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Mixed impact from dong expected

Mixed impact from dong expected

Vietnam's decision to devalue the dong by around 7 percent will have a mixed impact on the Cambodian economy, according to experts.

Cambodia’s exports could face stiffer competition in areas where it competes with Vietnam, though consumers could benefit through cheaper imports, commentators said yesterday.

University of Cambodia business and economics lecturer Chheng Kimlong said yesterday the Dong situation was comparable to United States charges over the valuation of the Chinese yuan.

The yuan “remains substantially undervalued”, according to a report released by the United States treasury department this month, though it stopped short of calling China a currency manipulator.

The affect of devaluing the dong would mean Vietnamese exports become cheaper for foreign buyers. This could impact areas such as garment exports abroad, especially those in direct competition with Vietnamese garment production, he said.

“[International] buyers are price sensitive,” he said.

However, Garment Manufacturers Association of Cambodia Secretary General Ken Loo said the devaluation would not have much impact on Kingdom’s garment exports. Vietnamese garment exports were not quoted in dong, but rather in dollars and euros, which would cushion any impact, he said.

Asian Development Bank principal economist Jayant Menon said that Vietnam and Cambodia conducted a significant amount of bilateral trade, though added most of the two nations’ trade was done outside the region.

Cambodian consumers will benefit from cheaper imports, he said, but added the devaluation “can affect competitiveness and therefore production in import competing industries at home”.

The Kingdom imports agricultural products, such as machinery, fertiliser and petroleum, from Vietnam. If those products are made cheaper through Vietnam’s currency devaluation, the “net impact is likely to be beneficial to both consumers and producers,” he said.

However, some of Cambodia’s agricultural exports compete directly compete with some Vietnamese products and the Kingdom could suffer some loss in competitiveness, he said. Menon said there would likely be other impacts from the devaluation – such as increased reluctance to use the dong as a means of payment for cross-border trade due to its volatility. “This could favour the use of the riel, especially if dollars are scarce in remote border areas,” he wrote.

Vietnam’s central bank devalued to dong by about 7 percent on Friday  – the most since at least 2003 – by setting the reference rate for the currency at 20,693, versus 18,932 previously.

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