigncurrency in the recent past was to ensure the forex market runs smoothly amidan abundant foreign currency supply, thereby helping to stabilise themacro-economy and raise forex reserves (which are low compared to regionalcountries) in order to strengthen the country’s financial and monetarysecurity, not to create a trade advantage.
According to the International Monetary Fund (IMF), Vietnam’s forex reserves atthe end of 2019 were equivalent to only 3.5 months’ worth of imports, slightlyhigher than the IMF’s recommended minimum of three months’ but much lower thanthe five months’ worth in Singapore, eight months’ in the Philippines and theRepublic of Korea, nine months’ in Thailand, and 14 months’ in China.
Given this, Luc noted, Vietnam has never pursued a policy of devaluing itscurrency to create a competitive edge for its exports. Instead, the tradesurplus with the US is actually the result of their trade structures.
Efforts to maintain bilateraltrade ties
According to Associate Professor Dinh Trong Thinh, asenior lecturer at the Academy of Finance, the US’s inclusion of Vietnam on thelist will bring about various risks, including discrimination in taxation andthe pricing of goods from Vietnam in the US market.
Luc said that under the 2015 TradeFacilitation and Trade EnforcementAct, the US Department of Treasury will submit a report to congress andconduct negotiations between authorised Vietnamese and US agencies, to seek andimplement joint solutions to make two-way trade more balanced.
At the same time, Vietnam should exert more efforts toenhance the efficiency of management and strictly handle activitiesmasquerading as trade exchange and investment to take advantage of theVietnam-US partnership and free trade agreements as well as tax avoidance, hesaid.
Phuoc said he believes the US administration will listen to Vietnam and expertsin trade and exchange rates, thus recognising that Vietnam has no purpose of currencydevaluation. Through dialogue and discussions, and especially with support fromprestigious economists in the US, the US side will gain an in-depth insight intothe matter, he added.
Illustrative image (Photo: VNA) At the same time, the SBV has vowed to actively coordinate with relevantministries and sectors to deal with issues of concern to the US in a spirit ofcooperation for mutual benefit, leading to a harmonious and sustainable traderelationship.
Meanwhile, the central bank will also continue to regulate monetary policies inorder to rein in inflation, stabilise the macro-economy, and support economicgrowth in a suitable manner, while adjusting the exchange rate flexibly tomatch macro balancing efforts as well as market developments and monetarypolicy purposes, not to create any unfair competitive advantage.
At a meeting held on December 18 to discuss the Government’s draft Resolution01, Prime Minister Nguyen Xuan Phuc agreed to assign ministries and agencies tocontinue working closely with the US side to maintain the momentum of thebilateral partnership and make it stronger in the future, bringing practicalbenefits to the people and businesses of both countries./.
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