Weak US dollar forces export companies’ profits down

VietNamNet Bridge – The weakening of the US dollar against other hard foreign currencies including the Singaporean dollar, Australian dollar, Chinese yuan or Japanese yen has made the travel more costly and slashed the profits of export companies.

Phuong Thao, an officer of a state agency in HCM City has returned to Vietnam from the trip to Singapore with her family. The thing that Thao has most complained about is the depreciation of the US dollar, which has made the trip most costly.

Thao said that Singaporean shops accepted US dollars for payment, but one US dollar could be converted to one Singaporean dollar only, because the US dollar has been depreciating significantly recently. As a result, Thao and her family had to spend more on shopping, meals or souvenirs.

The weakening of the US dollar against other currencies turns out to be the bad news for Vietnamese export companies. Pham Xuan Hong, Deputy Chair of the Vietnam Textile and Apparel Association (Vinatas) and General Director of the Saigon 3 Garment Company, has confirmed that the weakening dollar has badly affected exporters. He fears that if the US dollar continues weakening against other currencies, the profits of enterprises will surely decrease.

Hong said the US dollar has been appreciating against the Vietnam dong, but just slightly. Vietnamese exporters always get dollars for exports, while the US dollar has been depreciating. This means that the income has been decreasing, while the labor cost and the input material prices keep rising.

He went on to say that it is very difficult to re-negotiate with foreign partners about the export prices. Saigon 3 Garment, for example, has failed to negotiate with a Japanese partner on the sale price increases due to the higher input costs. Therefore, the company has only one choice that it has to cut down expenses and minimize error products.

Dr Dinh The Hien, Director of the Informatics and Applied Economics Research Institute, said that the US dollar has been depreciating because the US is pursuing the policy on pushing up the economic growth by keeping the US dollar interest rates at low levels. Since the US dollar interest rates remain low, the US dollar is not attractive in the eyes of foreign investors. Also, the US economy is still under the difficult period when the country’s public debts have increased.

Also according to Hien, both Japan and China do not want to see the US dollar depreciating, because the depreciation will badly influence the export of the two countries.

How is the US dollar Vietnam wants to see, then? In Vietnam, if the US dollar appreciates against the Vietnam dong, this may cause a panic among the public, because Vietnamese people never want to see the local currency lose its value. The dong depreciation will make the input material prices increase, thus pushing up the production costs and making Vietnamese products less competitive.

Therefore, the government of Vietnam has been following the policy on stabilizing the dong/dollar exchange rate, while using other measures to boost exports and restrict imports.

In long term, when the enterprises’ capability of making products for export and the productivity in the agricultural sector increase, the weak local currency against the US dollar could be a good measure to foster the economic growth and stabilize the consumer price index CPI, create many jobs and gross revenues.

According to Reuters, the US dollar felt to the deepest low in the last three years in April 2011, losing 11 percent of its value against main currencies.

According to Bloomberg, one US dollar now is equal to 77 yen, 1.2 Singaporean dollar, while one euro can be converted into 1.4 dollars, and one Australian dollar is equal to 1.01 US dollar.

Source: TBKTSG