Thursday, February 11, 2010

Vietnam is Now the Weak Link in Asia

With much of the finance world's attention focused on Greece, Vietnam just abruptly devalued their currency for the fourth time since 2008. The cause is a widening trade gap and an overvalued dong currency which is draining dollar reserves from the central bank. It's doubtful this official devaluation will be enough to match declines ongoing in the black market.

If Greece is the weak link in Europe, Vietnam could very well be the same in Asia. And though Greece's budget deficit is now estimated at 12% percent of GDP, Vietnam's is at a Portugal-like 7%.

Currency devaluations could trigger copycatting in a region still tied to the dollar:

The devaluation will help make Vietnam's key exports, which include shoes, coffee and rice, cheaper than those of many other Asian countries, potentially improving its relative position in global trade. That could increase tensions with some neighbors, especially Thailand, with which it competes heavily in global markets. Thailand has already complained that some currencies in the region, including the Chinese yuan, may be undervalued.(2)

1'Vietnam Dong Weakens to Record Low After Devaluation' - Business Week
2'Vietnam to Devalue Dong 3.4%' - WSJ
3'Panicked Gold Buying Forces Vietnam To Devalue Currency' - Business Insider
4'Vietnam devalues dong for second time in 3 months' - AFP; Minh Ha

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