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Country Report April 2003

Vietnam

April 2003

The Economist Intelligence Unit15 Regent St, London SW1Y 4LRUnited Kingdom

Vietnam at a glance: 2003-04

OVERVIEWThe Communist Party general secretary, Nong Duc Manh, will pursue a toughcampaign to crack down on corruption. The current leadership and the newcabinet will be supportive of economic reform, but the pace and progress ofreform is unlikely to quicken significantly. Real GDP growth will be around 7%in 2003-04 as a recovery in the global economy, albeit sluggish, will provide aboost to inward foreign investment and exports. The current-account deficitwill widen in line with stronger domestic demand and increased imports ofkey production inputs. Consumer price inflation will also pick up in line withrising general economic activity and food prices.

Key changes from last month

Political outlook• The government’s strong opposition to the US-led war in Iraq is unlikely to

upset the overall trend towards warmer relations with the US. However, thegovernment’s stance will ensure that relations remain prickly.

Economic policy outlook• The government will continue to declare its commitment to implementing

wide-ranging economic reforms. However, a high degree of state control ofkey sectors of the economy will remain and the disparity between theprogress of actual reform on the ground and that implied by thegovernment’s reform rhetoric will persist.

Economic forecast• The booming tourism sector has suffered a setback following the outbreak

of the virus known as Severe Acute Respiratory Syndrome (SARS), inHanoi in March. Although SARS spread to at least 18 countries by earlyApril, the World Health Organisation (WHO) stated that the outbreak inHanoi appeared to have been contained. However, foreign governmentshave continued to warn against travel to Vietnam, and until SARS iscontained in East Asia, especially in China, Vietnam’s tourism sector willcontinue to suffer.

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Vietnam 1

Country Report April 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003

Contents

3 Summary

4 Political structure

5 Economic structure5 Annual indicators6 Quarterly indicators

7 Outlook for 2003-047 Political outlook8 Economic policy outlook9 Economic forecast

12 The political scene

15 Economic policy

19 The domestic economy19 Economic trends21 Agriculture and fisheries23 Manufacturing25 Energy and mining26 Infrastructure and telecommunications27 Financial and other services

29 Foreign trade and payments

List of tables9 International assumptions summary11 Forecast summary19 Industrial output20 Consumer price inflation29 Exports and imports31 Foreign direct investment

List of figures12 Gross domestic product12 Consumer price inflation20 Exchange rate23 Exports of garments and textiles24 Sales of locally assembled automobiles, 200225 Proposed investments in electricity generation by 2010

Vietnam 3


Summary April 2003

The Communist Party general secretary, Nong Duc Manh, will pursue a toughcampaign to crack down on corruption. The current leadership and the newcabinet will be supportive of economic reform, but the pace and progress ofreform is unlikely to quicken significantly. Real GDP growth will be around 7%in 2003-04, as a recovery in the global economy, albeit sluggish, will provide aboost to inward foreign investment and exports. The current-account deficitwill widen in line with stronger domestic demand and increased imports ofkey production inputs.

Public confidence in the ruling Communist Party has waned. The ongoing trialof the notorious gang leader, Nam Cam, has been seen as a test of the party’scommitment to eradicating corruption. A number of other high-level corruptioncases have been made public. Despite such problems, the party’s membershiphas grown. The government has renewed its focus on clamping down on“social evils”, but it has struggled to control criticism on the Internet. Vietnamhas expressed its strong opposition to the US-led war in Iraq. The China-Vietnam border marking programme has been proceeding, if slowly, andVietnam and Cambodia have pledged to improve co-operation.

The government’s message on economic reform is mixed. Equitisation hascontinued at a slow pace, but large-scale state-owned enterprises may soon beequitised. The first auction of a state-owned firm has been a success and 100%foreign-owned firms will be allowed in more sectors. Positive foreign investorsentiment has not been matched by foreign direct investment (FDI)commitments. Tax policy in the automobile and motorcycle industries hasbeen erratic. Land use rights will be auctioned in Ho Chi Minh City. The policyfor land ownership by overseas Vietnamese has been unclear.

GDP growth reached 7% in 2002. Consumer price inflation has been steady,and the dong has depreciated gradually against the US dollar. Alternative riceexport markets have been sought to overcome the lack of access to the Iraqimarket. The catfish dispute with the US has dragged on. EU garment quotashave risen sharply. Honda has responded to tax policy changes by boosting itsexports of motorcycles. Three oil importers have lost their licences for their rolein causing a fuel panic. The outbreak of the Severe Acute Respiratory Syndrome(SARS) virus has threatened the tourism boom.

Robust export growth has continued into 2003. The import bill rose by 25% inJanuary-February. Vietnam is pushing for membership of the World TradeOrganisation. Tariff cuts imposed by the Association of South-East Nations(ASEAN) free-trade area (AFTA) have been delayed until June. FDI commitmentshave dropped steeply, but international donors remain supportive.

Editors: Danny Richards (editor); Graham Richardson (consulting editor)Editorial closing date: April 1st 2003

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] report: Full schedule on www.eiu.com/schedule

Outlook for 2003-04

The political scene

Economic policy

The domestic economy

Foreign trade and payments

4 Vietnam


Political structure

Socialist Republic of Vietnam

One-party rule

The cabinet is constitutionally responsible to the National Assembly, which is elected for afive-year term

The president, currently Tran Duc Luong

The unicameral 498-member Quoc Hoi (National Assembly) meets biannually; an electiontakes place every five years. The assembly appoints the president and the cabinet

Centrally controlled provinces and municipalities are subdivided into towns, districts andvillages, which have some degree of local accountability through elected people’s councils

The regional people’s courts and military courts operate as courts of first and secondinstance, with the Supreme Court at the apex

May 19th 2002; the next election is due in 2007

The Communist Party of Vietnam, and in particular its politburo, controls both theelectoral process and the executive

The Communist Party of Vietnam (general secretary, Nong Duc Manh); the VietnamFatherland Front

Prime minister Phan Van KhaiDeputy prime ministers Nguyen Tan Dung

Pham Gia KhiemVu Khoan

Agriculture & rural development Le Huy NgoConstruction Nguyen Hong QuanCulture & information Pham Quang NghiEducation & training Nguyen Minh HienFinance Nguyen Sinh HungForeign affairs Nguyen Dy NienIndustry Hoang Trung HaiInterior Do Quang TrungJustice Uong Chu LuuLabour, war invalids & social affairs Nguyen Thi HangMarine products Ta Quang NgocNational defence Pham Van TraPlanning & investment Vo Hong PhucPublic health Tran Thi Trung ChienScience, technology & environment Hoang Van PhongTrade Truong Dinh TuyenTransport & communications Dao Dinh Binh

Le Duc Thuy

Official name

Form of state

The executive

Head of state

National legislature

Local government

Legal system

National elections

National government

Main political organisations

Main members of the cabinet

Key ministers

Central bank governor

Vietnam 5


Economic structure

Annual indicators1998 a 1999 a 2000a 2001 a 2002 b

GDP at market prices (D trn) 361.0 399.9 444.1 484.5 520.4GDP (US$ bn) 27.2 28.7 31.3 32.9 34.1

Real GDP growth (%) 5.8 4.8 6.8 6.9 7.0 a

Consumer price inflation (av; %) 7.3 4.1 -1.7 -0.4 3.8 a

Population (m) 76.1 77.1 77.7 79.2 80.4

Exports of goods fob (US$ m) 9,361.0 11,540.0 14,449.0 15,100.0 16,530.0Imports of goods fob (US$ m) 10,350.0 10,568.0 14,073.0 14,546.0 17,274.5

Current-account balance (US$ m) -1,074.0 1,177.0 1,107.0 755.0 -214.6Foreign-exchange reserves excl gold (US$ m) 1,999.7 3,324.7 3,416.2 3,660.0 4,040.0Total external debt (US$ bn) 10.5 b 10.7 b 12.8b 13.9 b 14.0

Debt-service ratio, paid (%) 13.1 b 10.8 b 8.8b 10.1 b 10.6Exchange rate (av) D:US$ 13,297.0 13,943.2 14,167.7 14,725.2 15,271.6

a Actual. b Economist Intelligence Unit estimates.

Origins of gross domestic product 2002 % of total Components of gross domestic product 2002 % of totalIndustry 38.7 Private consumption 66.9Services 38.4 Government consumption 6.4

Agriculture 23.0 Gross fixed investment 33.0Exports of goods & services 55.8

Imports of goods & services -62.2

Principal exports 2002 % of total Principal imports 2002 % of totalCrude oil 19.5 Refined petroleum 10.6Textiles & garments 16.4 Steel 6.9

Fisheries products 12.2 Cloth 5.3Footwear 11.1 Computers & electronic goods 3.4Rice 4.4 Plastics 3.2

Main destinations of exports 2001 % of total Main origins of imports 2001 % of totalJapan 17.1 Singapore 13.6Australia 7.6 China 11.9China 7.5 Japan 11.6

US 7.2 South Korea 11.2Germany 6.9 Thailand 5.1

Singapore 5.4 Hong Kong 3.5France 4.1 Malaysia 3.1

6 Vietnam


Quarterly indicators2000 2001 20024 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr

PricesConsumer prices (1995=100) 119.2 119.9 118.8 118.7 119.4 123.0 123.6 123.8 Consumer prices (% change, year on year) -0.4 -1.4 -0.8 0.3 0.2 2.6 4.0 4.3Financial indicatorsExchange rate D:US$ (av) 14,423 14,548 14,643 14,658 15,051 15,165 15,253 15,324Exchange rate D:US$ (end-period) 14,514 14,545 14,845 15,003 15,084 15,250 15,321 15,347Deposit rate (av; %) 3.89 5.24 4.96 5.20 5.82 5.90 6.39 6.70Lending rate (av; %) 10.20 10.65 9.35 9.00 8.68 8.52 8.75 9.50Refinancing rate (end-period; %) 6.00 6.00 5.40 4.80 4.80 4.80 4.80 4.80Treasury bill (av; %) 5.30 5.43 5.45 5.65 5.43 5.72 5.95 6.07M1 (end-period; D bn) 90,989 90,984 94,397 100,038 112,408 115,491 114,594 116,232 M1 (% change, year on year) 33.1 27.6 26.9 28.1 23.5 26.9 21.4 16.2M2 (end-period; D bn) 196,994 216,186 226,933 235,254 250,845 256,018 263,877 269,684 M2 (% change, year on year) 35.4 34.5 34.8 31.0 27.3 18.4 16.3 7.5Sectoral trendsRice production (annual totals; m tonnes)a 32.5 ( 32.0 ) ( 31.3 )Rubber exports (net; '000 tonnes) 71 71 75 75 72 85 87 n/aForeign trade (US$ m)Exports 4,090 3,578 4,023 3,879 3,547 3,185 4,142 4,580Crude oil 1,031 825 954 798 408 647 796 819Imports -4,655 -3,652 -4,178 -3,808 -4,524 -3,767 -4,860 -5,070Trade balance -565 -74 -155 71 -977 -582 -718 -490

Balance of payments (US$ m)Merchandise trade balance fob-fob -105 291 263 452 -525 -205 -231 16Services balance -34 -89 -120 -276 -87 -198 -92 -274Income balance -39 -120 -65 -139 -153 -168 -253 -161Net transfer balance 702 476 250 256 268 381 422 373Current-account balance 524 558 328 293 -497 -190 -154 -46Reserves excl gold (end-period) 3,417 3,330 3,432 3,692 3,675 3,901 3,805 3,851

a Estimate for 2001.

Sources: IMF, International Financial Statistics; UN Food and Agriculture Organisation; International Rubber Study Group, Rubber Statistical Bulletin; UN Development Programme, Vietnam

Socio-Economic Statistical Bulletin.

Vietnam 7


Outlook for 2003-04

Political outlook

Although there is no risk to the political domination of the ruling CommunistParty in 2003-04, party leaders are becoming increasingly concerned about losingpeople’s confidence, as a result of rampant corruption and difficult livingconditions. The party’s general secretary, Nong Duc Manh, has acknowledgedthat the future stability of the party rests largely on its traditional image ofprobity, and he is intent on driving corrupt officials out of the party andgovernment. More cases of high-level corruption are being made public and MrManh is keen for offenders to be made examples of. It is for this reason that thecurrent trial of Nam Cam—an underworld chief in Ho Chi Minh City whobought the support of local and even national figures—has attracted widespreadpublic attention. Along with Nam Cam, 154 other people are being tried,including high-ranking police and government officials. The trial is widely beingviewed as a test case of the leadership’s commitment to eradicating corruption.Previous attempts by the party to limit corruption have been largely unsuccessfulbecause of low salaries, a bureaucratic administration in which opportunities forbribery are widespread and light punishments for graft. Unless the root cause ofgraft is dealt with and harsh punishments are handed down to offenders, theculture of corruption will continue to thrive.

The government is also concerned about the threats to national unity andgrowing social unrest, particularly in rural areas. The number of localised protestsby people who feel that they have been unfairly disadvantaged by governmentprojects has risen recently, and the threat of ethnic and religious unrest has notdiminished. In January the party’s central committee indicated that it plannedto tighten its control over religious freedoms. The government has alsoannounced plans to implement stricter laws to limit public demonstrations.

Aside from attempting to root out corruption and prevent further periods ofsocial unrest, the government will endeavour to push forward economic andadministrative reforms. Progress so far has been steady. With entry into theWorld Trade Organisation (WTO) expected by 2005-06, there is a growing sensethat the pace of economic reform needs to accelerate. The prime minister, PhanVan Khai, is a capable economic reformer and he will push hard over the nextfew years to advance the reformist agenda. If he is successful, it will be thankspartly to the performance of his deputy, Vu Khoan, a former trade minister whowas instrumental in winning approval for the bilateral trade agreement withthe US. However, the government’s implementation of liberal, pro-businesspolicies will be inconsistent owing to opposition from protectionist lobbies andconservative members of the party.

The Vietnam government’s strong opposition to the US-led war on Iraq isunlikely to upset the overall trend towards warmer relations with the US.However, the government’s stance will ensure that relations remain prickly.There is a risk that differences over human rights issues and trade disputes,which threaten to delay the full implementation of the bilateral trade agreement,

Domestic politics

International relations

8 Vietnam


will be mishandled, resulting in heated diplomatic stand-offs. Vietnam will bekeen to avoid such an outcome and will aim to strengthen further its ties withthe US in order to balance the influence of China. A lingering degree ofVietnamese mistrust of its northern neighbour remains, but both sides appearkeen to reconcile their differences over disputed territory. As part of adomestically controversial land-border agreement, 1,500 border markers will beplanted along the 1,350-km joint border in 2003-04. Although sovereignty overthe disputed Spratly islands in the South China Sea is far from being resolved,the risk of conflict has been greatly reduced following an agreement in late 2002by members of the Association of South-East Asian Nations (ASEAN) andChina to abide by a code of conduct.

Economic policy outlook

The government will continue to declare its commitment to implementingwide-ranging economic reforms. However, a high degree of state control of keysectors of the economy will remain and the disparity between the progress ofactual reform on the ground and that implied by the government’s reformrhetoric will persist. Despite such concerns, there are clear signs that a multi-sector economy is taking shape. The Enterprise Law, which came into effect in2000, simplified procedures for registering new businesses and since then morethan 50,000 private enterprises have been established. Although limitedprivate-sector access to finance and land suggests that the playing field has yetto level out completely, the government is expected to improve further theoperating environment for the private sector. This will primarily reflect thewidespread recognition that the private sector will be the key source of newjob creation in the years ahead. Concerns over rising unemployment and thepotential for social instability are evident in the government’s determination toembark on a path of gradual privatisation, reducing the number of state-ownedenterprises (SOEs) from around 5,600 at present to 3,000 by 2005.

The government’s proposals for the 2003 budget indicate that it plans tomaintain its expansionary fiscal policy. The National Assembly (the legislature)has approved plans for a budget deficit of 5.6% of GDP in 2003, a level that thegovernment believes is sufficient to sustain development investment in supportof a targeted GDP growth of more than 7%. The majority of funds for thegovernment’s three-year US$70bn comprehensive poverty reduction andgrowth strategy, which was launched in May 2002 with strong endorsementfrom international donors, will come from the state budget. The government ishoping that the expanding economy and greater efforts to prevent tax fraud willhelp to prop up total revenue. However, lower tax rates and import tariffs (as aresult of trade reform commitments), and other tax incentives, such as anagricultural tax exemption for poor farmer households, will put a strain onbudget revenue and make it difficult for the government to meet its deficittargets. Spending by administrative agencies will also have to be reined in, assalaries for state workers have increased under a package of salary reforms.

Policy trends

Fiscal policy

Vietnam 9


The weak inflationary environment has enabled the State Bank of Vietnam(SBV, the central bank) to ease monetary restrictions in an effort to boosteconomic growth. However, as inflationary pressures pick up in 2003-04 thegovernment may be forced to tighten its monetary policy slightly. The SBVrecently permitted banks to increase their holdings of US dollars from 15% to30% of total capital. It has also lowered the required reserve ratio on foreign-currency deposits from 8% to 5%, and has removed the cap on interest rates fordong loans. These measures have given commercial banks more freedom tomanoeuvre and deal with short-term changes in market liquidity. Banks nowhave more control over their interest rate spreads and are better placed to takeon inherently riskier private-sector start-up operations, enabling privateenterprises to gain greater access to capital. The government maintains somecontrol over market interest rates through state-owned commercial banks,which account for around 80% of the sector.

Economic forecastInternational assumptions summary(% unless otherwise indicated)

2001 2002 2003 2004Real GDP growthWorld 2.1 2.9 3.1 3.9OECD 0.8 1.8 1.8 2.5EU 1.4 0.9 1.2 2.1Exchange rates¥:US$ 121.5 125.3 120.3 121.5US$:€ 0.896 0.946 1.115 1.105SDR:US$ 0.785 0.772 0.720 0.724Financial indicators¥ 2-month private bill rate 0.17 0.10 0.10 0.10US$ 3-month commercial paper rate 3.61 1.70 1.25 3.08

Commodity pricesOil (Brent; US$/b) 24.5 25.0 25.3 19.5Gold (US$/troy oz) 271.1 309.8 325.5 290.0Food, feedstuffs & beverages (% change in

US$ terms) -1.9 12.7 5.8 3.0Industrial raw materials (% change in US$ terms) -9.7 2.2 11.7 3.2

Note. Regional GDP growth rates weighted using purchasing power parity exchange rates.

The Economist Intelligence Unit expects economic conditions in many of theworld’s largest economies to improve in the second half of 2003, although thepace of improvement will be gradual. By mid-2004 most major economies areforecast to return to a trend pace of economic growth. Our central forecast isthat the US-led war in Iraq is short-lived and results in a forced regime changein Iraq, with oil prices (dated Brent Blend) falling to around US$21/barrel by theend of this year. However, there remains a risk that the conflict proves long-lived and results in a prolonged oil price spike. Oil prices will also be volatile ifthe post-war situation in Iraq is deemed to have a negative impact on oilsupply security. Under our central assumption US GDP growth will improvefrom 2.4% in 2003 to 3.2% in 2004. Real GDP growth in Japan will also pick upslowly from 0.2% to 0.6% in 2003 and 2004 respectively. World oil prices will

International assumptions

Monetary policy

10 Vietnam


rise by an annual average of 1.4% to US$25.31/b in 2003, before falling back toUS$19.46/b in 2004. Our soft commodities price index shows that food,feedstuffs and beverages prices rebounded in 2002. They will continue to growin 2003-04.

According to official estimates, Vietnam’s economy is growing at a rapid pace.Reported real GDP expanded by 7% in 2002 and will grow at this pace in2003-04. Although the credibility of official GDP data is questionable, there isno doubt that parts of Vietnam’s economy will continue to perform robustly.Rising private-sector investment and strong domestic private consumptionboosted GDP growth in 2002 and will drive the economy in 2003-04. Thistrend will lessen the impact of the steep drop in foreign direct investment (FDI)commitments, which fell by 40% year on year in 2002 and by 32% in the firstquarter of 2003. The impact on Vietnam’s domestic economy from the US-ledwar in Iraq will be limited, based on our central assumption that the war willbe relatively short. However, there is a risk that a dramatic rise in oil prices willfeed through into higher production costs, thereby driving up consumer pricesand dampening domestic demand. Vietnamese exporters will generally be in astrong position in 2003-04 to exploit the opportunities provided by the tradeagreement reached with the US in 2001, but access to Vietnam’s expandingmarkets in the Middle East will be restricted for the duration of the war. If thewar drags on longer than expected, it will dampen demand in Vietnam’s keyexport markets and weaken domestic demand, but the impact on overall GDPwill be offset by the subsequent moderation in import growth. The outbreak ofa mysterious virus, know as Severe Acute Respiratory Syndrome (SARS), hadbeen contained in Hanoi by late March, according to the World HealthOrganisation (WHO). However, foreign governments have continued to warnagainst travel to Vietnam and until SARS is contained in East Asia, especially inChina, Vietnam’s tourism sector will continue to suffer.

Consumer prices rose by an annual average of 3.8% year on year in 2002,bringing to an end the two-year period of consumer price deflation in 2000-01.Year-on-year inflation remained steady at 3.9% in the first three months of 2003,but the effects of higher wage payments to government workers and higherproduction costs (in line with rising oil prices) will filter down through thesystem and increase the upward pressure on consumer prices. Rising domesticdemand and strengthening food prices will also help to create a firminflationary trend in 2003-04. Food items have a heavy weighting (47%) in theconsumer price index and a sharp rise in world rice prices—increases of 4.7% in2003 and 8.3% in 2004 are forecast—will push annual consumer price inflationup to 4.7% and 5.5% respectively in 2003 and 2004. Further depreciation in thevalue of the dong will also force prices up.

The dong is forecast to depreciate by an annual average of around 3.7% againstthe US dollar in 2003-04. In early April the dong was trading at aroundD15,450:US$1 compared with D15,084:US$1 at the beginning of 2002. Theauthorities are keen to allow the dong to depreciate at a rate that will enablemerchandise exports to remain competitive in international markets. TheCentral Bank has widened the daily exchange-rate trading band under the

Inflation

Exchange rates

Economic growth

Vietnam 11


crawling-peg system, to allow the dong to fluctuate in value by 0.25% per day,up from the previous 0.1% on either side of the previous day’s closing rate onthe interbank market. However, the trading band will remain tight, as thegovernment will want to prevent a faster depreciation, which would increasethe debt-servicing burdens of SOEs that are holding unsustainable high stocksof US dollar-denominated debt.

The export sector recorded robust growth at the start of 2003, with exportrevenue up by 43% year on year in the first quarter. (This strong performancepartly reflects poor revenue in the year-earlier period.) If the US-led war in Iraqis relatively short, the impact of the war on Vietnam’s export revenue will belimited. As a net exporter of oil, Vietnam’s trade balance will also improvefollowing any upward spikes in oil prices. However, for the duration of the warVietnam’s commodity exporters will suffer from restricted access to Iraq, whichwas the largest importer of Vietnamese rice in 2002. Vietnamese exporters willattempt to exploit further the expanding opportunities provided by the openingup of US markets, but soon-to-be imposed US quotas on Vietnam’s textile andgarments exports, and trade disputes over seafood exports will prevent therealisation of the full potential gains from the agreements in the next few years.The demand for imports of essential inputs for the manufacturing export sectorwill rise in line with export growth and robust domestic demand will push upimports of consumer goods. In the first quarter of 2003 imports (valued on acustoms basis) were up by 26% year on year. Strong demand for import-relatedservices will contribute to the widening of the services deficit in 2003-04. Theimpressive growth in tourism revenue may slow following the outbreak ofSARS in Hanoi in March. Although the WHO stated by late March that theoutbreak had been contained in Hanoi, foreign governments continue to adviseagainst travelling to Vietnam. Current transfers will remain robust in line withexpanding remittances from overseas Vietnamese.

Forecast summary(% unless otherwise indicated)

2001a 2002 b 2003c 2004c

Real GDP growth 6.9 7.0 a 7.1 7.0Industrial production growth 10.3 9.4 10.5 10.0

Gross agricultural production growth 2.8 4.1 3.6 3.4Consumer price inflation (av) -0.4 3.8 a 4.7 5.5

Consumer price inflation (year-end) 0.5 4.3 a 5.0 5.8Lending rate 9.4 9.1 9.5 11.0Government balance (% of GDP) -5.1b -5.5 -5.9 -5.8

Exports of goods fob (US$ bn) 15.1 16.5 19.1 20.4Imports of goods fob (US$ bn) 14.5 17.3 19.5 21.4

Current-account balance (US$ bn) 0.8 -0.2 -0.7 -1.3Current-account balance (% of GDP) 2.3 -0.6 -1.9 -3.5External debt (year-end; US$ bn) 13.9b 14.0 15.0 15.4

Exchange rate D:US$ (av) 14,725 15,272 15,852 16,423Exchange rate D:¥100 (av) 12,117 12,183 13,182 13,517

Exchange rate D:€ (year-end) 13,294 16,163 18,118 18,158Exchange rate D:SDR (year-end) 18,957 20,939 22,373 22,844

a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.

External sector

12 Vietnam


The political scene

The ruling Communist Party remains the dominant political force in Vietnam,controlling the government, the army and the bureaucracy. However, the partyis struggling to maintain the confidence of the people and it is growingincreasingly concerned about the dangers of a split in national unity. Theparty’s concerns were outlined in a resolution issued after the party’s seventhplenum in January. In the resolution, the party identified a range of potentialthreats to the party’s future viability, primarily the difficult living conditionsthroughout the country, rampant social injustices and corruption. Theresolution also included references to the difficulties the party faces inattracting ethnic minorities to join the Vietnam Fatherland Front, an umbrellaorganisation controlled by the party that includes all the “mass organisations”in the country.

The party’s concerns over rampant corruption are intensifying. Since coming tooffice in April 2001 the party’s general secretary, Nong Duc Manh, hasrepeatedly promised to crack down harshly on corrupt officials. The trial of thereputed Ho Chi Min City gangster, Nam Cam, which began in late Februaryand is expected to last two months, is widely seen as a test case of the party’scommitment to eradicating corruption. Nam Cam, who is accused of murder,bribery and gambling, is on trial alongside 154 co-defendants, including fourhigh-ranking government officials, for their links to Nam Cam’s operations. Thefact that the case has finally reached the courts and that a number of high-ranking police and government officials are standing trial shows that thegovernment, at least on the surface, intends to deal with the problem. Doubtsremain, however, as to the thoroughness of investigations into corruptionowing to party concerns that too many high-level officials may be implicated.

A number of other corruption cases have been revealed in recent months, atrend that suggests that the Communist Party is becoming more serious abouttackling corruption. However, in a strongly worded article in Tap Chi Cong San(Communist Magazine), the highly respected General Vo Nguyen Giap soughtreasons for the evident trend towards more serious corruption, even though the

Public confidence in the rulingCommunist Party is waning

Gangster trial is a test case ofanti-graft commitment

A number of high-levelcorruption cases are revealed

Vietnam 13


party and government have introduced laws and regulations to prevent it. Twoformer deputy ministers of agriculture have been accused of aiding an officialto embezzle US$5.5m; two other deputy ministers have been implicated inconnection with the case. In March the State Inspectorate claimed that thecontractors that resurfaced the runways at Hanoi’s Noi Bai airport usedsubstandard materials in order to skim off about US$1m. In January Truong TanSang, a member of the Politburo, was officially reprimanded as a punishmentfor his errors while he was secretary of the party committee in Ho Chi MinhCity. Mr Sang was often mentioned as a possible future prime minister and hispolitical future now looks uncertain.

Although the reputation of the Communist Party has been marred bycorruption scandals, the 2.5m-strong organisation continues to attract members.In 2002 it welcomed more than 144,000 new members, a 5% increase year onyear. More than 30% of the new members are women and 13% come fromethnic minority groups, mirroring their importance in the overall population.The interest in becoming party members may have less to do with the overallpopularity of the party and more to do with appreciation of the fact that partymembership is generally essential for anyone wishing to advance to a seniorposition in government, administration or state-owned enterprises (SOEs).

After a period of relative inattention the government is showing renewedinterest in tackling “social evils”, which mainly refer to prostitution and druguse. Vietnam has almost 50,000 “documented” prostitutes and there are anestimated 142,000 drug addicts, up from 114,000 in 2001, of which 30% arecarriers of the HIV/AIDS infection. According to official reports, drug addicts arereported to be responsible for 40% all crimes committed in Vietnam. Thegovernment takes a hard line on drug-trafficking. Six men were sentenced todeath in March for trafficking nearly 90 kg of heroin. Repeat drug offenders aretypically sent to detoxification camps for 24 months.

Until recently the government has linked drug use and prostitution with therise of HIV and AIDS, treating both in the same breath as “social evils”. Officialfigures show that Vietnam has over 60,000 HIV carriers, including nearly 9,000with AIDS, although the true numbers are believed to be far higher. There hasbeen a recent shift in thought towards a “harm reduction approach” that hasexperimented with information campaigns and needle exchanges. Clinics wererecently allowed to dispense the locally produced anti-retroviral cocktail drug,Lamzidivir, although the cost (US$900 per year) is prohibitive for many.

As the cost of telecommunications falls, the government finds itself in aquandary. It wants the benefits of information technology (IT) and Internetaccess, which it has said would speed up social development and globalintegration. The government hopes to have linked every university and college,and 10% of secondary schools, to the Internet by end-2003, and it would like toquadruple the number of Internet users to 4m by 2005. The government hasalso encouraged the growth of the Internet industry. However, the governmentsees costs too. A firewall blocks access to an estimated 2,000 web sites. Theblock applies to many pornographic sites, but also to sites maintained by critics

Communist Party attracts highnumber of new members

There is a renewed focus ondealing with “social evils”

The government struggles tocontrol Internet criticism

14 Vietnam


of the regime. In 2002 Vietnam jailed four “cyber-dissidents” for circulatingcriticism of the government on the Internet. A lawyer, Le Chi Quang, wassentenced to four years in prison for posting criticisms of the land treatybetween Vietnam and China. A military veteran, Nguyen Khac Toan, received a12-year sentence for e-mailing information to “reactionaries” abroad, andNguyen Dan Que, who was released from prison in 1998 for anti-governmentactivities, was arrested in mid-March for reportedly attempting to send anti-government material to the US-based High Tide Humanity Movement. Theoccasional crackdown on Internet cafes, harsh penalties for offenders and toughtalk from the government is to be expected, but the government is likely tostruggle to control fully the flow of information and criticism on the Internet.

Criticism of the government is possible and deputies in the National Assembly(legislature) are becoming increasingly more assertive. Most notably, NguyenLan Dzung, a National Assembly deputy, has called on the country’s leadershipto build a truly democratic regime ruled by law. However, the room forcriticism from members of the public and public protests is morecircumscribed. Twenty-one farmers were jailed for their roles in protests againstlocal corruption in Ha Tay province (which abuts Hanoi) in April 2002. InDecember 2002 eight policemen were injured in a large protest against landexpropriations in the same province, and ten people were jailed for similarprotests in Nam Dinh province. In an effort to clamp down on growing socialunrest, the central government plans to issue a decree to curb demonstrations.

Although domestic demonstrations are strictly curtailed, orderly demon-strations against the US-led war in Iraq were organised in Hanoi and Ho ChiMinh City in mid-March by the Fatherland Front. Police banned demon-strations outside the US embassy in Hanoi, citing security and diplomaticconcerns. The demonstrations elsewhere attracted around 1,000 participants.The government has repeatedly stated its strong opposition to the US-led attackon Iraq. This stance is in line with Vietnam’s long-held position in favour of thelifting of UN sanctions on Iraq. Unlike other governments in the region,Vietnam has not expelled Iraqi diplomats.

Relations with the US have been strained recently by trade disputes anddifferences over human rights issues. Despite the ratification of the bilateraltrade agreement in late 2001, US-Vietnam trade relations have not proceededsmoothly owing to allegations of Vietnam dumping of catfish and toughnegotiations over US quotas on textiles and garment imports from Vietnam.The introduction of a bill in the US House of Representatives (the lower houseof parliament) in late February, calling for increased freedom of information inVietnam, provoked an angry response from the Vietnam government. On amore positive note, the Senate Rules Committee in the US state of Virginia hasrevoked a controversial bill that permitted the flying of the former Saigonadministration’s flag at public functions in Virginia.

Relations with China are on the even keel. In late March the prime minister,Phan Van Khai, met Li Guixan, the vice-chairman of the National Committee ofthe Chinese People’s Political Consultative Conference, in Hanoi. The two sides

Limited criticism is allowed,but not welcomed

Vietnam strongly opposes US-led war in Iraq

US-Vietnam trade anddiplomatic relations are tense

China-Vietnam borderprogramme is proceeding

Vietnam 15


stated their aim of strengthening bilateral relations and developing mutualunderstanding. The work of installing boundary marker stones along thecommon land border has proceeded slowly. China has spent four monthsclearing a 100-ha minefield, and the two sides have installed ten new marketstones along a 5-km stretch. China is likely to object, however, to a move by thePhilippines and Vietnam to hold “sports games” on the Spratly islands later thisyear. The three countries, along with Taiwan, Malaysia and Brunei, lay claim tosome or all of the islands, which are little more than reefs but sit atoppotentially large oil and gas fields. An agreement on the code of conductamong nations claiming sovereignty of the islands was signed in late 2002 (seeJanuary 2003, page 14).

Vietnam and Cambodia have agreed to increase co-operation between theirpolice forces to fight crossborder crime. In late March, Vietnam’s minister ofpublic security, Le Hong Anh, led a delegation to Cambodia to meet theCambodian co-ministers of interior, Sar Kheng and You Hokry, to discusssecurity issues and to sign a range of agreements aimed at strengtheningbilateral ties. Vietnam’s relations with Cambodia remain sensitive andcontroversial historical allegiances are likely to feature in opposition campaignsin the lead-up to Cambodia’s general election in July. Vietnam is still in theprocess of repatriating the remains of its troops killed during the 1978-89occupation of Cambodia. The remains of 3,214 troops were repatriated in 2002and a further 232 in March 2003.

Disputes over water are a source of tension between Vietnam and Cambodia.The Yali hydroelectric power station, which is on the Sesan river that flowsfrom Vietnam into Cambodia, became operational in 1991 and has led tofluctuations in the river’s flow, significantly affecting the ecosystems of thedownstream area in Cambodia. Flooding has damaged crops and swept awayhouses. Periods of low flow have threatened fish stocks and the uneven waterflow has increased turbidity and made the water less suitable for drinking. TheMekong River Commission has created a bilateral panel to discuss such issues.

Economic policy

Although the government is committed to economic liberalisation, there aredifferences of opinion within the government about the pace of change.Speaking at a conference of a US-based educational organisation, the AsiaSociety, in March in Hanoi, the prime minister, Phan Van Khai, articulated thegovernment’s strategy for achieving high economic growth. Mr Khaiemphasised three key elements of reform: completion of a legal system thatwill change the role of the state from controlling to facilitating businesses;development of the non-state sector, especially state-owned enterprises (SOEs);and continuation of efforts to build an open economy, including a push forWorld Trade Organisation (WTO) membership. Speaking at the sameconference, Vu Khoan, a deputy prime minister, made similar points, butchanged the emphasis. Mr Khoan stated that Vietnam would not choose thepath of mass privatisation because of the potential for social instability fromrising unemployment. Instead, he stated that the government would seek to

Vietnam and Cambodia aim toimprove co-operation

The government’s message onreform is mixed

16 Vietnam


make some SOEs more competitive. Some discussants at the conference tookissue with Mr Khoan’s remarks. The Vietnam country director of the WorldBank, Klaus Rohland, argued that SOE and financial sector reform was crucialand said that evidence from around the world indicated that private firms weremore efficient than SOEs.

With the government seemingly ambivalent towards SOE reform, it is notsurprising that equitisation (privatisation) continues to advance slowly. Underthe equitisation process, SOEs are transformed into free-standing legal entitieswith shares, some of which are then sold to the public and companyworkers. The state usually retains a significant proportion of the total shares,but becomes a passive investor. There are currently about 5,200 SOEs, downfrom about 6,200 in 1999. In 2001, 258 SOEs were equitised, sold or contractedout, followed by a further 150 in the first 11 months of 2002. The governmentplans to divest 600 enterprises this year, an optimistic estimate; the target for2002 was 502 equitisations.

To date, all the firms that have been equitised have been small. However, thiswill change if the equitisation of Vietnam Milk Company (Vinamilk) proceedsas expected later this year (although the government will retain a 51% share).Vinamilk, which is based in Ho Chi Minh City, recorded an 18.5% year-on-yearincrease in sales in 2002 with revenue reaching D4.7trn (US$300m), of whichUS$166m came from export sales. The company sells more than 90 products,including yoghurt and milk, has a market share of about 70% and owns someof the best-known brand names in Vietnam. The government has alsoapproved the equitisation of Seaprodex, a leading producer and exporter ofseafood, which will go public in 2004. The company reported a turnover ofD5.9trn (US$350m) in 2002, including export revenue of US$173m.

The auctioning off of SOEs may help to speed up the privatisation process. Thefirst such auction in March was a success. The loss-making AgricultureEngineering Company in Haiphong was sold to a local firm for D4.6bn(US$300,000), more than five times the floor price. Six firms and individualsqualified to bid; foreigners are not allowed to participate. However, there is acautionary note. The original proposal was for three SOEs to be auctioned off,but the other two companies were not put up for auction following reportedprotests from executives and workers over potential job losses.

If plans for equitisation continue to meet resistance, the official privatisationtarget, which would cut the number of SOEs to about 3,000 by 2005, is unlikelyto be met. Workers and managers in SOEs fear that equitisation could cost themtheir jobs and, as a result, the government has had little success in forcingmanagers to prepare SOEs for equitisation. Many ministries and provinces arereluctant to let go of businesses that they can control. The result is a mismatchbetween official words and action. For example, the Ministry of Industryclaims that it will equitise 80 of the SOEs under its control in 2003, but itdivested only nine of its 250 or so enterprises in 2002.

Equitisation continues at aslow pace

Large-scale SOEs may soon beequitised

The first auction of a state-owned firm is a success

Vietnam 17


In an attempt to encourage more foreign direct investment (FDI), the Ministryof Planning and Investment has called for changes that will allow 100%foreign investment in a number of sectors, including forestry, tourism,mechanical engineering, metals, information technology (IT) and technicalpublishing. The government has also introduced other policy changes toattract FDI. Foreign investors can now use their shares in a Vietnamesecompany as loan collateral. They can transfer their shares to other investors;and they can convert profits and principal into foreign exchange without anyrestrictions. Although official details have not yet been released, a PrimeMinisterial Decree signed in mid-March is expected to have amendedguidelines on the implementation of the Law on Foreign Investment. Theamendments have reportedly eased the conditions for granting investmentlicences through registration.

The government’s efforts to encourage FDI have been praised by internationaldonors, and international investor sentiment is generally positive. However, thepositive sentiment has not been associated with a surge in the value of FDIcommitments. In 2002 Vietnam granted licences for 715 foreign-investedprojects worth US$1.43bn, a drop of 42% in value year on year. Not all investorsare therefore bullish on Vietnam. In January, Japan’s finance minister, MasajuroShiokawa, said that Vietnam had to eliminate erratic policymaking andimprove transparency in order to avoid scaring off foreign investors. Yet, even iftransparency and predictability improve, there are a number of other factorsthat discourage foreign investors: high costs of infrastructure and services suchas phone calls; price discrimination against foreign expatriates and companiesfor items such as domestic air tickets, water and electricity; a high top personalincome tax rate (50%); and inflexible rules governing labour contracting.

The unpredictability and lack of transparency in policymaking has had anegative impact on foreign investor sentiment in the automotive andmotorcycle industries. Currently, imported completely built (CBU) cars incur animport tariff of 100%, which heavily protects the 11 local assemblers. Last yearthe Ministry of Finance proposed doubling the tariff on imported car partsfrom 20% to 40%, as of January 1st 2003, to encourage assemblers to sourcetheir inputs locally (currently 5-10% of car parts come from local suppliers).Under pressure from car assemblers, however,. the minister of finance, NguyenSinh Hung, postponed the tariff increase on January 2nd indefinitely. TheMinistry of Finance then proposed raising the import duty on completelyknocked down (CKD) kits for automobiles from the current 20% to 30% onApril 1st and to 50% in 2005, before dropping it back to 30-40% in 2008-2010.However, the ministry later abandoned the tax rises described above. The planto increase the special consumption (excise) tax on locally assembled cars fromthe current 5% to 50% in 2004 and to 100% by 2005 is also now in doubt. Thepurpose of the latter change was to slow down the growth in the number ofvehicles on Vietnam’s inadequate roads.

The proposals for higher import tariffs go against both the letter and spirit ofVietnam’s commitments under the Association of South-East Nations (ASEAN)Free Trade Area (AFTA) agreement. By 2006 Vietnam is supposed to have

100% foreign investment willbe allowed in more sectors

Positive FDI sentiment is notmatched by commitments

Tax policy in auto industry hasbeen erratic

18 Vietnam


lowered the tariff on CBU vehicles originating in other ASEAN countries to 5%.However, a delay in implementing this particular change is increasingly likely.

The government’s changing tax policy in the motorcycle industry has also beencontentious. A quota on imported motorcycle kits was imposed in Septembercausing the large Honda and Yamaha factories to close for two months. Thegovernment subsequently relented, but then announced a 100% tax onimported motorcycle parts, including kits, effective from January 1st 2003. Inmid-January the government announced that, retroactively from January 1st,import tariffs would be fixed at 50% on motorcycle parts and 100% on fullyassembled motorcycles. This replaced a sliding tariff, which was set at 60% onimported parts, but reduced to 15% if an assembler could show that at least 40%of its parts were produced locally. The sliding scale tariff proved to beunworkable; all 52 assemblers have been found by the Ministry of Finance tohave overstated the local content of their inputs.

The Ministry of Finance also proposed levying a 30% tax on all motorcyclesales, mainly to restrain sales in an effort to address the problems of trafficjams, road accidents, and pollution. The National Assembly (the legislature) inMarch rejected the proposal, citing concerns that the tax would put motorcyclesout of the reach of low-income households. Instead, the National Assemblyapproved a tax on top-of-the-line motorcycles only. The involvement of theNational Assembly may encourage more transparency in the discussions abouttax changes, and will put pressure on the Ministry of Finance to consult firmsmore widely in the future.

The Ho Chi Minh City Land Use Rights Auction Council plans to auction landuse rights for the first time in April. The minimum bid on the centrally locatedparcel will be US$3.5m. Land auctions increase the transparency of landtransactions, the lack of which has proved to be a serious problem throughoutthe country. In a recent inspection round conducted in 57 provinces and cities,the Ministry of Natural Resources and Environment found more than 350,000cases where land regulations were breached, involving nearly 84,000 ha ofland. Many of the cases involved land being used for the wrong purposes andland being allocated by authorities that did not have a mandate to do so. Theselatter cases, particularly at the hamlet and village level, typically involvedencroachments on public land. In most cases, after fines were paid, thetransactions became lawful.

The rules governing the ownership of land use rights have not been fullyworked out. In 2001 the government allowed overseas Vietnamese (Viet Kieu)to buy real estate in Hanoi and Ho Chi Minh City for residential purposes. Thefirst such purchase was made by an Australian citizen in February 2002.However, in August the Supreme People’s Court upheld a ruling that barredanother Viet Kieu from buying 1,000 sq metres of land in the coastal town ofPhan Thiet. This has deterred Viet Kieu from investing more in Vietnam;340,000 visited the country in 2002, down from 380,000 in 2001.

Motorcycle industry is subjectto changing tax policy

Land use rights will beauctioned in Ho Chi Minh City

The policy for Viet Kieu landownership is unclear

Vietnam 19


The domestic economy

Economic trends

Vietnam’s real GDP grew by 7% in 2002, a pace that was second only to Chinain the region (although the reliability of official GDP data from both countries isdoubtful). GDP growth in 2002 fell short of the government’s ambitious targetof 7.3%, but it was an improvement on the 2001 rate of 6.9%. Economic growthaccelerated throughout 2002, posting annualised growth rates of 6.5% and 6.8%in the first two quarters, and 7.2% and 7.4% in the final two quarters. Industrialsector GDP rose by an estimated 9.4%, higher than the growth rates of 4.1% and6.5% for agriculture and services respectively. The structure of the economy in2002 was practically unchanged from that in 2001, with the industrial sectoraccounting for around 39% of nominal GDP, services accounting for 38% andagriculture for 23%.

The positive trend in GDP growth seems to have carried over into 2003, led byan acceleration in industrial output growth, which rose to 16.5% (year on year)in the first two months of 2003. The growth of private industrial output, whichaccounts for 25% of the total, was particularly rapid during this period, reaching21.7%. Output growth in the foreign-invested sector and state-owned industrialsector was less impressive at 16.4% and 13.4% respectively. The rapid pace ofindustrial output growth in 2002 was in part owing to rapid increases in theproduction of a number of key goods, particularly cement (up by 26% year onyear), marine products (25%), ceramic tiles (37%), rolled steel (28%), televisions(39%), bicycles (25%), motorbikes (24%) and cars (36%). Around 65% of industrialoutput is produced in Ho Chi Minh City or in the nearby provinces; output inthese areas grew by 14% in 2002. Most of the remainder is produced in andaround Hanoi, an area that recorded a 23% rise in industrial output in 2002.

Industrial output(% change, year on year)

20032001 2002 Jan-Feb

State-owned industry 12.7 11.7 13.4Non-state industry 20.3 19.2 21.7

Foreign-invested industry 12.1 14.5 16.4All industry 14.2 14.5 16.5

Source: Press reports.

Consumer price inflation in the first three months of 2003 was steady at 3.9%year on year. Annual average inflation in 2002, also 3.8%, was driven largely byhigher prices of food, particularly rice. In March prices fell by 0.6% month onmonth reflecting the drop in demand following the Lunar New Year holidayperiod—January-February. Food prices fell by 1.9% in March month on month,but were up by 3.6% compared with the year-earlier period. Price rises forconstruction materials have been steep, up by 10.2% year on year in March,reflecting high demand and the short supply of goods such as steel andconcrete. Pharmaceutical product prices have also jumped sharply, up by 8.1%

GDP growth reaches 7% in2002

Industrial output growthaccelerates

Consumer price inflationis steady

20 Vietnam


month on month and by 9.7% year on year, reflecting the lack of official controlover prices in the pharmaceutical sector.

Consumer price inflation(% change)

Year on year Month on month2002Oct 4.6 0.3Nov 4.6 0.2Dec 4.3 0.62003Jan 3.9 0.9Feb 3.9 2.2Mar 3.9 -0.6

Source: General Statistics Office.

By early April 2003 the Vietnamese dong had depreciated by around 1.6% yearon year against the US dollar since the start of the year. Inflation was slightlyhigher in Vietnam than in the US, so a depreciation of this magnitude isexpected. However, over the same period the US dollar depreciated in realterms against other major currencies, with the dong depreciating alongside it.The overall effect of this trend has been to help Vietnam’s export-orientedmanufacturing firms to remain competitive.

A large sample survey undertaken in 2002 indicated that the proportion ofpeople in poverty had fallen from 37% in 1998 to 33% in 2002 (using a povertyline that allows the purchase of 2,100 calories of food per person per day aswell as a provision for non-food expenses). During the same period there was aslight increase in inequality, with large gains for the richest. Vietnam’s success inreducing poverty has won praise from international donors and helps tomaintain the inflow of foreign aid. Poverty rates are low in the urban areas andrelatively high in the mountainous provinces of north-western Vietnam. Inprinciple, the government’s poverty reduction campaign provides poor peoplewith cards for free medical check-ups, reduced or no school fees and loans forhouse building.

The dong depreciatesgradually

The incidence of poverty isfalling

Vietnam 21


Workers at the state-owned Titco garment and footwear factory in Ho Chi MinhCity staged a one-day strike in January, demanding better benefits and less(unpaid) overtime work. The grievances were resolved, but the stoppage issignificant because in principle employees at state-owned enterprises (SOEs)are banned from striking. Short industrial disputes are not uncommon, whichtypically concern poor working conditions and compensation. Policeintervened at a strike at a Taiwan-owned furniture factory in Binh Duongprovince in November 2002. Paradoxically, the strikes may be a reaction to theweakness of the country’s only legal trade union, the Vietnam GeneralConfederation of Labour, which considers itself the bridge between employerand employee rather than the defender of workers’ rights.

The need for more attention to industrial relations is recognised by the UNInternational Labour Organisation (ILO), which has obtained funding from theUS for a three-year project to train 70 SOEs in labour management issues. TheILO has opened an office in Vietnam, where it aims to strengthen labour-related institutions, laws and practices.

Vietnam sent 46,000 workers overseas in 2002, bringing the total number ofVietnamese “guestworkers” to over 300,000 worldwide. The principaldestinations in recent months have been Malaysia, Taiwan, South Korea andJapan. Labour export firms find jobs, recruit workers in Vietnam, provide sometraining and receive a fee in return. Some workers try to find work overseas bybypassing the labour export firms, but they are often conned by unscrupulousoperators and are vulnerable abroad. In an attempt to avoid such problems,and better prepare workers for living and working overseas, the governmenthas promised to screen all labour-export companies more thoroughly.

Agriculture and fisheries

The war in Iraq has spurred the government into seeking alternative rice exportmarkets. Vietnam has a contract to export 500,000 tonnes of rice to Iraq underthe UN administered oil-for-food programme, which has stalled because of thewar. Iraq was the largest importer of Vietnamese rice in 2002 and accounted for3% of Vietnam’s total rice exports. In early March the Ministry of Agricultureand Rural Development sent a delegation to Africa to market Vietnamese riceand it will invite 20 African countries to visit Vietnam to undertake furtherresearch. The ministry also plans to send a delegation to Dubai in April topromote bilateral trade and sign rice export contracts with Syria and SaudiArabia. According to the Vietnam Food Association, Vietnam is estimated tohave exported 650,000 tonnes of rice in the first quarter of the year. In 2002Vietnam exported 3.2m tonnes of rice.

Vietnam has joined the International Rubber Council (IRC, formerly theInternational Tripartite Rubber Council), which was established last year by theworld’s three largest rubber producers—Thailand, Indonesia and Malaysia. Theobjective of the IRC is to manage rubber production and stabilise prices.Collectively, the IRC accounts for 4.5m tonnes of exports, or 77% of the worldrubber trade. The IRC has taken credit for the recent rise in rubber prices,

Short strikes are becomingmore common

Vietnam sent 46,000 workersabroad in 2002

Alternative rice export marketsare being sought

Vietnam joins internationalrubber cartel

22 Vietnam


although strong demand in China is a more plausible explanation. Judging bypast efforts to create producer cartels, the IRC is unlikely to be effective in eitherstabilising or raising prices over the long term.

In late March the Vietnam Cashew Association (Vincas) raised the ceiling oncashew nuts by D1,000 (7 US cents) to D8,000/kg. The price rise is a temporarymeasure to help support cashew producers at a time of rising production costsand a looming poor cashew crop. According to Vincas chairman, Ho Ngoc Cam,prices will soon fall back to D7,500/kg. The total area devoted to cashewproduction is around 300,000 ha and production reached 220,000 tonnes in2002, double the level in 1999.

The Ministry of Fisheries plans to build a shrimp-breeding facility in theMekong Delta, claiming that the existing shrimp-breeding capacity isinadequate. There are almost 4,000 small shrimp-breeding farms in the area,but they are unable to meet local demand. Shrimp are difficult to raise, and anearlier government plan to breed shrimp in the Mekong Delta suffered lossestotalling D600bn (US$40m) when most of the shrimp died after a month. Tocounter such problems, many farmers have used antibiotics. However, shrimpexports are supposed to be free of antibiotics.

In 2001 the EU imposed import controls on Vietnamese shrimp after traces ofantibiotics were found; the controls were eased in September 2002. However,traces of antibiotics (including chloramphenicol, which was banned in Europein 1994) were recently found in 20 consignments of shrimp. The result is likelyto be a retightening of controls. Exports of seafood from Vietnam to the EUstood at US$115m in 2001, but fell to US$75m in 2002.

Relations between the US and Vietnam have been strained by a long-runningdispute over Vietnam’s exports of catfish. Until a few years ago most of theUS$590m US market for catfish was supplied by domestic producers. Between1998 and 2001 Vietnamese exports of catfish to the US went from 600,000 lbsto 20m lbs, by which time the Vietnamese product accounted for 12% of themarket. There was a concurrent drop in the price of catfish, from a high of 69US cents/lb in January 2001 to 50-55 US cents/lb by December 2001, where ithas since stabilised.

US producers first persuaded the US Congress to restrict the use of the word“catfish” to US-raised fish, but the Vietnamese product, now renamed basa ortra has continued to flow into the US. (Total exports of basa and tra came to56,000 tonnes in 2002, worth nearly US$135m.) US producers responded byfiling an anti-dumping petition. The International Trade Commission foundevidence that the imports from Vietnam had caused “material harm” and theUS Department of Commerce added duties ranging from 38% to 64%. TheDepartment also ruled that Vietnam had a “non-market” economy, and so thetrue cost of raising catfish could only be established by looking at othercountries (Bangladesh and India in this case). This decision is in effect a formof protectionism as it makes it far more likely that the case for dumping willbe proven.

Ceiling price for cashews israised

A shrimp-breeding facility is tobe built

The catfish dispute with theUS drags on

Vietnam 23


Manufacturing

Vietnam and the US have yet to reach an agreement on quotas for Vietnam’sexports of textiles and garments. Currently the US does not apply any quotas toapparel imports from Vietnam. Vietnamese exporters like it that way and aretrying to expand their market share in the US as quickly as possible. A total of35 large retail chains and manufacturing companies in the US have alsoexpressed their concern about the possibility of a restrictive set of quotas onVietnamese garments. Vietnam would like at least a couple of years withoutquotas, similar to the grace periods enjoyed by Cambodia and China in theirtrade arrangements with the US.

The EU has increased its import quotas for Vietnamese textiles and garments,and in return Vietnam has agreed to ease access for EU investment into thecountry. The increase in quotas will allow textile exports to the EU to rise fromover US$500m in 2002 to around US$800m in 2003. The EU may also relax therules that allow countries within the Association of South-East Asian Nations(ASEAN) to transfer unused quota from one to another. This would, in effect,allow Vietnam to take advantage of some of the quota that is currentlyallocated to the Philippines. Coupled with growing sales in the still-open USmarket, textile and garment exports are expected to reach US$3.2bn this year.The official target is an optimistic US$4.5bn by 2005. The main constraint onproduction growth in the short run is investment capital. Over the longer term,the industry will face increasingly fierce competition from Chinese and otherinternational producers. It will need to pay more attention to efficiency,including factors external to businesses such as communication andtransportation costs.

Vietnam’s footwear sector has struggled to capitalise fully on the opportunitiesprovided by the trade agreement with the US. Although footwear exports to theUS grew by 75% in 2002, the US accounts for only 10.8% of Vietnam’s totalfootwear exports. Vietnam’s footwear sector is suffering from lowcompetitiveness vis-à-vis its main competitors for the US market—China andSouth Korea. Vietnam’s producers are reliant on relatively expensive imports of

Agreement on US garmentquotas has yet to be reached

EU garment quotasrise sharply

Vietnam’s footwear sectorfaces many problems

24 Vietnam


raw materials, as domestic sources account for only around 20% of productioninputs. Factors such as high production costs, the lack of efficiency in theproduction process and a limited range of products combine to hamper thedevelopment of the sector.

The Japanese vehicle manufacturer, Honda, has responded to the new tariffregime in the motorcycle industry (see Economic policy) by raising the prices ofits motorcycles by about US$125. Honda expects to sell fewer motorcycles inVietnam in 2003, but plans to export 50,000 units from its large factory in VinhPhuc (near Hanoi), where it employs 18,000 workers and can produce 700,000motorcycles per year. Local assemblers have a total annual production capacityof 1.95m units; sales reached 1.8m in 2002 and there are about 11m motorcyclesin circulation.

Sales of locally assembled cars rose by 38% in 2002, reaching a total of 26,872vehicles; this represents a slight deceleration compared with the growth rate of40% in 2001. The market leaders are Toyota, Vidamco (Daewoo), Ford,Mercedes-Benz and Vietnam Motors. Private buyers constitute a growingproportion of the market and they accounted for more than 50% of allpurchases in 2002. The domestic market is shared by 11 assemblers, but theyare too small to enjoy significant economies of scale. Imported vehicles accountfor roughly 50% of the market. In addition to the 11m motorcycles on Vietnam’sroads, there are around 530,000 cars.

The development of the Dung Quat industrial zone in central Quang Ngaiprovince is gaining momentum. The government hopes to anchor industrialdevelopment in this relatively neglected region with an oil refinery, which willnow be developed by the state-owned petroleum company, PetroVietnam,alone. It is unlikely to come on line until late 2006 at the earliest. However,work on a US$40m shipbuilding yard has begun, and the Vietnam ShipbuildingIndustry Corporation (Vinashin) has ambitious plans to build the largestshipyard in the country there. Construction work has begun on a number ofother small projects, but the larger investment, including a polypropylene

Honda responds to tax policychanges by boosting exports

Sales of locally assembled carsrose by 38% in 2002

Construction of shipbuildingyard has begun

Vietnam 25


factory, is unlikely to come on stream before the refinery and the associatedpipeline brings oil from the fields of Vung Tau, 800 km to the south.

Energy and mining

By 2010 Electricity of Vietnam (EVN), the state-owned utility companyresponsible for power generation, transmission and distribution, plans to haveexpanded the country’s generating capacity from the current 8,750 mw to morethan 21,000 mw, to cater for the 16% annual increase in demand. This willrequire 39 new power plants and an investment of almost US$20bn. EVN alsoplans to diversify away from its currently heavy reliance on hydroelectricpower, with two-thirds of the incremental capacity coming from coal- andgas-fired power stations.

The major energy investment in the medium term will be the controversialUS$2.5bn, 2,400-mw hydropower plant that will be built in the north-westernprovince of Son La. The National Assembly (the legislature) forced thegovernment to scale down its original proposal, but the social impact of thesmaller project is still large—91,000 people, most of them ethnic minorityhouseholds, will be displaced. The project is not expected to be fullyoperational until 2015. Construction of the Na Hang hydro-power plant inTuyen, in Quang province in northern Vietnam, began in December. TheUS$492m, 342-mw power station will come on line in 2006, and will displace17,000 people.

In an effort to mobilise private funding for power generation, the governmenthas approved the financing plan for the US$480m, 715-mw Phu My 2.2 gas-firedpower plant. Ground was broken at the site in January and the plant isexpected to begin commercial operation in September 2004. The plant will beoperated under a 20-year build-operate-transfer (BOT) contract. Mekong EnergyCompany, owned by the French electric utility, Electricité de France, (56%),Japan’s Sumitomo (28%) and Tokyo Electric Power (16%), will build and operatethe plant, selling the electricity to EVN at about D600 (4 US cents) per kwh. Theproject will be the first major private-sector power project initiated by the

Future electricity needs requirea huge investment

BOT gas-fired plant at Phu My2.2 moves forward

26 Vietnam


government. It will also be the first power-generation project in the country tobe awarded by internationally competitive bid, and the first project to have(partial) risk guarantees by the World Bank and the Asian Development Bank.The project is therefore likely to serve as a model for other projects that use coaland gas.

There is growing domestic interest in building a nuclear power station, possiblyas early as 2020. Vietnam has a small US-built experimental reactor in Dalat inthe central highlands and a few engineers have studied nuclear technology inthe former Soviet Union, but there is a limited domestic capacity in the field.Some of the impetus for nuclear power comes from the Vietnam GeologyAssociation, which has found substantial uranium reserves in central QuangNam province, and has identified large potential reserves elsewhere.

The government has revoked the licences of three domestic oil importersbecause of the role they played in causing a fuel panic in February. Thegovernment abolished the 10% import tax on petrol on February 18th, but newsof the change was leaked and some importers delayed bringing petrol into thecountry until the tax was removed. The result was a temporary shortage ofpetrol and a doubling of petrol prices on the black market. By February 19th thepanic had subsided, but the incident underscored the need for the governmentto be more careful about how it handles sensitive policy changes.

The higher global price of crude oil has not been an unmitigated blessing. As anet exporter of oil, in 2002 Vietnam earned US$1.2bn more from oil exportsthan it spent on importing refined products. Petroleum prices in January-February 2003 were more than 70% higher than in the year-earlier period. If thepattern continues, Vietnam will receive a net windfall of around US$800m ayear, or 5% of export earnings. However, this overstates the benefits. Productioncosts for manufacturing exporters have risen, as have the costs of energy andother inputs such as cotton. Farmers have been paying more for petroleum-based products, especially fertiliser; and the foreign-exchange windfall hasslowed down the devaluation of the dong, making all exports less competitive.Vietnam’s oil production has reached a plateau of about 17m tonnes/year, butthe production of natural gas is rising rapidly, coming on shore from the NamCon Son basin via a 362-km undersea pipeline, the world’s longest.

Infrastructure and telecommunications

The national airline, Vietnam Airlines, has sought the government’s approval tooperate domestic flights in and out of the Cam Ranh airport in the centralprovince of Khanh Hoa. The airport has been used for military purposes in thepast and the government has yet to determine whether to transform the airportfor civilian use. The nearby Nha Trang airport, which has been operating tenflights per day, is unsuitable for Airbus 320s and Boeing 767s owing to its shortrunways, and therefore would struggle to handle the growing number oftourists to the region. If the government agrees to allow domestic civilianflights from the Cam Ranh airport, a 40-km road will be built betweenCam Ranh and Nha Trang.

There is growing interest innuclear power

Three oil importers loselicences for role in fuel panic

Higher oil prices hurt somemanufacturers

Vietnam Airlines seeks use ofCam Ranh airport

Vietnam 27


In an effort to improve the efficiency of road tolls, the government hasoverhauled the whole system, cutting tolls by an average of 20% and reducingthe number of people exempt from paying them. Managerial changes includethe introduction of quarterly and annual passes, and a reduction in the numberof fee levels. By reducing the leakage in the system, the government expects netrevenue to rise by US$40m per year.

As the main cities grow, problems of pollution become more serious. Pollutedwater from the Saigon River flooded paddy fields and fishponds early this year,killing large quantities of fish and shrimp. Ho Chi Minh City discharges700,000 cu meters of sewage into the river daily. Although its own drinkingwater comes from the cleaner Dong Nai river, the Ho Chi Minh City WaterSupply Company is only able to meet 70% of demand. Private firms arereluctant to enter the business because the regulated price of 14 US cents cumetre is too low to be profitable. The Ho Chi Minh City municipal governmentagreed to lend the Water Supply Company D500bn (US$33m) in early April.The funds will be used to improve water supply management and reducewater losses. In attempt to reduce water losses, which accounted for 38% of thewater supply in 2002, the company will overhaul 200 km of water pipelines.

The prices of several telecommunications services were cut by 15-20% on April1st. The services include international direct dial calls, voice over Internetprotocol (VoIP)-based calls, mobile phone calls and international channelleasing. The international telephone service in Vietnam, operated by the state-owned Vietnam Post and Telecommunications, is among the most expensive inthe world. Calls between Vietnam and the US, for instance, cost twice as muchas calls between Thailand and the US. The international telecommunicationscharges were previously twice reduced by 15% in December 2001 and July 2002.

Financial and other services

The VN index fell by 20% in 2002, starting the year at 227.8 and ending at 183.3.By late March it stood at around 150. The downward trend has continueddespite the fact that most of the listed firms reported higher revenue and netprofits in 2002, reflecting uncertainty about the future. In an effort to boost themarket, the State Securities Committee widened the permissible dailyfluctuation band from +/-3% to +/-5%, effective from January 2nd, but this hasnot halted the downward slide in the index. There are only 21 small companieslisted on the official stock exchange, which opened in July 2000. Foreignersmay soon be permitted to hold up to 30% of the value of a listed firm, up fromthe current maximum of 20%. A total of 13 of the listed firms have sold stakesto foreign shareholders, worth 15% of the value of their chartered capital.

Firms that list on the stock exchange have to meet strict disclosure andaccounting requirements. They must have a capitalisation of at leastUS$700,000 and have been profitable for two years before they can be listed.No such rules apply to the vigorous unofficial over the counter (OTC) market, inwhich stock in around 1,000 companies is traded. The total market capitalisationof the OTC market is believed to be about US$1bn, about six times more than

The system of road tolls hasbeen streamlined

Ho Chi Minh City suffers fromwater supply problems

The price of international callsfall further

The official stock exchange hasperformed poorly

The large “over the counter”stockmarket is active

28 Vietnam


the official exchange. However, although dividends are reportedly higher thanfor officially listed stocks and bankruptcies are rare, the OTC market is not forthe conservative investor. Insider trading is widespread and information aboutcompanies is typically incomplete and lacks transparency.

American Express and the state-owned Foreign Trade Bank (Vietcombank) havelaunched a joint local-currency credit card in Vietnam. Although Vietnameseconsumers generally prefer to pay for most goods and services by cash, thecredit-card market is expanding. Vietcombank currently accounts for around50% of the local credit-card market.

Much of the border trade between Vietnam and China involves cashtransactions. However, this is a result of change, following an agreementbetween the Agricultural Bank of China and the Vietnam Bank for Agricultureand Rural Development (VBARD). The two banks have worked out anarrangement that allows for international non-cash settlement for crossbordertrade. Apart from being more convenient and secure, the agreement paves theway for firms to use bank credit, rather than the less reliable inter-firm credit,to finance their purchases.

Helped by a surge late in the year, the number of foreign tourist arrivals rose byaround 13% in 2002, reaching 2.6m. The Vietnam Administration of Tourismhoped that the figure would rise by a further 10% in 2003, when the countryhosts the Southeast Asian Games. This seemed feasible in the first two monthsof the year, as arrivals rose by 16.6% year on year to nearly 500,000. However,the outbreak of a mysterious virus, known as Severe Acute RespiratorySyndrome (SARS), in March threatens to derail the tourism boom. The viruswas initially diagnosed in early March in Hanoi, Hong Kong and Guangdong inChina. By early April SARS had been identified in at least 18 countries,according to the World Health Organisation (WHO), and had accounted formore than 100 deaths, including four in Vietnam. Although the WHO stated inend-March that the spread of the virus in Vietnam had been contained and thatthere was no need to restrict travel to the country, a number of governmentsand travel advisory services continue to advise against travel to Vietnam.

The boom in tourism prior to the SARS outbreak partly accounted for Vietnam’snewly acquired image as a haven of stability in a turbulent region. There aremore pragmatic explanations too: tourists from Thailand, Malaysia and thePhilippines can now visit for 30 days without visas; the cost of a visa for avisitor from a cruise ship was cut from US$25 to US$20; five-day visas areavailable at border gates and seaports; and Chinese tourists can visit thenorthern provinces with a simple tourist card. There has also been a significantimprovement in the choice and quality of resort hotels, even in out-of-the-wayplaces such as Sapa in the northern mountains and Hoi An on the central coast.

Despite reportedly friendly and productive talks in March, the US andVietnam have failed to agree on establishing direct air links between the twocountries. However, the two countries signed a “memorandum ofconversation” that committed them to meeting again within three months,

Two new alternatives to cash

SARS virus threatens tourismboom

Stability contributed to rise intourism

Direct US-Vietnam air linkshave yet to be agreed on

Vietnam 29


and there are indications that an agreement may be within reach. If so, directflights may begin in 2004. Last year 259,967 passengers flew indirectly fromthe US to Vietnam.

Despite uncertainties in the global airline industry, Vietnam Airlines is planningto expand. It carried 4m passengers in 2002, up by 18% year on year, andexpects traffic to rise by 13% this year. In March it agreed to buy five Airbusplanes and 11 engines, to be delivered in November. In October 2002 it boughtfour Boeing 777s, which will be put into service in July this year. The state-owned carrier also has a fleet of 30 aircraft.

Foreign trade and payments

Vietnam’s export revenue rose by 9.5% year on year in 2002 reachingUS$16.5bn. The pace of export expansion accelerated in early 2003, althoughthis partly reflects the poor start in 2002. Total export revenue in the first twomonths of 2003 reached US$2.9bn, a year-on-year increase of 44% (37% if oil isexcluded). Powering this rise was a large increase in the volume of textiles andgarments, which contributed to an expansion in export value of 82% toUS$517m. Crude oil exports accounted for 24% of total export revenue inJanuary-February, up from 20% in 2002. The volume of crude oil exports roseby 5% year on year in January-February. Owing to the soaring price of crude oilin the run-up to the US-led war in Iraq, crude oil exports were worth US$689m,a year-on-year increase of more than 70%. Despite a drop in volumes of nearly40%, coffee export revenue grew by 27.6%. Seafood, rice and rubber exports alsorecorded robust revenue growth in the first two months of the year, up by 32%,150%, and 118% respectively compared with the year-earlier period.

In 2002 Japan bought 14.7% of Vietnam’s exports, slightly more than the USshare of 14.6%. However, in 2003 the US is expected to become the maindestination for Vietnam’s exports. In the first month of the year, the USpurchased more than 20% of Vietnam’s exports compared with 14% by Japan.

Exports and imports(US$ m unless otherwise indicated)

Jan-Feb2002 2003 % changea

ExportsFootwear 1,828 365 18.6Textiles & garments 2,710 517 81.5Crude oil (m tonnes) 16.9 2.8 5.0Crude oil 3,226 689 71.9Rice ('000 tonnes) 3,241 314 190.8Rice 726 56 149.8Coffee ('000 tonnes) 711 120 -39.7Coffee 317 85 27.6Marine products 2,024 269 31.9Total exports incl others 16,530 2,865 44.2Memorandum itemsExports by domestic firms 8,762 1,364 33.7Exports by foreign-invested firms 7,768 1,501 55.3

Robust export growthcontinues into 2003

30 Vietnam


ImportsPetroleum products (m tonnes) 10 1.4 -9.7Petroleum products 2,017 330 38.0Motorcycles ('000 units) 1,250 611 501.6Motor cars 576 77 4.0Total imports incl others 19,300 3,023 25.0Memorandum itemsImports by domestic firms 12,716 2,063 0.7Imports by foreign-invested firms 6,584 960 6.8Trade balance -2,770 -158 n/a

a January-February 2003 compared with January-February 2002.

Source: General Statistics Office.

The expansion in the import bill (valued on a customs basis) in 2002 outpacedthe growth in export revenue, rising by 19% year on year to US$19.3bn. In thefirst two months of 2003, the upward trend in imports continued, rising by25% year on year to US$3bn. Although higher crude oil prices boosted exportrevenue in the early part of the year, Vietnam has no oil refineries andimports all of its refined petroleum products. Therefore, despite a 10% drop inimport volumes, the import bill for petroleum products rose by 38% year onyear in January-February. In line with the expansion in garments and textilesexports, imports of raw materials for this sector grew by 24% in January-February. The robust level of imports of other inputs and capital goods augurswell for economic growth later this year. Strong domestic demand has alsodriven the imports of consumer goods, and the number of importedmotorcycle units jumped to 611,000 in January-February compared with 1.25min the whole of 2002.

Vietnam continues to pursue membership of the World Trade Organisation(WTO) and hopes to join by 2005, although a more realistic accession date is2006. The EU is supportive, and has provided funding for some of the technicalpreparation that will be needed. Vietnam has completed “bilateral dialogues”with 16 countries; the application process requires such dialogues with 30countries. The pursuit of WTO membership gives economic reformers withinVietnam cover to undertake liberalisation that might otherwise be politicallydifficult to implement. Although Vietnam negotiates WTO membership withvigour, it has been in no hurry to complete an apparel and textile agreementwith the US. The completion of such an agreement is part of the unfinishedbusiness related to the Bilateral Trade Agreement between the two countries,which was signed in December 2001.

The government announced in January that it was postponing until July thetariff cuts that it had agreed to make under the Association of South-EastNations (ASEAN) free-trade area (AFTA) obligations. Until recently the tariffreductions had little impact, either because the initial tariffs were unnecessarilyhigh, or because there was no domestic industry to protect. However, theimpact of the cuts is now beginning to intensify and some fragile sectors, mostnotably electronics, will have difficulty maintaining competitiveness.

The import bill rises by 25% inJanuary-February

Vietnam is pushing for WTOmembership

AFTA tariff cuts have beendelayed until June

Vietnam 31


In 2002 foreign direct investment (FDI) commitments came to US$1.43bn, adrop of 42% in value year on year, although the number of projects rose to 715,an increase of more than 30%. The return of Asian investors was marked in2002, with Taiwanese firms leading the way, in terms of the number of projects,sinking US$260m into 185 projects, followed by South Korea (142 projects,US$261m) and Hong Kong (55 projects, US$142m). Many of these projects are ofhigh quality and in export-oriented manufacturing, in contrast to the mega-projects that dominated investment commitments in the mid-1990s. Thedownward trend in FDI commitments continued into early 2003, with onlyUS$179m committed in the first quarter, representing a year-on-year drop of32%. The number of projects also fell by 48%.

The actual disbursement of FDI picked up to US$2.3bn in 2002, according to theMinistry of Planning and Investment. However, there is no definitive officialsource of FDI data in Vietnam. The accounting methodology used by the MPIdiffers from that of the State Bank of Vietnam (SBV, the central bank). The FDIdata provided by the SBV is less impressive, with FDI disbursements estimatedto be around US$1.5bn in 2002.

Foreign direct investment(commitments made in 2002)

ValueNo. of projects (US$ m)

Main sourcesSouth Korea 142 261Taiwan 185 260Hong Kong 55 142US 29 137Japan 43 95Malaysia 25 94

Main destinationsDong Nai 96 255Binh Duong 135 253Ho Chi Minh City 206 252Hanoi 54 115

Source: Ministry of Planning and Investment.

Although foreign investors are seemingly less committed to Vietnam, thesupport of international donors has been resilient. However, in the first quarterof 2003 the disbursement of official development assistance (ODA) reachedUS$275m, according to the Ministry of Planning and Investment, whichrepresents only 16% of the year plan. Of the total ODA disbursed in the firstquarter, US$236m was in the form of credits and US$39m in the form of non-refundable aid. The Japan Bank for International Co-operation, the World Bankand the Asian Development Bank accounted for 70% of the total disbursed. Atend-2002 international donors pledged US$2.5bn in ODA for 2003. Japan,which accounts for around 40% of Vietnam’s ODA, signed an agreement inApril to lend Vietnam more than US$600m to promote socioeconomicdevelopment. The Australian government will also provide US$900,000 as partof a project to fight the spread of the HIV/AIDS infection throughout Asia.

FDI commitments drop steeply

International donors remainsupportive

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