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Country Profile 2005

VietnamThis Country Profile is a reference work, analysing thecountry’s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit’s Country Reports analyse current trends and provide atwo-year forecast.

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ISSN 1356-4145

Symbols for tables“n/a” means not available; “–” means not applicable

Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

Red R.

Blac k R.

HANOIHa Dong

Nan DinhNinh Binh

Song Tay

Hai Duong

HANOIHaiphong

Da Nang

Nha Trang

Ho Chi Minh City

Can Tho

Loc Ninh

Tay Ninh

Thu Dau MotChau Doc

My Tho

Vinh Long

Bien Hoa

Da Lat

Can Tho

HueHue

Bac GiangDien Bien PhuDien Bien Phu

Thai Nguyen

Cao BangHa Giang

Thai Nguyen

Lang SonTuyen Quang Lang SonTuyen Quang

Ha Dong

Nan DinhNinh Binh

Thanh Hoa

Vinh

Quynh Luu

Ha Tinh

Dong Hoi

Dong Ha

Hoi An

Tam Ky

Quang Ngai

Kon Tum

Pleiku

Ban Me Thuot

Kon Tum

Pleiku

Tuy Hoa

Qui Nhon

Ban Me Thuot

Loc Ninh

Phan Thiet

Vung Tau

Tay Ninh

Thu Dau MotChau Doc

Ca Mau

Con Dao

Dao Phu Quoc

Soc Trang

My Tho

Vinh Long

Phu Vinh

Ben TreRach Gia

Bac Lieu

Long Xuyen

Bien Hoa

Cam Ranh

Phan Rang

Da Lat

Ninh Hoa

Bao LocBao Loc

Song Tay

Yen Bai

Phu Tho

Lai Chau

Phu Tho

Lao Cai

Lai Chau

Cao BangHa Giang

Hai DuongHong Gai

Cam Pha

VIETNAMVIETNAM

CAMBODIA

THAILAND

CHINA

LAOS

SOUTH CHINASEA

Gulf ofThailand

Gulf ofTonkin

Paracel Is.(disputed)

Me kong R.

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0 miles 100 200

' The Economist Intelligence Unit Limited 2005September 2005

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Capital

Major town

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Country Profile 2005 www.eiu.com © The Economist Intelligence Unit Limited 2005

Comparative economic indicators, 2004

Gross domestic product(US$ bn)

Sources: Economist Intelligence Unit estimates; national sources.

0 50 100 150 200 250 300 350

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Philippines

Singapore

Malaysia

Thailand

Hong Kong

Indonesia

Taiwan

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0 5 10 15 20 25 30

Vietnam

Philippines

Indonesia

Thailand

Malaysia

Taiwan

South Korea

Hong Kong

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-2 0 2 4 6 8

Hong Kong

Malaysia

Taiwan

Singapore

Thailand

South Korea

Philippines

Indonesia

Vietnam

0 2 4 6 8 10

South Korea

Indonesia

Taiwan

Philippines

Thailand

Malaysia

Vietnam

Hong Kong

Singapore

Gross domestic product(% change, year on year)


Consumer prices(% change, year on year)


Gross domestic product per head(US$ ’000)


680.7

Vietnam 1

© The Economist Intelligence Unit Limited 2005 www.eiu.com Country Profile 2005

Contents

Vietnam

3 Basic data

4 Politics4 Political background6 Recent political developments9 Constitution, institutions and administration10 Political forces13 International relations and defence

16 Resources and infrastructure16 Population17 Education18 Health18 Natural resources and the environment20 Transport, communications and the Internet22 Energy provision

23 The economy23 Economic structure25 Economic policy31 Economic performance32 Regional trends

33 Economic sectors33 Agriculture36 Mining and semi-processing38 Manufacturing41 Construction41 Financial services43 Other services

44 The external sector44 Trade in goods45 Invisibles and the current account46 Capital flows and foreign debt47 Foreign reserves and the exchange rate

49 Regional overview49 Membership of organisations

52 Appendices52 Sources of information53 Reference tables53 Population53 Employed labour force54 Transport statistics54 National energy statistics

2 Vietnam


55 Government finances55 Money supply55 Interest rates56 Gross domestic product56 Gross domestic product by expenditure56 Gross domestic product by sector56 Prices57 Gross output of agriculture57 Industrial crops58 Perennial industrial crops58 Food crops58 Livestock59 Fisheries output59 Gross industrial output59 Main manufactures60 Retail trade60 Tourism statistics60 Main exports60 Main imports61 Main trading partners61 Balance of payments62 Foreign direct investment62 External debt63 Net official development assistance63 Foreign reserves63 Exchange rates

Vietnam 3


VietnamBasic data

330,363 sq km

82m (2004)

Population (of province) in ’000 (2004)

Ho Chi Minh City 5,731Hanoi (capital) 3,083Haiphong 1,771

Tropical monsoon; north cool and damp in winter (November-April), hot andrainy in summer; south more equable; centre most subject to typhoons. Therains are highly unpredictable

Hottest month, June, 26-33°C; coldest month, January, 13-20°C; wettest month,August, 343 mm average rainfall; driest month, January, 18 mm average rainfall

Hottest month, April, 24-35°C; coldest month, January, 21-32°C; wettest month,September, 335 mm average rainfall; driest month, February, 3 mm averagerainfall

Vietnamese (spoken by about 90% of the population); English (increasinglyfavoured as a second language); some French; a little Russian and German;minority languages such as Hmong, Thai, Khmer in remoter rural areas

Metric system. Local land measurement 1 mau=3,600 sq metres (north);1 mau=5,000 sq metres (centre)

Dong (D). Average exchange rate in 2004: D15,740:US$1; exchange rate onAugust 30th 2005: D15,865:US$1

7 hours ahead of GMT

January 1st (New Year’s Day); January 28th-31st (Tet, Lunar New Year); April30th (Liberation of Saigon); May 1st (Labour Day); May 19th (Birthday of Ho ChiMinh); September 2nd (National Day).

Land area

Climate

Weights and measures

Currency

Time

Public holidays 2006

Population

Main towns

Weather in Hanoi(altitude 216 metres)

Weather in Ho Chi Minh City(altitude 9 metres)

Language

4 Vietnam


Politics

The Socialist Republic of Vietnam is a one-party state, run by a collectiveleadership comprising the Communist Party general secretary, Nong Duc Manh,the prime minister, Phan Van Khai, and the president, Tran Duc Luong.

Political background

Vietnam’s identity was forged out of resistance to its giant northern neighbour,China, and the gradual expansion southwards from its original heartland in theRed River Delta and the north-eastern coastal plain. For over 1,000 years untilAD 939, it was governed as a Chinese province. Thereafter Vietnam remainedclosely linked with China, both politically and militarily, as a tributary statethat frequently had to resist Chinese invasions. It also absorbed Chinesecultural influences, including the Confucian model of government, ahierarchical bureaucracy that stressed the subordination of its subjects to thepolitical leader at its centre. The expansion southwards, driven by populationpressure, eventually brought Vietnam into conflict with the Khmer empire inwhat are now Cambodia and Thailand. It was not until the late 18th century,under the Nguyen dynasty, that Vietnam reached its present southern limit onthe Gulf of Thailand.

The Nguyen were, however, unable to resist the growing challenge of Frenchcolonialism, and by 1885 all of Vietnam was under French rule, as protectoratesin Tonkin and Annam in the north and centre and as a directly administeredcolony in Cochin China in the south. The colonial regime permitted onlylimited expression to constitutionalist Vietnamese opposition and harshlysuppressed more radical resistance. The colonially imposed administrationdamaged the traditional equilibrium of village life, undermined the authorityof the scholar-gentry class and blocked the growth of an indigenousbourgeoisie. In these circumstances the only effective challenge to Frenchcolonial rule was communist-led. A number of communist groups were formedduring the 1920s, which coalesced in the Communist Party of Indochina,founded by Ho Chi Minh in 1930.

The second world war transformed the Communist Party’s prospects. After aperiod of collaboration the French were swept aside in March 1945 by theJapanese, who installed Emperor Bao Dai as leader of a nominally independentVietnam. The communist united front organisation, the Vietminh, quickly filledthe vacuum left by the surrender of Japan in August 1945, and on September2nd, in Hanoi, Ho Chi Minh proclaimed the independence of the ProvisionalDemocratic Republic of Vietnam, although shortly thereafter he turned toFrance to help repel an invasion by a Chinese army that entered Vietnam fromYunnan province and reached Hanoi.

France’s refusal to give up its colony led to a protracted war, which soonbecame another engagement in the cold war. In 1954, on the eve of talks heldin Geneva, Switzerland, to settle the future of Indochina, the Vietminh inflicted

The communists gain strengthand the French withdraw

Chinese cultural influenceis strong

The French control the wholecountry by 1885

Vietnam 5


a humiliating military defeat on the French at Dien Bien Phu, in an inaccessiblevalley near the border with Laos. The conference divided Vietnam at the17th parallel but failed to achieve agreement on a political solution. Soon afterthe Geneva agreements a US-backed Catholic northerner, Ngo Dinh Diem, tookpower in the south. Diem’s intransigence dampened hopes for a peacefulreunification. In 1959 the Vietminh embarked on a more active strategy in thesouth, and in the following year the National Front for the Liberation of SouthVietnam (NLF) was formed to oppose Diem.

After the assassination of Diem during a military coup in November 1963, theconflict increasingly turned into an American war. By 1968 there were 500,000US troops in Vietnam. In January 1968 the war reached a turning point whencommunist forces launched the Tet (New Year) offensive, revealing the fragilehold of the South Vietnamese on their territory. In the wake of the offensivethe US president, Lyndon Johnson, agreed to hold peace talks in Paris. InJanuary 1973 the parties finally agreed on terms for the withdrawal ofUS troops.

Two years later the North Vietnamese launched a massive offensive in thesouth, and the South’s forces quickly crumpled. On April 30th 1975 thecommunists entered Saigon (the capital of South Vietnam, now Ho Chi MinhCity), marking the end of Vietnam’s 30-year war of independence. Thevictorious North rapidly undertook the formal reunification of the country, andthe Socialist Republic of Vietnam came into existence on July 2nd 1976. Thebloodbath that successive US administrations had predicted would follow thefall of the South did not materialise, but the new authorities subjected tens ofthousands of officials and soldiers of the former South Vietnamese governmentto “re-education”, and many urban southerners were sent to work in remote so-called new economic zones, where conditions were often harsh.

At the same time, ambitious plans for the “socialist transformation” of thesouth were launched, but the high hopes generated by the victory there wereshort-lived. Instead of being accepted into the international community andreceiving aid for the reconstruction of its shattered economy, Vietnam wastreated with suspicion as a potentially disruptive force with wider hegemonicdesigns in South-east Asia. Although it was carried out in response toaggression, the Vietnamese invasion of Cambodia, which resulted in theousting of the Khmer Rouge regime in late 1978, appeared to confirm thesesuspicions.

The invasion led to a break with China, with which relations had alreadysoured owing to Vietnam’s close relations with the Soviet Union after the Sino-Soviet split and the Vietnamese authorities’ harsh treatment of its ethnic-Chinese community. The latter had borne the brunt of the governmentcampaign against the bourgeoisie, and many Chinese joined the exodus of“boat people”. In early 1979 China launched an incursion over Vietnam’snorthern border in response to Vietnam’s invasion of Cambodia, only to berepulsed by the more experienced Vietnamese troops.

The communists take over

6 Vietnam


During the 1980s the members of the Association of South-East Asian Nations(ASEAN), together with Japan and western Europe, backed a tightening of theeconomic embargo that had been imposed on North Vietnam during the war,by supporting the US veto of multilateral assistance to Vietnam. These movesforced Vietnam to rely on the Soviet Union and its allies in the Council forMutual Economic Assistance (Comecon) for economic and military assistance.The economic crisis created by the adoption of a central planning model poorlyadapted to Vietnam’s circumstances had intensified by the mid-1980s (see Theeconomy).

Since the final withdrawal of its troops from Cambodia in 1989, Vietnam hasemerged from the international isolation that followed its invasion ofCambodia at end-1978. Within months of the Paris Agreement on Cambodia ofOctober 1991, Vietnam established diplomatic and economic relations withmost of the countries of western Europe and East Asia, including China.Vietnam’s “multi-directional” diplomacy has been explicitly based on itsperception of growing global economic interdependence. Its integration into theregional and global economy has been formalised through membership ofinternational organisations. The most important of these is ASEAN, whichVietnam joined in July 1995. The Asia-Pacific Economic Co-operation (APEC)forum admitted Vietnam in November 1998, and Vietnam is now activelypursuing membership of the World Trade Organisation (WTO), to which it islikely to be admitted by 2006.

Recent political developments

The direction of economic policy and Vietnam’s foreign relations dominatedparty debate well into the 1980s, although consensus was generally maintainedthroughout this period. Even the landmark Sixth Party Congress in 1986, atwhich the party made its historic commitment to economic “renovation” (doimoi), did not undermine the cohesion of the leadership. By the late 1980seconomic reforms had become part of the new consensus, but, withcommunist regimes in the Soviet Union and Eastern Europe under threat, therewas no prospect of matching political liberalisation. Reflecting this dichotomy,the Politburo (the party’s executive body) that emerged from the Eighth PartyCongress in June 1996 not only contained several economic reformers but alsogave strong representation to the security apparatus. After the Ninth PartyCongress in April 2001 the number of Politburo members with a defence andsecurity background fell from six to three, but this was balanced by a rise in thenumber of politicians with a background in party ideology, from four to seven.Vietnam’s political structure continues to be based on one-party rule.

There has been some evidence of divisions within the party in recent years.The more conservative “party bloc” is concerned about the perceived negativeeffects of economic growth, such as corruption and drug-trafficking, whereasthe more reformist “government bloc” argues for government to be separatefrom the party and for a greater role for the private sector. However, formalfactions have not emerged, and both sides share a suspicion of politicalpluralism. With the replacement as party general secretary of the conservative

Vietnam integrates into theregional and global economy

“Reformists” gain the upperhand under Nong Duc Manh

The party leadershipmaintains its overall cohesion

Vietnam 7


Le Kha Phieu by the more moderate Nong Duc Manh during the Ninth PartyCongress, the reformist group gained the upper hand. This has been reflected inthe quickened pace of economic reform since 2002 compared with the glacialpace of political change.

Mr Manh has fostered a less polarised political environment, and his resolve toclamp down on corruption has had some effect. Low salaries, lightpunishments for graft and a bureaucratic administration in which opportunitiesfor bribes are widespread combine to foster a culture of corruption, andprevious attempts to rein it in were largely unsuccessful. Between 2000 and2004, 12,300 government employees were disciplined for corruption, and since2001 the Communist Party has disciplined over 10,000 members, includingseven members of the Central Committee and the agriculture and ruraldevelopment minister, Le Huy Ngo, who was sacked in May 2004 for allowinga swindle in a firm supervised by his ministry). The message is clear: seniorofficials have been put on notice that they are not beyond the reach of the law.

In May 2005 the National Assembly (the legislature) began to debate theformation of a specialised anti-corruption agency, following the October 2004announcement by the prime minister, Phan Van Khai, of plans to form such abody. The plan has the backing of many assembly deputies, but support for it isnot universal, with some doubting the likely effectiveness of, or even the needfor, such an agency. It is still unclear what role or powers a specialised anti-corruption agency would have. Currently, the main official anti-corruptionagency is the State Inspectorate. However, this body is poorly trained andunderfunded.

Almost one in six Vietnamese comes from a minority ethnic group. Thesegroups are disproportionately concentrated in the poorer and more remoteparts of the country. Riots in the Central Highlands in February 2001, mainlyover loss of traditional lands and government intolerance of religious activities,led the administration to pay more attention to the problems of ethnicminorities. However, its efforts were not enough to prevent a repetition ofdemonstrations in April 2004. The government says that it is committed tobuilding infrastructure in ethnic-minority areas, reducing poverty (mainlythrough subsidies), expanding education, appointing more people from ethnicminorities to positions of authority, allowing greater religious freedoms andencouraging provincial administrators to use local languages.

The government officially recognises six religions: Buddhism, which has 7.6mfollowers; Catholicism (6m); Cao Daoism (2m); Hoa Haoism (1m); Protestantism(around 800,000); and Islam (around 50,000). However, it is not particularlytolerant of religious expression outside officially sanctioned channels, andpolice have closed down evangelical protestant “house” churches in the CentralHighlands and jailed (or restricted church members’ access to) a number ofprominent clerics. In September 2004 the US listed Vietnam among a numberof countries “of particular concern” regarding their limitation of religiousfreedoms.

Anti-corruption effortshave some effect

The government struggles todeal with ethnic minorities

Restrictions on religiousleaders remain tight

8 Vietnam


Political dissidents, in particular those tempted to use the Internet to spreadtheir message, have been punished severely. In December 2002 a “cyber-dissident”, Nguyen Vu Binh, was sentenced to seven years in jail for espionage;the sentence was upheld on appeal at a court hearing that was closed tooutsiders. He had criticised the border accords between Vietnam and China,provided written testimony to the US Congress (the US legislature), and appliedto form an independent opposition party, the Liberal Democratic Party. In asimilar case, in March 2002 Pham Hong Son was given a 13-year prisonsentence (later reduced to five years) on espionage charges related to contactingpeople outside Vietnam by e-mail and telephone and publishing translatedtracts online (including a piece entitled “What is democracy?”, taken from theUS State Department’s website). Such stiff sentences are designed as a warningto others tempted to push for political liberalisation, but they also erodeinternational goodwill towards Vietnam.

Important recent events

April 2001

The Ninth Party Congress chooses the moderate Nong Duc Manh as generalsecretary of the Communist Party.

December 2001

A bilateral trade agreement with the US comes into effect, more than two years afterit was first agreed in principle. It represents an important victory of the economicreformers over the “conservatives”.

April 2002

Elections for the National Assembly (legislature) produce a larger, younger, better-educated legislature, but one with fewer non-party members.

March 2003

An outbreak of Severe Acute Respiratory Syndrome (SARS) is confirmed in thecapital, Hanoi, but the government moves swiftly to contain the problem.

June 2003

A well-connected gang leader, Truong Van Cam (“Nam Cam”), is sentenced to deathalong with five associates, after a highly publicised three-month trial that involved155 defendants, including several prominent government officials. The moverepresents a toughening of the government’s anti-corruption drive.

January 2004

An outbreak of avian influenza (bird flu) emerges. The government arranges for 35mfowl to be slaughtered, but lets down its guard prematurely; after disappearing in thespring, the disease reappears in July and re-emerges sporadically in 2005. Thegovernment’s rapid-reaction procedures contain, but do not eliminate, the threat.

April 2004

At least two people die when demonstrations by ethnic minorities in the CentralHighlands, protesting against land confiscation and religious persecution, turn

Punishment for “cyber-dissidents” is severe

Vietnam 9


violent. This marks the short-term failure of the government’s response to the seriousriots in the same region in January 2001.

April 2004

Local elections are held for commune, district and provincial officials. Two-fifths ofthe 500,000 candidates are not members of the Communist Party.

May 2004

The minister for agriculture and rural development, Le Huy Ngo, is sacked forallowing a swindle by a ministry-supervised firm. More than 40 executives inPetroVietnam are disciplined (the firm’s general director was fired in 2003 for allegedcorruption).

September 2004

The US lists Vietnam as a country of “particular concern” regarding its limits onreligious freedoms.

January 2005

Rioters in Ha Tay province, near Hanoi, burn down a government building in aprotest about inadequate compensation for land appropriation. Such protests arebecoming increasingly common.

June 2005

The prime minister, Phan Van Khai, makes a historic trip to the US—the first by aVietnamese leader since the end of the US-Vietnam war three decades ago. The tripenhances Vietnam’s prospects of joining the World Trade Organisation, and alsounderlines the US’s growing interests in developing trade and investment ties withits former foe.

Constitution, institutions and administration

Vietnam has had five constitutions, adopted in 1946, 1959, 1980, 1992 and 2001, eachregarded as appropriate to its time. The 1992 constitution was geared to the era ofrenovation and dropped the revolutionary rhetoric of the 1980 constitution. TheCommunist Party was to operate within the framework of the law and theconstitution. No longer responsible for ensuring the building of socialism, thegovernment was charged with specific management functions under a primeminister with defined powers. The 2001 constitution committed the state toprotect the “legitimate rights” of overseas Vietnamese (Viet Kieu).

The 1992 constitution had stipulated that, instead of a centrally run economy,Vietnam would have a “multi-sector economy in accordance with the market,based on state management and socialist orientations”. Land was to beassigned to individuals on long leases. The autonomy of state enterprises wasguaranteed but the “private capitalist economy” was given an explicit role.Foreign investors were given ownership rights and guarantees againstnationalisation. The 2001 constitution went further, specifying that alleconomic sectors are important components of the socialist-oriented marketeconomy. It states that organisations and individuals of various economicsectors are permitted to engage in any business not prohibited by law anddevelop in an equal and competitive manner according to law. It stipulates that

The 2001 constitution offersmore private-sector freedom

10 Vietnam


there should be no restrictions on the size of private-sector operations or thesectors in which they may operate.

The 1992 constitution enhanced the powers of the National Assembly (thelegislature) as “the highest organ of state power”, and the 2001 constitution hasgiven it the power to hold votes of confidence in leaders that it elects (includinggovernment ministers). The election for the 11th National Assembly in May2002 was as tightly controlled as in the past. No senior figure lost a seat; justover 25% of the deputies are women; 17% of deputies come from ethnicminorities, and 10% are not party members (down from 12% in the outgoingNational Assembly). Only two of the 13 self-nominated candidates from thetotal 762 candidates (all vetted by the Vietnam Fatherland Front) won seats.

Nevertheless, beneath the surface there were a few significant changes. Anunusually high proportion of those elected (73%) were new to the NationalAssembly. The new deputies are well educated, with 93% said to havecompleted “tertiary education upwards”. Candidates were required to declaretheir assets, although this represents more form than substance, as the results ofthe declarations are not publicly available. Perhaps most importantly, 25% of thenew deputies will be paid to serve full-time. This is expected to increase publicaccess to deputies and raise the level of professionalism within the legislature.Over the long term, it will also help to broaden the pool of politicians fromwhich the country’s leadership can draw.

The National Assembly, which acted as little more than a rubber-stamp untilthe late 1980s, has become increasingly vocal and assertive, calling onministers to account for their performance and taking the initiative inamending proposed legislation and policy. For example, criticism by NationalAssembly deputies of the environmental effects of a proposed huge hydro-electric dam in Son La has led to the scaling down of this controversial project.

The judiciary is relatively weak and is not independent of the CommunistParty. There are few lawyers, and trial procedures are rudimentary. There is agrowing backlog of unsettled civil lawsuits, and the workload of staff at theMinistry of Justice has reportedly tripled since 1994.

The death penalty is still used regularly, especially in major cases ofcorruption and drug-trafficking. Widespread bureaucratic procedures, coupledwith a lack of transparency in government activities—both legacies of theperiod of the planned economy—permit significant levels of corruption tooccur, both at the petty level (such as the receipt by police of pay-offs fromstreet vendors) and on a larger scale (especially in public works contracts).

Political forces

Vietnam is run by a three-person collective leadership consisting of theCommunist Party general secretary, Nong Duc Manh, the prime minister, PhanVan Khai, and the president, Tran Duc Luong. Important pronouncements byany of the three leaders are vetted by the other two, with the result that mostmajor speeches and even policy announcements are bland and equivocal.

The National Assemblyis more assertive

The judiciary remains weak

A collective triumvirate rules

Vietnam 11


Vietnam continues to be organised politically along orthodox communist lines.The Communist Party remains the dominant political force, despite the modestdowngrade of its role in the 1992 constitution. Other important forces—thegovernment, the army and the bureaucracy—are subordinate to it. The partysecretariat issues directives to party members and plays an important role indirecting government policy. The party is entrenched in state institutions andmass organisations, such as the Confederation of Trade Unions, the Women’sUnion and the Youth Union (grouped under the Vietnam Fatherland Front,which exists to mobilise support for the party’s goals), to ensure theirsubordination to the party line.

The party selects future leaders and senior officials and gives them extensivemid-career training, some of it highly ideological. However, the party has beenincreasingly accepting of its members (of which there are more than 2m)engaging in private business, thereby indicating its final approval of capitalismas an economic ideology. (The party resolved in 2002 to allow members toown private firms, but the issue is likely to be formally approved during theTenth Party Congress, which is expected to be held in the second quarter of2006.) The party leadership of Ho Chi Minh City, the country’s biggest urbancentre, is considering allowing properly qualified non-party members to occupyto top positions; it appears that the advantages of party membership are notcompelling enough to attract all of the country’s talent.

The Politburo, which currently has 15 members, is the party’s executive, setsgovernment policy and vets all major appointments. It is elected by the 150-member Central Committee at national party congresses, which are heldroughly every five years.

Almost all of the 21 ministers in the cabinet are members of the CentralCommittee, and 90% of the deputies in the National Assembly are CommunistParty members. Party committees exist at every level of the bureaucracy, ineffect representing a parallel administration. This duplication has been criticisedas wasteful by a former prime minister, Vo Van Kiet, but it continues to thrive.Efforts have also been made to establish a party presence in private enterprises,albeit with limited success. Managers or deputy managers often double asparty secretaries in state enterprises, which helps to explain the continuedresistance to thoroughgoing reform of such enterprises.

The People’s Army of Vietnam, created in 1944 as the party’s ArmedPropaganda Team, ranks in influence only behind the party and thegovernment. Its roots in society are deep. In the past half-century it hasconfronted and humiliated armies from three of the world’s major powers:France, America and China. The army has always had a political dimension,and a defence white paper written in 1998 rejected depoliticisation of thearmed forces. Many senior officers (including the previous party generalsecretary, Le Kha Phieu) have moved on to top leadership positions in theCentral Committee and the Politburo, although their number is nowdiminishing. In addition to a mainly conscript army of 412,000 (two years ofmilitary services is, in principle, required of all men), there is a navy of 42,000,an air and air defence force of 30,000, a border defence corps of 40,000, and

The Communist Partyremains dominant

The party and governmentoverlap extensively

The military is influentialand deep-rooted

12 Vietnam


reserves of about 4m in the urban People’s Self-Defence Force and the ruralPeople’s Militia.

Main political figures

Nong Duc Manh

Elected to the position of party general secretary in April 2001, the northerner NongDuc Manh was born into an ethnic Tay family in September 1940. He is the firstCommunist Party general secretary to have a university degree, having majored inRussian at the Hanoi Foreign Language College (1966-71) before studying for a year inRussia at the Forestry Institute in Leningrad (now St Petersburg). He worked for theforestry service of Bac Thai province and from 1986 to 1989 served as chairman ofthe Bac Thai People’s Committee, becoming a member of the party CentralCommittee in 1989 and a deputy to the National Assembly (the legislature) in 1991.He has been a member of the Politburo (the party’s executive body) since 1992. He isbest known for his role as chairman of the National Assembly, a position that heheld from June 1996 until May 2001; during this time the assembly became bothlivelier and more powerful. Mr Manh is a pragmatist, respected for his skills as amediator and conciliator.

Phan Van Khai

Elected prime minister in September 1997, Phan Van Khai was a deputy primeminister in the previous cabinet with responsibility for economic affairs. Asoutherner and protégé of his predecessor, Vo Van Kiet, he rose through the partymachine in Ho Chi Minh City before moving to the State Planning Committee inHanoi. He has travelled widely in the West, and is regarded as a capable economicmanager. His ability to introduce change was limited when the more conservative LeKha Phieu was party general secretary in 1997-2001, but his perseverance has helpedto keep economic reform on track. After offering to resign in early 2001, he hasregained his appetite for governing. However, he is likely to step down in 2006. Aged71, he is the oldest member of the Politburo. Although an economic liberal byVietnamese standards and a strong supporter of private business, he has spoken outon the dangers of political pluralism.

Tran Duc Luong

Unexpectedly elected president in September 1997, Tran Duc Luong lacks theauthority of his predecessor, Le Duc Anh. Born in the north-central province ofQuang Ngai, he trained in the Soviet Union as a geologist. He held the post ofdeputy prime minister, with responsibility for industry, transport and foreigneconomic relations, from 1987 until his election as president. He has travelled abroadwidely, and is often referred to as “Mr Clean”.

Nguyen Tan Dung

Elected as first deputy prime minister in September 1997 at the age of 47, Mr Dung isresponsible for general economic and internal affairs in the cabinet, and was actinggovernor of the State Bank of Vietnam (SBV, the central bank) until November 1999.He is a former deputy minister of the interior, and comes from Ca Mau province atthe southern tip of Vietnam. A committed economic reformer, although not anintellectual heavyweight, his poor handling of the protests in the Central Highlandshave weakened his chances of becoming the next prime minister.

Vietnam 13


Nguyen Minh Triet

After serving as party secretary of the southern province of Song Be, during whichhe presided over a period of spectacular industrial development, Mr Triet becameparty secretary in Ho Chi Minh City in 2000, and was instrumental in leading thecampaign against a powerful gangster, Truong Van Cam (“Nam Cam”). A member ofthe Politburo, Mr Triet is a strong candidate for the job of prime minister, whichtypically goes to a southerner with economically liberal credentials and managerialcompetence.

Nguyen Van An

Born in 1937 in Nam Dinh province and educated in the Soviet Union, Mr An has abackground in electrical engineering. He was appointed to the central committee in1986 after a career in provincial politics, and became a member of the Politburo in1996. Mr An is currently president of the National Assembly, having taken over fromNong Duc Manh when Mr Manh became party general secretary in 2001. On hisappointment, Mr An pledged his commitment to the creation of a legal framework tosupport a level playing field for all businesses. Before his appointment, Mr An ledthe central party’s all-important Personnel Commission. At the Ninth Party Congressin 2001, he became a member of the party secretariat.

Le Duc Thuy

Approved as governor of the SBV in November 1999, Le Duc Thuy was for severalyears a special assistant to the then party general secretary, Do Muoi. During hisperiod as governor, the central bank has gradually liberalised the management ofexchange rates, money supply and interest rates, and has maintained confidence inthe banking system.

International relations and defence

The US did not lift its economic embargo until February 1994, and fulldiplomatic normalisation was not achieved until June 1995. Negotiations on abilateral trade agreement, according normal trade relations (NTR) status toVietnam (allowing it access to the US market at the low tariff rates applied tomost countries) while requiring reciprocal measures by Vietnam, began in 1996.However, conservative resistance in Vietnam to economic liberalisation at thepace and on the scale envisaged in the pact delayed its signature, and it did notcome into effect until December 2001.

Despite the signing of the trade agreement, trade disputes and differences overhuman rights continue to trouble relations with the US. The US has imposedpunitive tariffs on Vietnamese exports of catfish (and to a lesser extent shrimp),and still applies quotas to garments. Reports issued by the US State Departmentroutinely criticise Vietnam’s human rights record, and the US has includedVietnam on its shortlist of countries “of particular concern” regarding itshandling of religious freedoms. However, the foundations are becomingstronger—a trend that was highlighted by Mr Khai’s historic trip to the US inJune 2005, when he met the US president, George W Bush.

Partly because of ideological affinities, relations between Vietnam and Chinacontinue to improve. Trade between the two countries increased more than

Ties with China are strong, butdisagreements remain

Relations with the US improve,but remain prickly

14 Vietnam


fortyfold in the 1990s, and reached US$7.2bn in 2004. In January 2000 a treatywas signed defining a common land border, although progress has been slowon installing markers. In 2004 the National Assembly ratified an agreement onthe maritime border in the Gulf of Tonkin. High-level officials make frequentvisits in both directions.

Relations have not always been so friendly, however, and Vietnam remainswary of China’s intentions. A major and persistent area of disagreement is thesovereignty of a number of islands in the South China Sea; both countriesclaim parts of the Spratly and Paracel archipelagos and (more importantly) thesurrounding seabed, which is believed to hold substantial oil reserves. In May2003 China banned fishing in the area around the islands during June and July,prompting Vietnam to reassert its claim to sovereignty over the area. In early2004 Vietnam sent a shipload of “tourists” to one of the islands, triggeringcriticism from China. In late 2004 Vietnam formally asked China not to drill foroil at a point closer to the shore of Vietnam than China, and in January 2005 aChinese patrol boat killed nine Vietnamese fisherman in the disputed area,claiming that the fishermen were pirates.

Vietnam’s ties with neighbouring Laos and Cambodia remain strong, althoughrelations with the former are less complicated than those with the latter.Vietnam and Laos have close political and security links. Vietnam has helpedLaos contain its low-level insurgency by Hmong rebels and their families,hundreds of whom have laid down their arms over the past few months. Bothsides are also now keen to promote trade and investment links. The leaders ofthe Communist Parties of Vietnam and Laos met in March 2005 and called foran acceleration of moves towards free trade between the two countries.

Some of the complications in relations with Cambodia centre on the ongoingfailure to demarcate the common border. However, in June 2005 the two sidesagreed to intensify negotiations on the issue. Relations with Cambodia havealso been tested in recent years by the crossing over into Cambodia of ethnicminorities from Vietnam’s Central Highlands. In April 2005 Vietnam, Cambodiaand the UN Refugees Agency (UNHCR) reached an agreement to repatriateillegal Vietnamese migrants currently in Cambodia. The migrants in questionare members of ethnic minorities who fled into Cambodia from the CentralHighlands after anti-government protests in February 2001 and April 2004. Agroup of 75 migrants have been denied refugee status by the UNHCR and are toreturn to Vietnam promptly. Vietnam has said that those returning will beproperly treated. A UN official who visited the Central Highlands in May andmet with 35 people who had returned earlier found “no evidence ofharassment or mistreatment”.

After Vietnam’s withdrawal from Cambodia in 1989 about 500,000 troops weredemobilised. Since then, there have been sharp cuts in military spending,although a reduction in the influence of the armed forces has been temperedby continued suspicion of China, as well as by their enhanced internal securityrole. Vietnam is strengthening its military co-operation with India, providingadvice on guerrilla warfare in exchange for help in maintaining its MiG fighteraircraft and in producing small and medium-sized weapons.

The armed forces areless formidable

Vietnam maintains close tieswith Cambodia and Laos

Vietnam 15


Security risk in Vietnam

Armed conflict

There is no armed conflict in Vietnam. A few émigrés, with some support amongsmall minority groups in the Central Highlands (which supported the US during the“American war” and have no love for the central authorities), favour the creationthere of a separate state called Dega; this movement has not taken up arms, andwould be no match for the Vietnamese army.

Unrest/demonstrations

Demonstrations and overt forms of unrest are rare but not unknown. In early 2001there were serious demonstrations in the Central Highlands, repeated in April 2004,as members of ethnic minorities expressed their frustration at government attemptsto restrict their freedom of religion (evangelical Protestantism is vigorous in theregion) and at the gradual loss of land to ethnic Vietnamese who have moved intothe area to cultivate coffee, often with government backing. In 1997 there wereprotests, mainly directed at corrupt local officials, in the northern province of ThaiBinh. Similar outbursts have occurred elsewhere, including in Ha Tay province (nearthe capital, Hanoi) in January 2005, where protestors burned down a governmentbuilding. The government’s response has typically been to send in police andsoldiers, arrest some of the ringleaders, caution those who would undermine“national unity”, and offer some sops—more roads and scholarships, promises ofgrass-roots democracy, the demotion of some local officials and broadcasts in ethnic-minority languages. The number of protests by people who feel that they have beenunfairly disadvantaged by government projects has risen recently, and the threat ofethnic and religious unrest has not diminished. Short strikes have occurred in someforeign-invested enterprises (FIEs), but have typically been related to simple issues ofworking conditions and have been resolved quickly. FIEs are typically welcomed,not targeted, in large part because they provide good jobs.

Violent crime

There is little hard information on violent crime, but the popular perception is thatVietnam is not a particularly dangerous place. In early 2002 the Hong Kong-basedPolitical and Economic Risk Consultancy rated Vietnam as the safest place in Asia,based on a poll of 90 business executives in the hotel and tourism sector. Foreignersin Vietnam do not generally live in enclaves and do not have to take any specialsecurity precautions. However, pickpockets are common in the busier tourist areas,and drug-related robbery has become more common in Hanoi.

Organised crime

Organised crime, mainly related to drugs, gambling and prostitution, is of someconcern. A notorious gangster in Ho Chi Minh City, Truong Van Cam (“Nam Cam”),was executed in 2004 following a highly publicised trial. The crackdown on hisoperations became possible only after police from outside the city had been broughtin to investigate. Several prominent government figures were also found guiltyduring the trial, either for turning a blind eye to organised crime or for helping NamCam to avoid prison. There is a substantial flow of drugs from the Golden Triangle(an area where the borders of Thailand, Laos and Myanmar converge) to Hanoi,Haiphong and beyond, and sometimes customs and police officials are charged withtrafficking. A total of 24 people were sentenced to death in 2004 for drug-trafficking.

16 Vietnam


Kidnapping/extortion

There are no cases of kidnapping for ransom. There is an irritating, if relativelyminor, amount of petty extortion (for example, district police chiefs visitingforeigners in their districts before signing their residence papers; or ministry officialsseeking bribes to expedite paperwork). The government has taken some steps toremove these opportunities, such as simplifying the procedures for clearing goodsthough the port of Saigon, and making it easier to obtain foreign investment licences.

Resources and infrastructure

Population

The annual population growth rate has slowed, falling from an average of 3.1%in 1960-70 to 1.4% in 2000-04, and is expected to decline further, to 1%, over thenext 20 years. In 2004 the population was estimated at around 82m, accordingto the General Statistics Office (GSO). The population is 74% rural and isconcentrated in the two main rice-growing deltas, the Red River in the northand the Mekong in the south. The urban population is growing rapidly, at anannual rate of around 3.5% in recent years, and now accounts for over 65% ofthe annual population increase. In January 2003 the government’s “one or twochild” policy, which helped to reduce the fertility rate from 6.7 in 1970-75 to 2.3in 2000-05, was quietly dropped. In 2002 around 32% of the population wasaged below 15 years, with around 5% aged over 65. A total of 1.5m-2m people,mostly men, died as a result of military action between 1960 and 1980.

The delta populations are almost entirely ethnic Vietnamese (kinh), but one-sixth of the population belongs to one of the 53 ethnic minorities, including theTay, Thai, Nung, Muong, Hmong and Dao in the Northern Uplands, the Gia-Rai,Ba-na, Xodang and Ede in the Central Highlands, the Khmer in much of thesouth of the country and the Hoa (ethnic Chinese) in urban areas. Minoritygroups in the Central Highlands have been marginalised by inflows of migrantsattracted by the prospect of profitable coffee cultivation; until recently this flowwas aided by government resettlement subsidies to families that moved to the“new economic zones”. Many ethnic-minority people do not speak Vietnamese,especially in the more remote mountainous areas, and thus remain outside theeconomic and social mainstream.

Population, 2004a

‘000 % of totalHabitationRural 60,441 73.7Urban 21,591 26.3GenderMales 40,318 49.1Females 41,714 50.9Total population 82,032 100.0

a Figures do not include members of the armed forces and Vietnamese working abroad.

Source: General Statistics Office.

Annual populationgrowth slows

Minority groups formone-sixth of the population

Vietnam 17


The once-sizeable ethnic-Chinese community was depleted after many leftVietnam, often as “boat people”, when the government closed down privatebusinesses in the south in 1978. The 1989 census counted 962,000 Chinese, butthe figure is now estimated to be more than 1.5m. A large proportion of theinflow of remittances, estimated at more than US$2bn a year, originates fromthe overseas Chinese. The Chinese business community remains vibrant,particularly in and around Ho Chi Minh City. There is a high rate of inter-marriage, with 30% of Chinese marrying a non-Chinese partner.

Education

Although access to higher levels of education has historically been limited, theintroduction of near-universal primary education has produced high literacyrates. The Viet Nam Living Standards Survey 2002 found that 92% of thepopulation aged ten years and older were literate—89% of females and 95% ofmales. Literacy in the urban areas (96%) is only slightly higher than in thecountryside (91%). The highest literacy rate is found in the Red River Deltaregion, where 98% of men are literate.

China, Indonesia, Thailand and the Philippines all have better-educatedpopulations than Vietnam, although the gap may be narrowing. Vietnam’sschool enrolment rates suffered a decline in 1987-91, particularly at secondarylevel, because of a budgetary squeeze that reduced the wages of teachers. Thiswas compounded by the emergence of alternative occupations for teachers.However, the share of government current spending allocated to education andtraining rose from just under 5% in 1989 to over 16% by 1999 and 23% in 2002.Enrolment rates have not only recovered but have risen to record levels, and thenumber of university and college students rose from 298,000 in 1995 to morethan 1.1m in 2003, of which one in eight was enrolled at a private institution.State spending is augmented by large amounts of household spending on fees,tutoring and educational supplies, which accounted for 43% of all educationalspending in 1998.

Enrolment rates in education(% of relevant age group; school years)

1990/91 2001/02Net primary enrolment rate 90 94

Net secondary enrolment rate n/a 65Combined gross enrolment rate (primary,

secondary, tertiary) n/a 64

Source: UN Development Programme, Human Development Report 2004.

Despite rising enrolment rates, only 18.5% of those aged 15 or above havecompleted (upper) secondary school or higher, and four-fifths of the labourforce is considered to be unskilled. Skilled workers are disproportionatelyconcentrated in and around the capital, Hanoi (the Red River Delta region), andHo Chi Minh City (in the south-east). In the south-east, 32% of workers areskilled, including 6% who have a college education; the comparable figures forthe Red River Delta are 25% skilled and 6.5% with college education. An

The Chinese communityremains important

Literacy rates are high

Enrolment rates reachrecord levels

Skills levels remain low

18 Vietnam


estimated 340,000 Vietnamese work overseas, mainly in unskilled jobs inMalaysia, Taiwan and South Korea.

Health

Healthcare provision is relatively good, as measured by such indicators as lifeexpectancy, infant mortality and the number of doctors per head of population.After 1954 the government set up a public health system that reached down tohamlet level and was extended to the south after reunification in 1976.However, in the late 1980s a number of factors began to affect adversely thequality of healthcare. These included reform-linked factors, budgetary con-straints, the shift of responsibility to the provinces and the introduction ofcharges. According to data from the UN Development Programme (UNDP),government spending on healthcare amounted to just 1.5% of GDP in 2002,compared with private healthcare spending equivalent to 3.7% of GDP.

A shortage of funds has meant that improvements in water supply andsewerage systems have been slow in coming. These inadequacies are largelyresponsible for the most common infectious diseases, such as malaria, denguefever, typhoid and cholera. Although the number of doctors rose by over 50%between 1995 and 2003, the numbers of nurses and midwives stagnated duringthe 1990s, rising again only in recent years. There is particular concern aboutthe health of people living in the poorer provinces, where malnutrition,although falling, is still common. However, Vietnam’s health indicators haveimproved in recent decades. According to the UNDP, the infant mortality rateslowed to 30 (per 1,000 live births) from 55 in 1970, and life expectancy hasrisen to around 69 years from around 50 in 1970-75.

Health indicators, 2002One-year-olds fully immunised against tuberculosis (% of total) 97Infant mortality (per 1,000 live births) 30

Fertility rate (per woman)a 2.3Life expectancy at birth (years)a 69.2

a 2002-05.

Source: UN Development Programme, Human Development Report 2004.

Natural resources and the environment

Vietnam has a humid tropical climate heavily influenced by the monsoon. Inthe north (roughly north of the 18th parallel) there is wide variation intemperature between the cold, relatively dry season (November-April) and thehot, wet season (April-October). In the south the two seasons are notdistinguished by marked differences in temperature. The north-central coastalarea is susceptible to typhoons, which regularly destroy houses, livestock andinfrastructure. This frequent destruction of the capital stock helps to explain thepersistent poverty of the region. Floods often hit parts of the Mekong delta,destroying crops but also replenishing the soil.

Healthcare is under threatfrom budget cuts

Some regions are susceptibleto flooding and typhoons

Vietnam 19


About 36% of the land area is categorised as unused or barren. Most of this island that was once forested and now lies fallow, and much of it is badlydegraded. Cultivated area per head, at 0.1 ha, is among the lowest in the world.The government has a policy to increase the amount of land that is undercultivation and effectively irrigated, and to plant trees on barren areas. However,strict rules preventing the conversion of paddy land to other uses have beenrelaxed, particularly in areas with high potential for shrimp farming. Anenvironmental protection law is in place, as are numerous local environmentalordinances, but implementation is weak and the rules are sometimes confusing.

Vietnam’s natural forest is officially estimated at 9.9m ha (equivalent to 33% ofthe land area), but only around 192,000 ha is counted as “concentrated planted”forest. Official statistics indicate that 1,394 ha of forest was “destroyed” in 2004and a further 4,133 ha was lost to fire. These figures, which are probablyunderestimates, are smaller than in recent years. The main causes ofdeforestation have been logging, demand for fuel wood and the clearing offorests for agricultural purposes (prompted by population pressures and theprofitability of tree crops, notably coffee), including clearing by slash-and-burnfarmers. The production of wood peaked in 1996; firewood output has beenfalling since 1995 or before.

The government has an ambitious target of replanting 200,000 ha of new forestper year to cope with what a government report has described as “the mostserious challenge since reunification”. In the 1980s afforestation took place at anannual average rate of 36,000 ha, according to the World Resources Institute, aUS-based environmental think-tank, with the pace accelerating to 68,000 haannually in 1994-99.

Forested area, 2004(‘000 ha; year-end)

Natural forest 9,904

Afforested area 2,269Total 12,173


Until recently the government subsidised a migration programme from thedensely populated lowlands to the “new economic zones” in the CentralHighlands, in part to ease pressure on agricultural land. It also favoured thesettlement (“sedentarisation”) of peripatetic slash-and-burn cultivators in thehills and mountains. However, these programmes have been criticised forcausing further deforestation and soil erosion, and have met resistance fromlocal, mainly ethnic-minority, residents, who staged large demonstrationsagainst such programmes in February 2001 and April 2004.

Rapid urbanisation is putting stress on the antiquated infrastructure of thecities, where increased vehicle ownership has raised the level of pollution,congestion and accidents. Human exposure to airborne pollutants exceedspermissible levels in most cities, and water quality is also a concern. Over90% of factories lack treatment facilities, and nearly 50% of the populationhave no access to safe water.

Cultivated area perhead is low

Deforestation is being tackled

Overcrowded areas are astrain on the environment

20 Vietnam


Economic activity, especially prawn cultivation, also poses a threat to themangrove wetlands. Vietnam’s underpowered fishing fleet tends to operateclose to the coast rather than venturing into deeper seas; the result is thatcoastal waters are overfished.

Transport, communications and the Internet

Vietnam had around 126,000 km of roads in 2003, according to officialstatistics. However, the road network is generally considered to be in poorcondition, with only around 35% of roads being covered with asphalt. Over 10%of villages are inaccessible by road for at least one month of the year. Road usehas been rising by about 8% a year for a decade.

Since 1993, 90% of aid and counterpart funding for roads has gone towards themajor highways, which constitute less than 10% of the total network.Considerable work has been done to upgrade the main north-south road,Highway 1, to expand the Hanoi-Haiphong link and to build the Ho Chi MinhCity-Vung Tau highway. Government spending on transport projects wasestimated to be D10.1trn (US$713m) in 2000. Work has begun on a 2.75-km,US$308m suspension bridge across the Hau (Bassac) river near Can Tho, to befinished by 2008. Work has also commenced on a second north-south highway,which will run along parts of the Ho Chi Minh Trail. This economicallyquestionable project has been justified on the grounds that it will open upremote areas and provide an alternative to the flood-prone Highway 1. In June2005 a 6.3-km tunnel costing US$200m was opened under the Hai Van pass,between Danang and Hue, cutting travel time by on this stretch of Highway 1by one hour. These grand projects, however, have meant that insufficientattention has been paid to secondary roads, leaving many parts of Vietnam,particularly those in mountainous areas, isolated. In an effort to rectify thisproblem, in 2005 the Ministry of Finance proposed increasing spending onroads to US$900m annually through to 2010. Over 600 communes (out of atotal of 8,850) are inaccessible by car.

The favoured means of transport in Hanoi and Ho Chi Minh City is amotorcycle. There are an estimated 12m motorcycles on the road in Vietnam,equivalent to one for every 1.4 households, and local production reached 1.6munits in 2004. The demand for cars is still modest, but is rising rapidly.According to the Vietnam Automobile Manufacturers Association (VAMA),which comprises the 11 foreign-invested joint ventures operating in the country,car sales fell by 6% year on year in 2004 to 40,141 units, but prior to this therehad been fairly strong growth in sales of locally produced vehicles. In 2003sales grew by 58% to reach 42,557 units, up from 26,873 units in 2002 and 19,554units in 2001. In addition to the 11 foreign assemblers operating in the country,the government has designated four local state-owned firms to producevehicles, including buses and lorries, demand for which is running at about50,000 a year. There are now more than 600,000 four-wheeled vehicles onthe roads.

In an effort to alleviate congestion in urban areas and reduce the number ofroad deaths, which have risen in line with the increasing number of vehicles

The road network is inpoor condition

Motorcycles are the favouredmeans of local transport

Vietnam 21


on the roads, the authorities in Hanoi and Ho Chi Minh City have long-termplans for rapid mass-transit systems. In Hanoi there are plans to beginconstruction of a 25-km elevated railway in 2005. The authorities in Ho ChiMinh City, have been given approval to build two 21-km underground rail linesby 2007 with German help, at an estimated cost of US$800m. A subsequentproject would build four additional lines.

The railway system comprises six single-track routes totalling 3,260 km; this isequivalent to 0.04 km per head, or about one-third of the average density ofother low-income countries. The Reunification Express takes 32 hours to travelthe 1,730 km between Hanoi and Ho Chi Minh City. One-quarter of the rollingstock is not operational; moreover, one-quarter of the functioning rolling stockis over 30 years old. Rail use in terms of passenger-km has risen by around 8%annually in recent years. The volume of freight carried (measured in tonne-km)has also risen, expanding by 43% between 2000 and 2004, after falling duringthe previous five years. Vietnam Railways is unlikely to receive sufficient fundsto expand and improve its operations to cope with increased demand.

The tonnage of freight carried on the inland waterway systems, chiefly on theMekong river, its tributaries and canals (which total 4,500 km) and the Red riverand its tributaries (totalling 2,500 km), is double that transported by rail, but isrising relatively slowly. The World Bank estimates that poor maintenance andnavigation aids reduce the productivity of water transportation to 40% belowits potential; just 40% of watercourses and channels are dredged in anygiven year.

There are seven international seaports and five special ports through whichonly oil and coal are shipped. The main ones are Haiphong in the north,Quang Ninh, Danang and Qui Nhon in the centre, Ho Chi Minh City in thesouth-east and Can Tho in the Mekong Delta. A significant amount ofinvestment has gone into upgrading the ports, which can now handle moreand larger ships. The ports now handle about 14m tonnes of freight a year(excluding crude oil), up from 4.5m tonnes in 1993, although improvements inship-handling and land access have provided the capacity to handle three timesthe present volume. The port system is competitive, but the cost of shippinggarments from Ho Chi Minh City to Los Angeles is 10% of the landed cost,compared with 4% for garments shipped from Shanghai, China.

The state-owned national airline, Vietnam Airlines, has been modernising andexpanding rapidly. The airline owned or leased a total of 37 planes in late 2004,a fleet that included six Boeing 777s (two of which are leased), four BoeingB767-300s and 16 Airbus A320/321s. The fleet has expanded over the past fewyears, following the delivery of four Boeing 777s in 2002-04 and four AirbusA321s in 2004. In 2004 the airline carried more than 5m passengers, up fromaround 4m a year in both 2003 and 2002. The airline serves 25 internationaldestinations, following the launching in recent years of new routes, includingservices from Hanoi to Paris.

The Vietnamese government has been slow to open its air routes to fullcompetition in order to protect Vietnam Airlines. As a result, air fares to

Rail usage has increased by10% in recent years

Vietnam Airlines hasmodernised rapidly

Ports have been upgraded andcan handle larger ships

22 Vietnam


Vietnam are considered to be high and to form an impediment to thedevelopment of tourism. However, change is occurring; a Singapore-based low-cost carrier, Tiger Air, now serves Hanoi and Ho Chi Minh City; time slots atdomestic airports will no longer be allocated by Vietnam Airlines; and in mid-2005 a struggling local competitor, state-owned Pacific Airlines, attracted theattention of investors in Singapore. International airlines carry almost two-thirds of foreign visitors to Vietnam.

Vietnam’s telecommunications industry has been growing rapidly, second onlyto that in China in recent years, according to the International Telecom-munication Union, a Geneva-based industry co-ordinating body. In 2004 therewere 9.7m telephones, with 5.2m main lines and 4.5m mobile phones. Thisrepresented 11.7 phones per 100 people, up from only 2.2 in 1997. Although themonopoly previously enjoyed by the state-owned Vietnam Post and Telecom-munications Corporation (VNPT) has ended, with five new telecoms serviceproviders in, or about to enter, the market, VNPT remains dominant. Risingcompetition has forced VNPT’s mobile-phone provider, Vinaphone, to seek outsubscribers more actively and to reduce tariffs. Despite falling prices,international telephone calls continue to be among the most expensive in theworld. The government is hoping to launch a US$300m telecoms satellite,which could be in orbit as early as 2007.

Full Internet services became available in mid-1998 in both Hanoi and Ho ChiMinh City. Internet usage remains expensive, and in 2004 there were just 3.7mInternet users, equivalent to 4.5 users per 100 people. Usage rates are wellbelow those found in Thailand and Malaysia. The dominant Internet serviceproviders are state-owned. Vietnam Datacommunications Company (VDC)controls 54% of the market, followed by Corporation for Financing andPromoting Technology (FPT), which controls about one-quarter of the market. Agovernment firewall blocks access to some pornographic and politicallysensitive sites abroad, but also limits bandwidth and makes confidentialbusiness transactions difficult. In an effort to boost investment in theinformation technology sector, the government is allowing a few firms to avoidthe firewall.

Energy provision

Vietnam’s energy resources include plentiful supplies of high-quality coal, largeuntapped sources of hydro-power and still abundant but diminishing suppliesof fuelwood and charcoal. Commercial energy consumption in 2002 was about21.9m tonnes of oil equivalent (up from 13.5m in 1997), or 271 kg of oilequivalent per head—a low rate compared with 332 kg in India, 805 kg in Chinaand around 1,300 kg in Thailand.

Electricity output has risen strongly in recent years, reaching around 46trn kwhin 2004, an expansion of 73% since 2000. Although this trend has ensured thatgenerating capacity is adequate to meet rising demand, there were temporaryshortages in May 2005, when water levels in the Hoa Binh reservoir ran low.Demand is rising by 12-15% annually, which means that about 20% of

The telecoms industryis growing fast

Internet usage grows slowlyand is restricted

Electricity production isadequate, but vulnerable

Energy consumptionremains low

Vietnam 23


all investment spending will need to go to power plants and transmissionsystems over the coming decade. Vietnam's power-generation sector hadinstalled capacity of 9,895 mw at end-2003, up from 8,860 mw at end-2002,according to the state-owned electricity generator and distributor, Electricity ofVietnam (EVN).

The system remains vulnerable, owing to its heavy reliance on hydro-power,which is highly dependent on rainfall levels. At end-2003 installed capacity ofhydro-power plants totalled 4,154 mw (making up 42% of total installedcapacity). Although the capacity of gas turbine power plants rose to 2,489 mwin 2003, from 2,322 mw in 2002, the proportion of total capacity accounted forby gas slipped from 26.2% in 2002 to 25.2% 2003. This was the result of theexpansion in capacity of independent power plants (IPPs), which rose to1,521 mw in 2003, from 612 mw in 2002. Thus in 2003 IPPs accounted for 15.4%of installed power-generating capacity, up from only 6.9% in 2002. Coal-firedthermal power accounted for 12.6% of total installed capacity in 2003, withdiesel- and oil-fired thermal power making up the remainder.

Responsibility for power production is shifting towards gas-fired power stations,with the Phu My complex, located on the coast in the southern province of BaRia-Vung Tau, expanding rapidly. In March 2004 the 720 mw Phu My 3 powerplant came on stream, and the 725 mw Phu My 2.2 commenced full operationsin February 2005. The Phu My 1 plant (with a capacity of 1,090 mw) and thePhu My 2 plant (with its expanded and auxiliary plants providing a combinedcapacity of 900 mw) were already in operation.

The economy

Economic structure

Measured by employment, Vietnam is an agrarian society, with around 59% ofthe labour force working in agriculture, forestry and fisheries in 2004. Despitegrowth in value added of 4% annually over the past decade, the agriculturalsector (including forestry and fisheries) accounted for only around 22% ofGDP in 2004, down from 40% in 1991. However, Vietnam is a leading exporterof a number of agricultural commodities, such as coffee, rice, pepper andcashew nuts.

Industrial GDP grew by more than 10% annually over the past decade, andindustry and construction contributed around 40% of GDP in 2004, comparedwith only around 23% in the early 1990s. By this measure, Vietnam is a highlyindustrialised country. Industry is relatively diversified, and all subsectors haveexpanded over the past decade, with particularly rapid growth in steelproducts, garments, footwear, cement, and car and motorcycle assembly.Mining (mainly oil and gas) accounted for around 10% of industrial GDP in2004. The services sector has grown steadily over the past decade, but its shareof GDP has fallen, dropping to around 38% in 2004 from 44% in the mid-1990s.

Agriculture remains important

24 Vietnam


Main economic indicators, 2004(actual unless otherwise indicated)

Real GDP growth (%) 7.7Consumer price inflation (av; %) 7.8

Current-account balance (US$ m) -1,055 a

Exchange rate (av; D:US$) 15,740Population (m) 82.0

External debt (year-end; US$ m) 17,729 a

a Economist Intelligence Unit estimates.

Source: Economist Intelligence Unit, CountryData.

Output from the industrial state-owned enterprises (SOEs) accounted for aboutone-third of all industrial output in 2004, down from 44% in 1999. However,output from this sector rose by 12.7% annually in 1999-2004. The fastest-growingpart of the industrial economy has until recently been foreign-investedenterprises, which include both joint ventures and 100%-foreign-ownedsubsidiaries. Output in this sector rose by about 16.5% annually between 1999and 2004, and now accounts for 38% of industrial output. The high degree ofpenetration of foreign capital has occurred entirely since 1988. This underscoresVietnam’s reliance on a continued inflow of foreign investment to sustain rapideconomic growth. However, foreign investment comes at a price, as it makesgrowth in Vietnam more vulnerable to external shocks. The regional financialcrisis of 1997 accelerated a decline in new foreign direct investment (FDI)commitments that had been under way since the previous year.

The remainder of industrial output, constituting almost 30% of the total,originates in the domestic, non-state sector. After a comparatively slow start, theprivate industrial sector has gathered momentum; the output of privatelyowned and “mixed” non-state enterprises rose by almost 20% annually from1999 to 2004, and they are now growing faster than the state-owned andforeign-invested industrial sectors. Over 150,000 new enterprises have beenregistered since new rules came into effect in January 2000 that made it easierto register private firms and swept away many sectoral licensing requirements.An estimated 80-85% of these newly registered businesses are operatingprofitably, a high rate of survival by global standards. Most of the registrationapplications have come from young people, reflecting the rise of a dynamicentrepreneurial class.

The share of investment in GDP rose rapidly from 11% in 1990 to 36% in 2004.The rise in investment has been financed by increased government savings (8%of GDP in 2004), continued FDI, and a compression of domestic consumptionrelative to GDP, which has permitted domestic non-government savings to rise.The relative stability of aid-financed investment projects helps to explain theapparent stability of the investment rate, which in many countries is the mostvolatile component of GDP.

Investment’s share of GDPhas increased

The state’s share of industrialoutput is falling

Vietnam 25


Comparative economic indicators, 2004

Vietnama Indonesia a Thailandb Singapore a Malaysiaa

GDP (US$ bn) 45.4 257.6 b 163.5 106.8 117.8b

GDP per head (US$) 546 1,151 2,533a 25,172 4,626

GDP per head (US$ at PPP) 2,699 3,700 7,957a 30,958 10,606Consumer price inflation (av; %) 7.8b 6.1 b 2.8 1.6 b 1.5b

Current-account balance (US$ bn) -1.1 2.9 7.3 30.3 14.8Current-account balance (% of GDP) -2.3 1.1 4.5 28.4 12.5

Exports of goods fob (US$ bn) 25.8 71.7 96.1 200.5 126.6Imports of goods fob (US$ bn) -28.3 -50.5 -85.0 -168.9 -99.1External debt (US$ bn) 17.7 136.9 51.1a 23.6 51.7

Debt-service ratio, paid (%) 3.1 16.7 9.2a 1.6 5.9

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Economic policy

After reunification in 1976, the government of the new Socialist Republic ofVietnam quickly imposed on the south the Soviet-style central planning thathad been the model in the north since 1954. In the early 1980s, as the failingsof this policy became apparent, Vietnam’s leaders were forced to abandon itand move towards a policy of “renovation” (doi moi), which was formallyadopted at the Sixth Party Congress in December 1986. At first reform wasslow, and elements of the old system, such as the setting of physical targets,reliance on SOEs and communes, state-run banking and a two-tier price system,remained in place. In 1988 bad weather and poor management led to near-famine in the north, a wide trade deficit and hyperinflation of over 300%a year.

These factors strengthened the resolve to reform, and a series of dramaticchanges were introduced in March 1989. Henceforth, households rather thancommunes were to form the basic economic unit in agriculture; most of theovert subsidies to SOEs were abolished, and they were given freedom to setprices for their output; the banking system was reformed and the State Bank ofVietnam was established as a central bank to oversee it; the budget deficit wasbrought under control; restraints on internal and international trade were lifted;and the dong was devalued sharply, bringing it closer to the market rate.

The results of the changes were spectacular. Agricultural output rose by 7.5% in1989, and the country suddenly switched from being a major importer of rice tobecome the world’s third-largest exporter. The annual average rate of inflationfell from 308% in 1988 to 35% in 1989. GDP rose by 8%, the best performance fora decade, and the boom in agriculture and services easily offset the industrialstagnation resulting from the ending of state subsidies. The timing wasfortunate too, as the rise in revenue from oil exports almost exactly offset thedecline in aid from the former Soviet Union and provided an important sourceof budgetary revenue during the transition years.

Central planning gives way todoi moi in 1986

Wider reforms are introducedin 1989, to great effect

26 Vietnam


The momentum of reform continued after 1989. Foreign and joint-venturebanks were permitted from June 1991, and important gaps were filled in thelegal framework by the passage of a land law, a bankruptcy law, a labour code,a domestic investment law and a mining law, among others, and by thecreation of a modern tax structure. Despite early setbacks, including thecollapse of most of the credit co-operatives in 1990, by 1992 Vietnam had thefoundations of a market-driven rather than a planned economy, and GDP roseby an average of 7.5% annually between 1993 and 2004.

The government’s socio-economic strategy for the first decade of the newmillennium sets out its long-term vision for economic development. Thestrategy envisages GDP growth of 7-7.5% per year, which would double GDP by2010; industry would grow by about 10% annually, services by 7-8% andagriculture by about 4% per year. To achieve this rate of growth, domesticsaving would need to remain at the current level of about one-quarter of GDP.Ostensibly the strategy relies heavily on encouraging the private sector, insistingthat “there is no discrimination between socialist and non-socialist sectors” andthat the state “should cut its administrative interference in businesses” andfocus its efforts on management reforms in banking and finance, administrationand SOEs. The non-state sector’s share of investment has risen in recent years;in 2004 it accounted for 30.9% of total investment, up from around 22.9% in2000. This has been at the expense of both the state sector and the foreign-invested sector. In 2004 the state sector accounted for around 53.6% of the total,down from 59.1% in 2000, while the foreign-invested sector’s share has droppedto 15.5% from 18%.

The government has made modest progress in reforming SOEs. Starting in 1998,the government began to equitise small SOEs. By the end of 2004 a total of2,242 SOEs had been equitised, including 753 in 2004, with 4,300 remaining inthe hands of central, provincial and municipal governments. However, theequitised firms represented a combined book value of just over US$1.1bn, equalto 8.2% of the value of state-owned equity. There is an ambitious plan toequitise 724 SOEs in 2005 and a further 1,460 in 2006-07. The first large firm tobe equitised is expected to be the state-owned commercial bank, Vietcombank,probably in 2006, but the government intends to maintain controlling stakes incigarettes, the national communications network, power transmission, oil andgas, insurance, petroleum and coal. In March 2005 the prime minister, Phan VanKhai, approved the privatisation of the Viet Nam Construction Import-ExportCorporation (Vinaconex); with assets valued at D3.7trn (US$233m), this wouldbe the largest privatisation so far (although the government plans to keep a 51%stake in the firm).

Opposition to privatisation is strong, primarily because SOEs have a number ofadvantages over private firms: they enjoy easier access to credit and to land-userights (the latter being highly valued contributions to a joint venture), they arefavoured for government contracts and in the award of trade and other licences,and some have access to subsidised loans. Workers and managers, accustomedto the security of working for SOEs, also fear that they could lose their jobs. Inaddition, several ministries oppose privatisation, as they do not want to give

The private sector receivessome encouragement

The state-owned sectorresists privatisation

Vietnam 27


up the enterprises—sources of patronage and influence—under their control.However, a recent study by the Ministry of Finance of 42 relatively large SOEsfound that they generated low returns to equity; such inefficiency is at the heartof the argument for privatisation.

Key changes in economic policy

September 2001

The government announces a plan to privatise 2,500 of the country’s 5,600 state-owned enterprises (SOEs). However, progress in the following few years is slow: bythe end of 2004 there are still 4,300 SOEs in operation, and less that 10% of SOEs (asmeasured by book value) have been equitised.

December 2001

The bilateral trade agreement with US comes into effect; it was initialled in July 1999and signed in July 2000, but was not ratified until late 2001 following considerabledebate within the government of Vietnam. Exports to the US doubled in 2002 toreach US$2.4bn, and then doubled again to around US$5bn in 2004.

April 2002

Formal negotiations begin with the World Trade Organisation (WTO) overmembership. Since then, good progress has been made in bilateral and multilateralnegotiations.

May 2002

The National Assembly (the legislature) approves a new Labour Law, which givesforeign-invested enterprises flexibility in hiring labour (effective from January 1st2003). Previously, firms were supposed to recruit via local labour bureaux.

July 2002

The State Bank of Vietnam (SBV, the central bank) widens the trading band forforeign exchange to +/- 0.25% per day (up from +/- 0.1% per day). It allows forward andswap foreign-exchange transactions, but 60% of foreign-exchange interbank markettransactions involve the central bank.

April 2003

In view of the fact that foreign-exchange reserves have been increasing rapidly, theSBV drops its requirement that exporters surrender 30% of their foreign-exchangeearnings to local banks.

May 2003

The National Assembly agrees to unify the corporation income tax rate at 28%.Previously it was 32% for domestic firms and 25% for most foreign firms.

April 2004

The IMF’s US$370m three-year poverty reduction and growth facility, signed in April2001, expires without the full amount having been disbursed. The programme hasstalled owing to the SBV’s refusal to meet the IMF’s demands for an independentaudit of its accounts. The prime minister, Phan Van Khai, has since ordered audits often ministries and agencies, including the Supreme Court and the SBV.

28 Vietnam


July 2004

Personal income tax rates are lowered for domestic residents, but such residents arestill taxed more heavily than foreigners.

September 2004

Mr Khai sets out the four pillars of economic policy for the coming five years: a“stable and consistent” environment and legal framework to encourage long-terminvestment; accelerated reform of SOEs, while encouraging the growth of privatefirms; “continue building uniform institutions for a market economy,” includingcapital market institutions; and continued integration of Vietnam into the worldeconomy.

December 2004

The National Assembly passes a law on competition, which comes into effect in July2005. The law prohibits companies with market shares above 50% from undertakingmergers and joint ventures, and outlaws cartels and pyramid schemes.

May 2005

The SBV introduces a new risk-rating system for bank loans, which brings localpractice more closely into line with international norms. The system gives a moreaccurate picture of loan performance and forces banks to make adequate provisionsto cover their weak loans.

Under the system of central planning, the prices of goods and services were setby the state in order to encourage large surpluses, which were then transferredto the government. As recently as 1987, 80% of government tax receiptsconsisted of such revenue. The system became untenable when prices wereliberalised, and a modern tax system was required. Early measures included theintroduction of excise taxes, turnover tax and business profits tax (October1990), personal income tax (April 1991), a natural resources tax (March 1992), arevised agricultural tax and a land and housing tax (1993). Value-added tax(VAT) was introduced in January 1999, along with a simplified corporateincome tax. The personal income tax rates and brackets for Vietnamese citizenswere relaxed in 2001 and again in 2004. Before these changes it was sometimescheaper, for tax reasons alone, to hire senior managers overseas rather than inVietnam. In May 2004 the rate of tax on corporate profits was unified at 28%;previously it stood at 32% for domestic companies and 25% for foreign firms.

In May 2003 the National Assembly passed amendments to the VAT systemand the Law on Special Consumption Tax (SCT) in May 2003. The top rate ofVAT of 20% was withdrawn and replaced by a two-tier 5% and 10% systemfrom January 2004. VAT refund fraud remains a major concern for thegovernment. According to the Ministry of Finance, more than 400 virtualcompanies created solely to purchase and sell invoices have been discovered.

According to the latest available official data, total fiscal revenue (excludinggrants) stood at 21.8% of GDP in 2002. Domestic tax collection is estimated tohave continued to rise since then in line with nominal GDP, but revenue fromtaxes on trade (other than crude oil) is growing only slowly as Vietnam beginsto implement tariff reductions under the requirements of the Asia-PacificEconomic Co-operation (APEC) forum and other commitments. To deal with

Tax reform continues

Tax revenue rises in linewith nominal GDP

Vietnam 29


this problem, in mid-2002 the government gave control of the Customs Depart-ment to the Ministry of Finance. The government’s financial managementsystem is considered opaque and inefficient, and allows corruption to thrive.The lack of transparency is evident in the lack of systematic budgetaryinformation, which the government does not publish comprehensively on aregular basis.

Around one-third of government spending is devoted to the capital budget,which was equivalent to around 8% of GDP in 2002. The combination ofmoderate deficits and substantial capital spending reflects a modest level ofpublic savings (domestic revenue minus current expenditure) of about 5% ofGDP. The military is believed to absorb about 25% of the budget, although thismay be an overstatement. (All budget figures should, however, be treated withcaution, as published numbers are incomplete and appear only with a longlag.) Spending is highly centralised. Although Ho Chi Minh City and the capital,Hanoi, have issued bonds, these are mainly held by banks rather than thepublic at large, partly because they are seen as risky. The government hasresisted earmarking revenue for specific purposes, although this has beenproposed as a way to ensure a predictable flow of financing for highwaymaintenance. The National Assembly passed an Amended Law on the StateBudget in December 2002 that divides responsibilities between the central andsubnational levels of government, seeks to strengthen the role of localgovernment and requires greater transparency.

After rising by only around 6% a year during most of the 1990s, the averageannual rate of expansion of narrow money (M1) rose to around 22% a year in2000-04. There were equally rapid increases in dong and foreign-currency(mainly US-dollar) deposits, raising liquidity (M2, or broad money) from 24% ofGDP in 1998 to 70% in 2004. This burst of expansionary monetary policy wasdesigned to maintain economic growth. However, this policy has raisedconcerns over sustainability, with outstanding domestic credit standing ataround 60% of GDP in 2004 compared with only 35% in 2000. The IMF deemsthe pace of growth in domestic credit in recent years to be excessive. In late2004 and early 2005 the State Bank of Vietnam (SBV, the central bank) movedto tighten monetary policy, but by mid-2005 it had still not tightened policysufficiently to slow demand for credit. This primarily reflects the fact that theSBV operates with little independence, and thereby faces the conflicting policyobjectives of maintaining economic stability while supporting the govern-ment’s efforts to achieving its high economic growth targets

Over the past few years the SBV has increasingly used open-market operationsto influence the money supply. The SBV’s refinancing rate, which applies toshort-term loans to commercial banks, was lowered to 5% in the third quarterof 2003; it remained there until 2005, when it was raised twice, reaching 6% inApril in an effort to limit the growth of credit and control inflation.

The banking system is dominated by four big state-owned commercial banks(SOCBs), which between them account for around 70% of all credit. They havehigh levels of non-performing loans (NPLs), the result of the pressure they face

Monetary policy has beenfairly expansionary

The banking system isburdened with bad loans

The capital budget accounts forone-third of overall spending

30 Vietnam


to lend to SOEs even when commercial criteria might dictate otherwise. TheSOCBs generally claim that their NPLs account for around 10% of totaloutstanding loans. However, the SBV reports that this rate would rise to 17-20%if international accounting standards were followed. (According to World Bankestimates, NPLs in the banking system were equivalent to around 15-20% ofoutstanding loans in November 2003.) Despite these problems, which haveprobably been exacerbated by the rapid expansion in credit in recent years,there is growing public confidence in the banking system, and deposits rosefrom the equivalent of around 33% of GDP in 2000 to around 55% of GDPin 2004.

The high ratio of bad debts to outstanding loans means that the SOCBs areseriously undercapitalised, with an average equity/asset ratio of 3.7%. Thestandard for capital adequacy laid down by the Bank for InternationalSettlements (BIS) for banks operating internationally is 8%. The government hasagreed in principle to separate policy lending (subsidised loans and grants)from commercial lending, but has delayed implementing this change. Througha recapitalisation programme, which was completed in late 2004, thegovernment (with support from the World Bank and the IMF) provided SOCBswith a total of US$673m to help raise their capital adequacy ratios. However,the infusions, which have been financed using special 20-year governmentbonds that carry an annual coupon of 3.3%, are considered to be inadequate.

To prevent a return to old habits, both the World Bank and the IMF haveattached detailed conditions to these loans. The SBV governor, Le Duc Thuy,had expressed reservations about the capital infusions, instead calling for thebanks to be equitised. He has been increasingly vocal in calling for thegovernment and ministries to stop interfering in the SOCBs’ lending. TheSOCBs are also supposed to provide more capital themselves, by collectingoverdue loans more aggressively. The SOCBs are beginning to pay moreattention to the quality of their lending portfolios. In early 2005 they refused tofinance a US$172m fertiliser plant in Haiphong, despite being directed to do soby the government. Earlier they had declined to fund a urea plant in Ca Mau.Such refusals would have been unthinkable a few years ago.

Although exports and imports are high relative to GDP, Vietnam’s trade regimeis inefficient in a number of ways and foreign trade reform is incomplete. Tariffrates are highly variable, and are structured so as to provide high levels ofprotection to some sectors, including the car-assembly, sugar, steel and cementindustries. A few quotas and other direct restrictions on imports are still inplace, notably on cement, cigarettes, sugar and petroleum products, althoughthe effects of these restrictions are moderated by significant smuggling.However, Vietnam has begun to reduce its tariffs under its Association ofSouth-East Asian Nations (ASEAN) Free-Trade Area (AFTA) obligations. Inaddition, under Vietnam’s bilateral free-trade agreement with the US, whichcame into effect in late 2001, tariffs on 250 trade and agricultural items arebeing reduced, intellectual property rights are being increasingly protected,quantitative restrictions are to be gradually ended, and World Trade

SOCBs have been recapitalised

Vietnam makes progress intrade liberalisation

Vietnam 31


Organisation (WTO)-inconsistent measures (such as local-content requirements)are to be phased out over five years.

Vietnam still hopes to join the WTO by the end of 2005; the tenth and finalround of multilateral negotiations in Geneva, Switzerland is scheduled forSeptember 2005. The drive to join the WTO has been used by reformers toquicken the pace of domestic economic change; at least 30 ordinances and lawshave been, or need to be, changed in order to achieve compliance with WTOnorms. Vietnam has been making rapid progress in its efforts to join the WTO.By mid-2005 it had concluded bilateral negotiations with eight countries andregional groupings, including the EU, Singapore and South Korea, and hadreached a “basic agreement” with Japan (in return for backing Japan’s bid for apermanent seat on the UN Security Council). However, negotiations with theUS were proving difficult.

Economic performance

Gross domestic product(% real change)

Annual average2004 2000-04

GDP 7.7 7.2 Agriculture 3.5 3.8 Industry 10.2 10.1 Services 7.5 6.4


Vietnam’s economic performance since 1989 more closely mirrors that of Chinathan the other former centrally planned economies. Between 1992 and 1997GDP growth did not fall below 8% per year, and Vietnam appeared to be on thetrail of the Asian tigers. In 1998, however, economic growth slowed sharply to5.8%, and it decelerated further to 4.8% in 1999. The most obvious cause of theslowdown of 1998-99 was the knock-on effects of the regional economic crisis.However, there was also a domestic component, with economic reformincomplete and initial, somewhat excessive, investor enthusiasm beingundermined by widespread corruption, pervasive red tape and uncertaintyabout dong convertibility.

Fuelled by a rapid rise in exports and buoyant industrial growth, the pace ofGDP growth has accelerated again over the past few years, rising from 6.8% in2000 to 7.7% in 2004. Foreign direct investment has, with a lag, picked up again,surging strongly since early 2004. The effectiveness of investment has alsoimproved, and Vietnam now spends just slightly over US$4 in investment forevery US$1 of additional annual output.

Since experiencing hyperinflation in the mid-1980s, the government hasinsisted on keeping budget deficits small and has avoided monetising them.This has kept consumer price inflation generally below 10% since 1995.Consumer prices fell in 2000 and 2001, largely owing to a sharp decline inglobal food prices. When food prices rebounded, so did inflation, which

Inflation accelerates as foodand fuel prices rise in 2004

GDP growth has generallybeen rapid

32 Vietnam


jumped to an average of 3.1% in 2003 and 7.8% in 2004. Although the pace ofyear-on-year consumer price inflation decelerated in the first half of 2005,inflation remained high, averaging 8.6%, down only slightly from an average of10% in the fourth quarter of 2004.

The most significant cause of the rise in inflation was the rapid increase in theprices of food on world markets; these feed through to domestic prices of foodand foodstuffs, which in turn constitute almost one-half of the in the basket ofgoods and services used to measure consumer prices. In addition, the boomingworld economy has raised the prices of a number of commodities, includingpetroleum and steel, and these price rises have begun to feed into domesticprices. The rapid rise in domestic credit, which was particularly marked in2004, has played a role too: when variations in food prices are removed, theunderlying inflation rate is about 5% annually.

InflationAnnual average

2004 2000-04Consumer prices (av; %) 7.8 2.5

Sources: IMF, International Financial Statistics.

Rapid economic growth since 1990 has raised living standards. The percentageof people living in poverty (as defined by a budget adequate to buy2,100 calories of food per person per day and a modest amount of non-foodpurchases) fell from 58% in 1993 to 37% by 1998 and 29% by 2002, with a furtherfall to about 24% by 2004. Child malnutrition has also decreased: in 1993, 53%of children under five experienced stunted growth, but by 1998 this proportionhad fallen to 34%. The reduction in poverty has been accompanied by a modestrise in inequality, and particularly a widening gap between the urban and ruralareas. The average income of a person in the top 10% of the incomedistribution was 10.6 times that of someone in the bottom 10% in 1996 but 12.5times higher in 2001-02. Concern about rising inequality has prompted thegovernment to pay more attention to rural development, and efforts to combatpoverty are now at the centre of the World Bank’s extensive activitiesin Vietnam. Poverty rates are about three times higher in rural than inurban areas.

Regional trends

Vietnam’s peculiar geography (see Resources and infrastructure), particularlythe 1,600-km distance between the two main population centres, Hanoi andHo Chi Minh City, has tended to encourage regionalism. Since doi moi(economic renovation) began in 1986, Ho Chi Minh City and the nearbyprovinces (especially Dong Nai and Binh Duong) have consolidated theirposition as Vietnam’s industrial heartland, although the Hanoi-Haiphong areahas grown almost as quickly over the past few years and the central city ofDanang is now expanding rapidly. Left behind are the mountainous areas ofthe north, the north-central coast and parts of the Central Highlands, which arethe three regions where poverty rates are highest. In 2004 the country’s highest

Living standards rise, asdoes inequality

Regional inequalityis increasing

Vietnam 33


poverty rate was in the north-west, at 54.4%, followed by the north-central coast(41.4%) and the Central Highlands (32.7%). These rates compare with relativelylow poverty rates in the south-east (6.7%) and the south-central coast (7.3%).

Although regional (and especially urban-rural) inequality is increasing, itis counterbalanced to a limited extent by the equalising effect of thebudget, which derives revenue mainly from the wealthier areas but spreadsexpenditure (on infrastructure, health and education) more widely.

Around 26% of the population lives in urban areas. Only Hanoi, Ho Chi MinhCity and Haiphong have populations of more than 1m. Although these citiesare also the main industrial centres, a number of smaller towns havespecialised in particular industries, such as silk, porcelain or furniture. This maybe because of tradition, proximity to the required natural resources, “external”economies of scale (such as a good supply of specialised local skilled labour),or the wartime policy of dispersing industry. Most other small towns havegrown up as market and agro-processing centres.

Economic sectors

Agriculture

Although Vietnam is still a predominantly an agricultural society, cultivatedland is scarce, amounting to just 0.12 ha per head, one of the lowest rates in theworld. Only about 20% of the land is arable, and another 6% is devoted topermanent crops. Some of the remaining land may have potential, but most ofit has been degraded by soil erosion, usually because of deforestation or, in thedeltas, by saline or acid-sulphate conditions. About 70,000 ha per year ofcultivated land is lost to soil exhaustion and urban encroachment. Against thisbackground, it is surprising that the area of land sown to crops (including treecrops) continues to increase, reaching 13.2m ha in 2004, up from around 10m hain the early 1990s. Of the total cultivated area, 57% is devoted to rice and afurther 25% is sown to other annual crops, with the remaining 18% being givenover to perennial crops. About 20% of the increase in land area has been usedto grow perennial industrial crops, such as rubber, cashew nuts, tea and coffee,and 30% comes from additional paddy land that has become available as aresult of investment in irrigation.

Two important means of increasing output are by raising cropping intensity andby boosting yields. Cropping intensity is high: in 2003 a typical hectare of riceland supported 1.83 crops of rice. Double cropping of rice is almost universal inthe Red River Delta, and a third crop, such as sweet potatoes, is often planted.

Rice yields have more than doubled since the disastrous year of 1978, whenthey averaged 1.79 tonnes/ha. By 2004 the yield of paddy rice had risen to anaverage of 4.8 tonnes/ha, reaching 5.8 tonnes/ha in the Red River Delta and4.9 tonnes/ha in the Mekong Delta. The use of (mainly imported) chemicalfertiliser per cropped hectare has risen, such that fertiliser applications are nowat a higher rate than in Indonesia but still well below that in China. The rise in

Some smaller towns havespecialised economically

Cropping intensity and yieldshave increased

Rice yields remain high

34 Vietnam


yields has allowed Vietnam to maintain its position as one of the world’s topthree rice exporters for almost a decade, and was one of the most immediatepay-offs from the thoroughgoing reform of the rural economy undertakenin 1989.

The area planted to coffee rose rapidly from 101,000 ha in 1993 to 565,000 ha in2000, before declining to 503,200 ha in 2004. Coffee output followed the sametrajectory, rising from 136,000 tonnes in 1993 to 841,000 tonnes by 2001 beforeslipping back to an average of around 780,000 tonnes a year in 2002-04. Mostof this coffee, which is almost all of the lower-priced robusta variety, isexported. In 1997 Vietnam overtook Indonesia to become the largest coffeeexporter in Asia; in 2000 it became the second-largest exporter (by volume) inthe world, after Brazil. Coffee exports reached 974,800 tonnes in 2004, up froman average of around 785,000 tonnes a year in 2000-03. However, this rapidgrowth contributed to plummeting global coffee prices. In a bid to cut outputand so boost prices, the government set a target (which now appearsunattainable) of reducing the area under coffee cultivation to 400,000 ha byend-2005. Vietnamese firms have increasingly moved into downstreamprocessing, making substantial investments in roasting and in the production ofinstant coffee.

The output of most industrial crops was stagnant until about 1994, whenoutput of sugarcane (which recorded 16% annual growth in 1994-99) andsoybeans increased strongly. Cotton output rose sharply in 1998, but the growthmomentum has not been maintained. Output of the minor crops jute andrush has been largely stagnant. The area planted to perennial industrial cropsexpanded rapidly during the 1980s, with coffee clearly the best performer.

• Tea. Vietnam produced 87,500 tonnes of tea in 2004, up from around70,000 tonnes in 2000 but less than the high of 99,716 tonnes in 2002. Teaexports rose sharply in 2004 to 99,400 tonnes, up from only 55,700 tonnes in2000. The state-owned Vietnam Tea Corporation, or Vinatea, aims to bring inUS$200m in export revenue from tea by 2010 from exports of 150,000 tonnes.

• Rubber. Rubber cultivation has benefited both from an expansion in thecultivated area, from 180,000 ha in 1985 to 450,000 ha by 2004, and from thereplanting of land with new high-yielding varieties, often with assistance fromMalaysia and Taiwan. Yields have now risen remarkably, from 0.27 tonnes/ha in1985 to 0.89 tonnes/ha in 2004, and the quality of rubber produced hasimproved. Rubber output reached 400,100 tonnes in 2004, more than four timesthe level recorded in the early 1990s. Officially recorded exports rose to 513,300tonnes in 2004, rising from an annual average of 367,000 tonnes in 2000-03.However, substantial (although unknown) quantities were also smuggled intoChina, in order to evade import duties there.

• Sugarcane. Although processing capacity has trebled to 70,000 tonnes ofcane per day since 1994, the result of a government programme aimed atmaking Vietnam self-sufficient in sugar production, the area under cultivationreached 320,000 ha in 2002, up from 166,000 ha in 1994, but dropped to

Output of industrial cropsrises rapidly

The area under coffeecultivation begins to fall

Vietnam 35


287,000 ha in 2004. Sugar output reached a record 1.2m tonnes in 2003 beforedropping to 1.1m tonnes in 2004, when drought hit parts of the country.

Rising affluence and population growth of around 1.4% per year has increasedthe demand for meat. The number of pigs rose to around 26m in 2004 fromaround 16m in the mid-1990s, and the quality of pig meat has improved. Poultrymeat output has also risen rapidly, with the number of poultry birds reachingaround 255m in 2004, compared with around 150m in the mid-1990s. However,poultry stock fell sharply in 2004 as Vietnam was hit by the virulent H5N1strain of avian influenza (bird flu). Since December 2003, 46m birds, around20% of the poultry stock, have been culled in an effort to curb the spread ofthe virus.

Bird flu remains a problem

In March 2004, despite World Health Organisation (WHO) warnings, thegovernment declared the avian influenza (bird flu) epidemic over. Infected birdswere found again in July 2004, and have since reappeared from time to time, mostrecently in June 2005. The government has been subsidising farmers whose birdshave been destroyed by paying them the equivalent of 50-75% of their losses, andthis has generally made farmers less reluctant to report cases of the virus.The government’s campaign to eliminate bird flu is having some success, however,and the disease is receding in poultry. The government can now react quickly toreports of the virus: within a day of identifying an outbreak among birds in a districtof the southern province of Ben Tre in early June 2005, a total of 6,000 birds weredestroyed, the farm concerned and its surroundings were chemically sterilised andsamples were taken from nearby flocks. The Ministry of Agriculture and RuralDevelopment (MARD) has extended its ban on egg incubation and on building newflocks of quail and waterfowl until February 2006, and it has extended its ban onpoultry farming in 15 cities and provinces, including the capital, Hanoi, and Ho ChiMinh City.Vietnam started a compulsory poultry vaccination programme in late July, with pilotprogrammes commencing in Nam Dinh in the north and Tien Giang in the south.MARD plans to review these pilot programmes before expanding the vaccinationscheme to other areas.

Environmental concerns have curbed the output of timber and timberproducts, and in 1997 around 300 state-owned forestry companies were shutdown. In an effort to discourage timber production, the government bannedthe export of logs in 1992 and of all timber products in 1993 (although the latterban was lifted in 2001). Subsequently, exports of timber and timber productsfell from 780,000 cu metres in 1991 to 40,000 cu metres in 1994. Timberremovals peaked at 2.8m cu metres in 1996, falling to 2m cu metres by 1999,and are now officially limited to 900,000 cu metres annually. In recent yearsthe value of forestry sector output has been expanding steadily (at constantprices) at around 1% a year, and the gross annual output of wood has remainedstable at around 2.4bn cu metres in 2000-04.

A coastline of more than 3,000 km and a network of rivers, canals, lakes andponds give Vietnam abundant aquatic resources. Real fisheries output has risen

Demand for meat grows

Forestry output stabilises

The fisheries sectorremains buoyant

36 Vietnam


by an annual average of around 8% over the past few years, with particularlyrapid gains in freshwater aquaculture output and shrimp production. Thevaluable shrimp farms are concentrated in the Mekong Delta region, andparticularly in the southernmost province of Ca Mau. Exports of fish andshellfish have increased from around US$240m in 1990 to US$2.4bn in 2004,making them Vietnam’s fourth most valuable export. This is despite theimposition of anti-dumping duties on Vietnam’s exports of catfish and shrimpto the US.

The US-Vietnamese catfish and shrimp sagas

In June 2003 the US Department of Commerce (DoC) upheld an earlier decision toimpose punitive tariffs of up to 64% on Vietnamese catfish exports. Until a few yearsago domestic producers supplied most of the US$590m US market for catfish. ButVietnamese exporters have rapidly increased their share of the market, withshipments rising from 3.2m kg in 1999 to 21m kg by 2002. Stung by this rise in low-cost competition, US producers tried a number of tactics. First, they persuaded theUS Congress (legislature) to restrict the use of the word “catfish” to US-raised fish.This had little effect. The Vietnamese product, renamed basa or tra, continued toflow into the US. Next, US producers responded by filing an anti-dumping petition.The US International Trade Commission (ITC) found evidence that the imports fromVietnam had caused “material harm”. On January 27th 2003 the DoC made apreliminary recommendation of import duties ranging from 38% to 64%. The DoCalso ruled that Vietnam had a “non-market” economy, so that the true cost of raisingcatfish could be established only by comparing its export prices with those of othercountries (in this case, Bangladesh and India). Vietnamese producers have respondedby aggressively pursuing other markets, especially Japan, and catfish exports actuallyrose by 90% in 2003.The outcome of the catfish case emboldened US shrimp producers, which inDecember 2003 filed an anti-dumping lawsuit against six shrimp-exporting countries:Vietnam, China, Thailand, Brazil, India and Ecuador. (Over four-fifths of shrimpconsumed in the US are imported.) In February 2004 the ITC ruled that there was a“reasonable indication” that some imports of low-cost shrimp were hurting USshrimp producers. Faced by uncertainty, Vietnamese exports of shrimp to the US fellby 30% in 2004. However, in early 2005 the DoC set the tariffs at 4.57% for mostVietnamese exporters, a low level compared with the average tariff of 53.7% imposedon Chinese exporters. By mid-2005 shrimp exports to the US were growing rapidlyonce again.

Mining and semi-processing

The prospects for gas are promising. In late 2000 the government approvedthe main elements of an ambitious project to build a 399-km pipeline to bring195m cu ft/day (2bn cu metres/year) of gas onshore from the Nam Con Sonbasin to feed a combined power and urea plant, Phu My, which is located onthe coast in the southern province of Ba Ria-Vung Tau. Gas from the basin cameon stream in late 2002, and in its first year in operation the Nam Con Sonpipeline brought onshore around 800m cu metres of gas. During the first stageof the project around 2.7bn cu metres of gas will be brought onshore annually,

Natural gas output from NamCon Son basin grows rapidly

Vietnam 37


possibly rising to more than 7bn cu metres by 2007, in line with thedevelopment of the Phu My industrial zone. The Nam Con Son gas project isoperated by a consortium of UK-based BP, ONGC Videsh of India andConocoPhilips of the US, along with the state-owned Vietnam Oil and GasCorporation (PetroVietnam). Natural gas reserves in the Nam Con Son basin areestimated at nearly 60bn cu metres.

Crude oil output has risen steadily since production began in 1984, reaching20m tonnes in 2004, compared with 7.6m tonnes in 1995. Output was boostedin October 2003 when the Su Tu Den (Black Lion) oilfield came on stream; itscontribution initially offset the decline in output from Vietnam’s major oilfields,Bach Ho (White Tiger) and Rong (Dragon), but significant increases in output arenot expected in the next few years. Crude oil is Vietnam’s leading export,earning US$5.7bn (21% of export earnings) in 2004. Imports of petroleumproducts amounted to US$3.6bn in the same year. The World Bank estimatesVietnam’s potential oil reserves at 270m tonnes; other sources put the total atclose to 500m tonnes.

Vietnam’s refining capacity is limited to a small (800 barrels/day) facility at CatHai, near Ho Chi Minh City. Work has begun on an oil refinery with a capacityof 130,000 b/d at Dung Quat, 970 km north of Vung Tau (where the oil comesashore), in central Vietnam. The total projected cost of the project has risen toUS$2.5bn, and in May 2005 a consortium led by Technip (France) signed aUS$1.5bn contract to build the core of the refinery. Construction is expected tobe completed by 2008. The refinery will be run by PetroVietnam, after twoconsortia turned down the project when they found it not to be economicallyviable, in part owing to its poor location. The refinery has been subject todelays, owing partly to managerial corruption in PetroVietnam; the director-general of the company was sacked in 2003 over accusations of corruption.

There are also plans for two more refineries. Construction of the US$3bn NghiSon refinery, which will have the capacity to process 7m tonnes of crude oil ayear, is planned to commence in 2006 in the northern province of Thanh Hoa.More recently, in late 2004 the government approved plans for a refinery in thecentral province of Phu Yen. This US$400m refinery, which will be whollyowned by Russia’s Technor Star, will be capable of processing 3m tonnes ofcrude oil a year.

Coal is the main form of commercial energy after oil, meeting about 25% ofprimary energy needs (excluding biomass). Almost all of the coal produced ishigh-quality anthracite. Reserves of anthracite alone are estimated at3.7bn tonnes, mainly in the north-eastern province of Quang Ninh. Outputreached 26.3m tonnes in 2004, up from 8.4m tonnes in 1995. About one-third isexported, and most of the rest is used in power stations. Coal dust is formedinto briquettes, which are inexpensive and are widely used as fuel for cookingin towns in the north.

Commercially significant quantities of coal, iron ore, apatite, chromite, rubiesand gold are mined. There are also reserves of manganese and titanium ore,bauxite, tin, copper, zinc, lead, nickel, graphite and mica. Reserves of iron ore

Vietnam has a wide arrayof minerals

Crude oil output is buoyant,but refining capacity is limited

Coal meets around 25% ofprimary energy needs

38 Vietnam


are estimated at nearly 560m tonnes, but are too rich in zinc to becommercially viable. Reserves of apatite (a source of phosphorus used in themanufacture of fertiliser) are close to 1bn tonnes. The Soviet Union developedthe exploitation of Vietnam’s apatite, which is now being produced at a rate ofaround 470,000 tonnes/year. Bauxite and copper are regarded as having greatpotential. Bauxite (with estimated reserves as high as 8bn tonnes) is found inthe north and centre of the country; the government is actively considering atleast two large (US$1.5bn) proposals to develop the reserves in the CentralHighlands, including one from Chalco (China) and another from BHP Billiton(Australia).

Copper mining has not been developed, but could become significant (there areestimated reserves of nearly 600,000 tonnes). In 2004 a Canadian mining firm,Tiberon Minerals, received permission for a US$147m project to exploit theworld’s largest deposit of tungsten ore, in the northern province of ThaiNguyen. The project is expected to come on stream in late 2006, and has aprojected life of 30 years.

Manufacturing

Manufacturing accounted for around 20% of current-price GDP in 2004, upslightly from 18.6% in 2000. The sector has continued to record strong growth inrecent years, with annual average growth standing at around 11% in 2000-04.However, the state’s dominance of manufacturing has continued to decline. In2004 the state accounted for around 35% of the total value of manufacturingoutput, down from 43% in 2000. The non-state sector (collectives, privateenterprises and households) saw its share of manufacturing output rise to 32%in 2004 from 27% in 2000, while foreign-invested enterprises accounted for 33%in 2004, up from 30% in 2000.

Vietnam’s manufacturing base is fairly broad. Food products and beveragesaccounted for around 25% of the total value of manufacturing output in 2003,down from around 30% in 2000. Other important subsectors includemanufacturing of textiles and apparel (around 10% of the total in 2003),assembly and repair of motor vehicles and other transport equipment (9.5%),chemicals and chemical products (6%), fabricated metal products (5.2%), leatherproducts (5%), furniture (4%), electrical machinery and apparatus (3.4%) andradio and communication equipment (2.8%).

Assemblers of motorcycles have recorded strong growth in recent years. In2004 around 1.6m units were assembled, up from only 463,400 in 2000. Themotorcycle assembly sector, which comprises more than 50 firms employing25,000 workers, is dominated by seven large foreign-invested firms, includingHonda Motor and Yamaha of Japan and the Taiwan-invested VietnamManufacturing and Export Processing Company (VMEP); together theyproduced 1.2m units in 2004, up from only 309,000 units in 2000. In April 2005the government quietly removed the ceilings on the number of motorcyclesthat foreign-invested firms are allowed to produce. Many of the smaller localfirms assemble motorcycles using Chinese parts, but some of these firms arenot expected to survive. Reflecting the expansion in locally sourced parts, in

The manufacturing sectorrecords strong growth

Buoyant demand fuelsmotorcycle assembly growth

Vietnam 39


2004 imports of unassembled motorcycle kits totalled US$412.8m, down fromaround US$787m in 2000. However, imports of assembled units rose toUS$39.4m in 2004 from only US$200,000 in 2000.

Multinational manufacturers of cars and trucks established production bases inthe mid-1990s in the expectation that the combination of a large population,rapid economic growth and few cars, trucks or competitors would lead to rapidsales growth. However, demand has not matched these high hopes, and alllocal assemblers suffer from overcapacity and high production costs. There are11 joint ventures assembling vehicles, which together form the VietnamAutomobile Manufacturers Association (VAMA) and have a combinedproduction capacity of around 150,000 units. VAMA members, which includeToyota Motor of Japan and two of the “big three” US manufacturers, Ford andGeneral Motors (GM), have invested around US$575m in assembly plants, butthey continue to struggle to achieve economies of scale. Part of the problemstems from the government’s taxation policy. Locally assembled cars bear aspecial consumption tax (SCT) of 40%, which is set to rise to 80% by 2007, andassemblers have to pay substantial tariffs on imports of parts (on average, just15% of the components used by local assemblers are produced in Vietnam).

After a prolonged lull in the late 1990s, VAMA’s sales more than doubled yearon year to around 14,000 units in 2000. Annual sales volumes continued torise in 2001-03, reaching over 42,500 units in 2003, before falling back to justover 40,000 units in 2004.

Foreign-invested enterprises dominate the vehiclemaking sector, accounting fornearly 90% of total output in 2004. The state sector accounted for around 8% oftotal production in 2004, while the non-state sector’s share was only 2% in thatyear. As a result, the government remains intent on strengthening domesticplayers in the industry.

Vietnam’s textile and garment manufacturers have enjoyed healthy growth inrecent years. The value of textile output (at constant prices) grew by an annualaverage of around 15% in 2000-04, while garment output rise by an annualaverage of 20% during the same period. Most of this output is exported. Owingprimarily to easier access to US markets following the implementation of theUS-Vietnam bilateral trade agreement in late 2001, Vietnam’s textile andgarment exports have risen rapidly, reaching US$4.4bn in 2004, up fromUS$1.9bn in 2000. However, until Vietnam becomes a member of the WorldTrade Organisation (WTO), its exports of textiles and garments to the US willremain subject to quotas, thereby hampering export growth. (The EU andCanada agreed to eliminate quotas on Vietnamese exports of textiles andgarments from January 1st 2005.) In 2004 Vietnamese producers shipped nearlyUS$2.6bn worth of textiles and garments to the US, according to the US CensusBureau. Reflecting the more intense competition from China since thebeginning of 2005 following the expiry of the WTO’s textile export quotasystem, Vietnam’s garments exports to the US have fallen sharply. Anotherproblem facing garment exporters in the current trading environment is theinefficient distribution of quotas. The Ministry of Trade allows quotas to be

Carmakers suffer fromovercapacity

The garment and footwearsectors falters

40 Vietnam


transferred among firms, but the procedures are cumbersome, slow and opento corruption. Moreover, quotas can be expensive to purchase.

Footwear manufactures have also struggled in the increasingly competitivetrading environment in recent years, particularly vis-à-vis Chinese competition.Production levels and exports, however, continue to rise. In 2004 Vietnamproduced 141m pairs of shoes and other footwear, up from around 108m in2000, and the value of footwear exports reached US$2.7bn in 2004 comparedwith US$1.5bn in 2000. Although Vietnam’s shipments of footwear to the USrose by 43% year on year to US$153m in the first four months of 2005, exportsto the EU, Vietnam’s major export market for footwear, fell by 7.5% in the sameperiod, in part owing to downward pressure on prices from Chinesecompetitors. As a result of the greater level of competition in the US and EUmarkets, footwear exporters have been seeking to accelerate sales growth inother markets, such as Japan.

The woodworking industry continues to thrive, with exports reaching US$1.1bnin 2004 compared with around US$295,000 in 2000. Furniture makers haverapidly expanded their output in recent years; annual output value growth (inconstant prices) in 2000-04 averaged 25%. The industry is strong in the CentralHighlands provinces of Daklak and Gia Lai and in the southern industrialprovince of Binh Duong; there are an estimated 2,000 wood processors, 300 ofwhich export some of their output. Allegations in the US of dumping byChinese producers has led buyers to turn to other sources, including Vietnam.As a result, Vietnam’s shipments of furniture to the US are estimated to havedoubled in 2004 to around US$170m. Vietnamese furniture makers have beenurged to cater for niche markets in the US in order to avoid anti-dumping suits.

Local electronic goods manufacturers and assemblers are enjoying success inbuilding up overseas markets. Annual output growth has been impressive, atan average of 25% in 2000-04. In 2004 electronic goods exports jumped toUS$1.1bn, compared with US$855m in 2003 and US$605m in 2002. Accordingto the vice-chairman of the Vietnam Electronics Industry Association (VEIA),the main factor contributing to this impressive growth in recent years has beenintensive promotional campaigns. VEIA has been active in organising pro-motional tours to a number of countries, including Taiwan, and it has alsofacilitated the establishment of ties with electronics associations in othercountries.

Despite this progress, local assemblers, mostly foreign-invested firms, haveraised concerns over tariff rates applied to imported components. Under theterms of Vietnam’s membership of the Association of South-East Asian Nations(ASEAN) Free-Trade Area (AFTA), by 2006 tariffs on imported components fromASEAN states—and more specifically, those components with at least 40% oftheir original parts manufactured in ASEAN countries—will fall to 5% or lower,from current rates up to 20%. However, most of Vietnam’s imported electronicscomponents are sourced from China, Taiwan, South Korea and Japan, andtariffs on these imports, currently up to 30%, are not scheduled to be lowered.Leading players in the industry are putting pressure on the government tolower tariffs on imported components from non-ASEAN states.

The woodworkingindustry thrives

The electronics sector enjoysstrong growth

Vietnam 41


Construction

With annual growth of 14.6% between 1990 and 1997, the construction sectorgrew more rapidly than industry. It was one of the first sectors to be hit by theAsian financial crisis of 1997: output rose by only 0.9% a year between 1997 and1999. Since then, annual growth has averaged around 10%. The sectoraccounted for 6.3% of GDP in 2004, up from 4% in 1991.

Residential construction remains robust in the crowded but fast-growing cities.Little housing was built in the north in the 50 years to 1990, with the result thatthere was pent-up demand for housing there. In Hanoi there was just3.7 sq metres of floor space per resident in 1997, down from 6.5 sq metres in the1950s and well below the Ho Chi Minh City level of about 5 sq metres. Over95% of residential investment is undertaken privately.

Spending on infrastructure, particularly roads, continues unabated, financed inlarge measure by a steady inflow of aid. The first boom in hotel and office-block construction has now passed, but with occupancy rates rising, developersare again entering the office building market. Among current developmentplans, there are proposals to build a US$100m, 68-floor financial tower in HoChi Minh City and a US$115m, 65-story complex in Hanoi.

Much of the construction in Vietnam has been undertaken at the behest ofministries and local authorities, some of it illegally without prior authorisationfor financing from the Ministry of Finance. In 2003 the government announcedthat it would not reimburse ministries and local authorities for illegalconstruction. This has created a problem for construction firms, which financedmuch of the work using bank loans; and this in turn creates a problem for thestate-owned commercial banks, which risk seeing these loans turn sour.

Financial services

Before 1988 the banking system consisted of the State Bank of Vietnam (SBV,which was both the central bank and the main commercial bank), the Bank forForeign Trade (BFT) and the Construction and Investment Bank, whichimplemented the government’s capital budget. Under the reorganisation ofJuly 1988 the SBV’s central banking functions were strengthened and itscommercial banking role was assigned to two specialist banks: the VietnamAgricultural Bank (VAB) and the Vietnam Industrial and Commercial Bank(VICB). The SBV has also gradually relinquished its micro-management ofthe banking sector; in mid-2001 it removed the restrictions on foreign-currency lending rates and in mid-2002 lifted the controls on dong deposit andlending rates.

Since 1988, and more rapidly since 1992, Vietnam has moved to a diversifiedsystem in which state-owned, joint-stock, joint-venture and foreign banksprovide services to a broader customer base. However, the four main state-owned commercial banks (SOCBs)—the Bank for Investment and Developmentof Vietnam (BIDV), the Bank for Foreign Trade (Vietcombank), the Bank forIndustry and Commerce (Vietincombank) and the Bank for Agriculture and

Growth in the constructionsector picks up again

Despite some diversification,SOCBs remain dominant

42 Vietnam


Rural Development (VBARD)—account for around 70% of all loans. The SBV hassuggested that the SOCBs be partly privatised and floated on the stockexchange, starting with Vietcombank. In 2004 Vietcombank made a profit ofD2trn (US$127m) on deposits of D88.5trn, making it the third-largest bank (byassets) in the country. The net worth of the bank was booked at D7trn at theend of 2004. It is now expected that Vietcombank will be equitised in 2006.

The number of joint-stock banks peaked at 51 in 1996, but has since fallen to 38.The SBV expects the number to fall further, to 25-30, as it moves to consolidatethe weakest ones, concerned about the large amounts of non-performing loanson the books of some of these banks. Reflecting the vast potential forexpansion in Vietnam’s banking sector, foreign banks are keen to expand theirinterests by buying shares in local joint-stock commercial banks. In early 2005the two largest joint-stock commercial banks, Saigon Thuong Tin CommercialBank (Sacombank) and Asia Commercial Bank (ACB), agreed to sell shares toforeign banks. In March 2005 Australia’s ANZ acquired a 10% stake inSacombank, and in June the UK’s Standard Chartered agreed to buy an 8.56%stake in ACB for US$22m.

Although most joint-stock banks are too small to attract foreign investor interest,they are keen to attract foreign investors in order to expand their capital base, inaddition to improving their management expertise. Sacombank, which is thelargest joint-stock commercial bank in the country, continues to expand. Itraised its legal capital from D740bn to more than D1trn (US$65m) in May 2005,based on additional contributions by more than 6,000 shareholders. ACBexpanded its chartered capital to D950bn, from D600bn before, following thedeal to issue additional shares to Standard Chartered.

Local banks currently dominate lending activity. In 2003 foreign banks’ share oflending stood at 7.6%, down from 8.4% in 2002 and 10.2% in 2001. Foreignbanks are heavily restricted in what they can do (for example, there arerestrictions on the amount of dong deposits they can take), and this hascontributed to their small market share. However, since December 2004 USbanks have been allowed to take dong deposits from companies up to a limitequal to 400% of a bank’s legal capital (the previous limit was 250%). Theserestrictions will be eased further over the next few years. EU banks have alsobeen allowed to operate under the same restrictions as US banks with effectfrom March 1st 2005, but for other foreign banks the limit for raising dongdeposits remains equal to 50% of the bank’s capital.

The Ho Chi Minh City Securities Trading Centre (HSTC), which was launchedin July 2000, remains a minor source of investment finance. Only 30companies are currently listed on the exchange, and market capitalisation inAugust 2005 was around D4.4trn, equivalent to 0.6% of GDP. Share pricessoared in the early years, with the VN index (which started at 100) peaking at571 in June 2001 before returning to more realistic levels in 2002 and falling to145 in August 2003. The stockmarket picked up again in 2004, and in August2005 the VN index stood at around 250 points. Few companies have beenwilling to list on the fledgling stockmarket, owing to concerns about revealing

Stockmarkets are a minorsource of investment

Joint-stock banks attractforeign interest

Foreign banking operationsremain limited

Vietnam 43


the true state of their finances. Firms that list on the stock exchange have tomeet strict disclosure and accounting requirements. They must also have acapitalisation of at least US$700,000, and must have been profitable for twoyears before they can be listed. No such rules apply to the vigorous unofficial“over-the-counter” (OTC) market, in which stock in around 1,000 companies istraded. The total market capitalisation of the OTC market is believed to beabout US$1bn.

The HSTC also serves as a trading floor for government bonds in investmentfund certificates. The stockmarket now has around 24,000 accounts, up from3,000 in its first year of operations. Another trading centre, the Hanoi SecuritiesTrading Centre, began operating in March 2005, to provide an OTC market, buttrading so far has been minimal.

The insurance sector in Vietnam is small compared with other Asian countries,with insurance premiums accounting for an estimated 2% of GDP in 2004.Although coverage remains low, the insurance sector has expanded rapidly. In2004 total annual premiums reached D12.5trn, up from only D4.5trn in 2001,according to the insurance department of the Ministry of Finance. Most of thesefunds are invested domestically in government bonds, listed companies with astrong performance record, and real estate. Around 62% of premiums by valuein 2004 were in the life insurance sector. This expansion has primarily been inline with the growing presence of foreign competitors, which has spurred localfirms, particularly the state-owned market leader, Vietnam Insurance Cor-poration (Bao Viet), to become more competitive.

In the life insurance sector, Bao Viet only narrowly retained its position asmarket leader in 2004, with a 40.1% market share (down slightly from 41% in2003), followed by the UK's Prudential, with 40% (up from 38% in 2003).Smaller shares were accounted for by Manulife (Canada), with 11.7%, AIA of theUS with 5.6%, and a joint venture, Bao Minh-CMG, with 2.8%. Bao Viet alsocontrolled 41% of the non-life insurance market, followed by HCM CityInsurance (Bao Minh) with 25.2%.

Other services

Despite the devastating impact on the tourism industry of the outbreak ofSevere Acute Respiratory Syndrome (SARS) in early 2003, the push to attractforeign tourists since 1986 has paid off. The number of international arrivals(including holidaymakers, business people and overseas Vietnamese visitingtheir families) rose from 1.6m in 1996 to 2.6m in 2002. Numbers then dipped to2.4m in 2003, before recovering to 2.9m in 2004. The largest source of visitorsremains China, which accounted for 27% of the total in 2004, followed by theUS, Taiwan and Japan, each accounting for around 9%. Domestic tourism hasalso been increasing rapidly, with around 16.5m domestic tourists in 2004, upfrom less than 8m in 2000, as travel within the country is becoming easier anddisposable incomes are rising. The boom in tourism prior to the SARS outbreakwas in part owing to Vietnam’s newly acquired image as a haven of stability ina turbulent region. There has also been a significant improvement in the choice

The insurance industryexpands rapidly

The tourism industry remainsbuoyant, despite setbacks

44 Vietnam


and quality of resort hotels, even in relatively out-of-the-way places such asSapa in the northern mountains and Hoi An on the central coast.

Although the SARS outbreak, and more recently the outbreaks of avianinfluenza (bird flu), had a negative impact on tourism, the government hasimplemented a number of changes in recent years that have supported theindustry's growth. For example, visa exemptions have been put in place forvisitors from six ASEAN member countries and Japan. In addition, the state-owned national carrier, Vietnam Airlines, has begun to operate services toFrance, South Korea, Japan and Germany, and direct flights are now availablefrom the US, operated by the US’s United Airlines.

The external sector

Trade in goods

Foreign trade, 2004(US$ m)

Merchandise exports fob 26,504

Merchandise imports cif 31,954Trade balance -5,450


Before the reforms of the late 1980s, export earnings covered only 30-50% ofimports. This reflected US-led embargoes on trade and finance, theovervaluation of the dong and an inward-looking economic policy undercentral planning. However, following a series of reforms, such as adjustments tothe official exchange rate and the decentralisation of foreign trade, exportssurged. During 1991-97 the US-dollar value of exports grew at an annual averagerate of 30%. Growth slowed to 2% a year in 1998 in the wake of the Asianfinancial crisis, but rebounded to 24% annually in 1999-2000 before slowingagain to 4.5% when the world economy flirted with recession in 2001.However, growing access to new markets for textiles, garments and footwear, aswell as for commodities such as rubber, coffee and seafood, and the emergenceof newly competitive products such as bicycles and furniture, have all helped toboost earnings, such that export revenue reached US$26.5bn in 2004, comparedwith US$14.4bn in 2000.

Vietnamese exporters have also taken full advantage of the opening up of theUS market under the two countries’ bilateral trade agreement. In 2002, the firstyear following implementation of the deal, Vietnamese exports to the US morethan doubled, thanks primarily to the cut in US import tariffs under theagreement from an average of 40% to 3-4%. By 2002 the US had become thesingle largest destination for Vietnamese exports.

Exports surge, thanks toreforms and the US trade deal

Vietnam 45


After 1992, when the trade account was nearly in balance at a time of austerity,imports surged past exports. Imports then rose more slowly than exports,reflecting a diminished inflow of foreign investment (and the machinery thataccompanies it), but also a more realistically valued dong and (at times) avariety of administrative measures. Since 2002 merchandise imports havesurged again, rising by nearly 30% year on year in 2003 and 28% in 2004, whenthe total reached US$32bn (on a customs basis). This rise in the value ofimports partly reflected higher world prices for products such as oil and steel,but it also reflects growth in inputs that are needed to fuel Vietnam’s exportboom, as well as the capital goods that underlie the high levels of investment.Rising affluence has also increased the demand for consumer goods, includingcars and motorbikes, which have a high import content.

During most of the 1990s Vietnam’s main trading partners were its fast-growingneighbours, such as Singapore, South Korea, Taiwan and Hong Kong, as well asJapan. As demand from these countries dropped following the regionalfinancial crisis in 1997-98, Vietnam sought to expand its exports to othermarkets—first western Europe, and more recently the US, Australia and China.In 2004 the US was Vietnam’s biggest export destination, accounting for 18.8%of total exports, followed by Japan, China and Australia. At US$1.1bn in 2004,US exports to Vietnam are relatively modest and lag well behind those ofChina, Taiwan, Singapore, Japan and South Korea, each of which shipped atleast US$3bn worth of goods to Vietnam in 2004. These five countriescombined accounted for more than 58% of Vietnam’s imports in 2004. Themost spectacular increase in imports has been in those from China, rising fromUS$400m in 1997 to US$4.5bn in 2004, making China the single largest sourceof imports.

Main trading partners, 2004Exports to: % of total Imports from: % of totalUS 18.8 China 13.9

Japan 13.2 Taiwan 11.6China 10.3 Singapore 11.3

Australia 6.9 Japan 11.1Singapore 5.2 South Korea 10.4Germany 4.0 Thailand 5.8

UK 3.8 Malaysia 3.8


Invisibles and the current account

Vietnam has had sizeable current-account deficits in the past, peaking at 12.8%of GDP in 1995, but in the wake of the 1997 Asian financial crisis, when GDPgrowth slowed, the current account moved into surplus. However, subsequentacceleration in GDP growth, and expansion in imports, resulted in a contractionin the current-account surplus from US$1.3bn in 1999 to US$670m in 2001. Thecurrent account returned to deficit in 2002 in line with the wideningmerchandise trade deficit. In 2003 the deficit stood at US$1.9bn, equivalent to

The current account swingsback into deficit in 2002

Most trade is with Asia, butUS is the biggest export market

Import growth hasaccelerated recently

46 Vietnam


around 4.8% of GDP, and the deficit is estimated to have widened furtherin 2004.

Inflows in the form of services earnings (tourism, shipping and airline services)are important, but Vietnam continually runs a deficit on its services account,which stood at US$778m in 2003. Similarly, the income account remains indeficit, largely in line with the repatriation of foreign investor profits and debtrepayments, with a deficit in 2003 of nearly US$800m. However, remittancesfrom overseas Vietnamese (Viet Kieu) have risen rapidly, helping to push up nettransfers from US$1.3bn in 2001 to US$2.2bn in 2003.

Capital flows and foreign debt

For several years after support from the Soviet Union dried up in the late 1980s,Vietnam received only small amounts of foreign aid. This changed when Japanresumed lending in November 1992 and the US government dropped itsobjections to multilateral lending in July 1993. Since then, new aid pledges,largely in the form of soft loans, have totalled more than US$2bn a year. In 1997aid inflows jumped to almost US$1bn a year, and aid has since risen further,reaching an estimated US$1.3bn in 2004. Some of the loans are on highlyfavourable terms, but a significant proportion go into projects of questionableeconomic worth. The largest single donor is Japan, which has pledged one-thirdof all the aid committed to Vietnam since 1992. About 50 international donors,meeting at the 12th annual Consultative Group forum in December 2004,promised US$3.4bn in aid to Vietnam for 2005. This represents a rise of 21%compared with the amount pledged for disbursement in 2004, and reflectscontinued donor enthusiasm for Vietnam’s development efforts.

Since 1988, when foreign investment was first allowed, Vietnam has attractednearly US$46bn in foreign direct investment (FDI) commitments. Until theAsian financial crisis of 1997, the main sources of foreign investment wereneighbouring countries, particularly Singapore, Taiwan, Hong Kong, SouthKorea and Japan. In 1998-2001, however, the leading sources of newcommitments were European countries, with the largest amounts coming fromRussia in 1998, France in 1999, and the Netherlands in 2000 and 2001. Sincethen, Asian investors have returned to the forefront, mainly with investments inindustrial projects. Gross FDI inflows have recovered in recent years, in linewith strong growth in the regional economy, rising from US$1.1bn in 2000 toUS$2bn in 2002 and US$1.8bn in 2003. In 2005 new FDI commitments rosesharply to US$2.7bn in the first six months of the year, up from the total ofUS$2.2bn committed in 2004 as a whole.

At the end of 2003 Vietnam’s medium- and long-term public and publiclyguaranteed international debt stood at US$14.2bn. Including short-term debtand use of IMF credit, total external debt was US$15.8bn in 2003, equivalent to40% of GDP. Almost all of the hard-currency debt taken on by the public sectorwas incurred at concessional rates, and much of the rest is for loans to foreign-invested projects. After the write-offs and reschedulings of recent years, debtservicing (interest and amortisation) absorbed just 3.4% of annual export

FDI commitmentspick up rapidly

Foreign hard-currency debtis manageable

Official developmentassistance remains robust

Vietnam 47


earnings in 2003, a proportion that is modest compared with nearly 10%in 1999.

Vietnam has followed a sequential approach to settling its debt problems. In1993 it renegotiated its debt with bilateral and multilateral hard-currencycreditors through rescheduling and an estimated US$3.8bn of write-offs. It thenrenegotiated its rouble debts with Poland, Germany (on behalf of the formerEast Germany), Hungary, the Czech Republic, Romania and Bulgaria. In 1996 itreached an agreement with its London Club commercial bank creditors, whichin effect wrote off about one-half of Vietnam’s true obligations to this group.Finally, in 2000 Vietnam negotiated an accord covering its Rb11bn debt toRussia, agreeing to repay US$1.7bn over the next 23 years, with interest at a“market rate”; 90% of the repayments will take the form of provision ofbusiness concessions, goods and services to Russian-owned projects inVietnam. By any standard, the arrangement represents a substantial degree ofdebt forgiveness—as much as 85% if one uses the official rouble:US-dollarexchange rate that was in effect when Vietnam contracted the loans.

Foreign reserves and the exchange rate

Although officially a state secret, Vietnam had gross official foreign-exchangereserves of US$8.3bn in April 2005 (the latest data available), compared withUS$7bn at end-2004 and only US$3.4bn at end-2000, according to the IMF. Thestrength of Vietnam’s foreign-exchange reserves position enabled thegovernment to abolish its foreign-exchange surrender requirement in April2003. Before then, firms were required to surrender 30% of their foreign-exchange earnings to local banks. The requirement, which was introduced inthe wake of the financial crisis in 1997, initially stood at 80% and was intendedto maintain a ready flow of foreign exchange into the banking system.

The significant level of dollarisation keeps exchange-rate and monetary policyin line, because unwise decisions would quickly lead to a flight into US dollars.Although the dong is not freely convertible, there is a kerb market that becomeshighly active when the official rate appears to be out of line. Before the doi moireforms of the late 1980s, the government set an official exchange rate bydecree; the black-market exchange rates often diverged widely from the officialrate. A series of devaluations until 1991 essentially unified the two exchangerates. Except for a period in the second half of 1991, when the dong plummetedunder inflationary pressure, the State Bank of Vietnam (the central bank)maintained a “managed float” until early 1997, keeping the nominal exchangerate at about D11,000:US$1. Concern over the rapidly escalating trade deficit ledto a 4% devaluation in March 1997. This was followed by further nominaldevaluations totalling 16% in order to maintain the competitiveness ofVietnam’s exports relative to those of neighbouring countries, whose currencieshad undergone far larger depreciations. Even so, the real effective exchange rateappreciated by 19% between 1995 and 1998.

The dong is devalued tomaintain competitiveness

Reserves continueto strengthen

48 Vietnam


In February 1999 the government scrapped the pegged exchange-rate system infavour of a crawling peg, to allow the dong:US-dollar exchange rate to adjustgradually to changed market conditions. In principle, the official exchange ratecan drift alongside the interbank market rate (in which banks exchange dongfor foreign exchange among themselves), but the interbank market rate itselfcannot deviate from the official rate (which is set by the central bank every day)by more than 0.25% per day. (The central bank widened the trading band from0.1% to 0.25% in July 2002.) The interbank market is thin and sometimescompletely dormant (banks avoid using it because of the high fees involved). Ittook almost a year for the crawling-peg mechanism to gain acceptance andbegin to work as expected, but by mid-2000 it had begun to allow for thenecessary flexibility. From an average of D14,168:US$1 in 2000 the nominalvalue of the dong dropped to an estimated average of D15,740:US$1 in 2004.

A crawling peg is introducedin 1999

Vietnam 49


Regional overview

Membership of organisations

The Association of South-East Asian Nations was established in 1967. The fiveoriginal members were Indonesia, Malaysia, the Philippines, Singapore andThailand. Brunei joined in 1984, as did Vietnam in 1995, Laos and Myanmar in1997 and, most recently, Cambodia in 1999.

ASEAN summit meetings, which bring together the heads of government ofmember states, must now be held every three years. The most recent was inIndonesia in 2003. Informal summits of heads of governments are also held. Inaddition, the foreign and economic affairs ministers of member countries meetannually. Joint meetings of foreign and economic affairs ministers are held beforeeach ASEAN summit. There is also a standing committee (consisting of themembers' accredited ambassadors to the host country), which usually meets everytwo months. There is a permanent secretariat, based in the Indonesian capital,Jakarta, and a number of committees.

The organisation started with some grand objectives, but has failed to deliver inmost areas, with the possible exception of tariff reform. Early hopes thatASEAN could engineer a regional economic development strategy—withparticular countries concentrating on particular industries—were soon dashed.In 1977 the Basic Agreement on the Establishment of ASEAN Preferential Tariffswas concluded, but a decade later only about 5% of trade between memberswas covered by this system. (Members had been permitted to exclude"sensitive" sectors, a let-out clause that a subsequent agreement in 1987 curtailedonly slightly.)

Plans for a proper ASEAN Free-Trade Area (AFTA) were unveiled in 1992, withthe aim of achieving this by 2008. A common effective preferential tariff (CEPT)scheme was applied in 1993, providing for the gradual reduction of tariffs on intra-ASEAN trade in certain goods over a number of years. Again, however, memberstates could exclude sensitive items, limiting progress. A new AFTA programme,covering a wider spread of products, was launched in 1994. During the mid-1990sthe timescale for implementing the programme was steadily tightened, with theaim of reducing tariffs on most goods to below 5% by 2000. A limited AFTA,between the original six members of ASEAN and involving a reduction of tariffson intra-ASEAN trade to between zero and 5%, came into operation on January 1st2002. (Countries joining recently have been allowed more time.) The momentumfor change has been maintained in recent years. An ASEAN finance ministers'meeting in September 2004 agreed to abolish tariffs in 11 industrial sectorsby 2012.

Before the recent acceleration in tariff reform, ASEAN's slow progress towardsAFTA had encouraged some of its members, notably Singapore, to opt insteadfor bilateral trade pacts. But ASEAN's hopes of further multilateral deals havenot been extinguished. In December 2004 ASEAN and China signed a majortrade deal, which aims to eliminate most tariffs on intra-regional trade by2010 (2015 for the less developed members of ASEAN). Tariffs will not go

Association of South-EastAsian Nations (ASEAN)

50 Vietnam


completely: countries will be able to designate a number of sectors as sensitive,and the greatest liberalisation is therefore likely to occur in areas where Chineseand ASEAN trade is complementary. Tariff reductions in agricultural trade havealready started.

The 1997-98 regional financial crisis exposed ASEAN's failings in other areas ina brutal fashion. The organisation was unable to stop the regional currencydevaluations or alleviate the subsequent economic hardship. A Statement onBold Measures, issued at end-1998, was exactly the opposite of what the titleimplied. Unfolding events in Indonesia then moved the focus on to theorganisation's security plans. ASEAN members' commitment to the principle ofnon-interference in the internal affairs of other member countries complicatedthe response to the crisis in East Timor. (Some members did eventuallyparticipate in the multinational force that intervened in East Timor, but notunder ASEAN auspices.) It has also enabled the ruling military junta inMyanmar to escape strong criticism from the governments of other ASEANmember countries. However, in July 2005 Myanmar gave in to internationaland regional pressure and agreed to forgo its turn to chair the association, thussparing ASEAN embarrassment in its relations with the US and the EU. ThePhilippines will now chair the grouping for one year from mid-2006 inMyanmar’s place. Myanmar's move has created problems of its own, bythrowing the system of a rotating chair into confusion. In another sign that thepolicy of non-interference in domestic issues is becoming more flexible, inAugust 2005 the Indonesian government asked ASEAN countries to providerepresentatives to help monitor progress on the restoration of peace in theprovince of Aceh, in northern Sumatra.

The organisation's political hopes could be severely tested in the next fewyears. Changing governments in member countries could undermine anyremaining pretence of political consensus in the region. On the security front,the ASEAN Regional Forums (ARFs, which bring together the ASEAN ministersof foreign affairs with those of other countries, notably China) are likely toremain little more than talking shops, with negligible impact on changinggeopolitical trends.

APEC started life as a forum for informal discussion between six members ofthe Association of South-East Asian Nations (ASEAN), Brunei, Indonesia,Malaysia, the Philippines, Thailand and Singapore, and their six dialoguepartners in the Pacific, Australia, Canada, Japan, New Zealand, South Korea andthe US. In 1991 China, Hong Kong and Taiwan became members, followed byMexico and Papua New Guinea in 1993, and Chile in 1994. Peru, Russia andVietnam joined in 1998. APEC describes itself as “the primary vehicle forpromoting open trade and practical economic co-operation” in the region, withthe goal of advancing “Asia-Pacific economic dynamism and sense ofcommunity”.

APEC has had a permanent secretariat since 1992, and also runs fourpermanent committees—on budget and managerial issues, on trade andinvestment, on economic trends generally, and on economic and technicalco-operation. In addition, there are 11 working groups—on agricultural technical

Asia-Pacific EconomicCo-operation (APEC) forum

Vietnam 51


co-operation, energy, fisheries, human resources, industrial science andtechnology, marine resource co-operation, small and medium-sized enterprises,telecommunications, tourism, trade promotion and transport. There is also anAPEC business advisory council (ABAC), which includes up to three seniorprivate-sector representatives from each member country. APEC as a whole hasits headquarters in Singapore, while ABAC is based in the Philippines. APEC’smain business is done at annual meetings of member states’ ministers offoreign affairs and economic affairs, which are followed by informal gatheringsof members’ heads of state. Every other ministerial meeting is held in a South-east Asian country. The chairmanship of APEC rotates on a yearly basis.

During the 1990s APEC’s star first waxed brighter and then started to wane. Thehigh point was probably reached in 1994, when members agreed a timetablefor the liberalisation of trade across the region: the ambitious aim was toeliminate all trade barriers by 2020, and then to extend reciprocal concessionsto non-members. Since then APEC has appeared to lose momentum andeffectiveness. APEC’s response to the Asian regional financial crisis in 1997-98lacked substance, and subsequent meetings provided other distractions fromthe trade liberalisation theme: the East Timor crisis in 1999, informationtechnology in 2000 and security issues in 2001. Discussion returned to traderelations in 2002 and 2003, and it was agreed in a very general way to proceedtowards greater trade and investment liberalisation. These commitments werereiterated at the November 2004 meeting, held in the Chilean capital, Santiago.The meeting's communiqué also acknowledged the growing number ofregional and bilateral trading arrangements (without either criticising orcommending them), and touched in the most general way on contemporaryproblems, such as maritime security and HIV/AIDS. The next meeting isscheduled to take place in November 2005 in Busan, South Korea. Theconclusion to be drawn from recent meetings is that APEC is now more aninformal talking shop than a serious regional reformer.

52 Vietnam


Appendices

Sources of information

Communist Party of Viet Nam, Central Committee, Socio-EconomicDevelopment Strategy 2001-2010, 2000

General Statistics Office, Statistical Yearbook (annual)

General Statistics Office, www.gso.gov.vn

Ministry of Planning and Investment, Law on Foreign Investment in Vietnam,2000

Vietnam Economic Times (weekly in Vietnamese; monthly in English), Hanoi

Vietnam Investment Review (weekly in English), Hanoi

Vietnam News (daily in English), Hanoi

Vietnam’s Socio-Economic Development (quarterly), Institute of Economics,National Centre for Social and Human Sciences, Hanoi

IMF, Direction of Trade Statistics (annual)

IMF, International Financial Statistics (monthly)

IMF, Vietnam: 2004 Article IV Consultation, May 2005

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual)

UN Development Programme (UNDP), Human Development Report (annual)

World Bank, Global Development Finance (annual)

World Bank, World Development Indicators (annual)

Dominique and Jonathan Haughton and Nguyen Phong (eds), Living StandardsDuring an Economic Boom: The Case of Vietnam, UNDP and StatisticalPublishing House, Hanoi, 2001

Melanie Beresford and Tran Ngoc Angie (eds), Reaching for the Dream:Challenges of Sustainable Development in Vietnam, Institute of Southeast AsianStudies, Singapore, 2004

Nick Ray and Wendy Yanagihara, Vietnam, Lonely Planet Publications,Melbourne, 2005

Paul Glewwe, Nisha Agrawal and David Dollar (eds), Economic Growth, Povertyand Household Welfare in Vietnam, World Bank, 2004

William J Duiker, Ho Chi Minh, A Life, Hyperion, New York, 2000

Nhan Dan online: www.nhandan.org.vn. The People’s Daily is the leadingnewspaper, and has an informative page that changes daily

International statistical sources

National statistical sources

Select bibliographyand websites

Vietnam 53


UNDP, Vietnam: www.undp.org.vn. Includes UNDP reports, background onUNDP activities, and some trade and other statistical data

Vietnam Embassy in the US: www.vietnamembassy-usa.org. News summariesand practical information on visas

Vietnam News Agency: www.vnagency.com.vn. Publishes the Vietnam News. Agood source for official news. Useful links. Changes daily

The World Bank in Vietnam: www.worldbank.org.vn. May also be accessed viawww.worldbank.org. Includes World Bank reports, details of the role of theBank in Vietnam, and useful links

Reference tablesPopulation(‘000 unless otherwise indicated; annual av)

2000 2001 2002 2003 2004Males 38,166 38,684 39,197 39,755 40,318

Females 39,469 40,002 40,530 41,147 41,714Total 77,635 78,686 79,727 80,902 82,032 Rural 58,864 59,217 59,705 60,033 60,441 Urban 18,772 19,469 20,022 20,870 21,591Population growth rate (%) 1.4 1.4 1.3 1.5 1.4


Employed labour force(‘000; mid-year)

2000 2001 2002 2003 2004Total 37,610 38,563 39,508 40,574 41,586 Agriculture & forestry 23,492 23,386 23,173 23,117 23,026 Fisheries 989 1,083 1,282 1,326 1,404 Industry 3,889 4,260 4,558 4,982 5,294 Construction 1,040 1,292 1,526 1,688 1,923 Wholesale & retail trade 3,897 4,063 4,281 4,532 4,767 Hotels & restaurants 685 700 715 740 755 Transport & communication 1,174 1,180 1,183 1,194 1,202 Education, health, science & arts 1,353 1,416 1,497 1,584 1,657 Other services 1,090 1,184 1,291 1,410 1,557Memorandum itemsState sector 3,501 3,604 3,751 4,035 4,142Non-state sector 33,881 34,598 35,318 36,019 36,814Foreign-invested sector 227 362 440 520 631


54 Vietnam


Transport statistics2000 2001 2002 2003 2004

RoadPassengers (m) 621.3 655.4 699.3 926.2 999.7Passenger-km (m) 23,192 24,238 26,010 29,181 31,731Freight (‘000 tonnes) 141,139 151,483 163,126 175,856 192,563Tonne-km (m) 7,889 8,095 8,650 9,403 10,306

RailPassengers (m) 9.8 10.6 10.8 11.6 12.8Passenger-km (m) 3,200 3,426 3,697 4,069 4,378Freight (‘000 tonnes) 6,258 6,457 7,052 8,385 8,829Tonne-km (m) 1,955 2,054 2,392 2,725 2,791Inland waterwaysPassengers (m) 126.5 133.9 137.7 161.7 166.2Passenger-km (m) 2,137 2,484 2,481 3,282 3,440Freight (‘000 tonnes) 43,015 48,488 52,300 55,259 59,071Tonne-km (m) 4,268 4,672 4,968 5,141 5,592MaritimeFreight (‘000 tonnes) 15,553 16,815 18,492 21,812 24,364Tonne-km (m) 31,245 34,830 40,250 43,513 48,336AirPassengers (m) 2.8 3.9 4.4 4.5 5.6Passenger-km (m) 4,383 6,111 7,101 7,112 8,948Freight (‘000 tonnes) 45 67 72 90 103Tonne-km (m) 114 158 172 211 238


National energy statistics(m tonnes unless otherwise indicated)

2000 2001 2002 2003 2004OutputElectricity (m kwh) 26,682 30,673 35,888 40,546 46,048Crude oil 16.3 16.8 16.9 17.7 20.0Coal 11.6 13.4 16.4 19.3 26.3

ExportsCrude oil 15.4 16.7 16.9 17.1 19.5Coal 3.3 4.3 6.0 7.3 11.6

ImportsPetroleum products 8.7 9.1 10.0 10.0 11.0

Sources: General Statistics Office.

Vietnam 55


Government finances(D trn unless otherwise indicated)

1998 1999 2000 2001 2002Total revenue 73.0 78.5 90.7 103.9 119.0 Oil revenue 14.6 18.5 28.5 35.7 35.4 Non-oil revenue 56.2 57.6 60.2 66.2 81.6 Grants 2.1 2.4 2.0 2.0 2.0Total expenditure 73.4 81.8 102.8 117.3 128.9 Current 52.1 55.1 70.1 72.0 84.9 Interest paid 2.1 2.3 3.5 4.5 6.0 Capital 20.5 26.7 32.6 40.2 44.0Balance (excl on-lending) -0.5 -3.3 -12.0 -13.4 -9.9Financing (net)Domestic -2.8 1.5 5.7 8.6 4.6Foreign 3.3 4.8 6.3 4.8 5.3Memorandum items (% of GDP)Revenue & grants 20.2 19.8 21.1 22.2 22.9Total expenditure 20.4 20.6 23.9 25.6 24.8Budget balance (excl on-lending) -0.1 -0.8 -2.8 -2.9 -1.9

Source: IMF, International Financial Statistics.

Money supply(D trn unless otherwise indicated; end-period)

2000 2001 2002 2003 2004Demand deposits 38.8 46.1 51.1 66.4 88.9Time & savings deposits 47.5 60.3 77.4 133.6 182.4

Foreign-currency deposits 58.5 78.2 81.4 87.4 115.1Broad money (M2) 197.0 250.8 284.1 378.0 495.5 Narrow money (M1) 91.0 112.4 125.3 157.0 198.0 Quasi-money 106.0 138.4 158.8 221.0 297.5Memorandum items (% of GDP)Net foreign assets 21.6 24.3 21.9 21.4 20.5Domestic credit 35.1 39.5 44.8 51.8 60.7


Interest rates(%; period averages unless otherwise indicated)

2000 2001 2002 2003 2004Lending interest rate (%) 10.6 9.4 9.1 9.5 9.7Deposit interest rate (%) 3.7 5.3 6.4 6.6 6.1

Money market interest rate (%) 6.0 4.8 4.8 5.0 5.1


56 Vietnam


Gross domestic product2000 2001 2002 2003 2004

Total (D bn)At current prices 441,646 481,295 535,762 613,443 713,071At constant (1994) prices 273,666 292,535 313,247 336,242 362,092 % change, year on year 6.8 6.9 7.0 7.2 7.7Per head (D ’000)At current prices 5,689 6,117 6,720 7,583 8,693At constant (1994) prices 3,525 3,718 3,929 4,156 4,414 % change, year on year 5.4 5.5 5.7 5.8 6.2


Gross domestic product by expenditure(at current prices; % of total)

2000 2001 2002 2003 2004Private consumption 66.5 64.9 65.1 66.3 65.3Government consumption 6.4 6.3 6.2 6.3 6.4

Total investment 29.6 31.2 33.2 35.4 35.6Net exports of goods & services -2.5 -2.3 -5.2 -8.4 -7.6

GDP (incl statistical discrepancy) 100.0 100.0 100.0 100.0 100.0


Gross domestic product by sector(at current prices; % of total)

2000 2001 2002 2003 2004Agriculture, forestry & fisheries 24.5 23.3 23.0 22.5 21.7

Mining & quarrying 9.7 9.2 8.6 9.3 10.2Manufacturing 18.6 19.8 20.6 20.5 20.3

Electricity, gas & water supply 3.2 3.3 3.4 3.6 3.4Construction 5.4 5.8 5.9 6.1 6.3Wholesale & retail trade 14.2 14.1 14.1 13.6 13.7

Hotels & restaurants 3.3 3.2 3.2 3.1 3.1Transport, storage & communication 3.9 4.0 3.9 4.0 4.3

Financial intermediation 1.8 1.8 1.8 1.8 1.8Real-estate services 4.3 4.5 4.6 4.5 4.4Other services 11.1 11.0 10.9 11.0 10.8


Prices(% change; annual av)

2000 2001 2002 2003 2004General consumer prices -1.7 -0.4 3.8 3.1 7.8


Vietnam 57


Gross output of agriculture(D bn; constant 1994 prices)

2000 2001 2002 2003 2004Cereals 55,163 55,066 59,619 61,029 63,538Vegetables & beans 6,332 6,844 7,771 8,030 8,690

Industrial crops 21,782 23,109 22,247 24,175 25,352Fruit 6,106 6,402 6,895 7,017 7,440

Total incl others 90,858 92,907 98,061 101,786 106,581


Industrial crops2000 2001 2002 2003 2004

JuteArea (‘000 ha) 6 8 10 5 5Yield (tonnes/ha) 2.1 1.9 2.1 2.6 3.0Production (‘000 tonnes) 11 15 20 12 14

RushArea (‘000 ha) 9 10 12 14 13Yield (tonnes/ha) 6.6 6.6 7.2 6.9 7.0Production (‘000 tonnes) 61 65 88 96 89TobaccoArea (‘000 ha) 24 24 27 23 19Yield (tonnes/ha) 1.1 1.3 1.3 1.4 1.5Production (‘000 tonnes) 27 32 33 33 27SugarcaneArea (‘000 ha) 302 291 320 313 287Yield (tonnes/ha) 49.8 50.4 53.5 53.8 55.3Production (‘000 tonnes) 15,044 14,657 17,120 16,855 15,880PeanutsArea (‘000 ha) 245 245 247 244 259Yield (tonnes/ha) 1.5 1.5 1.6 1.7 1.7Production (‘000 tonnes) 355 363 400 406 451SoybeansArea (‘000 ha) 124 140 159 166 183Yield (tonnes/ha) 1.2 1.2 1.3 1.3 1.3Production (‘000 tonnes) 149 174 206 220 242

CottonArea (‘000 ha) 19 28 34 28 27Yield (tonnes/ha) 1.0 1.2 1.2 1.2 1.1Production (‘000 tonnes) 19 34 40 35 30


58 Vietnam


Perennial industrial crops(‘000 tonnes)

2000 2001 2002 2003 2004CoffeeOutput 803 841 700 794 835Exports 734 931 722 749 975RubberOutput 291 313 298 364 400Exports 273 308 455 432 513Cashew nutsOutput 68 73 129 164 206Exports 34 44 62 82 105TeaOutput 315 340 424 449 488Exports 56 68 77 59 99PepperOutput 39 44 47 69 74Exports 36 57 78 74 112CoconutsOutput 885 892 915 893 931


Food crops(‘000 tonnes)

2000 2001 2002 2003 2004Paddy rice 32,530 32,108 34,447 34,569 35,868 Spring 15,571 15,474 16,720 16,823 17,078 Autumn 8,625 8,328 9,189 9,401 10,300 Winter 8,333 8,306 8,539 8,345 8,490Cassava 1,986 3,509 4,438 5,309 5,573Maize 2,006 2,162 2,511 3,136 3,454

Sweet potatoes 1,611 1,654 1,704 1,577 1,536


Livestock(m head)

2000 2001 2002 2003 2004Buffalo 2.9 2.8 2.8 2.8 2.9

Cattle 4.1 3.9 4.1 4.4 4.9Pigs 20.2 21.8 23.2 24.9 26.1

Poultry 196 218 233 255 218


Vietnam 59


Fisheries output(‘000 tonnes unless otherwise indicated)

2000 2001 2002 2003 2004Sea fish 1,661 1,724 1,802 1,856 1,923Farmed fish & shrimp 590 710 845 1,003 1,156

Total 2,251 2,434 2,647 2,859 3,079


Gross industrial output(D trn; constant 1994 prices)

2000 2001 2002 2003 2004Food, beverages & tobacco 43.6 50.4 56.1 64.6 73.6Mining 27.3 29.1 30.3 32.8 38.3Chemicals, incl rubber & plastics 11.1 12.9 14.7 16.3 18.6

Textiles & garments 10.0 10.6 12.3 14.2 16.4Electricity, gas & water 12.9 14.7 17.1 19.4 22.1

Metals & metal products 11.7 13.9 17.0 21.1 25.3Electrical machinery & apparatus 8.0 10.6 12.7 14.6 16.9Vehicles & transport equipment 9.6 11.3 14.3 18.0 19.2

Wood & paper products 3.6 3.9 4.5 5.5 6.6Furniture 3.9 4.8 6.1 7.8 10.0

Machinery & equipment 2.8 3.4 3.7 4.6 5.6Total (incl others) 198.3 227.3 261.1 305.1 354.0


Main manufactures(‘000 tonnes unless otherwise indicated)

2000 2001 2002 2003 2004Raw materials and intermediate goodsSteel 1,583 1,914 2,503 2,954 2,929Chemical fertiliser 1,210 1,270 1,158 1,294 1,452Insecticide 21 24 37 41 44Cement 13,298 16,073 21,121 24,127 25,329Bricks (m units) 9,087 9,811 11,365 12,810 14,501Consumer goodsTextile fibre 130 162 227 235 239Fabrics (m sq metres) 356 410 470 496 518Television sets (‘000 units) 1,031 1,126 1,597 2,188 2,479Bicycles (‘000 units) 659 1,124 1,583 2,177 2,708Readymade clothing (m pieces) 337 376 489 727 784Footwear (m pairs) 108 102 113 134 141Cars assembled (units) 13,547 20,526 29,536 47,701 42,651Motorcycles assembled (‘000 units) 463 610 1,052 1,180 1,569

Source: General Statistical Office.

60 Vietnam


Retail trade(D trn)

2000 2001 2002 2003 2004State sector 39.2 41.0 45.5 52.4 58.0Non-state sector 177.8 200.4 224.4 267.7 310.1

Foreign-invested sector 3.4 4.0 10.9 13.7 8.8Total 220.4 245.4 280.8 333.8 376.9


Tourism statistics(‘000 unless otherwise indicated)

2000 2001 2002 2003 2004Visitor arrivals 2,140 2,330 2,628 2,430 2,928 For tourism 1,138 1,225 1,461 1,239 1,584 For business 492 390 446 468 522 Visiting friends & relatives 400 390 431 392 467 Other 182 320 291 331 355


Main exports(US$ m; fob)

2000 2001 2002 2003 2004Crude oil 3,503 3,175 3,226 3,777 5,671Textiles & garments 1,892 1,975 2,710 3,360 4,386

Footwear 1,472 1,587 1,875 2,261 2,692Marine products 1,479 1,816 2,022 2,200 2,401

Furniture 294 324 431 567 1,139Electronic parts & computers 789 710 605 855 1,075Rice 668 588 726 719 950

Coffee 501 385 317 473 641Rubber 170 166 263 383 597

Total incl others 14,483 15,039 16,706 20,149 26,504


Main imports(US$ m; cif)

2000 2001 2002 2003 2004Machinery & spare parts 2,572 2,706 3,700 5,350 5,249

Petroleum products 2,058 1,870 2,017 2,410 3,574Auxiliary materials for footwear & garments 1,422 1,590 1,711 2,034 2,253

Steel 812 964 1,317 1,642 2,573Textile fabrics 761 880 1,523 1,805 1,927Electronic components 893 710 701 1,014 1,343

Plastics 531 551 614 829 1,191Fertiliser 509 404 464 604 824

Chemicals 276 322 426 529 683Total incl others 15,637 16,218 19,746 25,256 31,954


Vietnam 61


Main trading partners(US$ m)

2000 2001 2002 2003 2004Exports to:US 733 1,066 2,453 3,939 4,992Japan 2,575 2,510 2,437 2,909 3,502China 1,536 1,417 1,518 1,883 2,736Australia 1,273 1,042 1,328 1,421 1,822Singapore 886 1,044 961 1,025 1,370Germany 730 722 729 855 1,066UK 479 512 572 755 1,011Taiwan 757 806 818 749 906South Korea 353 406 469 492 604Malaysia 414 337 348 454 601Imports from:China 1,401 1,606 2,159 3,139 4,457Taiwan 1,880 2,009 2,525 2,916 3,698Singapore 2,694 2,478 2,534 2,876 3,619Japan 2,301 2,183 2,504 2,982 3,553South Korea 1,754 1,887 2,280 2,625 3,328Thailand 811 792 955 1,282 1,858Malaysia 389 464 683 925 1,215US 363 411 458 1,144 1,127Hong Kong 598 538 805 991 1,075Germany 295 397 558 615 694


Balance of payments(US$ m)

1999 2000 2001 2002 2003Exports 11,540 14,449 15,027 16,706 19,986Imports -10,460 -14,071 -14,400 -17,582 22,495

Trade balance 1,080 378 627 -876 -2,510Net services, income & transfers 205 264 47 456 665 Non-factor services -547 -615 -572 -648 -778 Investment income -429 -597 -635 -794 -796 Transfers 1,181 1,476 1,254 1,898 2,239

Current-account balance 1,285 642 670 -421 -1,844Capital account balance -344 -526 -476 885 3,992 Medium- & long-term loan disbursements 1,036 1,411 988 1,102 1,540 Scheduled amortisations -431 -682 -365 -576 -493 Net short-term loans -1,036 -1,755 -1,532 -1,273 1,706 Gross foreign direct investment inflows 700 1,101 1,252 2,045 1,829 Foreign direct investment loan repayments -613 -601 -819 -414 -590Overall balance incl errors & omissions 768 115 194 464 2,148

Source: IMF, Vietnam: 2004 Article IV Consultation, May 2005.

62 Vietnam


Foreign direct investment(US$ m)

2000 2001 2002 2003 2004Registered capital 2,696 3,320 2,963 3,146 4,222Implemented capital 2,414 2,451 2,591 2,650 2,852

Source: Ministry of Planning and Investment.

External debt(US$ m unless otherwise indicated; debt stocks as at year-end)

1999 2000 2001 2002 2003Public medium- & long-term 20,500 11,600 11,400 12,200 14,200Private medium- & long-term 0 0 0 0 0

Total medium- & long-term debt 20,500 11,600 11,400 12,200 14,200 Official creditors 16,800 8,680 9,160 10,500 12,700 Bilateral 15,200 6,780 6,950 7,640 8,820 Multilateral 1,610 1,900 2,210 2,870 3,930 Private creditors 3,663 2,901 2,267 1,652 1,444

Short-term debt 2,380 923 783 784 1,290 Interest arrears 1,690 78 79 79 82Use of IMF credit 355 316 366 381 339

Total external debt 23,235 12,839 12,549 13,365 15,829Principal repayments 1,046 958 835 895 505

Interest payments 363 352 384 301 300 Short-term debt 33 51 28 23 29Total debt service 1,409 1,310 1,219 1,196 805

Ratios (%)Total external debt/GDP 81.0 41.2 38.4 38.1 40.0Debt-service ratio, paida 9.9 7.5 6.7 6.0 3.4

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

Vietnam 63


Net official development assistancea

(US$ m)

1998 1999 2000 2001 2002Bilateral 712.6 1,017.7 1,246.2 822.1 746.0 Japan 388.6 680.0 923.7 459.5 374.4 France 66.2 79.2 52.9 61.8 77.8 Denmark 40.9 39.4 41.0 60.2 48.4 Australia 40.8 40.2 35.7 38.9 35.1 Germany 54.8 66.1 33.1 37.9 41.7 Netherlands 23.2 11.7 18.8 36.2 30.1 Sweden 33.7 33.1 37.3 34.9 24.4

Multilateral 451.9 407.1 419.5 594.2 511.0 International Development Association/World Bank 253.1 156.1 172.5 276.7 258.9 Asian Development Bank 127.9 190.1 197.7 175.8 212.0 IMF 0.0 0.0 -15.9 85.3 -9.0 European Commission 22.1 16.5 12.1 21.3 18.0 International Fund for Agricultural Development (IFAD) 4.5 6.6 7.8 9.7 10.0 UN Development Programme 14.0 11.9 11.6 7.4 4.1Total incl Arab countries 1,177.4 1,428.7 1,683.2 1,453.0 1,276.8

a Disbursements minus principal payments on earlier loans. Official development assistance is defined as grants and loans with at least a 25%grant element, provided by OECD and OPEC member countries and multilateral agencies and administered with the aim of promoting developmentand welfare in the recipient country.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Foreign reserves(US$ m; year-end)

2000 2001 2002 2003 2004Gross official reserves 3,417 3,675 4,121 6,224 7,042


Exchange rates(D per unit of currency; annual averages)

2000 2001 2002 2003 2004US$ 14,168 14,725 15,280 15,510 15,740¥ 131 121 122 134 146€ 13,035 13,253 14,363 17,526 19,577

Bt 353 332 356 374 391

Sources: IMF, International Financial Statistics.

Editors: Danny Richards (editor); Robert Ward (consulting editor)Editorial closing date: September 7th 2005

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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