VIETNAM’S ECONOMY IN THE EARLY 2000s
During the 2000s, Vietnam's average economic growth topped 7 percent annually, while the proportion of those living in poverty fell to 11 percent in 2009 from 58 percent in 1993. Per capita yearly income in 2009 was about $1,000, up from $400 in 2000. [Source: Mark Magnier, Los Angeles Times, June 05, 2010]
In 2001 the Vietnamese Communist Party (VCP) approved a 10-year economic plan that enhanced the role of the private sector while reaffirming the primacy of the state. In 2003 the private sector accounted for more than one-quarter of all industrial output, and the private sector’s contribution was expanding more rapidly than the public sector’s (18.7 percent versus 12.4 percent growth from 2002 to 2003). [Source: Library of Congress *]
Despite these signs of progress, the World Economic Forum’s 2005 Global Competitiveness Report, which reflects the subjective judgments of the business community, ranked Vietnam eighty-first in growth competitiveness in the world (down from sixtieth place in 2003) and eightieth in business competitiveness (down from fiftieth place in 2003), well behind its model China, which ranked forty-ninth and fifty-seventh in these respective categories. Vietnam’s sharp deterioration in the rankings from 2003 to 2005 was attributable in part to negative perceptions of the effectiveness of government institutions. Official corruption is endemic despite efforts to curb it. Vietnam also lags behind China in terms of property rights, the efficient regulation of markets, and labor and financial market reforms. State-owned banks that are poorly managed and suffer from non-performing loans still dominate the financial sector.
A decree to open export trade to all companies help lift exports in 1998 when it appeared they were sagging. State-owned industries were reformed, making them more efficient but also putting thousands out of work.
In 2000, a new enterprise law was passed that made it easier for Vietnamese to start new businesses. Two years after it took effect 35,000 new business companies, most of them small or mid-sized, were registered and they generated $4 billion of capital, an amount equal to the foreign investment Vietnam receives in a good year. A World Bank official told the International Herald Tribune, "It’s hard to think of a single law in Southeast Asia that has had a more positive effect on growth and development." Before the law was passed it was very difficult to start a legal business. To do so one had to get a license which was subject to five laws, six ordinances and hundreds of regulations, some of which contradicted each other. To get a license either required a long wait or money to pay off officials.
In the early 2000, Vietnam’s economy expanded at an annual rate in excess of 7 percent, one of the fastest growing in the world, but the economy was growing from an extremely low base, reflecting the crippling effect of the Second Indochina War (1954–75) and repressive economic measures introduced in its aftermath.
Vietnamese Economy in the Mid 2000s
Growth in Vietnam was 7.2 percent in 2003, 7.7 percent in 2004 and 8.4 percent in 2005, one of the fastest rates after China. AFP reported: “Industrial production grew 16 percent, agriculture was up 5.4 percent and services expanded 18.5 percent in 2004 despite prolonged drought, floods and a bird flu outbreak earlier this year, the Nhan Dan newspaper said. The country's foreign direct investment in 2004 totalled more than four billion dollars, up 28.5 percent against 2003. Vietnam enjoyed growth of 3.5 percent in the agro-forestry and fishery sectors, and 10.2 percent in industry and construction. In December 2004, international donors pledged $3.4 billion to help Vietnam's poverty reduction and economic growth efforts in 2005 but also called on the government to speed up structural reforms.
The growth in 2004 created 1.55 million new jobs. Exports hit a new high of US$26 billion, an increase of 28.9 percent against 2003. This was the highest export growth rate in the past eight years. Foreign direct investment was the highest level in the past seven years. This demonstrated foreign investors’ trust in the investment environment in Vietnam. [Source: Agence France Presse, December 29, 2004]
Growth of 8.4 percent in 2005—the second highest in Asia after China and the highest in Vietnam in a decade— was led by gains in construction, tourism and telecommunications. Foreign investors took notice. U.S.-based Intel Corp., the world's largest chipmaker, announced it would open a $300 million testing and assembly plant in southern Ho Chi Minh City.
Growth was 8.2 percent in 2006. Vietnam’s stock market rose 144 percent, making it the world’s third best performer after Peru and Venezuela. It received a record $9.5 billion in direct foreign investment and reached a record $40 billion in exports. In Hanoi and Ho Chi Minh City cranes festooned the skyline, factories complain of a shortage of labor — 20,000 extra workers are needed in the south of the country — and people were being drawn in growing numbers from the country to the towns. [Source: Jeremy Laurance, The Independent, February 27, 2006]
The new Enterprise Law and Investment Law, which were approved by the National Assembly in December 2005 and took effect from July 1, 2006, marking a great step forward in the reform process. The laws aimed to unleash the potential of the private sector and create a more level playing field between domestic and foreign businesses and between the private and State sectors. [Source: The Saigon Times Daily — December 28, 2006]
Associated Press reported: Vietnam achieved this growth despite, “Natural disasters including typhoons and flooding killed at least 500 people and injured nearly 3,000 others this year, it said. The country was also facing foot and mouth disease, which killed thousands of animals and the reemergence of bird flu outbreaks among poultry earlier this month in the two southern Mekong Delta provinces in the first reported outbreak in the country in a year. Last year, manufacturing accounted for 41 percent of the economy, services 38 percent and agriculture 21 percent. In recent years the manufacturing and services sectors have increased their contribution to Vietnam's economy as the contribution of agriculture to the economy has decreased. [Source: The Associated Press — December 28, 2006]
Shawn W Crispin wrote in the Asia Times in 2006, “The communist government's substantial economic and financial reforms have catapulted growth and galvanized unprecedented foreign investor interest. Over the past six years, Vietnam's economy has grown at an extraordinary inflation-adjusted average of 7.4 percent. At the same time, fast growth has wholly failed to nudge Vietnam's ruling Communist Party toward more liberal democracy. The recent leadership reshuffle in Hanoi handed power over to a new, younger generation of supposedly more outward-looking communist rulers. Vietnam-based foreign investors have expressed confidence that the new leadership has the technocratic ability to tackle complex economic and legal challenges. [Source: Shawn W Crispin, Asia Times, July 6, 2006]
Improvements on Everyday Life from Vietnam's Growing Economy in the Mid-2000s
Kate McGeown of the BBC reported: “The economy has grown by nearly 8 percent a year in the past five years, a feat only rivalled in Asia by China. In 1993, 58 percent of the population was classified as being under the internationally-accepted poverty line, but that figure had fallen to less than 20 percent by 2004. "It's like a completely different country from when I was here in the mid-1990s," said World Bank economist Carrie Turk. When she first arrived in Vietnam, Ms Turk had to fly to Bangkok for items such as toiletries. But now Hanoi is home to luxury boutiques, wi-fi cafes and world-class restaurants. "It's an extraordinary growth by global standards — and it's quite rare to find anyone in Vietnam who will say they're not better off now than they were 10 years ago," she said.[Source: Kate McGeown, BBC, November 27, 2006 ]
That includes poorer Vietnamese people, like Nguyen Thi Ha, who lives with her husband in a village 30 kilometers away from Hanoi. She comes into the center every few weeks to sell the papayas and bananas she grows on her land, earning about 400,000 dong ($25) from each trip. "I feel hopeful about the future," she said. "I still have a hard life, but it's much better than it was in the past." "We now have a TV, and the next thing I want to get is a telephone."
Michael Battye of Reuters wrote: “Where bicycles once clogged the streets, imported cars now weave through shoals of motorcycles. Commerce, released from a failed experiment with cooperatives, thrives.Markets are packed with goods and swarm with shoppers. A new shopping mall sells designer clothes and latest electronics. "Anything you want to buy, you can find here," said one American businessman. Bars, closed in the years after the end of the war and their prostitutes shipped off to re-education camps, are everywhere. Discotheques featuring mini-skirted women and music loud enough to vibrate windows next door are common. But the old generals say they achieved what they set out to. [Source: By Michael Battye — Reuters — March 22, 2005 ==]
"During the war, our ideals, our dreams, our driving force was that nothing was more precious than independence and freedom," said Brigadier General Phan Khac Hy, reciting the prime Communist Party slogan of the war years. "What we wanted to see for our people was for every family to have a bowl of rice on the table every day, clothes to wear and a roof over their heads." In Ho Chi Minh City, at least, ordinary people seem content. A taxi driver earning triple the average per capita annual income of $450 has no complaints. An ethnic Chinese trader in Cholon, the city's Chinatown of often wealthy entrepreneurs — a prime source of Vietnamese boat people in the years after the war's end — said life wasn't good until the early 1990s. "Then they started economic reform and opened the doors to foreign investors," he said. "Now things are all right." ==
Reuters also reported: “ The cities brim with small businesses and even luxury goods brand names such as Louis Vuitton and Cartier. Although Vietnam is still poor by global standards with an annual per capita income of just $640. Many goods and services are still cheaper, however, than in other Asian countries. During the ruling Communist Party's five-yearly National Congress in April, leaders simultaneously cheered the successes of market reforms that began in 1986 and called for faster change to lift Vietnam out of under-development. The economy grew at a rate of 8.4 percent of gross domestic product in 2005, one of the world's fastest-expanding after China. [Source: By Grant McCool , Ho Binh Minh, Nguyen Van Vinh, Reuters, May 10, 2006]
Vietnam Joins the World Trade Organization (WTO) in 2007
In January 2007, The World Trade Organization announced: Viet Nam joined the WTO today, 11 January 2007, taking the organization’s membership to 150. Approval came after 10 years of tough negotiations. "In the WTO, when people work hard, things happen — and Viet Nam is a good example of that," WTO Director-General Pascal Lamy said. The political determination and technical quality of negotiators such as Viet Nam’s team can help to produce results in the WTO, he said. [Source: WTO, January 11, 2007]
Vietnam’s WTO membership was approved in November, 2006 after the Vietnam and the United States reached a pact on market access in late May 2006. The bilateral agreement set the terms for Vietnam's membership, laying out specific steps for deregulating its economy and further opening the way for foreign goods and services. In the lead-up to Vietnam's World Trade Organization (WTO) membership overseas firms increasing their presence in the country and foreign direct investment reached $10bn (£5.1bn) in 2006.
Karl John wrote in the Asia Times, “After nearly 11 years of protracted negotiations and intense horse-trading with the United States, Vietnam officially became the 150th member of the World Trade Organization (WTO), opening the way for more foreign trade and investment to speed the communist country's capitalist transformation. The new generation of communist leaders pushed hard to achieve WTO membership, and have quickly implemented various reforms to pave the way for more foreign investment. And all indications are that Vietnam has no intention of turning back. Over the past three years, leading up to final WTO negotiations, the pace of foreign-friendly reforms has increased. So, too, coincidentally, has Vietnam's total economic output, which has nearly doubled over the past five years. An average economic growth rate of 7.25 percent over the past decade has doubled per capita gross domestic product (GDP). Economic growth reached nearly 8.2 percent in 2006, the second-fastest clip in Asia, trailing only China. [Source: Karl John, Asia Times, January 12, 2007]
The BBC reported: Membership will give Vietnam greater access to overseas markets but will also require it to cut import tariffs. Supporters of the move say it will help boost exports in key food and textile industries and attract investment. Critics have argued that the increased competition will damage local firms and producers such as livestock farmers. Joining the WTO was "a historic day for the country," said Le Dang Doanh, a key government economist. "In joining the WTO, Vietnam is accepting increased competition, and competition will make the economy more dynamic," he added. The government's positive outlook was not echoed by Nguyen Van Thoai, deputy manager of Saigon Cosmetics. He estimates that the maker of perfumes and toiletries will see its market shrink by 20 percent once Vietnam becomes a WTO member. [Source: BBC, January 11, 2007]
Vietnam Economy After Joining the WTO: High Growth and Inflation
AFP reported: Vietnam's economy grew by nearly 8.5 percent in 2007, the fastest rate in 11 years, after the country joined the World Trade Organization. The gross domestic product (GDP) growth rate of 8.48 percent, compared to 8.2 percent in 2006, was one of the highest in Asia but was topped by neighbouring China, said the Government Statistics Office (GSO). Industry and construction made up 42 percent of the developing country's economy, followed by the services sector with 38 percent, and agriculture, forestry and fisheries with 20 percent, said the GSO. Vietnam attracted a record $20.3 billion in investment pledges after promising to further open its doors to foreign business under WTO rules. [Source: Agence France Presse — December 31, 2007]
South Korea topped the list of foreign investors with $4.4 billion pledged, followed by the Virgin Islands, Singapore and Taiwan. Releasing its final economic estimates for the year, the GSO also said Vietnam was battling an annual inflation rate of 8.3 percent, driven in part by a 15 percent jump in food prices and higher fuel costs. The trade deficit reached a record $12.4 billion as a 21.5 percent rise in export revenues to $48.4 billion was outpaced by a 35.5 percent jump in the cost of imports to $60.8 billion dollars. The surge in import revenues was in part due to a sharp increase in machinery and equipment imports, up 56.5 percent to $10.4 billion, and a 25.7 percent rise in the cost of refined oil products to $7.5 billion.
On the export side, Vietnam —which has fast offshore oil and gas reserves in the South China Sea but no operating refineries yet — earned $8.5 billion from crude oil sales, up 2.6 percent on 2006. Export revenues from garments and textiles made in the low-wage country rose 33 percent to $7.8 billion. Footwear exports rose 10 percent to $4 billion and fisheries exports 13 percent to $3.8 billion.The United States was the top export market with $10 billion in revenues, followed by the European Union with $8.7 billion, and the 10-member Association of Southeast Asian Nations with $8 billion. Exports to Japan reached $5.5 billion followed by China with $3.2 billion, said the GSO. In the tourism sector, Vietnam received 4.2 million foreign visitors, up 18 percent on 2006. Chinese topped the list, with about 575,000 arrivals or 13.6 percent of the total, followed by South Korea, Japan and the United States.
In January 2008, Grant McCool of Reuters reported: The government's regular increases in minimum wages have been wiped out by soaring consumer prices. Investors are opting for gold through purchases of gold bars and futures and some workers are asking for their salaries to be pegged against gold. "The problem for the government is to convince the poor that they are benefiting from the eight percent economic growth," said Jonathan Pincus, senior economist at the United Nations Development Programme in Hanoi. Pincus and others, notably the International Monetary Fund, have urged the State Bank of Vietnam, the central bank, to rein in credit growth. Bank lending surged 37 percent last year but the government has been reluctant to raise interest rates. Government economists cite an infusion of U.S. dollars through overseas remittances and foreign investments as a big contributor to inflation, forcing the central bank to buy back dollars to contain the value of the dong. [Source: Grant McCool, Reuters, January 27, 2008]
In August 2008, Associated Press reported: “ Vietnam's inflation rate has reached its highest level in 17 years, hitting 28.3 percent in August, while the trade gap continued to widen, the government said Monday. The skyrocketing consumer price index was driven by price increases in food, transportation, housing and construction materials, said the General Statistic Office, which often issues the data ahead of the month's end based on estimates. Overall food costs were up 44.15 percent from a year ago, the government said. The price of housing and construction materials rose 27.4 percent, and transportation costs increased by 25.6 percent. The inflation rate was 27 percent in July, 26.8 percent in June, and 25.2 percent in May. As part of its effort to curb inflation, Vietnam's government has increased interest rates and postponed thousands of public investment projects. The government also plans further spending cuts, according to the state controlled media. [Source: AP, August 25, 2008]
Seth Mydans wrote in the New York Times, With inflation rising to 27 percent in July 2008— “the highest in Asia — and food prices rising to 74 percent above those a year ago, Vietnam is suffering its first serious downturn since it moved from a command economy to an open market nearly two decades ago. In July 2008, the government raised the price of gasoline by 31 percent to an all-time high of 19,000 dong, or $1.19, a liter. Diesel and kerosene prices rose still higher. The country’s fledgling stock market, which had been booming a year ago, has fallen in volume by 95 percent and is at a virtual standstill. [Source: Seth Mydans, New York Times, August 19, 2008 ]
Affect of High Inflation in 2008 on Ordinary Vietnamese
Seth Mydans wrote in the New York Times, “Even the ghosts are suffering from inflation in Vietnam this year. August is the month when Buddhists provide the hungry ghosts of the dead with food and wine and cigarettes and paper offerings that represent the good things in life – cars, houses, motorbikes, stereo sets, fancy suits of clothes. But like everything else in Vietnam, these brightly colored offerings have risen steeply in price and shopkeepers say people are buying fewer gifts to burn for the dead than ever before. "It’s terrible right now," said Dinh Vu Hung, 54, who sells paper offerings in the Ancient Quarter of Hanoi. "We make these beautiful things, but the prices have gone up and fewer people are buying them. It’s not just us, though. It’s the whole country." [Source: Seth Mydans, New York Times, August 19, 2008 ]
“Squeezed on all sides, people are cutting back on food, limiting travel, looking for second jobs, delaying major purchases and waiting for the cost of a wedding to go down before getting married. Some village women who traveled to Hanoi to sell special homemade candies for the hungry ghost festival say they have not earned enough this year to return home. "Some people who have been moving from rural areas to seek jobs in industrial zones are deciding that it is not worth it, and people are moving home," said Ben Wilkinson, associate director of the Vietnam Program of the John F. Kennedy School of Government at Harvard University.
“Everywhere they turn these days, people in Vietnam see higher prices. A shoeshine has gone from 19 cents to 25 cents; a good haircut from $1.25 to $1.87; a tiny cup of tea on the street from 3 cents to 6 cents; a one-time-use rain coat from 12 cents to 37 cents, a massage from $4.37 to $6.25. It now costs 12 cents to park your motorbike on the sidewalk, and if you get a flat tire, it costs 12 cents to get it pumped, double the prices of a few months ago.
“The costs of housing and construction materials have risen by 24 percent, driving up the price of real estate and rents. High fuel prices have led some fishermen to keep their boats onshore, and the government has stepped in to subsidize them. As the local currency, the dong, drops in value, people say they are moving their money into dollar-based bank accounts. Nguyen Minh Phong, an expert on inflation with the Institute of Socioeconomic Development Research who dabbles in real estate, said his personal woe was that he had 13 brothers and sisters who missed the real estate bubble and now come to him for loans.
Growth Slows in 2008 and Vietnam Devalues Its Currency
Vietnam was hit by a relative economic slump in 2008 with its stock market crashing, a banking and currency crisis, inflation exceeding 25 percent and strikes breaking out across the country. Growth was 6.7 percent in 2008. In October 2008, Vietnam’s central bank lowered interest rates from 14 percent to 13 percent to help boost the economy by making it easier for businesses to take out loans. In November 2008, Vietnam lowered its benchmarch interest rate again from 13 percent to 12 percent.
Inflation was brought under control but growth stagnated. The Vietnamese economy grew 5.3 percent in 2009, the slowest clip in a decade, and inflation was 6.9 percent. The trade deficit was $12.1 billion AFP reported: “Vietnam's economy, until recently a darling of foreign investors, has overheated and may be sliding into a boom-and-bust cycle that could require IMF-style assistance, analysts say. The economy widely hailed last year as Asia's next tiger has been battered by double-digit inflation, a ballooning trade gap, a tanked stock market and worries about the currency and banking sector. Aseambankers Research said "the worst-case scenario would be for Vietnam to suffer massive capital flight, triggering a balance of payment crisis and forcing the country to go to the International Monetary Fund for help." [Source: AFP, June 7, 2008 *]
In December 2008, Reuters reported: Vietnam devalued its currency by three percent, spurred by falling inflation and the weakest annual economic growth in nine years. The central bank set Thursday’s dong mid-point at 16,989 per dollar versus 16,494 after a two-day cabinet meeting. in which said gross domestic product grew 6.23 percent this year. The Southeast Asian nation’s economy has not grown slower since 1999 when it went up 4.77 percent. The central bank’s decision to let the dong fall three percent against the dollar is wise as it eases pressure on the country’s foreign currency reserves and stimulates exports in 2009," said Tong Minh Tuan, an economist at Bao Viet Securities Company. "Moreover, this shows that the central bank is moving in a way that investors expected. That will help boost confidence." [Source: Reuters, December 26, 2008 /+/]
Vietnam and the 2008-2008 Global Financial Crisis
By many measures, Vietnam's economy fared better than most in Asia during the 2008-2009 global financial crisis. Thanks to a rise in trade of consumer goods, government spending on infrastructure and numerous plant openings in the past, the country's gross domestic product was over 5 percent in 2009, the second highest in East Asia after China, according to the World Bank.
John Braddock wrote in the World Socialist website, “Having sought to transform Vietnam over the past decade and a half into a lucrative cheap labor platform, the Vietnamese government now confronts a sharp downturn in exports and the danger of widespread bankruptcies and unemployment. Statistics released by the Foreign Investment Agency showed dramatic falls. Investment pledges and planned capital increases for existing projects dropped 79 percent in the nine months to September, year-on-year. Total investment commitments fell to $US12.5 billion, while disbursements totalled $7.2 billion, 11 percent lower than the same period the previous year. [Source: John Braddock, World Socialist website, October 12, 2009 -]
“In recent years exports have accounted for up to 70 percent of government revenue. However, Vietnam’s key export markets—the European Union, the US and Japan—are forecast to have minus 2 percent growth rates this year, in the case of Japan, minus 5 percent. Writing in the Far Eastern Economic Review in May, Houston University academic Long S. Le noted that imports for these markets are expected to plunge by as much as 52 percent. Vietnam’s exports have already fallen by 14 percent year-on-year in the first eight months of this year. -
“Like governments elsewhere, the Vietnamese government in Vietnam has introduced a fiscal stimulus package to stave off an economic slowdown. Its central element was an interest-rate subsidy program worth 17 trillion dong ($US1 billion), aimed at stemming a tide of factory closures. About 75 percent of this fund was reserved for state-owned enterprises (SOEs). Despite the stimulus package, the official unemployment rate is expected to double from 4.7 percent in 2008 to 8.2 percent this year. -
“According to the Economist on September 24, international observers are increasingly concerned about the sustainability of the recent "recovery" in Vietnam, given its dependence on government spending and cheap credit. The main avenue for financing the deficit has been to issue more government debt. But the regime has failed to sell any bonds at five consecutive public auctions between March and July this year. Local investors are simply not purchasing notes at 9 percent interest, underscoring widespread pessimism about future inflation. At the most recent bond auction, in late August, the treasury raised just $US57 million of a hoped for $150 million. -
“Vietnam has no access to foreign debt markets. Earlier plans for an international bond issue were shelved indefinitely after international rating agencies downgraded Vietnam’s credit to junk status. The government is likely to come under severe international pressure to rein in spending, restrain credit growth and cut the budget deficit, in order to ease persistent fears of a return to high inflation.” -
Vietnamese Economy in the Early 2010s: Growth, Inflation and Currency Devaluations
The Vietnamese economy expanded about 8 per cent a year in the late 2000s but slowed to 5 percent in the early 2010s. Critics say that Vietnam's rapid economic growth since "Doi Moi" reforms opened up the country in the early 1990s masks rising inequality and inefficiencies in an economy still dominated by state-owned enterprises. The Vietnamese economy grew 6.8 percent in 2010 but inflation was in double digits at 11.5 percent. The global liquidity that coursed through the world's emerging markets missed Vietnam. The Ho Chi Minh City Stock Exchange lost about 3 percent in 2010 compared to gains of more than 40 percent in both Thailand and Indonesia. [Source: John Ruwitch and Jason Szep, Reuters, January 13, 2011 ]
Associated Press reported: “The growth was drive by a rise in export, industrial output, services and investment. The trade deficit was $12.4 billion. On the problems Vietnam was facing Margie Mason of Associated Press wrote: “The Communist government's push for rapid economic growth has lifted millions out of poverty but created new challenges that the country's technocrats are often ill-equipped to deal with. Attempts to create national corporate champions have wasted capital with unwise investments and left state-owned businesses loaded with too much debt. [Source: Margie Mason, Associated Press, December 21, 2010 ***]
In February 2011, James Hookway wrote in the Wall Street Journal, “One of Asia's most inflation-plagued economies, Vietnam, devalued its currency 8.5 percent to help arrest mounting economic problems. Inflation is ringing alarm bells across numerous emerging economies amid rising food and fuel costs, and Vietnam is one of the main trouble spots. Years of loose interest rate policies and state-subsidized lending have ramped up its economic growth to China-like levels in a relatively underdeveloped country that analysts say is ill-equipped to handle it. That is driving up prices for many basic commodities and sparking a series of currency devaluations that have erased one-fifth of the value of Vietnam's dong since mid-2008. [Source: James Hookway, Wall Street Journal, February 14, 2011 ^]
“Vietnam's economic planners have shown little inclination to get tough on inflation, despite anti-inflationary talk at the ruling Communist Party's twice-a-decade Congress last month. Devaluing the currency to pump up exports risks exacerbating the problem. Rather than risk choking off the supply of new jobs for a young and growing work force by raising interest rates, Vietnam is instead continuing to focus on growth while treating inflation as a secondary issue, economists say. ^
“Vietnam is almost entirely out of step with the rest of Asia, where concern about rising fuel and energy prices is nudging many central banks to push up rates after a rapid recovery from the global economic slump. Many countries also have allowed their currencies to gradually appreciate to help absorb the impact of inflation—a move that makes it cheaper to import items such as food and fuel. Malaysia's ringgit is trading at around 13-year highs against the U.S. dollar and the Thai, Philippine and Singapore currencies have all seen sharp rises over the past two years. ^
“Vietnam, on the other hand, is regarded by some policy makers in the region as a cautionary tale of what can happen if monetary brakes aren't applied quickly enough. "The underlying economic concerns are yet to be addressed, meaning that depreciation pressures may persist," says Sherman Chan, an economist with HSBC in Hong Kong. Those problems include a large trade deficit and inefficient state enterprises that dominate much of the economy. ^
Vietnam’s economy grew 5.42 percent in 2013, slightly better faster than a 5.25 percent pace in 2012. Bloomberg reported: “Vietnam’s economic growth accelerated as exports climbed, even as banks struggled to meet the government’s lending target. Stocks rose. Manufacturers from Samsung Electronics Co. to Nokia Oyj have boosted Vietnam’s exports, which grew 15.4 percent this year from a year earlier. That has helped offset faltering bank lending, as the government takes steps to resolve bad debt and overhaul the financial system. “The economy is steadily recovering,” said Fiachra MacCana, managing director of Ho Chi Minh City Securities Corp. “Exports are still the main driver, especially for Vietnam’s manufacturing industries, but there’s a little bit of domestic backup there. It’s a broad-based recovery.” Vietnam’s growth is being supported by exports and foreign investment, the International Monetary Fund said in December 2013. The country’s exports-to-GDP ratio increased to 75 percent last year from 56 percent in 2009, according to IMF data. [Source: Bloomberg , December 22, 2013]
Vietnam received $11.5 billion in disbursed foreign direct investment this year, a 10 percent increase from last year, the Statistics Office said today. Pledged FDI was $21.6 billion, a gain of 55 percent from a year earlier, it said. Higher costs and wages in China are prompting some companies to set up manufacturing in neighboring Asian economies. Samsung, the world’s biggest smartphone maker, is building a $2 billion plant in Vietnam that may make 120 million handsets a year by 2015, according to two people familiar with the company’s plans who asked not to be identified because the matter is private.
Services, which made up 43 percent of the economy, grew 6.6 percent in 2013 from a year earlier, while industry and construction, which accounted for 38 percent of GDP, expanded 5.4 percent, today’s data showed. Inflation quickened to 6.04 percent in December. Dung told the central bank earlier this month price gains must be kept at 6.5 percent to 7 percent in 2014.
Progress Made by Vietnam Since Joining the WTO
In March 2012, the Voice of America reported: “Five years after joining the WTO, Vietnam’s GDP per capita reached US$1,300, and its export market have been expanded to 149 WTO economies. Vietnam’s export turnover last year, over US$96 billion, was double 2007’s figure. According to economists, after five years of WTO membership, the number of enterprises has increased 2.3 times and 7.3 times in registered capital compared to 2007. Many local businesses have affirmed their foothold in regional and international markets by penetrating demanding markets. As of 2010, Vietnam has had 19 traditional markets with export turnover reaching more than US$1 billion. Export turnover grew by more than 19 percent on average from 2007 to 2011 compared to 18 percent before Vietnam's entry to the largest trade organization. [Source: Voice of America, March 9, 2012 \]
“Economists also agreed that after WTO admission, Vietnamese businesses’ competitiveness has improved remarkably. However, they still reveal weaknesses such as small- scale operation, low capacity of applying science and technology, and limited market share. Many businesses have failed to work out a competitive strategy to affirm their prestige and quality in the region and the world. Cao Sy Kiem, President of the Vietnam Association of Small and Medium-sized Enterprises (SMEs), said that although SMEs have developed rapidly, they have not been fully equipped with capital sources, advanced technology, highly-skilled human resources and business administration experience, putting them in a fix to ensure the quality of product design and competitive prices, even in the domestic market. To improve the competitive edge of SOEs in the future, it is necessary to restructure state owned enterprises (SOEs) by eradicating weak enterprises, strengthening inspection and training qualified business administration managers. \
“Cao Sy Kiem, President of the Vietnam Association of Small and Medium-sized Enterprises (SMEs), said that although SMEs have developed rapidly, they have not been fully equipped with capital sources, advanced technology, highly-skilled human resources and business administration experience, putting them in a fix to ensure the quality of product design and competitive prices, even in the domestic market. To improve the competitive edge of SOEs in the future, it is necessary to restructure state owned enterprises (SOEs) by eradicating weak enterprises, strengthening inspection and training qualified business administration managers. ==
Problems with the Vietnam’s Economy and Possible Reforms
William Pesek of Bloomberg wrote:“Like China, Vietnam is suffering from a distorted credit allocation system dominated by state-owned companies. Their reckless lending decisions have fuelled dangerous property bubbles and buried banks under non-performing loans. The gap between rich and poor is growing rapidly; so are tensions between workers seeking higher wages and industries built on cheap labour. Dodgy land seizures and privatizations that enrich only the politically connected have sparked public outrage. Rampant corruption is undermining the ruling party’s legitimacy.The country cannot move forward without restructuring state-owned enterprises, which account for almost 40 percent of gross domestic product. Economists at McKinsey and Co., for example, estimate that Vietnam must boost labour productivity by more than 50 percent to maintain healthy growth. You don’t need a Nobel Memorial Prize in Economic Sciences to know that only a thriving private sector can do that. [Source: William Pesek, Bloomberg, May 10, 2013::]
Prime Minister Nguyen Tan Dung plans to complete a revamp of state-owned enterprises by 2015 and has set up an asset management company to clear bad debt at lenders. “A complete recalibration of the economy would be necessary to achieve stronger growth again, says Vaninder Singh, a Singapore-based economist at Royal Bank of Scotland Group Plc. Vietnam’s challenge is in some ways more manageable than China’s: Its state-owned companies are smaller, its vested interests less pervasive and powerful. But gradualism is no longer an option. It’s time for the country to develop its own model, one that roots out corruption, invests more in education and key growth sectors such as technology manufacturing, and empowers businesses to move up the value-added ladder.
Obstacles to Reforming the Vietnamese Economy
William Pesek of Bloomberg wrote: “ In February 2013 , deputy finance minister Truong Chi Trung promised that the government would unveil a plan to overhaul 52 state-owned groups by June. Yet based on past experience, there’s ample reason to believe that the reforms will lack specifics or teeth. This government has already missed a target to create an asset-management company to address bad debt in banks. Pledges to rein in runaway public investments, lending and state-owned enterprises aren’t just familiar—they are becoming downright monotonous.[Source: William Pesek, Bloomberg, May 10, 2013]
“One shouldn’t downplay the role of corruption. Just like Xi Jinping in Beijing, Dung faces a uniquely un-communistic problem: too many party bigwigs getting rich from Vietnam’s current model. Those spoils deaden the impetus for change. Graft has risen in inverse proportion to the economy’s standing. In Transparency International’s 2012 Corruption Perceptions Index, Vietnam fell to 123rd place out of 176 nations from 112th place in 2011, a worse standing than Sierra Leone and Belarus. Meanwhile, on the World Economic Forum’s latest Global Competitive Index, Vietnam fell 10 places to 75th, lagging behind Uruguay and Ukraine.
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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.
Last updated May 2014