Republican Reference - Area (sq.km) 331,210 - Population 90,549,930 - Capital Hanoi - Currency dong - President Nguyen Minh Triet

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Key Economic Data 
 
  2012 2009 2008 Ranking(2012)
GDP
Millions of US $ 141,669 91,854 90,644 55
         
GNI per capita
 US $ 1,400 1,010 890 167
Ranking is given out of 213 nations - (data from the World Bank)

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Background:
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military aid to South Vietnam grew through the 1960s in an attempt to bolster the government, but US armed forces were withdrawn following a cease-fire agreement in 1973.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.
One of the most important recent political events to happen in Vietnam in 2002 was the election held in May 2002 of the country's new National Assembly (NA), the highest legislative body, for the 2002-2007 term. 498 individuals were elected as parliament members, including 118 permanent members, who will work on NA committees during their term, unlike the majority of members, who usually operate in local areas and only attend regular meetings of the NA when they are arranged.
The NA has decided on the new government cabinet, whose working term will also extend from 2002 to 2007. Prime Minister Phan Van Khai was re-elected and the number of deputy prime ministers cut to three for the next five years from four in the previous term. 
Minister of Trade Vu Khoan, was elected deputy PM in charge of trade and foreign affairs, replacing Nguyen Manh Cam. Khoan is respected for his contribution in signing a landmark trade deal between Vietnam and its former enemy the United States.
Deputy PMs Nguyen Tan Dzung and Pham Gia Khiem continue in their posts for the next five-year term.
The NA approved the setting up of 26 ministries and ministerial committees, up from 23 in the previous term. The new formation aims to help ministries to focus more on their responsibilities and to work more effectively. Stagnation, overlapping functions and the bulky structure of the government's administrative bodies was one of the major causes of the ineffectiveness of government in its previous terms.
Fourteen new ministers and committee heads or 50% of the government's cabinet have been appointed for this new term, including ministers of police, justice, trade, transport, construction, industry, planning and investment, home affairs, science and technology, natural resources and environment, post and telecommunication, state inspectorate, ethnic minority people, and population, family and children. Two newly-created ministries included the Ministry for Natural Resources and Environment and Ministry of Post and Telecommunication.
The government firmly pledged to implement changes to provide a more favourable and equal environment to support private enterprises during the term of the 11th National Assembly, in addition to imposing tougher conditions for state owned enterprises (SOEs). In practice, the new-found commitment to the private sector remains to be tested. The government has, however, moved ahead with economic reforms related to its pursuit of World Trade Organization (WTO) membership, and its commitments under the bilateral trade agreement with the US.
In an effort to ease the public's increasing discontent with corruption and other social ills, the Communist Party general secretary, Nong Duc Manh, promised to pursue a tough campaign to crack down on corruption and wrong-doings of party members. Manh has also attempted to breathe new life into the economic renovation (doi moi) process, but the pace and progress of economic reform is unlikely to quicken significantly in 2002-03. 

The Communist Party:
The Communist Party, easily the most powerful organization in Vietnam with around two million members, has set targets to consolidate control and leadership in grassroots groups. The Party says it will clarify the responsibilities of commune authorities and other social organizations, make them work under local Party organizations' management, and to consult citizens regarding their decisions. 
For many years, Party organizations have had little effect on people since the tasks and responsibilities of Party organizations and local governments have not been clearly defined. 
In urban areas, local Party organizations just assemble some retired Party members for impractical gossip sessions and rarely admit new Party members, because most Party members are drawn from their offices' organizations. 
In rural areas, Party members are also commune authorities, so they have unchallenged power to decide on local issues, which is the root of increasing corruption and abuse of power, illustrated by the mounting number of complaints and criticisms. 
The Party only has groups in State-owned enterprises and administrative offices. While private and foreign invested enterprises keep expanding and increasing their contribution to the economy, the Party has not yet set up organizations in those sectors because it still prevents Party members from operating businesses. The NA's final announcement, however, did not make it clear if the Party would admit business people into its organization in a bid to increase its influence in the private sector. 
However, not wanting to evade the increasingly important role of private businesses, the party this year made an historical decision allowing businessmen to be members and will permit current members to operate private enterprises. Party members can run private enterprises if they do not violate laws and have the support of their staff and neighbours. They can maintain their Party membership if they wish. The Politburo, the country's political elite, hopes that Party members working in the production sectors will be excellent businessmen who can make legal fortunes and encourage other people to make fortunes but do not explain how these objectives may be realised. 
In the Party's previous regulations, Party members could not practice labour exploitation, because it is contradictory to old Russian socialist theory, which the Party adopted as a bible. But the Party never clarified what "labour exploitation" was, resulting in an implicit understanding that Party members could not run private businesses that employ workers. 
In fact, no Party members are directors of private companies and few are working in private companies. The permission to do so came along with the Party's resolutions on boosting the private sector's role in the economy and on improving the Party's leadership in grassroots organizations. 
The Party now has to admit the existence and increasing role of the private sector. Despite much discrimination and repression, the private sector now contributes around 60% of GDP. The Party also realizes that it has lost control, along with its image and prestige at the grassroots level, in rejecting the private sector, the largest and fastest emerging part of society.  

Politics:
The political scene in Vietnam is expected to remain stable in the period 2004-2005 with little change in the leadership of the Communist party and the government, of the current ruling triumvirate, only the Prime Minister, Pha Van Khai is affected by speculation over personnel change in the near future. The party chief Nong Duc Manh and the president Tran Duc Luong are likely to remain firmly in place. Mr. Khai has served since 1997 and has avoided any serious criticism. However, as he is 70 year-old and nearing retirement, he could step down in a possible mid-term reshuffle (between party congresses) in early 2004. Mr. Khai could still see out his full term however, partly because he appears to be keen to stay on, but more importantly because there is no obvious successor. One potential replacement is the first deputy prime minister with responsibility for economic and internal affairs, Nguyen Tan Dung. However, his recent performance has been regarded as disappointing. Another possible successor is Truong Tan Sang who heads the party's economic commission and headed the Ho Chi Minh city people's committee from 1996 to 1999. However, he may not yet be close enough to the centre of power and could instead be made a deputy prime minister and groomed to succeed to the premiership at a later date. 
Despite the likely secrecy that will surround any leadership changes, such moves will be undertaken with a minimum of fuss and fanfare and will herald little significant change in policy direction. 
There is little risk that Mr. Manh will not serve his full term in office. His determination to clamp down hard on official corruption is being fairly well received by the public, although there is some cynicism as to whether the most serious high-ranking offenders will be dealt with. However, several prominent government figures received prison sentences earlier this year for their part in the widely publicised scandal surrounding a Ho Chi Minh city gangster.
Relatively senior officials have thus been put on notice that contrary to what they might once have thought, they are not beyond the reach of law. But the age-old underlying cause of official corruption, a bureaucratic administration in which salaries are low and opportunities for bribery are widespread- also needs to be addressed. 
The process of dealing with corruption still remains high on the official agenda. The justice system has not been running smoothly, owing to corruption and a shortage of lawyers. A "cyber dissident" has had his sentence reduced, but the government harsh crackdown on dissidents continues. 
The extent of corruption in Vietnam is reflected in its poor performance in regional ranking. The Hong Kong based Political and Economic Risk Consultancy has been polling business people since 1995 on their perceptions of corruption. The most recent regional survey, carried out this year, ranks Vietnam as the third most corrupt country with a score of 8.83, the most corrupt countries were considered to be Indonesia (9.33) and India (9.30), China was not far behind Vietnam with a score of 8.33. 
The government has sent out firm messages on religious freedom. The US and the EU have been critical of Vietnam's recent human rights record. However, the country strongly rejected that accusation. The government has moved to prevent future demonstrations over land expropriation.

Economic policy:
The slow pace of reform remains a major risk to high economic growth. The private sector has continued to boom, but its development has been hampered. The pace of privatization of state owned enterprises has been slow.
The government has tried to create a more investor-friendly environment, primarily in response to demands from foreign investors. The US and the EU have been supportive of Vietnam's bid to join the World Trade Organisation but have called for greater protection of intellectual property rights. Tariff levels have fallen in accordance with commitments to the ASEAN (Association of South East Asia Nations) free trade area (AFTA).
Real GDP has grown by close to 7 percent so far this year. It is unlikely that Vietnam will be able to push its economic growth rate above 8 percent as planned in the next two years if the government does not speed up its economic reforms. The Prime Minister Phan Van Khai has acknowledged that there are problems that need to be surmounted. Although GDP growth is high, it is of poor quality because of the unduly high investment rate that is needed to achieve such rates. The trade deficit has widened rapidly, budget revenue is unstable and the administrative system is bulky and obstructive.
Industrial output, especially in the private sector has been driving the economy. Consumer price inflation has fallen below 3 percent and the dong has depreciated slowly against the US dollar. Rice exports have been robust despite problems in Iraq, a major export market. Sales of locally made cars have boomed in recent months ahead of tax increases. The US textile quota regime has constrained domestic production. The tourism sector has been picking up.

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Update No: 062 - (26/09/13)


Opportunities and threats
Summary: After several years of turbulence, Vietnam's economy appears to be back on a growth path. Future growth is unlikely to reach the heady heights of the pre GFC era but, annual growth above five per cent again appears to be achievable. There are signs that the banking sector is being brought under control as is inflation.

But it is in the area of infrastructure that, in the short-term at least, domestic weakness produces the greatest vulnerability and the government is turning to public-private partnerships to fill the void. Nevertheless, while improvements are welcome, the economy is still underperforming compared to its Southeast Asian neighbours and with ASEAN integration now less than two years away time may be running out to build competitiveness in many areas. Over the longer-term the latest report of the IPCC suggests that the country is among the most vulnerable to climatic shifts and it is here that the real threat may prove to be the most substantial.

The Vietnamese have been 'doing it tough' in recent years. Once the darling of international investors, the gloss quickly faded with the onset of the Global Financial Crisis (GFC) as the cracks in the system quickly became evident to all. Vietnam was found to be in a situation of unstable equilibrium propelled along only by its own momentum. Once that momentum faltered. Well, we all know what happened.

But things finally seem to be looking up for this communist state that is practising its own special brand of socialist economics. The verdict is still out on whether it can yet succeed in opening up its economy to further development while holding dissidents firmly in check. It is not an easy task in this information age.


For the moment, after the symbolic bloodletting that has marked recent intra party machinations, the leadership appears to be presenting a front of 'steady-as-she-goes'.

While not reaching the heady targets of the pre-GFC years, the economy appears on track to reach 5.5 per cent growth this year and increasing to six per cent in 2014. A number of signs suggest that these targets are achievable. Growth in the first half year has been estimated at 4.9 per cent, Inflation has been finally bought under control, the trade deficit has been reduced as have interest rates and there has been a substantial recovery in exports.

Foreign direct investment (FDI) is again on the upswing. The target set early in the year by Vietnam's Ministry of Planning and Investment (MPI) is a cautious one of between $13 and $14 billion for this year. This figure was on a par with the $13.01 billion registered for 2012. Yet with one quarter still to go the foreign investment agency has reported that the amount recorded has already exceeded $14.4 billion.

A reorganisation of Vietnam's troubled banking system is underway with a more accountable lending system put in place. A number of banks have developed preferential lending programmes for 'responsible' customers-credit worthy businesses and individuals. Reports suggest that consumers remain cautious, as the uptake for available loans has been much less than expected even though lending rates are now back to where they were in the 2005-2006 period prior to the GFC. The newly-created Vietnam Asset Management Corporation (VAMC) is starting to buy bad debt from the troubled banks in return for bonds and it is hope that this will in turn provide a further boost to domestic lending.
The central bank has lowered its policy rates twice this year, each time by one percentage point, in an effort to further assist struggling businesses and stem the tide of bankruptcies.

Deposits have grown by more than 10 per cent since the start of the year. Lending in Vietnamese dong has grown by around the same amount while US dollar lending has declined. This suggests that local businesses are investing locally rather than importing plant and equipment from overseas and the drawing down of inventories should further ease trade pressures.

Nevertheless consumer sentiment remains weak, suggesting much uncertainty; urban crime and social conflict, especially in rural areas have become pressing issues for the government to deal with. There does not appear to be any 'quick fix' for these problems and while things are moving in the right direction, Vietnam continues to lag behind other regional countries in rebuilding its growth momentum. With ASEAN regional integration now a scant two years away; the country needs quickly to build its competitiveness.

In an effort to bolster economic development and build the much-needed infrastructure, if the economy is to continue to grow and develop, the government is now turning to public-private partnerships (PPP) as a means of overcoming shortages of capital and expertise. The first such project to get off the ground is construction of the Dau Giay Phan Thiet Expressway, a four-lane 100-kilometre highway that will open up the areas surrounding Ho Chih Minh City to greater industrial development. Due for completion in 2019, this project is central to an aggressive effort to develop the southern regions of the country as the future economic hub.

Equally as important is the development of Vietnam's tourism industry. This is one area where Vietnam has a natural comparative advantage over many of its neighbours and no shortage of opportunity to develop its tourism potential but it needs two things: to curb crime against (and downright exploitation of) foreign tourists, by local individuals and businesses and an upskilling of the local tourism industry,

In regard to the first of these, the Ministry of Public Security is on its way towards having a special 'tourism police' division by setting up patrol teams, with officers competent in foreign languages and cultures, in major tourism centres throughout the country. With regard to the second, the local tourism industry is expected to benefit from ASEAN integration by importing highly skilled tourism industry workers into the country from 2015 onwards.

When ASEAN integration comes about in 2015, it will apply initially only to the original ASEAN-6. At that time they will share a single common market in trade and investment, as well as in the free-flow of people. For a while the local economy-along with those of Cambodia, Laos and Myanmar-will continue to be shielded from the winds of change; but only to an extent. As in so many things, it will be a case of 'first in, best dressed' and if Vietnam does not seize the opportunity of regionalisation for itself, there are others who will do so. The tourism industry at least is expected to be a beneficiary from this integration.

But while Vietnam appears to know well its strengths and weaknesses and, in tourism at least, can be seen to taking advantage of opportunities, it is the threats that are the most worrisome. Nowhere was this put into stark perspective more clearly than in the new report of the UN-backed Intergovernmental Panel on Climate Change (IPCC). This foreshadowed the conclusions of its next major report-due at the end of September-in stating that

Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, sea level has risen, and the concentrations of greenhouse gases have increased
Each of the last three decades has been successively warmer at the Earth's surface than any preceding decade since 1850. In the Northern Hemisphere, 1983-2012 was likely the warmest 30-year period of the last 1400 years (medium confidence).

We have not yet seen the full report of course, but the curtain raiser is chilling enough. Southeast Asia, and especially the coastal states are among the more vulnerable to climate change as a number of recent reports, including those of the IPCC, the Asian Development Bank and others, have pointed out. The region is home to over half a billion people and coastal cities and the flood plains on which so much of the region's agriculture and industry depend are already suffering from inundation and salt-water infiltration. Agriculture appears threatened too both by extreme climatic volatility, as well as the warming factors that force changes in crop production-usually by lowering output and by shifting harvesting seasons.

Both adaptation as well as mitigation strategies are needed throughout Asia to cope with changes already taking place. Vietnam is considered to be among the most vulnerable, yet the incremental nature of change means that it is seldom taken into account in short-term policy planning.

 

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