Hanoi - Local analysts were divided on the reasons for Vietnam's decision to widen the trading band of the dong against the US dollar from 3 per cent to 5 per cent effective Tuesday.

The move effectively devalues the dong against foreign currencies. The government reference rate remained unchanged from Monday to Tuesday at 16,980 dong to the dollar, but the wider trading band allowed banks to raise their rates from 17,489 to 17,700 dong to the dollar.

The government, which controls the exchange rate through its State Bank, had been widely expected to devalue the dong to promote Vietnamese exports.

But economist Vu Thanh Thu Anh, research director at the Fulbright Economic Training Program in Ho Chi Minh City, said Tuesday's move was not related to export promotion.

"The most difficult problem for exporters is that they do not have a market," Anh said. "When they do not have markets, devaluing the dong becomes meaningless."

Anh said the widening of the trading band was a response to the government's decreased ability to defend the dong's value, as its foreign currency reserves have been hit by falling industrial exports and low prices for Vietnam's crude oil.

Tran Du Lich, director of Ho Chi Minh City's Institute for Economic Research, disagreed.

"I do not think Vietnam is under any pressure leading to expanding the trading band," Lich said.

Lich said the government was broadening the band as part of a long-term policy of gradually letting the dong float against foreign currencies. He said the move came despite the risk that a lower dong could hurt Vietnam's economic interests.

"Vietnam is an outsourcing country, so a high exchange rate will put exporters in a difficult situation" because the price of imported components will rise, Lich said. "Moreover, Vietnam owes a lot of money to foreign countries, so a weak dong will make it harder for Vietnam to pay its debt."(dpa)