Books on Vietnam
Tran Duc Luong
Update No: 039 - (03/03/05)
Identifying the problems
The Communist Party will remain the dominant political force in 2005-2006,
but its long-term hold on power will be under threat if it fails to tackle the
endemic corruption within its ranks. In an effort to shore up public confidence,
the party chief, Nong Duc Manh, has championed a tough anti-corruption stance
over the past few years. He has been closely supported by the Prime Minister,
Phan Van Khai, who has been displaying greater mettle in dealing with corrupted
officials. Khai recently announced plan to establish an anti-corruption agency.
Although this development is welcome, there remains some scepticism over whether
its investigations will be extensive and fully impartial. The National Assembly
(the legislature) is also becoming more assertive, ensuring that government
ministers will be increasingly held to account for their performances.
The leadership is also concerned about long-term threats to national unity as
outbreaks of unrest among ethnic minority groups in the Central Highlands appear
likely to continue. The government has made some effort to boost the quality of
life of these groups.
In terms of more immediate concerns, another serious outbreak of bird flu
has revealed the apparent ineffectiveness of the government's efforts to contain
the spread of the virus. Since late December a further 12 people have died after
contracting the virus, raising the number of human fatalities to more than 30
over the past year. In mid-January, the deputy minister, Nguyen Tan Dung called
for the application of strong measures throughout the country to prevent the
further spread of the virus to humans. Although containing the virus remains an
immediate task for the authorities, the government is not expected to suffer any
major public backlash if it continues to fail to do so. The main regional focus
is on the potential for the virus to mutate into a form capable of
human-to-human transmission. In Vietnam all the human victims of bird flu had
had direct or indirect contact with infected poultry, and no evidence of
human-to-human transmission has been found. However, in Thailand a probable case
of human-to-human transmission has been claimed.
In 2005-2006, the government will continue its efforts to deepen its
relations with fellow members of the Association of South East Asia 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 Vietnamese
government has lodged an official protest against the US administration's
decision to list Vietnam as a "Country of particular concern".
Vietnam's foreign donors continue to praise the government for its efforts
in reducing poverty and boosting growth, and have offered generous pledges of
In December 2004, donors pledged a record of USD3.4 billion in ODA for 2005.
Although this figure is much higher than the USD2.8 billion promised for 2004,
almost half of the increase is attribute to exchange-rate changes (accounting
for about USD170 million) and the inclusion of international non-governmental
organisations in the total (around USD100 million). The EU committed a total of
USD960 million, followed by Japan (USD902 million), the World Bank (USD750
million) and the Asian Development Bank (USD374 million).
There are, however, still a number of policy issues on which the government
scores poorly. The International Monetary Fund (IMF) commended the government
for its prudent macroeconomic management, but raised concerns over the slow pace
of economic reform, particularly in the area of reforming state-owned
enterprises and commercial banks. The National Assembly has passed a competition
law, which will strengthen regulations covering business competition when it
comes into effect in July 2005. The government is also determined to implement
trade-related reforms in order to join the World Trade Organisation (WTO).
Vietnam's chances of joining the WTO by late 2005 have improved following the
recent conclusion of the ninth round of multilateral negotiations, as well as
bilateral agreements with the EU and Singapore.
In 2005-2006, tax revenue growth is expected to 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 is expected to rise, however, in line with a forecast expansion
in expenditure to finance reforms and development programmes. There is also a
risk that the continued failure to push ahead with restructuring inefficient
state-owned enterprises and commercial banks will push up the government's
GDP growth rate of 2004 was reported at 7.7 percent, the fastest pace of growth
since 1997. In 2005-2006, the pace of economic growth is expected to slow
slightly but it will remain impressive, at around 7 percent per year. Private
consumption growth will remain high, in line with strong consumer confidence and
firming commodity prices, particularly for rice, which will boost rural incomes.
Fixed investment growth will also be strong. Domestic business sentiment and
foreign investor confidence have proved resilient and this is unlikely to change
over the next year or so. Despite the slowdown in the economies of some of
Vietnam's main trading partners, exports will be fairly buoyant. Continued
growth in imports, mainly of capital and intermediate goods, will offset the
impact of export growth on overall GDP data, but such imports are an indication
of the expanding industrial sector.
The expansion in Vietnam's external debt stock, which is forecast to reach
USD20 billion by 2006, up from USD13.3 billion in 2003, is driven largely by the
expected continued inflow of official financing at concessional rates of
interest. Therefore, there is little concerns that Vietnam will face
difficulties in servicing its debt - the debt-service ratio will be 3-3.5
percent in 2005-2006, with official financing at concessional rates of interest
accounting for around 80 percent of the total debt stock.