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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: 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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