In turbulent era, some businesses find ways to escape exchange rate risks

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VietStock FI English - 100 month(s) ago 7 readings

The sharp dollar price increases have hurt a lot of businesses because they have to pay more for goods. Others are immune from ‘dollar fever’ because they can negotiate payments in dong.

Though it’s Government policy to prevent the ‘dollarisation’ of the national economy – requiring that all transactions in Vietnam be expressed and settled in dong, the national currency – it’s evident that most businesses nevertheless ‘follow the dollar’. The businesses claim that their suppliers and customers just won’t accept contracts denominated in dong.

However, that’s not always true, reports Saigon Tiep Thi.

HCM City food importer Nguyen Thi Hong says that she placed a new order in late November 2009 and the dong/dollar exchange rate was fixed right in the contract. “When the imports arrive, I will pay the Vietnamese representative of the supplier in dong,” she said.

Hong went on to say that at first, the representative of the supply company in Vietnam refused to accept the payment in dong. “However, they have changed their mind,” she said. My order is big, double my order before Tet last year, and I always pay at once on deliveries. Therefore, I insisted and they agreed.

Hong says she was advised to fix the exchange rate at the moment of signing the contract and to pay in dong by a friend who distributes electronic gear.

In late November, when the dollar price was rising daily, a lot of chains had to ask their headquarters to adjust retail prices regularly. It’s rumored that the ‘BK’ retail chain in HCM City, because it was not quick to adjust the posted prices in dong, lost 200,000 dong per laptop.

Meanwhile, at laptop retailers The Gioi Di Dong and Vien Thong A, the prices do not change despite the exchange rate fluctuations. Dinh Anh Huan, a senior executive at The Gioi Di Dong, explained that it is because the retailer has reached an agreement with suppliers to set prices in dong.

Hoang Ngoc Vy, Director of Vien Thong A, said that the retailer and suppliers fix the exchange rate when invoices are issued, so the retailer does not have to adjust its prices every day like other retail chains.

Vu, a senior executive of Spa TA in downtown HCM City, says that in the past when he imported machines and cosmetics from foreign distributors, he always had to agree to import prices calculated in accordance with the dollar price.

“Since mid-November, however, my suppliers have agreed to fix the exchange rate at the moment I place orders,” the spa executive said. “In order to make a sale, some of them agreed to an exchange rate that is intermediate between the official rate and the higher black market rate”.

Electronics distributors explain that there are two methods of calculating the value of contracts. Prices can be set either at the exchange rate at the moment of ordering the goods or at the moment of payment.

Doan Hong Viet, Director of DigiWorld, says that both methods have risks, but he prefers the first one.

A retailer said that the balance of power has shifted. Previously, distributors were able to force retailers to bear the exchange rate risk. Now, however, says Viet, “we are able to insist that we will only pay in dong. If our distributors do not agree, we will choose other distributors,” he said.

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