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Monitor exchange rates in Vietnam, Citibank tells firms

Taiwanese businesspeople need to pay attention to rising interest rates and fluctuating currency exchange rates while investing in Vietnam, Citibank officials said yesterday.

"Amid strong foreign direct investment inflows, Vietnam has been forced to face the challenge of developing its supportive infrastructure," said Gautam Hazarika, Citibank's director of fixed income, currencies and commodities in the Asia-Pacific region.

"However, Taiwanese companies should be alert to the risks of a volatile Vietnamese dong currency and interest rates in the future," Hazarika said.

As Vietnam's inflation rate hit a 12-year high last month, surging 15.7 percent year-on-year, Hazarika said he expected the Vietnamese government to reduce the money supply in the economy by raising its interest rates.

Nonetheless, as it is equally important for the Vietnamese government to manage its inflation and economic growth, Faisal Ameen, Citibank's head of Vietnam for the network relationship banking team and the global transaction services teams, said he expected the inflation rate in Vietnam to remain as high as 10 percent this year.

Hanoi has been trying to broaden its foreign currency trade band ever since Vietnam joined the WTO in November 2006 and Citibank said the massive capital inflow into the country will result in increased foreign exchange liberalization and a more volatile foreign exchange rate environment.

Citibank said export-oriented foreign investors in Vietnam should hedge on a basket of currencies to avoid the risk of receiving less dong for every US dollar when the dong appreciates.

Citibank said Taiwanese companies should also be aware that the trading in Vietnam is restricted to those between the dong and other foreign currencies. That means dong-NT dollar transactions have been done in two parts.

"Since the Vietnam dong and the NT dollar are both restricted currencies, [trading between] the Vietnam dong and the US dollar has to be done in Vietnam, while the NT dollar and the US dollar has to be done in Taiwan," Hazarika said.

Citibank said Taiwan is one of the biggest investors in Vietnam, with more than 1,500 investment projects and US$7,935 million registered capital.

Many of the projects are from Taiwan's small and medium-sized enterprises, it said.
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