Vietnamese Dong Devaluation Not Fair

Today, the Vietnam Stock Exchange (HOSE), took another big nose dive losing some 12 points settling at 470.02.  Back on February 9th, it was up to 522.59 and everybody was very positive about Vietnam’s economic prospects.  Brokers in Vietnam were very optimistic back in January with huge expectations that HOSE would hit 650 in 2011.  Why would they not be, Vietnam’s political nomenclature would remain stable for another 5 years with Prime Minister Nguyen Tan Dung reappointment as prime minister until 2016.  This meant that for many involved in business and diplomacy, there really was no need to create new networks with the coming of a new prime minister.  Most key positions remained with the same people.

As Tet approached in late January, things just seemed quite positive, at least from an Expat point of view, an Expat involved in finance and investment that is.

For the rest of the population, you could kind of sense that something was about to happen.  Tet was extraordinarily longer this year lasting two-three weeks for some Vietnamese.  Factory workers and migrants, as usual, did not want to return working for paltry wages.   Fruit vendors were slow in returning to HCMC as well.  Fruits and vegetables were costing nearly double what they were before Tet.  A coconut along cost nearly 20,000 VND, two to three times it’s normal price.

Then on February 11th, the Vietnamese government devalued it’s currency by 9% to help with trade by making Vietnamese goods cheaper.  Some analysts from top investment and securities firms stated that it was a good move by Hanoi to help stabilize the currency.  The reality was that in a matter of one day, the majority of Vietnamese lost 9%, or more, in buying power when their currency was devalued.  Vietnamese wage earners, those with Vietnam dong savings accounts, and those own real estate valued in VND ended up being the big losers.  Those who earned salaries in US dollars, held US dollar savings accounts, and valued their real estate in USD ended up the big winners.

Hence, the devaluation of the VND has not been fair to the average Vietnamese person, a fact ignored by both the Western and Vietnamese media.  You can see it on the streets though.

Imagine that you are a Vietnamese receptionist earning 3 million VND per month.  Before the devaluation, their salary in USD was worth $153.73 USD (based on an exchange rate of 19560 VND per $1 USD.  Today it is only worth $142.86 USD (based on an exchange rate of 21,000 VND per $1 USD).  In Vietnam, salaries are not adjusted for inflation.

Then it gets even worse, the price of both electricity and petro went up.  When it was announced yesterday that the price of electricity would be increased by a whopping 15.3%, the stock market tumbled.  Vietnamese news source reported that several petro stations are refusing to open today until the fuel increases take place in efforts to earn higher profits, an act consider illegal by Vietnamese authorities.

Inflation will definitely be a problem in 2011.  People with money and decent salaries will not want to keep large amounts of VND anywhere.  2011 will be a year of “buying” than “saving” since nobody knows where the VND will stabilize at. Motorbikes, new computers, new mobile phones, cars, etc., will retain their value better than the Vietnamese dong this year.  Even investing in the stock market will be a bit risky until at least the summer of 2011 (according to rumors, real estate prices will drop significantly by the summer).

Hence, when a person asked me what I felt about the VND devaluation, I just said that it was not fair to the average Vietnamese.