Most analysts believe the economy will grow 3-5 per cent this year but the value of the Vietnamese dong is continuing to slide.

For months, the dong has traded officially at the bottom of its permitted band and when, in March, the State Bank of Vietnam widened the band from 3 per cent to 5 per cent either side of the set point, the value plummeted to the new minimum.

The official exchange rate of the dong, having depreciated by 9 per cent last year, is down 2 per cent in the first six months of this year.

But it has lost 4.1 per cent on the unofficial market and John Shrimpton, a co-founder and director of Dragon Capital in Ho Chi Minh city, says he would not be surprised if there were to be a further 5 per cent fall.

The government, with only $20bn in foreign reserves - the equivalent of fewer than four months of imports - has limited latitude for intervention, resulting in a shortage of dollars on the open market.

The Hanoi administration does not want to force companies to convert their dollar holdings, a measure that would trigger a currency flight, but they are using what tools they can to ease the dollar liquidity problem. Three of Vietnam's largest banks - BIDV, Vietinbank and Vietcombank - on Monday cut their dollar deposit rates from 2 per cent to 1.5 per cent: dong term deposit rates are running at more than 9 per cent.

Last week, the State Bank of Vietnam said it would accept dollar-denominated bonds as collateral for loans.

Part of the problem is a loss of confidence - exporters are holding their revenue in dollars rather than converting into dong - but another factor is a chronic current account deficit that reached $8.4bn, or 9.3 per cent of gross domestic product, in 2008.

The picture appeared to brighten in the first quarter of this year but most of the improvement was due to domestic investors liquidating their stocks of gold as the world price rose.

Gold exports hit $2.5bn in the first three months, up 1,600 per cent year on year, and analysts warn the shift is unlikely to be sustained.

"The boost to exports is not sustainable as gold stocks are running down and overall exports are going to slip deeper into the red," Prakriti Sofat, an economist with HSBC, said in a research note.

Mr Shrimpton says a substantial trade deficit is not abnormal for a country at Vietnam's stage of development and foreign direct investment, at $2.8bn disbursed this year, will take up some of the slack.

But the continuing weakness of the currency is making it harder for Vietnamese businesses to raise money in the markets and for the government to raise funds for its $8bn stimulus plan - a number of bond sales, sovereign and commercial, have fallen flat.

By Tim Johnston - The Financial Times - June 5, 2009