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VIETNAM


  
  

 

In-depth Business Intelligence

Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 35,110 32,700 31,200 56
         
GNI per capita
 US $ 430 410 390 167
Ranking is given out of 208 nations - (data from the World Bank)

Books on Vietnam

REPUBLICAN REFERENCE

Area (sq.km)
329,560

Population
79,939,000

Capital
Hanoi

Currency
dong

President
Tran Duc Luong

 



 

Update No: 037 - (01/01/05)

The Communist Party will maintain its complete dominance of the polity in 2005-2006. There will probably be some personnel changes in the leadership hierarchy during this period, but these will not result in a marked shift in the political ideology. 
The prime minister, Phan Van Khai, is the oldest member of the leadership and is likely to step down within the next year or two. There has been some speculation that Nguyen Minh Triet, the party secretary in Ho Chi Minh city, will be appointed deputy prime minister in the near future. Such a move would signal that he is being primed to replace Mr. Khai. The current tenure of the party's chief, Nong Duc Manh, is due to expire at the next congress, which will take place in 2006, but his position does not appear to be under threat, and he will probably serve a second five-year term. 
Since coming to office, Mr. Manh has contributed to a less polarized political environment than that of the 1990s. In addition, recognizing that one of the main threats to the Communist Party's dominance in the long term is that rampant corruption could undermine the party's legitimacy and erode its public support, Mr. Manh has championed a tough anti-corruption stance over the past few years. In recent months, there have been a number of highly publicized crackdowns on corrupt officials in some key ministries, including Ministry of Trade and of Agriculture. A scandal centring on alleged cash for export quotas in the garment-manufacturing industry has resulted in the recent arrest of a number of Ministry of Trade officials, including deputy minister, Mai Van Dau. In late October, Mr.Khai announced plans to establish an anti-corruption agency that will be given the task of investigating cases of suspected corruption throughout the country. The agency will be expected to report back to Mr. Khai by end March next year. Although this development is welcome, there remains some scepticism over whether such investigations will be extensive and fully impartial. A recent investigation into alleged corruption in the state-owned Vietnam Post and Telecommunications Corporation found no evidence of wrongdoing.
Corruption is not the only concern for the Communist Party as it seeks to maintain political stability. Sporadic outbreaks of unrest among ethnic minority groups in the Central Highlands are likely to continue, with the gap between the Kinh Vietnamese and some of the more poorly educated ethnic minority groups expected to widen further, thereby threatening the leadership's ideal of "national unity". However, the security forces' response is generally heavy-handed and will prevent cases of rural unrest precipitating more widespread popular protests. Similarly, harsh punishments for political dissidents, particularly "cyber dissidents," will ensure that pro-democracy movements remain stunted. 

International relations
Vietnam's regional prominence increased in October when it hosted the Asia-Europe Meeting (ASEM), an informal forum for dialogue between the EU member states and a number of Asian countries. On the sidelines of the meeting, Japan's prime minister, Junichiro Koizumi, pledged continued economic assistance, and negotiations with the EU over Vietnam's plan to join the World Trade Organization (WTO) were concluded. In 2005-2006, the government will continue its efforts to deepen its relations with fellow members of the Association of South-East Asian Nations (ASEAN) in addition to other countries in the region, particularly China. Although trade and investment ties with China will strengthen, bilateral relations will continue to be tested on occasion by disputes over the sovereignty of the Spratly Islands. Similarly, although trade and investment relations with the US will strengthen, differences over human rights issues ensure that there will be occasional diplomatic disputes between the two governments. The US has criticized Vietnam's restrictions on some religious groups, and Vietnam has been added to the list of the world's worst offenders in the US State Department's recent annual report on religious freedom. The Vietnamese government has since lodged an official protest against the US administration's decision to list Vietnam's as a "country of particular concern."

Policy trends
Although there remain concerns about the government's continued failure to push forward more rapidly with economic reforms, the government has made steady progress in reducing poverty and continues in 2004 to receive the firm backing of foreign donors. The government advocates reforms of state-owned enterprises (SOEs), and Mr.Khai recently ratified a decree that should help to streamline the equitization (partial privatisation) process. However, progress will remain hampered by recalcitrant managers and vested interests. Greater progress will be made in levelling the playing field for the thriving private sector, with further streamlining of the private enterprise registration process under the Enterprise Law. 27,000 new enterprises were registered in the first 10 months of the year, with total capital of US$3.4 billion, up by around 24 per cent in number and 25 per cent in capital value compared with the totals recorded in the year-earlier period. In addition, the National Assembly in November passed a Competition Law, which will strengthen regulations covering business competition when it comes into effect in July 2005. The government is determined to implement trade-related reforms in order to join the WTO, and accession to the WTO will probably happen by end 2006. Vietnam's chances of joining the WTO have improved following the recent conclusion of an agreement with the EU. 

Fiscal policy 
According to official estimates, the government recorded a much smaller deficit in the first seven months of the year than planned in its budget. Although revenue collection remains on target to meet the full-year budget, expenditure has been slow, with only 53 per cent of the annual budget spent in January-July. However, the rate of spending is likely to have picked up during the remainder the year. The disbursement of development funds has been particularly slow so far this year, and government ministries and agencies will come under increasing pressure to meet development expenditure targets. The full year deficit is therefore likely to be much closer to the government's target of 5 per cent of GDP. 
In 2005-2006, tax revenue growth will face some constraints, primarily owing to cuts in import tariffs, but the buoyant economy and more efficient tax collection will ensure that revenue remains fairly robust. The budget deficit will rise slightly in 2005-06, however, in line with a forecast expansion in expenditure to finance reforms and development programmes 

Monetary Policy 
The State Bank of Vietnam (SBV) tightened monetary policy in June by raising the compulsory reserve requirements for both dong and US dollar deposits. However, the SBV has yet to raise interest rates in order to curb domestic credit growth - outstanding domestic credit rose by 36.7 per cent year-on-year in April 2004 and ease inflationary pressure. In November, it left its annual lending rate unchanged at 7.5 per cent. The SBV governor, Le Duc Thuy, has been intent on avoiding any upward movement in interest rates in order to avoid jeopardizing the government's success in achieving its economic expansion targets. However, it is likely that the SBV will be compelled to tighten monetary policy further in 2005-2006, probably by raising interest rates if there are insufficient signs of slowing demand for credit. 

Economic forecast 
In 2005-06, the economy will grow at around 7 per cent, with private consumption growth remaining high in line with strong consumer confidence and firming commodity prices, which will boost rural incomes. Domestic business sentiment and foreign investor confidence have proved resilient and this is unlikely to change over the next year or so. As a result, fixed investment growth will remain strong. Exporters will benefit from buoyancy in the economies of Vietnam's main trading partners. Rapid growth in imports mainly of capital and intermediate goods will offset the impact of expanding exports on overall GDP data, but such imports are an indication of the expanding industrial sector. 
In terms of sectoral trends, concerns over outbreaks of bird flu remain high, but the government's efforts to promote agriculture and fisheries products will help to boost the agriculture sector in the next few years. Industry will continue to grow by around 10 per cent annually, but there are potential problems in the textile and garment sector, in view of the competitive pressure arising from the fact that Chinese textile and garment manufacturers will no longer be subject to restrictive quotas from 2005. Ongoing growth in demand for financial and telecommunication services, together with a rebound in tourism suggest that services as a whole will continue to record annual growth of around 6 per cent. 

Inflation 
Consumer price inflation has slowed in recent months, with prices remaining unchanged month on month in October and rising by 0.2 per cent in November. However, reflecting the rapid increase in prices earlier in the year, year-on-year consumer price inflation remains high, in 2004 annual average inflation is expected to reach 7.8 per cent. The main factor driving up year-on-year inflation has been a surge in prices for food, which accounts for nearly one half of the consumer price index basket, owing to widespread outbreak of bird flu in early 2004 and a recovery in rice prices. Rice prices are expected to rise by 20 per cent in 2004. Recent increase in retail petroleum prices have also pushed up prices. The impact of demand-side pressures on prices is less clear, but higher wage payments to government workers, buoyant consumer demand financed mainly by rampant credit growth and the rising level of general economic activity have certainly contributed to the acceleration in inflation. In 2005-2006, food and energy prices will be fairly stable, thereby ensuring that inflation eases during this period. 

Exchange rates 
Although the dong has appreciated against the US dollar on a number of occasions this year, it remains on a gradually depreciating trend, falling to an annual average of D15,740 : US$1 in 2003. The dong has benefited from the general weakness of the US dollar during the past year or so, but in 2005-06 the rate of depreciation is expected to pick up, reflecting both high inflation and the government's keenness to maintain export competitiveness. The SBV may widen the band within which the dong trades against the US dollar, but there is unlikely to be a marked change in the government's management of the exchange rate, as the authorities remain concerned about the impact of a faster depreciation on SOEs with US dollar-denominated debts. 

External sector 
Export revenue is expected to expand by around 26 per cent year-on-year in 2004, driven up by rising crude oil prices and strong growth in garment and textile exports. However, oil prices are forecast to moderate slightly in 2005 and contract further in 2006, this, in addition to the constraints on textile exports growth resulting from the US textile agreement (which sets quotas for a number of types of garment) and competitive pressure following the end-2004 expiry of the WTO's textile quota regime, will cause the pace of growth to slow in 2005-2006. In 2006, however, exporters will benefit from the drop in regional tariffs in line with ASEAN free trade area (AFTA) commitments. Exporters will also enjoy lower tariffs globally if Vietnam is successful in joining the WTO in 2006. Moreover, Vietnam's exports will be more diverse by this time, with a bright outlook for revenue from seafood (despite US anti-dumping tariffs on Vietnam's shrimp) and agriculture commodity exports, in addition to impressive growth in some emerging exports, including wood products and also electronic products and computers. 
The bill for imports has risen sharply over the past year or so, but the pace of growth will slow in 2005. Growth in imported inputs used in the manufacture of goods for exports will slow in line with trends in the export sector. In addition, falling prices for petroleum products will help to slow growth in the import bill. In 2006, import volume will grow at a faster pace as Vietnam's trade barriers fall. In line with these trends, the merchandise trade deficit (fob-fob) will expand from around US$2.2 billion in 2004 to US$3.7 billion in 2006. The combined deficit on the services and income accounts is also large, reflecting the expansion in import-related services and repatriation of foreign investor's income and profits. However, current transfers will remain robust. 

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AUTOMOBILES

MAZ in truck deal with Vietnam


Minsk automobile Plant (MAZ) plans to have trucks assembled in Vietnam in 2005, the plant's Deputy Director General for Foreign Economic Relations, Alexei Tutubalin, said, New Europe reported.
A corresponding agreement was signed during a recently visit by a Belarussian government delegation to Vietnam, he said. Tutubalin said with kinds of Belarussian trucks will be assembled at the plant. It is expected that 500 Belarussian trucks will be produced in 2005 at the new production. The parties signed a contract worth US$10m for the delivery of 500 kits to Vietnam. MAZ hopes the number of vehicles assembled at the production will increase, Tutubalin said.

 

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