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Issue No. 28
January 2000
our third year on the Internet

A Periodic Report to Our Clients

See VVG's  monthly feature on Current Economic Indicators

Current Dispatches

Economically, where is Vietnam?  Year-end reports, and top of the Millennium financial forecasts abound.  Most address the recovery being made in the troubled economies of Asia.  Many speak of real growth in China, Indonesia, Malaysia, The Philippines, Singapore, Taiwan, and Thailand.  These nations are expecting their GDPs to top five per cent (5%) in the first year.  Even South Korea (ROK) is coming out of its malaise, swinging hard and fast as it once again is expected to take a dominant position.

Vietnam too has changed.  The World Bank reports a projected GDP increase in Vietnam of three and one half percent (3.5%), but local foreign analysts speak of actual recession if not depression.  Moreover, regional reporters ignore this land of great resources, of both natural and personnel.  It is not difficult to understand why.

Reporting transparency needed.  Overstatements of growth do not sit well with investors. Yet, we have suffered with nothing less from the government of Vietnam for the past decade.  Understatements of challenges are even less well received.  Yet, the leadership of Vietnam seems incapable of intellectual honesty at a time when nothing less is tolerated. Vietnam’s regional competition learned that lesson the hard way three years ago.

Vietnam seems destined to remain in the economic and financial netherworld relegated to the people-starved, resource-scarce, and politically-challenged nations of Burma, Cambodia, Laos, and North Korea.  The internal struggle between arch conservatives (who seek to avoid general growth that will only strip them of local power) and the progressives (who wish to move their nation more quickly on the path of true reform) is now almost in full, open view to those few who can see in the dark. 

Real stability is needed.  Vietnam lost the appearance of, if not its actual, political stability over the past year. That stability is the main reason any investor elects to take a chance in an emerging market.  “Let’s give Vietnam a chance” was the prevailing investor- attitude from 1993 to the end of 1998 and early 1999. 

The past year has been seen by many with insight into Vietnam as an economic and political battle.  That battle can yet turn into (if it has not already become) al civil war as the New Year, decade, century, and millennium begins.

Few commentators see developments over the past year, and particularly in the past six months, in a favorable light. Vietnam shot itself in the foot when it rejected the Bilateral Trade Agreement (BTA) with the USA.  Vietnam looked at but completely failed to even crawl through the window of opportunity brought by the 1997 collapse of its neighbors. That can be viewed as an opportunity lost. 

However, the last minute rejection of the already approved BTA creates a new worry.  Did the self-inflicted bullet shot strike an artery that will cause the nation of Vietnam to economically hemorrhage?  At risk is the loss of the economic growth achieved so painfully and so very slowly over the past ten years.

The main question asked of any person, worldwide, to judge stability may soon generate a negative answer in Vietnam. The question, “Are you better off today then you were five or ten years ago?” may be answered in the negative before the end of the year 2000.

Conflict avoidance.  Most Vietnamese abhor conflict of any kind. They actually bend over backwards to avoid private and certainly public clashes.  Following 2,000 years of warfare, this is understandable.  China dominated these fine people from before the time of Christ to about 938 AD when the Chinese were first thrown out.

For the next 1,000 years (the last battle was in 1979), China has been unrelenting in its effort to take economic and physical, if not political, control of these fearless and fiercely independent people.  No one is calmed by the talk or rhetoric: battle lines are formed around the Spratley and Parcel Islands. Map makers and leaders bristle when the East Sea is printed as the “South China Sea.” The battle goes on, even as leaders visit each other and talk-the-talk. They still fail to walk-the-walk.

Even the most casual observers of Vietnam can watch drivers along congested roadways yield to the “crazy” boys and girls who dart and weave without regard to their safety of that of others. This may be the most apparent sign of how Vietnamese at all levels seek to avoid conflict.  A housewife in Amsterdam will board a tram to shake her finger at a noisy teen.   Pedestrians in New York City surround a wayward taxi driver.  Children in all lands pester and heckle polluters.  But not in Vietnam.  The vast majority of good and decent people pull out to the way to allow crazy drivers more room. That causes the crazy drivers to more often than not to escape injury, even while the majority is inconvenienced, and often themselves injured.

Politically challenged.  It is the same in the politburo. While we cannot see them in session, it is the nature of the majority of Vietnamese who are of good behavior, good will and up-standing in other areas to yield to those of their own who are antagonistic, brash, loud, and pushy. There is quite but open ridicule for those who may not even have a 4^th grade education, who have not traveled out of Vietnam, or who may have visited only backward lands such as Cuba, Iraq, and North Korea, or who may have a few old ideological friends in Russia and China. These are the ones in leadership who now push outdated, views through the halls of real power.

Thus, the Prime Minister could not meet President Clinton to ink the BTA in Auckland last October; Secretary Brown could not visit Vietnam; and foreign business men are hassled, and even hustled to reduce or close operations, or leave the country.

One must also fault Secretary Albright’s advisors who reportedly did not brief their boss, who reportedly asked GS Phieu about the timing for the curtailment of the CPV.  If that question was asked, the Secretary of State should know that she merely played into the hands of the real enemies of economic growth of Vietnam.  There is no point in Americans being rude to those in a clearly difficult position who themselves may not be able to see their way to a clear and easy path for true economic change.

Reading tea leaves.  It is our continuing and firm belief that the good people of Vietnam will come out on top. There are many in government who need our continuing encouragement and support.

However, it is also time that those same people step up their own efforts. Some good, stiff finger shaking and truthful words do calm marauding teens in Amsterdam, taxi drivers in New York, and polluters the world over.  So too might the arch conservatives be brought into awareness.

But no one expects them to change.  Instead, many in government have expressed the hope that those who are still tied to the past can yet be given golden handshakes. This can include private villas on the East Sea, handsome pensions, a new Mercedes Benz S 600 sedan, and positions of key importance as honored advisors.

Of course, the private reasoning of those proponents continues, to insure that the nation will grow strong, the new pensioners should have absolutely no authority to act in any meaningful capacity. In that way, the nation and its worthy people will be able to take their rightful positions in the world’s economy.

The failure of transparency relegates all commentators, those inside and outside the state controlled media, to simply read tea leaves when it comes to identifying real changes.  However, from within the darkness, we know the future can be bright.  But it is time that someone turn on the lights, or at least open the window curtains.  And while you are at it, open the windows as well.  A bit of fresh air will go a long way towards allowing the good people of Vietnam to achieve the economic growth they so richly and rightly deserve.

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Government raises minimum wage and pension for public employees.  The minimum monthly wage for public employees will be raised to VND 180,000 ($12.86) from the current VND 144,000 ($10.28) as of January 1, 2000, the Government has decreed. The minimum monthly wage for Vietnamese working in a foreign invested enterprise remains at from $35 to $45, pegged to the dollar. However, salaries above the minimum are not pegged to the dollar but are in local currency.

The Government has also decided to increase monthly allowances by a maximum of 25 per cent of those who have made major contributions to the country.  Relevant agencies will decide the rise to be applied to each category in this group, which include veteran revolutionaries, families of fallen soldiers, war invalids, sick soldiers, those who took part in the anti-French and anti-US resistance wars, and those who made other contributions to the revolution.

No provisions have yet been made to provide similar support to Vietnamese who were on the losing side of the earlier conflicts.

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Government reports: economy continues to grow.  The Vietnamese economy has overcome local and regional problems to record gross domestic product (GDP) growth of five per cent this year, the highest of all ASEAN countries, according to a report from the Vietnam Statistics General Department.  [The reports from World Bank are lower, at 3.5 per cent to 4 per cent, while independent international bankers opine the real growth is near stagnant, if not in recession.]

The growth rate, which met the National Assembly’s target, is attributed to efforts by the Party and Government to overcome declining industrial production, severe floods in the central provinces and the negative impact of the regional economic crisis.
According to the Asian Development Bank (ADB), Thailand’s GDP growth rate this year was between 3 to 4 per cent, the Philippines 2 per cent and Malaysia and Singapore 3 per cent.

It was a good year for agricultural production. This has ensured food supplies across the country even in the flood-hit central provinces.  Bumper rice crops again made Vietnam the second largest rice exporter in the world. Per capita food share reached an average 440kg this year.

The industrial sector, however, still faces difficulties with a shrinking domestic market, low purchasing power and obsolete equipment and technology. Despite this, the sector achieved a growth rate of 10.5 per cent this year. The foreign-invested industrial sector had the highest growth rate of 19.4 per cent while non-state and state-run sectors registered growth of 8.5 per cent and 4.9 per cent respectively.
The export industry performed well with exports totaling about US$11 billion, surpassing the yearly plan by $1 billion and was up $1.6 billion, or 19.3, per cent over 1998.

This success resulted from efforts by business to expand overseas markets for export commodities such as crude oil, rice, coffee, marine products, garments and footwear. In addition to markets such as Japan and the EU countries, new markets in the Middle East and North America were opened up.

An export value of US$1 billion or more was achieved in each of five commodities: crude oil, garments, footwear, rice, and marine products. [However, the balance of trade is due to the slowdown of imports that equaled exports. This is due to the industrial and economic slowdown of the nation.]

In social areas, the Government has focused investing in projects to improve people’s living conditions, especially for poor families in remote, mountainous communes and flood-hit central coast provinces.
Almost 95.5 per cent of the nation’s districts and 75 per cent of villages now have access to electricity. In addition, 100 per cent of villages have schools and 98 per cent have dispensaries. The percentage of poor families was reduced from 20 per cent in 1995 to 13 per cent in 1999. Employment programs provided jobs for 1.2 million people while the population growth rate dropped to 1.58 per cent and the number of malnourished children fell to less than 40 per cent.

Flood relief programs were developed and more than 10 million people in the central provinces received emergency relief.
However, the economy did experience many difficulties in 1999. Many sectors recorded a decline in production and growth. The domestic market slowdown and decreased purchasing power created a large stockpile of consumer and industrial goods.
Though the Government has taken measures to stimulate domestic demand, this had had limited success. The country still faces rising unemployment, poverty and rampant social evils.

In 2000, experts hope that agricultural production will continue to grow with food output reaching 34.5-35 million tonnes, coffee output increasing by 30,000 tonnes to 500,000 tonnes and rubber production 210,000 tonnes. Other crops including sugarcane, fruit trees, corn and peanuts are expected to increase slightly.

In the industrial sector, production is targeted to increase, including exports to Western Europe, North America, and Japan.
Observers hope the sector will post a growth rate of 10 per cent in 2000. Rapid growth is expected in industries of crude oil, chemical fertilizers, floor tiles, sanitation ceramics, rolled steel, transformers, motorbikes, and processed marine products.
Local commodities are likely to be more competitive as a result of stimulus programmes and an expanded overseas market. Retail sales turnover will increase, the price of commodities and services will rise by 5-7 per cent and export value is expected to reach $13 billion.
With the economic recovery of Asian countries and a number of planned national celebrations here, the tourism sector is expected to grow by 5 per cent.

To reach the year 2000 economic targets, experts proposed measures to increase investment from the State Budget in upgrading machines and technology to improve product quality to meet market demand. In particular, State capital should be given to repairing infrastructure damaged by the recent floods on the central coast such as ports, roads, irrigation works and electric transformers.
The State also needs to reduce tax for 10 flood-stricken central provinces and 1,700 disadvantaged communes and adjust value added tax (VAT) for business. Prices, especially of consumer goods, should be lowered to boost sales to benefit businesses, producers and farmers.

To make these solutions feasible, experts say the main task is to strengthen State administration, enhance co-operation between the Central Government and local authorities, and boost agro-industrial production from early 2000 to build a commodity-oriented economy in the new century.

Economic experts have high hopes for Vietnam’s economic prospects in 2000. They say higher economic growth will eventually bring about material and moral strength to help State bodies meet economic and social targets set by the five-year 1996-2000 plan. — VNS

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Export growth set at 11 per cent for 2000 as recovery continues

Vietnam is targeting an 11 per cent increase in exports to US$12.8-13 billion next year by expanding its sales to the European Union, United States, Middle East, Africa and Latin America. 

[However, 4.7% of that targeted 11 percent growth is based upon the forecast of increased trade with the US.  The Trade Ministry no doubt expects more in getting the BTA signed with the US from sources other than its own bosses in the Politburo, who scuttled the deal in October 1999.]

The Trade Ministry says the estimate follows strong export figures for 1999 - up 23 per cent over last year to $11.52 billion.

The estimate is based on a number of factors; the recovery of Asian markets from the regional economic crisis, Vietnam’s continued integration into world and regional economies, the development of markets in the EU and the US and the opening up of new markets in the Middle East, Africa and Latin America.

Trade Ministry officials forecast exports to the US will double from $0.6 billion to $1.2 billion in 2000 if the US-Vietnam Trade Agreement is signed soon.  The export value of commodities including footwear, knitwear, garments and wooden and ceramic items is expected to increase after normal trade relations are established.  Vietnam now mainly exports coffee and frozen shrimp to the US.  Exports of footwear, another main export line, are already worth $150 million a year, despite a high 35 per cent tax on these products.

Canada is also a promising market for Vietnamese products such as agro-marine products, leather shoes, garments, arts and handicraft items. Officials expect exports to Canada to reach $100 million next year.

The EU has been buying Vietnamese marine produce and garments for several years and the market has the potential to increase - by an anticipated 15 per cent a year from 2001 to 2010, the officials say.  However, the EU market has strict regulations on quality and hygiene.

Japan remains Vietnam‘s biggest export market.  But although exports to Japan are expected to grow by 17 per cent next year, the rise will be just two per cent over this year’s growth rate as Vietnamese businesses attempt to switch to direct exports rather than depend on brokerage by Japanese traders.

ASEAN markets will account for an estimated 13 per cent of Vietnam’s total exports in 2000 as against 21-25 per cent over the past few years.

The slump is attributed to Vietnam’s effort to expand foreign markets beyond ASEAN countries.

Bilateral trade with China is expected to grow by 25 per cent next year, with Vietnam’s main exports including rubber, coffee, crude oil, marine products and coal.  

The Trade Ministry is now focusing on new markets in Africa, the Middle East,and West and South Asia. It is actively promoting thesigning of trade agreements with South Africa, Senegal, Nigeria, Pakistan, and the United Abab Emirates.  Other traditional markets include Kran, Iraq, Kuwait, and Egypt, will be expanded next year,official say.  In 2000, Vietnam is expected to earn $513 milion from these markets.  Main exports include electronics, coffee, rubber, arts, handicraf items, farm machines, and rice.   

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Traffic accidents toll up to 6,177.  Motorbikes are major road killers.  The 19,816 traffic accidents recorded in Vietnam so far this year have killed 6,177 people, the Vietnam News reports from a dispatch in the Capital Security newspaper. 

The paper also said that 380 rail accidents killed 161 people, and 22,280 people have been injured in accidents involving vehicles and trains this year.

Some 65 per cent of the road accidents were caused by violations of traffic laws, including reckless driving and driving while intoxicated. Motorbikes were involved in 64 per cent of the incidents.

Most of the traffic accidents occurred in Ha Noi, HCM City, Ha Tay, Ha Nam, Ngha An, Thanh Hoa, Lam Dong, Binh Thuan, Phu Yan, and Dong Nai.

In 1998, 6,189 people died in 20,250 road and rail accidents.

This number appears to be understated.  A small, local hospital in the An Phu section of HCMC near Highway One alone privately reports (1998 numbers) an average of 12 deaths daily from motorbike accidents (or 4,380 that year).  If both reports were accurate, the An Phu hospital would account for receiving over 70 % of the nation’s road fatalities.

Contrasting numbers are from the vastly larger Cho Ray Hospital in Ho Chi Minh City that reports (1999) over 300 daily patients with head injuries, more than 70% of whom are due to traffic accidents.  In a land of nearly 80 million people, where the motorbike is the predominant mode of transportation, where there is no enforcement of the wearing of motorbike safety helmets, one can properly question the accuracy of the reported numbers, but not the seriousness, of the report.

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Work permits for foreigners: rules eased. The fee of VND 200,000 has been done away with and issuing agencies must process the permits in 15 days, down from 45 days previously.

More importantly, work permits are valid for the whole length of contracts with their employers, not limited to a maximum of three years as before. The requirement for a certified resume has also been abolished and instead, applicants need only submit their resumes and vouch for their accuracy themselves. Applicants can now apply for permits in the province where they work, instead of having to send their applications to the Ministry of Labor. Those who have certificates can submit them, but those who do not can describe their experience and field of expertise.

All these changes are necessary to untangle the mass of red tape about which many foreign workers have complained. In HCM City out of 3,500 foreign employees applying for permits, only 900 were granted them. Of those who work without permits, the City’s Department of Labor said, 60% had difficulty in providing professional proof or certified CVs. According to incomplete statistics, more than 27,000 foreigners are working in Vietnam.

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Auto Outlook for 2000: cheaper cars, auto industry advised.  Business strategies that take into account the country’s economic growth rate and the purchasing power of local consumers would help automobile manufacturers in Vietnam increase sales, say experts.

The Tai Chính Viet Nam (Vietnam Finance and Marketing) magazine quotes them as saying that the local market can now absorb about 40,000 units a year.

In 1997, when most Southeast Asian was in the midst of an economic downturn, government reports were that 6,000 vehicles were sold locally. There was little improvement next year with average sales of just 40 automobiles a month. (sic)

Several factors have contributed to the slowdown including imports of completely built cars. In 1998, 13,500 cars worth US$100 million were imported, severely affecting the local auto assembly sector.

The situation has been compounded by the fact that the main buyers of locally produced cars are foreign and joint venture companies. But because of the economic crisis these companies have been cutting costs and buying fewer cars.

The Government has also restricted the use of cars by State-run administrative offices and businesses, which account for 80 per cent of local manufacturer’ sales. Consequently, automobile sales to these sectors this year have dropped to 166 units from an expected 970.

A few years ago, auto makers such as the Viet Nam Motor Corporation (VMC) and the Mekong Corporation could manufacture and sell quite a few cars to taxi firms. But this market is now saturated.

The magazine says local auto joint ventures should expand their markets by targeting private individuals as their main customers. But they must also cut prices to be more in line with the average income of Vietnamese workers.

A Mercedes-Benz S600 now sells for $118,000, a E55 Classic 354 for $85,000 while a Mitsubishi Pajero costs $22,000. These prices are way beyond the reach of local customers.

Vietnam now has 11 auto joint ventures operating with famous foreign partners including Ford, Mercedes-Benz, Daewoo, Toyota, Mazda, Mitsubishi and Isuzu. Vehicles are made mostly with imported components and are therefore of a high standard.

But the local ventures are running at well below capacity with even the successful firms operating at only 15 per cent of capacity.

Japan's Toyota now is considered one of the most successful companies manufacturing and selling automobiles in Vietnam with monthly sales of 1,400 cars. Toyota cars with four and 15 seats account for about one third of all automobiles sold here.

The key to its success is that apart from relying on its popular trademark the firm has worked hard to attract new customers, particularly individuals, with a range of designs and reasonable prices, the magazine says. — VNS

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Currency, will Vietnamese dong remain stable?  High-ranking officials of the State Bank of Vietnam (SBV) met with representatives of international financial organizations, foreign bank branches and joint-venture banks operating in Vietnam in a recent meeting in Ha Noi to talk about the SBV’s activities next year. Media reports on some opinions follow.

Director Nguyen Doan Hung of Foreign Exchange Control Department predicts the dong will remain stable, but he does not discuss or factor in what will happen if China revaluates its yuan.

Currency will depend on Vietnam’s balance of international payment. The current payment is almost balanced. But this official does not discuss small increases in exports, but and larger shortages of hard currency, reduction of capital growth, and therefore a reduction on imports as key factors for achieving “balance.”

It is not surprising, even given the Politburo’s refusal to accept the BTA with America and the unlikelihood that the US will consider the agreement until 2001, that this official expects Vietnam’s economy will grow better when a Trade Agreement between Vietnam and the United States is signed. Pending the signing, Vietnam’s exports to the United States are still pressured. The question remains: when will the Politburo consent to allow Vietnam to grow strong and sustain both increased imports and domestic growth for increasing exports?

Director Pham Thanh Bình of Department of banks and non-bank credit institutions believes it is time to relax regulations and allow foreign bank branches to mobilize deposits in Vietnamese dong, Foreign banks’ growing investment in Vietnam is attributed not only to an open-door policy, but also to their intentions to bolster up their countries’ enterprises operating here.  The State Bank of Vietnam is working out measures to relax regulations governing activities in this field.

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Dong firms against dollar.  The dong grew stronger against the US dollar in the “free market” following last week’s sharp drop, reports the Vietnam News Daily.  Free Market is the new euphamism used by the central authorities in Vietnam for “Black Market.” The world outside of Vietnam, and most Vietnamese, are aware that the dong is not freely traded in the world’s market.  There is no bank in the world, outside of Vietnam, that will convert the dong to any other currency.

At the end of December, the exchange rate for the dollar on the local Vietnamese market in foreign currency [called the “foreign market” in Vietnam’s State controlled press]  stands at VND14,130 to buy and VND14,170 to sell.

 According to Hanoi-based commercial banks, the recent fluctuations of the dollar occurred in the “free market,” while domestic trading of currency remains normal. The Bank for Foreign Trade of Vietnam (Vietcombank) quoted an exchange of VND14,015 to buy and VND14,021 to sell on 23 December 1999. This rate has not changed in any meaningful way as only the State Bank can change the official rate.

Some market analysts believe last week’s appreciation of foreign currencies was a result of the continuous fall in dong interest rates, which sparked a large number of consumers to withdraw money from banks to buy dollars.

The head of the central bank’s Foreign Exchange Control Department Nguyen Doan Hung, confirmed the fluctuation of exchange rates was only in the “free market” and does not affect the State-managed banking system.

The official rate of exchange on 27 December 1999 was still posted at essentially the same official rates.

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