Forex headache

The black market exchange rate surged to a record high of around VND21,200 per dollar early last week before stabilising at VND20,800 by the weekend. The official exchange rate was quoted at VND19,500 per dollar.

Doan Trong Ly, director of the Hanoi-based Aprocimex, which exports and supplies animal feed ingredients to 400 animal feed processing factories in Vietnam, told VIR that foreign exchange had become a headache for the company.

“We now need dollars to fund import contracts, but it is quite hard for enterprises to buy dollars from banks at this time,” said Ly.

State Bank governor Nguyen Van Giau confirmed that the authority would provide adequate amounts of greenbacks to the banking system. “Enterprises in need of dollars will be served,” he said.

However, the State Bank also noted that dollar sales would be funneled to prioritised enterprises importing “essential products” such as petroleum, fertilisers or pharmaceutical products.

Ly said that enterprises that wanted to buy dollar often followed two common methods.

“Enterprises have to buy at higher exchange rates than the official one, or buy another foreign currency, then exchange that for dollars, which ultimately pushes the exchange rate higher than the official level,” said Ly.

In Vietnam, local banks are allowed to trade greenbacks at 3 per cent on either side of the reference rate.

By the end of last week, the State Bank confirmed that it had sold dollars to the banking system, but no concrete figure was provided. It sold $200 million to local credit institutions in October instead of being a net buyer in September, purchasing $300 million from those institutions.

Nguyen Duc Thanh, director of the Tan An Farm Produce Processing and Export Company , one of Vietnam’s top 10 cashew export companies, said it was now more difficult to borrow dollars from banks than to import raw cashew materials.

“Even the banks, which once guaranteed businesses opening letters of credit  to import cashews from Indonesia and Africa, now hesitate to lend in dollars or set stricter requirements when providing loans,” Thanh said.

Vietnam Banking Association general secretary Duong Thu Huong explained that “essential goods import” was always prioritised to better control trade deficits. The shortfall for 2010 was estimated at $12.5 billion.