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Books on Vietnam
REPUBLICAN REFERENCE
Area (sq.km)
329,560
Population
79,939,000
Capital
Hanoi
Currency
dong
President
Tran Duc Luong
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Update No: 033 - (26/08/04)
Political outlook
The domestic political scene remains broadly stable, with the leadership of
the Communist Party and the government not expected to change in 2004-2005. The
Party continues to show its determination to deal with any wrongdoer. The prime
minister, Phan Van Khai recently established an inter-ministerial group to probe
allegations of corruption in the state communications provider, Vietnam Post and
Telecommunication Corporation. The tenure of the post and telecommunications
minister, Do Trung Ta, therefore may also come to a premature end.
In May, the government announced that 43 former and current high-placed
executives at the state-owned oil and gas corporation, PetroVietnam, would be
disciplined for "administrative and economic wrongdoing", a euphemism
for corruption. In June, the deputy general director Nguyen Quang Thuong was
arrested on corruption charges related to falsifying purchase contracts. A year
ago the company's general director, Nguyen Xuan Nham, was fired for alleged
corruption.
Nguyen Thai Nguyen, who was deputy head of the Government Office was a close
aide to Mr. Khai, recently received another prison sentence for corruption.
Despite these shows of progress in terms of demonstrating the leadership's
eagerness to crack down on corrupt officials, greater effort needs to be made to
increase the pace of bureaucratic and institutional reform in order to tackle
corruption, a problem that remains endemic. There has been some progress in the
state's administrative reform programme. Most notably, the one-stop shop"
mechanism, which aims to create single agencies to deal with applications of a
range of activities requiring official approval, is being expanded and will be
in place at the provincial and district levels in all 64 cities and provinces by
the end of 2004. This should help to limit opportunities for graft.
Authorities will continue to seek to maintain political stability by suppressing
anti-government forces that are perceived to be a threat to "national
unity". The government recently called on ministries and agencies to step
up efforts to prevent the spread of "poisonous information." Security
in Central Highland region remains unstable despites the government's efforts to
improve the welfare of ethnic minorities. This is partly because of the
long-held distrust between the ethnic minority groups, mostly Christians, and
the majority ethnic Vietnamese (Kinh) people.
International relations
The government's controversial decision recently to commence tours to and to
renovate an airport on the disputed Spratly islands is worrisome as it has
angered other nations that claim sovereignty over the islands, including China,
the Philippines and Taiwan.
Relations with the US will be subjected to both positive and negative
developments in 2004-2005. Bilateral ties have been boosted by shows of military
cooperation, but ideological differences and the likelihood of disputes over
Vietnam's human rights records will ensure that diplomatic relations remain
prickly.
Policy Trends
Being a developing nation, Vietnam has been on the right track to focus on
boosting growth and reducing poverty. These policies have earned the praise of
foreign donors and investors. However, the government's effort to push forward
with economic reform pledges has been less impressive and there is little
prospect of a marked improvement in 2004-2005.
The process of privatising state-owned enterprises (SOEs) has been hampered by
recalcitrant managers and vested interests. The lure of public ownership and
control remains strongly illustrated by the government's strategy to develop a
local automotive industry through state owned firms. However, the government is
promising to equitise one of the large state-owned commercial banks, Vietcombank.
If successful, this will pave a way for privatising some of the larger SOEs.
The government remains determined to implement trade-related reforms in order to
join the World Trade Organisation (WTO), but it is now likely to miss its
ambitious target of becoming a member in 2005.
Monetary policy
The State Bank of Vietnam (SBV) has finally moved to tighten monetary policy
in an effort to curb domestic credit growth and ease inflationary pressures. The
SBV governor, Le Duc Thuy, has been intent on avoiding any upward movement in
interest rates in order to avoid jeopardising the government's success in
achieving its economic expansion targets. However, this focus on loose monetary
policy and economic growth has raised some concerns, outstanding domestic credit
had grown by 32 percent year on year by end 2003. In late June, with inflation
surging to more than 8 percent year on year, the SBV hiked compulsory reserve
requirements for both dong and US dollars deposits. With banks therefore
required to set aside more funds in non-interest bearing accounts with the SBV,
interest rates will begin to shift upwards as commercial banks compete for
deposits to meet demand for loanable funds. The SBV will probably be compelled
to tighten monetary policy further in 2005 if there are insufficient signs of
slowing demand for credit in the second half of 2004.
External sector
Vietnam's exporters continue to record strong revenue growth, although in
2004-2005 year on year expansion (on a customs basis) will slip from the
impressive pace of 22 percent recorded in 2003.
Global crude oil prices are forecast to remain firm this year, thereby
supporting overall export growth. The constraints on textile export growth,
resulting from a textile quota agreement with the US, are also starting to bite.
Offsetting some of this weakness is the bright outlook for seafood and
agricultural commodities exports.
Trade deficit remains wide. Import demand is largely driven by greater demand
for capital equipment and imported inputs used in the manufacture of goods for
export, consequently, in 2004-2005 steady import growth will continue. The
merchandise trade account will remain in deficit, thereby contributing to an
overall current-account deficit of more than 5 percent of GDP in 2004-2005. The
growth in the combined deficit of the services and income accounts, which will
rise to about USD2.3 billion, will be more than offset by expanding remittances
from overseas Vietnamese nationals.
Economic growth
The economy is expected to continue to perform well in 2004 and 2005 with
real GDP expanding by an annual rate of around 7 percent. In line with buoyant
consumer confidence, private sector consumption will remain strong, although
some upward on interest rates in the second half of 2004 will harm consumer
spending. Domestic business sentiment and foreign investor confidence are also
proving to be resilient and will contribute to robust growth in fixed
investment. Vietnamese exporters will benefit from a pick-up activity in the
economies of its main trading partners, the US and Japan and will continue to
record strong growth. However, rapid growth in imports, mainly of capital goods,
will offset the impact of expanding exports on overall GDP data. In terms of
sectoral trends, there is little risk to continued industrial growth of around
10 percent annually in 2004-2005. The government's efforts to promote
agricultural and fisheries products will help to boost the domestic agricultural
sector in the next few years, and ongoing growth in demand for financial and
telecoms services, together with a rebound in tourism, suggest that services as
a whole will continue to record annual growth of around 6 percent.
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