Exchange rate adjustments produce contradictory effects

08:50 | 05/07/2015 Economy

(VEN) - In early May the State Bank of Vietnam (SBV) raised the inter-bank average exchange rate between the VND and USD by one percent. The adjustment has reduced pressure on export businesses but adversely affected import companies.

Exchange rate adjustments produce contradictory effects

The recent foreign exchange rate adjustment has had a positive impact on wood exports

Vietnam Timber and Forest Product Association (VIFORES) Vice President Nguyen Ton Quyen said that the adjustment had a positive impact on export activities for the wood sector. So far, wood businesses have signed export contracts worth 80 percent of the US$7 billion annual export projection for 2015.

According to the Vietnam Association of Seafood Exporters and Producers, more than 90 percent of seafood businesses use USD in foreign trade transactions, so the adjustment had a positive impact on businesses which export to the US. Sotico Seafood Company Director Nguyen Thi Anh said the adjustment was one measure to promote exports. However, production costs have increased due to continuous rises in the prices of input materials such as petrol and electricity.

Nguyen Van Khanh, Secretary General of the Ho Chi Minh City Shoe and Leather Association said the adjustment also had a positive impact on leather and footwear exports. Leather and footwear businesses have successfully negotiated better-priced export contracts. The sector’s export value is expected to grow in the later months of the year.

Indirect pressures on import businesses

While export businesses were happy to see the exchange rate increase, import companies have suffered indirect pressures. According to Huynh Quang Dau, Director of the An Giang Fruit, Vegetable and Food Joint Stock Company (Antesco), the company has faced some problems due to the exchange rate adjustment. Specifically, in mid-2014, the An Giang Branch of the Vietnam Bank for Agriculture and Rural Development signed a credit contract to lend Antesco VND72 billion at a preferential interest rate of 10 percent per year to help the company implement a vegetable planting project. Antesco has used most of the loan to buy USD from the bank to pay for the import of machinery and equipment. Now the exchange rate between the VND and USD has increased one percent, this requires Antesco to pay considerably more to buy USD.

Apart from Antesco, banks have signed credit contracts to provide loans for nearly 40 other companies according to SBV Decision 1050/QD-NHNN, and many of these companies face a similar situation.

Statistics from SBV show that by the end of February 2015, banks had lent more than VND1.36 trillion at preferential interest rates ranging from 7-10.5 percent per year. But businesses have suffered from the exchange rate adjustment.

Thuy Duong