Low risk that Vietnam will be labelled as "currency manipulator": Maybank Kim Eng

The semi-annual US Treasury report is expected to be released this month and Vietnam is at a low risk of being labelled as a 'currency manipulator' in the report, said Maybank Kim Eng Securities.

There are three key criteria which are adopted to assess if a country is manipulating its currency. The first would be a "significant" bilateral goods trade surplus with the US of at least US$20 billion. The second criterion is fulfilled if the country has a current account surplus which is more than 3 per cent of its gross domestic product (GDP), though analysts says that the threshold may be lowered to 2 per cent in the upcoming report. The final criterion would be a persistent, one-sided intervention in currency market whereby total net purchases of foreign currency are more than 2 per cent of GDP.

Analysts found that Vietnam has met all of these criteria, with it having a bilateral goods trade surplus with the US of US$39.5 billion in 2018 and 5.4 per cent current account surplus while total net purchases of foreign reserves in 2018 hovered around 2.6 per cent of GDP.

The worst case scenario which could play out would be one where the US imposes additional tariffs on Vietnam's goods. But the US could also instead use the opportunity to push Vietnam for trade concessions, changes to its currency policy or relationship with China, said analysts.  

Having said that, they did add that there "are no immediate implications from being labelled as a 'currency manipulator', apart from bilateral negotiations to correct the problem."

Given more intense scrutiny by the US Treasury, however, Vietnam may also be more cautious in its dealings with China to prevent Vietnam from being seen as a "backdoor" for China exports.

Analysts did nevertheless highlight that there is a low risk that Vietnam will be officially labelled as a "currency manipulator", partly due to the current amicable relationship and the Trump administration not wanting to pick unnecessary fights. For example, the trade imbalance between the US and China, for example, is relatively larger.

Shifting their focus to other Asean countries, analysts believe that if the US treasury lowers the current account surplus threshold criteria from 3 per cent to 2 per cent of GDP, then Malaysia and Thailand may also be under scrutiny. 

Based on their estimates, Malaysia and Singapore meet two of the three criteria, with Thailand meeting only one, while Indonesia and Philippines do not meet any.