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UPDATE 1-No need to devalue dong - Vietnam's PM

(Recasts)

HANOI, Feb 5 (Reuters) - There is no need to devalue Vietnam's dong VND= because there are plenty of dollars in the banking system and a devaluation would affect the country's foreign debt position, Prime Minister Nguyen Tan Dung said.

The government let the tightly controlled currency depreciate by about 8 percent against the dollar last year in the face of tough economic conditions, and economists had expected Hanoi to allow it to slip further this year to support exports. “If the domestic currency is devalued, making the exchange rate which now stands at a little over 17,000 dong per dollar rise to 18,000 per dollar, it will be hard to predict how much Vietnam’s current foreign debt of $18 billion will be, and how that will affect the budget balance,” the online version of the Saigon Times (www.thesaigontimes.vn) quoted Dung as saying.

In addition, supply and demand for foreign currency, especially the U.S. dollar, is balanced in economic transactions, Dung was quoted as telling Vietnamese reporters on Wednesday.

Dung predicted that the economy could start to pick up again by May.

The dong was quoted at 17,488/17,489 on the interbank market at 0258 GMT. It is allowed to trade in a band running 3 percent either side of a mid-point set daily by the central bank SBOV.

On the unofficial market, it gained ground in the wake of Dung’s comments, trading at 17,550/17,600 per dollar versus 17,620/17,720 on Wednesday.

“The dollar is unlikely to rise beyond 18,000 dong this year. Our projection is that it will stabilise at around 17,500 to 17,800 dong to the dollar,” one black market trader said, citing the abundant supply of dollars in the unofficial market.

The Southeast Asian country’s economic growth slowed to 6.23 percent last year from 8.5 percent in 2007. The government hopes to keep it at 6-6.5 percent this year, although the International Monetary Fund and others forecast closer to 5 percent.

Hanoi has announced a $6 billion stimulus plan, which includes about $1 billion in corporate tax relief, while the central bank has tried to spur economic activity through a series of interest rate cuts and other measures to kickstart lending.

Vietnam’s trade gap narrowed in January, according to a government estimate, but exports still fell 24.2 percent to $3.8 billion. Industrial output also posted a rare drop, falling 4.4 percent in January from the same month a year before. (Reporting by John Ruwitch and Nguyen Nhat Lam; Editing by Alan Raybould)

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