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France occupied all of Vietnam by 1884. Independence was declared after World War II, but the French continued to rule until 1954 when they were defeated by communist forces under Ho Chi MINH, who took control of the north. US economic and military aid to South Vietnam grew through the 1960s in an attempt to bolster the government, but US armed forces were withdrawn following a cease-fire agreement in 1973. Two years later North Vietnamese forces overran the south. Economic reconstruction of the reunited country has proven difficult as aging Communist Party leaders have only grudgingly initiated reforms necessary for a free market.

Update No: 02

Raising a hope that the newly-ratified Bilateral Trade Agreement (BTA) with US will bring different and positive economic sense to the country after a couple of years of low growth, the Vietnamese government and its citizens enter the year 2002 optimistically and a little ambitiously.
The Ministry of Trade has set Vietnam's export target this year at U$17.9bn, up 11% over 2001. The service export value is expected to increase by 18% on the previous year, industrial exports up 11.4% and agro exports up 10%.
The ministry predicts that exports to Europe and America will account for 35% of the country's total exports, with the EU importing US$3.4bn and the United States US$1.8bn. Deputy Trade Minister, Mai Van Dau, said that the ministry would send more staff to expand Vietnamese product sales in major markets.
The Government is projecting to reach 7 % -7.3% growth rates, against 6.8% in 2001.
However, many exporters worry about increasing competition and requirements in the world market, which exceed their capacity.
Competitors from US are among the toughest and the BTA is expected to give the green light to massive investment flows from the US.
Chairman of the Vietnam Textile and Garment Association, Le Quoc An, said that only a few domestic garment producers can meet requirements regarding quality, time and delivery to their US clients in order to take advantage of the Vietnam - US Bilateral Trade Agreement.
"Vietnamese enterprises still have a long road to travel to obtain wide access to America" remarked Mr. Fawn Eveson, vice president of American Apparel & Footwear Association (AAFA) after heading a delegation to study the Vietnamese potential market.
Vice Chairman of the Vietnam Leather and Footwear Association, Mai Duy Hien, said: "Vietnam will face more difficulties in exporting leather and footwear this year, particularly with neighbouring China's participation in the WTO."
Deputy Director of the Vietnam Bank for Foreign Trade, Nguyen Phuoc Thanh, suggested that the government should sign more payment agreements with other countries to facilitate export deals and for the National Export Assistance Fund to lend to foreign clients to encourage them to buy Vietnamese goods.
Vietnam reported exports of US$15.1bn and import spending of US$16bn last year.
January saw industrial production value growing 22% from the same month last year, reaching VND21,872 billion (US$1.5 billion), reported the General Statistical Office (GSO). 
The private sector is increasingly proving to be efficient. The domestic private sector recorded the highest growth of 34% on-year with value of VND4,134 bn (US$276 million). Next were state-owned enterprises (SOEs), registering a growth of 21%. The foreign-invested sector expanded at a lower rate of 16%.
But if the oil and gas industry, that saw production fall by 14% in the month, is excluded, the sector's industrial growth was 32%.
Northern Hai Duong province saw the largest growth of 84% in the month. Also in the North, Hanoi recorded growth of 38%, Ha Tay Province 50%, Thanh Hoa Province 34%, Hai Phong Province 20%, Quang Ninh Province 13% and Vinh Phuc Province 10%.
Southern provinces maintained their high growth, with Binh Duong Province up 43%, Khanh Hoa 43%, Can Tho 33%, Ho Chi Minh City 32%, Dong Nai 24% and Da Nang 22%. But Ba Ria Vung Tau Province shrunk by 12%, mainly due to a fall in oil production.
Industries with high growth in January included machinery at 270%, automobiles 69.5%, seafood processing 51%, steel 44%, cloth 36%, cement 30%, and motorbikes 26%.
Vietnam's export turnover fell 8% while imports grew 19% in January against the same month last year, reported the General Statistical Office (GSO).
The country shipped US$1bn worth of goods in the month or US$300 million less than December last year. The domestic sector represented US$563 million, up 5% on-year, and foreign-invested enterprises (FIEs) made up US$187 million, a 21% reduction on-year.
A fall in crude oil earnings was the major cause of the export slump - US$187m in January or a fall of 38% against the same month last year. Other commodity sales fell 3% to US$250m in the month with rice, coffee and computers seeing the largest turnover decreases, by 66%, 16% and 43%, respectively.
Traders shipped 50,000 tons of rice in January worth US$10m, a reduction of 73%, 100,000 tons of coffee, up 16%, and US$35m worth of computers and computing components. Vietnam is curbing its rice export due to thin supplies.
Other key exports recorded growth in the month; seafood accounted for US$110m, up 26% on-year, textile and garments US$120m, up 10% and footwear US$140m, up 6%.
In January, Vietnam spent US$1.25bn on imports, a 19% increase from the same month last year but a 14% decline from last December. The domestic sector made US$870m, up 18%, and FIEs US$380m, up 22%.
Overall, export sales realized just 6% of this year's projection and imports 7%. The trade deficit stood at US$250m for the month.
Observers forecast a worse performance in February due to long Tet, lunar New Year, holiday and a relaxed production pace after that.
As oversea assistance is vital for developing the economy, Vietnam attaches significant importance to making itself attractive to donors.
Hanoi announced it has received US$1.75bn in overseas development assistance in 2001, up from US$1.6bn in 2000. Cumulatively, international donors have provided Hanoi with ODA worth US$9.2bn from 1993 when the first Consultative Group (CG) convened.
The country's total foreign debts will be nearly US$13bn by the end of this year, or the equivalent of 38% of its GDP.
Of the debts, US$2.8bn were owed by the government to international institutions such as IMF, WB and ADB, US$6.1bn were loans from foreign governments, US$548m from London Club's bankers, and US$154m from international traders.
In addition, state-owned enterprises and private companies owed US$2.625bn to foreign clients, he said.
So far Vietnam has been very successful in restructuring its foreign debts, which stood at US$25bn before the country embraced Doi Moi, or economic reform - these included debts passed to Hanoi by members of the former Soviet Union, and also debts that the former Saigon regime owed to international clients.
Last year, foreign donors pledged to give Hanoi ODA funds worth US$2.2bn for 2001 and they are expected to promise a similar amount for 2002.
During the CG meeting, Hanoi introduced a list of 340 projects calling for US$14bn of foreign investment. It also pledged that in the next five years, domestic investors would be expected to spend US$42bn on development plans and the country would realise an annual GDP growth of up to 7.5% until 2005.
The Asian Development Bank (ADB) announced that it planned to lend Vietnam US$280m this year to fund development and reform, an increase of 15% over 2001, and would provide a grant of a further US$6m. The funding would be increased gradually and perhaps even go above the US$300m depending on project performance.

Update No: 01 (January issue for reference only)

Being viewed internationally as a Asian backwater gradually on the way to modernity and industrialisation, but with almost all economic sectors dragging behind, leaders of Vietnam's communist party inevitably put the blame on long wars of independence, first with France and then the US. Meanwhile, the younger generation here have no doubts in disagreeing with their parents, the veterans of those wars, in explaining it on the reluctant, indecisive attitudes of the party towards pro-market reforms and the acceptance of private property.
Since the late 1980s, the government were to have initiated a campaign of "Doi Moi" (reform), which was first adopted at the sixth Party Congress in 1986 but was put on hold, by now for 15 years. The congress gave a green light to reforms, but which were to be carried out under the mantra of "socialist orientation".
However, it is now clear that the reform programme has failed to meet the early dreams of leaders and the reasonable expectations of the citizens. Le Kha Phieu, the former party chief just before the current one, had reassured the population by claiming that socialism would definitely win, but he himself and his party have never been able to work out a real, transparent answer to what "socialist orientation" really means, which then became an excuse for inaction.
The inadequate understanding, indeed general confusion as to what "socialist orientation" means, has led to a situation that does not allow the free market decisively to open up and consequently the reform has failed to meet its projected targets.
The attitude of government to privatising public assets well exemplifies the reluctance to change. Most of large state owned enterprises (SOEs) will remain under government control under the five-year SOE reform program (2000-2005). For reasons of national security it is claimed, and "special interests" which can be guessed at, large enterprises, strategic enterprises, utilities, including public service SOEs, will remain under full state ownership.
The antipathy among communist leaders to privatisation is because of their intolerance to the perceived re-creation of capitalism, and it is the party that runs things here. However, various measures are contemplated aimed at improving efficiency and competitiveness.
The effectiveness of spreading ownership has been low due to capping regulations on shareholdings of individuals and entities, and to the fact that sales information of highly-feasible candidate SOEs is limited to some highly placed figures in society. Knowledge is regarded as power and those who have it want to keep it that way.
Ageing SOE managers, who usually owe their positions to party promotion, are neither autonomous nor accountable enough to take effective measures to make their enterprises more competitive and efficient. They are primarily concerned that their personal interests and priorities will be taken away after privatisation.
A recent government survey found that around 60 percent of SOEs were not profitable and the debt-to-asset ratio of a large number of SOE was excessive. A major portion of that falls into the group of big and strategic SOEs.
This situation has deteriorated over two years of slow growth, low domestic demand and inadequate competitiveness. It follows a significant contraction of SOEs over the last ten years in the number of SOEs (from 12,000 in 1990 to 5,300 today) and in actual SOE employment (from 2.5 to 1.6 million). Their share of GDP and industrial output has fallen drastically in the last ten years, mostly due to growth of the foreign-investment sector but also due to growth of the domestic private sector, mainly of household enterprises.
Internal reasons for low profitability of SOEs in Vietnam are partly due to the lowly position of genuine trade union organisations, but primarily to the dead-hand of party bodies at the enterprise level. Those party organisations inside enterprises are usually led by ageing party members whose business sense is non-existent but whose power is absolute.
More flexible and market oriented private enterprises have not been allowed a real level-playing field with SOEs, even after the newly ratified Enterprise Law is taking effect. The inequality between the two sectors is well reflected in respect of access to bank credits. The government's attitudes towards domestic private investment is, to some extent, still discriminatory in favour of SOEs. Administrative bodies at government level that have close links and great influence on the operations of private enterprises, have created many constraints to the free development of private business.
SOEs account for 30% of GDP, 25 percent of total investment, 15 percent of non-agricultural employment and about 50% of outstanding domestic bank credit.
Directed lending favouring SOEs has led to a very high rate of non-performing loans. An inappropriate regulatory and supervisory system, one that did not focus sufficiently on risk and loan quality permitted has permitted bankers to conduct related-party lending and high risk lending. Clearly, as can be seen from many other former command economies in Europe and elsewhere, this is real transitional trouble stored up for the future for both the banks and the SOE's.
Current land law does not provide easy access to land to private enterprises whilst business licensing restrictions in various sub-sectors are not removed; the formation of domestic private business associations is not facilitated. All of these are obstacles to progress.
However, despite this, the reforms so far taken have undeniably made some progress and it is increasingly apparent that if the government is finally determined to further strengthen its reforms in a realistic manner and with the right approach, Vietnam will be able to take off vigorously in the not too distant future.
Improvements in the policy environment for the domestic private sector in Vietnam over the last two years appear to be leading to impressive results. Since Enterprise Law became effective in January 2000, an average of 1,200 new small and medium enterprises (SMEs) have registered each month. A recent survey finds that 70 percent of these new registrations are start-ups and are adding genuinely to domestic investment. Evidence over a two-year period also suggests that private SME employment has grown at around 30 percent a year and private SME manufacturing employment, at 35 percent a year. The strongest employment growth was found in SMEs with more than 100 workers.
Enterprise Law, therefore, is specifically aimed at facilitating the birth of private businesses which was very difficult in the past. More actions need to be designed to level the playing field between SOEs and private enterprises.
There is little doubt that if the government systematically seeks to improve the climate for domestic private investment and manages to change its treatment towards private enterprise, employment generation can be huge. The recently adopted trade reforms, when implemented, will increase employment, incomes and consumption of all income groups over the medium term.
As the first wave of grudging reforms has proved inefficient, the government and communist party recently came to understand that they have no choice except of going for an real open market economy, otherwise their very existence will be threatened.
In reality, encouraging progress has been made in respect of structural reforms in 2001. Following the adoption of the Ten Year Strategy by the Ninth Party Congress in April 2001, Vietnam reached agreement with the IMF and the World Bank on a multi-year programme of specific actions concerning banking and SOE reform, trade policy, improving the climate for private enterprises and public expenditure management.
Implementation of this agreed programme of actions has so far been good except for SOE reform. Measures in respect of trade reforms and private sector development are on track. Quantitative restrictions on imports were removed from seven items instead of the two that were scheduled originally. Banking reform lagged initially, but now seems to be largely back on track. Four state owned commercial banks are being re-structured after a delayed start. The programme to equip them with international accounting standards is expected to be completed by January 2002.
A number of specific policy changes such as reduction in personal income tax, movements on interest rate caps, new procedures for the conversion of foreign investment into joint stock companies, and the issuance of the Enterprise Law are among ultimate efforts to speed up reforms.
Now it is the global downturn that makes the achievement of Vietnam's goals much more difficult, especially with the events of September 11 and its aftermath.
There has been a sharp falling off in demand for Vietnam's exports. Import demand growth for Vietnamese products in 2000 stood at 17 percent then down to much less than 1 percent and had been expected to recover at 4.5 percent in 2002. This has been exacerbated by the fact that Vietnam's key East Asian trading and investment partners have abruptly entered recession. Japan's growth has fallen from 1.5 percent in 2000 to minus 1 percent in 2001 and even more striking, the newly industrialized economies of Singapore, Taiwan, China and Hong Kong which grew by 8 percent in 2000, will see a contraction of their GDP by 1 percent this year.
As a result, overall export earnings growth was 7 percent in 2001 (to around $15 billion) down from 25 percent growth in 2000. This is due more to price than volume declines. Manufacturing earnings rose by only 1 percent in 2001 compared to 16 percent the previous year, due to collapse in exports of footwear, electronics and computers. Oil export earnings declined by as much as 20 percent.
The sharp declines in commodity prices have hurt poor farmers in a 80% agricultural country badly. Among the poorest 40 percent of the population, nearly half are net price sellers and others are sellers of other commodities. If Vietnam wishes to open its economy further, it will become even more vulnerable to fluctuations in world commodity prices.
Overall, due to the fact that public expenditures have not kept pace, the budget deficit is expected to be lower than was planned. Noticeably, macroeconomic performance stability in 2001 continues to be maintained and is close to expectations, in spite of a substantially worse external environment.
Growth is lower than originally projected, but Vietnam is still expected to have the second highest growth rate among the larger economies in the region both in 2001 and the next. Retail sales and industrial production point to continued growth in real GDP, with economic activity driven by domestic demand, including a pick up in private investment following improved business sentiment.
With a slight easing of imports this year and a modest improvement in foreign investment, the external balance remains favorable.
The country recorded GDP growth of 7 percent in 2001, total investment growth of 16 percent and a budget revenue increase of 7.4 percent.
To move forward, the government is hurrying up its agenda for the next twelve months to build competitiveness by reducing costs for exporters and enhancing options for private investors.
The chance for Vietnam in the middle of the current global economic and political uncertainty is that it forces foreign investors to rethink their global portfolios. A recent survey shows that Vietnam is perceived as the "safest" productive country in Asia which is valuable, but not definitive.
The supply of world foreign investment is estimated to fall by 40 percent in 2001, the sharpest decline in three decades. However, the year 2000 saw some important progress in this respect. Three large energy related investments - the three biggest private foreign investments in Vietnam ever - have finally been signed, indicating that Vietnam is open for large scale investment.
To cope with the falling trend, actions have now been adopted to try to make Vietnam an attractive place for investment. This has resulted in a significant number of new investments and expansions of existing operations. Nonetheless, Vietnam has a distance to travel before it can be regarded as a premier investment location. This is not because of any inherent lack of competitiveness, because Vietnam can become highly competitive and increasingly it is improving its policy environment. It is because of Vietnam's reputation for slow decision-making and for insufficient transparency, in other words the interface of the ruling communist party with the realities of a market economy.
The ratification of US bilateral Trade Agreement in September 2001 lowering US tariffs on Vietnamese manufactured exports presents a great opportunity. Though import demand will remain weak in the US in the near term, Vietnam could generate growth in its exports to that market, if it prepares expeditiously and targets its products carefully.
Recent estimates of the impact of WTO accession on China's import demand suggest that there will be important opportunities for Vietnam to export certain products. Whether Vietnam is successful in realising these opportunities will depend on its efforts to penetrate the Chinese market and on the speed of reforms that Vietnam undertakes as part of its own WTO accession process.
Donors and international assistance organisations estimate that to fulfill the "second phase" reform, Vietnam will require disbursements of about $2.7 billion in 2002. Slightly more than half of this inflow should come from ODA, based on higher disbursements from the existing stock of un-disbursed project aid. And the rest comes from FDI and external loans. FDI and commercial inflows are estimated to increase to $1.2 billion in 2002 (both equity and loans) given the large projects in the energy sector that were recently approved. The World Bank, IMF and Growth Facility are expected to disburse a total amount of $270 million in 2002 for the purpose of poverty reduction only. Disbursement from the UK, Sweden, Denmark and the Netherlands who have recently approved co-financing of the first poverty reduction support credit and from program, loans of Asia Development Bank (ADB) are also expected.

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Vietnam sends aid to Afghanistan

Vietnam says it's planning to send US$300,000 worth of humanitarian aid to Afghanistan.
A spokeswoman for the Foreign Ministry, Phan Thuy Thanh, says Vietnam would provide "essential goods" to help with the rebuilding of the war-torn nation.
She didn't elaborate what kind of good would be provided, but said Hanoi would send a delegation to an international meeting in Japan next week, on the reconstruction of Afghanistan reported ABC Radio Australia News.

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Vietnam Airlines says gets discount in Pratt deal

National carrier, Vietnam Airlines said recently it has secured a large discount in the US$145 million contract it awarded U.S. manufacturer Pratt & Whitney for nine engines to power the four Boeing 777s it ordered in December.
"We decided to favour Pratt & Whitney after careful consideration of all technical and commercial aspects," said a senior Vietnam Airlines official, who declined to be identified.
"People normally pay only 25 percent of the announced prices. All I could say is we have managed to bargain better than that."
He declined to give any absolute figure.
The official added that two PWFO84D engines would be installed in each of the four Boeing 777s and the airlines would have the ninth as spare.
Pratt & Whitney said recently it won the US$145 million deal to supply engines to power Vietnam Airlines' four Boeing Co. (BA) extended-ranged 777-200ERs. The planes will fly nonstop from Ho Chi Minh City to the Americas and Europe as well as Asia.
Industry officials have said Pratt & Whitney had submitted its bids in a tender along with Rolls-Royce Plc (RR) and General Electric Co (GE).
The Vietnam Airlines official said the airlines has been using Pratt & Whitney engines in two leased Boeing 767s and their quality was fine.
Vietnam Airlines bought the Boeing 777 jets in a deal worth US$680 million in the first transaction between companies of the two countries under a trade agreement in place since December.
Vietnam Airlines expects to take delivery of the first Boeing 777 in August 2003 and one in September 2003. The other two are to be delivered in 2004 and 2005.

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Templeton Vietnam Investors Approve Tender Offer: Mutual Funds

Franklin Resources Inc. said the board of Mark Mobius' Templeton Vietnam and Southeast Asia Fund Inc. might rebuff shareholders, who voted to be bought out of the fund.
Investors in the closed-end fund voted two-to-one in favour of a one-time, unlimited tender offer to let them get net asset value for their shares in the US$36.2 million fund run by Mobius, who made his mark championing shareholder rights in Asia, Eastern Europe and Latin America.
"It is important to keep in mind that it is a nonbonding proposal,'' said Franklin spokeswoman Lisa Gallegos. "The board is always going to act in the best interest of all shareholders."
Walter Baer, a 64-year-old Los Angeles resident who wrote the proposal, said now that investors have spoken, the board should act. Shares of the fund, advised by Fort Lauderdale, Florida-based Templeton Asset Management Ltd., a unit of Franklin, lagged the value of its assets, trading at 14 percent below NAV.
Closed-end funds issue a set number of shares and are traded on exchanges or in the over-the-counter market. Share prices typically don't equal the net asset value, and instead trade at either a premium or a discount. Shares aren't redeemable through the fund company. Investors buy and sell them in the markets.
"This is just a first step," Baer said. "Success is going to come when the fund implements the recommendations that the shareholders have voted for."
Gallegos said she had no immediate information on when the board might consider it. Baer's proposal passed by 1.78 million votes to 891,295. 
Baer said while the "clear, two-to-one vote" should "morally obligate" the board to act, he has had no communications from it or the fund's adviser beyond brief conversations with a fund lawyer on procedural issues tied to submitting his proposal.


The fund's board has opposed an unlimited tender, saying it could force a "fire sale" of securities. Instead, the board earlier voted to merge the Vietnam fund with another fund run by Mobius, the US$429.9 million Templeton Dragon Fund Inc., a reorganization that would require shareholder approval.
Dragon Fund's board has approved a tender offer for up to 10 percent of its outstanding shares at not less than 90 percent of NAV over a 12-month period. The offer will be followed by one or more offers for up to 10 percent of Dragon Fund's shares the following 12 months. The offers will go ahead even if shareholders reject the merger.
Baer said the "small" tender offer proposed for Dragon Fund "is not at all consonant" with what the shareholders voted for.
"Since the vote came after the merger was announced, it's very clear what the shareholders are asking for," Baer said. "We are asking for a tender offer to the (Vietnam Fund) shareholders before any such merger takes place."


In an October filing with the Securities and Exchange Commission, the fund urged shareholders to reject Baer's proposal in part because it could force the selling "illiquid" investments at an "inopportune" time, cutting the NAV payable to shareholders. The filing said about 20 percent of the fund's assets were invested in "direct equity" investments in Vietnam, such as a joint venture. 
Baer, who works in the information technology industry and who owns "a few thousand" Vietnam fund shares, said a look at the fund's most recent annual report, dated March 31, reveals it held just two such "direct equity investments," Mayfair Hanoi Ltd. and Indotel Ltd., which together accounted for 20.7 percent of assets. Baer said he'd have no problem if the fund limited the tender offer to 75 percent of shares to prevent a fire sale.

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