Vietnam tells state firms to sell dollars

State-owned firms in communist Vietnam will have to sell US dollars to commercial banks from July 1, official media said Thursday, to address a rising trade deficit and stabilise a weak currency. The State Bank of Vietnam has ordered firms that are more than 50 percent government-owned to sell their dollars held in fixed term and non-term deposit accounts, the Vietnam News reported. It said the companies will then be able to buy dollars from the banks if needed. The report cited central bank governor Nguyen Van Giau as saying 78 state firms held more than $1.6 billion, including $376 million on fixed terms, at the end of March. Prime Minister Nguyen Tan Dung flagged the sale of state firms' funds in February as part of measures to stabilise an economy facing a complicated mix of challenges. These include an inflation rate estimated in May at almost 20 percent, one of the highest in the world. "We are in economic turbulence now," said Giang Thanh Long, a vice dean at the National Economics University in Hanoi. With prices soaring, Vietnamese householders are unwilling to give up their extensive personal holdings of dollars, which they see as a safe-haven. This has forced authorities to turn to the extensive reserves held by government-controlled firms, Long said, adding this should boost the State Bank of Vietnam's coffers. "This is really a serious issue in Vietnam now," he said. Central bank reserves can be used to support a weak currency. Vietnam has been spending more on imports than it earns from exports, with the trade deficit reaching about $6.6 billion in the first five months of the year, up 23 percent from the same period of 2010. That is despite a 9.3 percent devaluation of the dong in February in an effort to address the import-export gap. A weaker currency is good for exports and makes imports more expensive. Economists say the central bank wants to avoid further devaluation. Long said the exact amount of the country's foreign exchange reserves is a secret but it could be as low as about $10-15 billion, which is below the ideal range of about $20 billion to $25 billion. There has been a "biased allocation of funds to inefficient state-owned conglomerates," the Hanoi Young Business Association said in a report to a World Bank-backed forum last week.