COMMENTARY

The Silent Turn to ... Normalcy - Part 2. The economy does not seem to be growing, but look at what is happening:  

• the numbers of visitors to Vietnam is up from last year by a significant amount, 

• office space in commercial buildings has almost replaced all former uses of old, restored villas, 

• and that space is now at a premium as only small offices remain available, 

• hotel's have not yet returned to their rack rates and in comparison to Bangkok, Singapore, and Malaysia are still a bargain, but the rates are creeping up as occupancy rates go over 50% on a regular basis, and

• licensing has not ever been as easy, some granted  in a matter of weeks after filing with fees down to a reasonable level, and the mood and temper of the people for the most part is upbeat.

Exports are down, imports are naggingly persistent and growing, major corruption among high ranking officials has been trumpeted in the State Controlled media almost as a preface to the announcement of the new cabinet later this month, and the rumor mill has it that the favored PM Khai will remain on in his post for a few years more.

New traffic lights look nice and we see the improved traffic patterns, knowing the chaos in the streets is more under control than it may be perceived by a new visitor. And that is a good analogy to what is happening in Vietnam today.  We are not blind to the challenges but see the improvement and know things will only get better and in fact are.

Some major projects (refineries, national highway, seem do be blessed with investment opportunities even as their profits are as elusive as white tigers in Vietnam (there are none).  Middle of the road projects of private foreign developers (from $100 million to $500 million) are still pressured to build and perform even as investors are as hard to find as are their Rolls Royce cars (only two in the nation and both in hiding).

International ratings institutions upgraded Vietnam's financial institutions from one of  "speculative and  weak creditworthiness"  to "uncertain protection against losses from credit defaults" and still facing major ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the institution’s inadequate capacity to meet its financial commitments.

Thus, we see the improvement and based on the growth over the nine continuous years we've been working in Vietnam believe there will be greater improvements in the short and long term.

The new government will be announced before the end of July and absolutely no material changes in the direction of Vietnam's growth towards favoring foreign direct investment is foreseen. While this nation may have dropped from the radar screens of some investors, the wise ones will refine their devices and come in for a first, or return for a new, look. 

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DISPATCHES

Advertising Totals - For What It's Worth

[VVG Note:  We presume the numbers reported are in US$ and that the numbers reflect something important.  We broke the list down as published by the State media to form the chart below.  It is interesting to see (1) the manner of the original report (a mass listing of names and numbers) makes reading difficult and understanding nearly impossible; (2) the totals given do not correspond to the totals drawn from the numbers presented; and (3) not included are overall marketing expenses normally taken as a business tax deduction but still disallowed in Vietnam. These are the promotional costs that normally dwarf mass media advertising costs and include: sponsoring local events, give-aways including costly signage, contests, and the cost of giving product away to help capture market share. It is a common practice in the soft drink and beer industry to form exclusive agreements with key vendors who receive the substantial portion if not all product free for a "break-in" period.]

Mass Media Expenditures in Vietnam Jan.-Oct. 2001 (Source: AC Nielsen) Reported by STW

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Vietnam's water system in crisis - An Investment Opportunity. Vietnam's water supply system is unsustainable and in desperate need of an overhaul, claims the head of the Vietnam Water Supply and Drainage Association.  Across the country, the average water loss stands at about 37 percent, but the loss is up to 50 percent of water supplied in Hanoi, Hung Yen, Da Nang and Ca Mau. The loss is due to old, broken and outdated infrastructure as well as wastage and inefficiency.

In many densely populated cities, the water-supply network simply cannot cope with demand. Networks in Hanoi, Ho Chi Minh City, Can Tho and Nha Trang are already way overstretched, with predictions of severe water shortages in the coming years. And these networks are still not even serving the entire population.

Only 67 percent of residents of big cities have access to clean water, and that figure drops to just 11 percent in district towns. On the other hand, many water-supply networks in small and medium provincial towns are far too large, as they were built without reference to demand.

Rather then continuing with the current fixed fee for all users, it is believed that a sliding fee scale in which corporate customers paid more than households would encourage people to use water wisely. But that is not the only problem.

The government has poured about US$1.3 billion into doubling the water-supply network in the past decade. The bulk of that capital, $1 billion, came from foreign investment, predominantly from official development assistance funds.

In 1991, the average Vietnamese resident received between 40 and 45 liters of water a day. Last year, that amount reached 85.1 liters and in large cities residents got 104.1 liters per person.

Water authorities want all city dwellers, who make up 30 percent of the nation's population, to have access to piped water by the end of the decade. But experts say the development plan must take into account differences between regions and must be based on real demand.

In large cities such as Hanoi, Ho Chi Minh City and Da Nang, increasing the supply capacity and upgrading the decrepit pipe network could avoid water severe shortages.

Experts have urged the authorities in 500 district towns to assess the real level of demand before mapping out their solutions. Currently, residents in only 290 district towns have access to clean water. Vietnam has 600 cities and towns.  (Asia Pulse/VNA)

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Auto tariffs test Vietnam's free-market commitment.  Vietnam is not scheduled to implement fully the second stage of tariff cuts on imported products under Southeast Asia's free-trade area until 2006, but local authorities are already in a dilemma over how to prepare the market for this.

As Vietnam gears up for deeper economic integration with its Asian neighbors, attention is focused on how the government will handle the case of the automotive industry, now under heavy tariff protection.

What Hanoi does in the case of this important sector will be a test case not only of its implementation of its commitments under the Association of Southeast Asian Nations (ASEAN) Free Trade Area or AFTA, but its determination to embrace market reforms, analysts say.

Should Vietnam open the automotive market wide to competition or should it go on with its policy of market protection is a question often asked. Now there is even talk that Vietnam is considering extending AFTA tariff barriers for automobiles to 2010. Vietnam began its tariff-dropping schedule in 1996, when it signed on to AFTA. In the next four years, Vietnam slashed tariffs on certain products imported from ASEAN, but this hardly disturbed the local market. But deeper tariff cuts are expected in coming years, and Vietnam is to bring down tariff rates on imports to 0 to 5 percent by 2006.

This is expected to be the period when the tariff reduction will have an enormous impact on the economy, because the goods to be covered by liberalization include major products considered "strategic" by the state such as fertilizers, ceramic tiles, household electric equipment, television sets, automobiles and motorcycles.

Vietnam has so far put heavy import tariffs on these products to protect local production and give manufacturers enough time to adjust and prepare for an impending flood of cheap imports.

Imported vehicles such as over-24-seater buses are taxed 50 percent, 15-24-seater buses 100 percent, the five-to-15-seater vans 150 percent, and under-five-seater cars 200 percent.

Currently, Vietnam has 11 joint venture enterprises assembling automobiles for the domestic market, but their combined production is a mere 20,000 vehicles, or 10 percent of their total capacity. This is due to low demand.

In the first quarter of this year, only 5,456 vehicles were sold, mostly in the deluxe category and beyond the budget of the average Vietnamese consumer. These cars are often priced higher than the same models produced abroad because manufacturers have to import parts and components, which are subject to high taxation.

"The price of a car assembled in Vietnam is double that of one made in the United States due to our policy of protecting local products," Industry Minister Dang Vu Chu told reporters during the Vietnam Motor Show in Hanoi recently.

To make automobiles cheaper, the government has urged the industry to use more locally produced parts and components. The Ministry of Industry has in fact issued a localization policy that provides incentives to vehicle assemblers with the highest local content rates in the cars, buses and trucks they assemble here. However, to date no automotive joint venture has succeeded in raising the local content rate above 15 percent. At the same time, no foreign direct investment has been injected into factories producing the automotive parts and components because investors still consider the market too minuscule.

Says Minister Dang, "The government should reconsider its automobile policy so as to protect consumers' rights. "We should not let Vietnamese customers buy autos [priced] several times more than in other countries."

To put the automobile industry on track toward competitiveness by the 2006 deadline for its being covered by AFTA, the Industry Ministry has thought up a two-pronged strategy: bring in more competition and develop a "made-in-Vietnam" car.

"Vietnam will develop two kinds of automobiles at the same time. Joint ventures will produce luxury cars as import substitutes, while local manufacturers will produce affordable vehicles that popularize four-wheeled transport in Vietnam," said Deputy Industry Minister Nguyen Xuan Chuan.

Under the category of cheap or affordable vehicles are small compact cars or low-priced utility vans and trucks with locally assembled engines.

Experts at the Japan Economic Research Institute (JERI) here say that in the long term, Vietnam's automobile industry will not be able to develop and compete with other countries if it concentrates only on manufacturing small-engine and low-priced cars. The country should instead draw up liberal policies to attract foreign direct investment to fund local production of automobile parts and accessories, they say.

"We will speed up the localization policy by using import duties to enforce local content," another ministry official said, but did not give details as to how the government intended to go about it.

Some observers believe that in the first stage Vietnam will open the market to cheap component imports to help local manufacturers produce non-luxury cars and special-purpose vehicles. In the next stage, it will give tax incentives to manufacturers of components.

Licensed local companies will assemble automobiles for local consumption with cheap components sourced from countries in the region, but at the same time will join forces to produce more parts and accessories locally with the ultimate goal of developing "made-in-Vietnam" vehicles, officials say.

Industry experts forecast that compact cars equipped with small and locally assembled engines (less than 1.3 liters) that retail for less than US$10,000 would amply fill the needs of the average customer in Vietnam. In a market crowded with luxury cars, smaller, low-priced cars that are made in Vietnam stand a better chance of carving a niche. (Inter Press Service)

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Business Development - A Sleeping Market  Business development services are essential in supporting market entry and start-up operations in many countries. In Vietnam as elsewhere, these services are still unpopular.  The miss-perceptions of this important service industry must change as their services are still needed by foreign investors in Vietnam.
 
With the goal of surveying the demand of small and medium Vietnamese enterprises and developing support programs, two German and Swiss technical support agencies, financed a study for the business development service market in Vietnam. Investconsult from the middle of last year conducted the study and the results were announced in May. According to the survey of six cities and provinces with the strongest economies in Vietnam, their business development service market is estimated at only VND400 billion [US$26 million] a year. HCM City has the strongest business development service market, accounting for 59% of the amount, Hanoi is ranked second with 33%. Other localities, including Danang, HaiPhong, Dong Nai and Binh Duong, each make up only 1-3%.

Of the 14 groups of services surveyed, advertising and promotion are services most popular to businesses, with spending of more than VND84 billion annually. The second most popular service is organizing fairs and exhibitions with revenue of over VND58 billion. Next are seeking information on the Internet, accounting and auditing, software, computer, and design services.
Businesses pay little attention to most important services such as management consulting, technology consulting, market survey, management and technical training, and product design. Only 2-9% of the businesses use these services.

Among the several reasons for businesses' indifference to business development services is that many businesses have inadequate awareness of the importance of business development services. Researchers interviewed representatives of 1,200 businesses to learn their views on and demand for services. Only one out of 10 respondents one thinks that the services are important for business operations.

Domestic and State Owned businesses are not familiar with outsourcing services. Since they do not have full evaluation of the efficiency of outsourcing services, most businesses tend to do every thing by themselves. In addition, they think services are very expensive.

Another reason is the quality of services usually does not win businesses' confidence.  A particular trait of the Vietnamese market is the presence of unofficial service providers. They are officials working at government agencies that provide consulting and perform some legal services for businesses. Many business executives say they often hire officials working at relevant government agencies to deal with legal procedures, especially tax statements. "It's safest to ask tax officers to prepare tax statements," a businessman in HCM City says.

The presence of these unofficial service providers are not beneficial for the growth of the business development service market as it creates an unequal playing field and restricts the development of official service providers, while Vietnam badly needs professional, quality service providers.

Development potential. According to Ms. Alexandra Miehlbradt, project analyst, the business development service market in Vietnam has great potential. Businesses have begun to realize the importance of outsourcing services, evidenced by their increasing employment of the services, especially since 1998. Their use of accounting, auditing, legal consulting, advertising, promotion, information research on the Internet and computer network services last year increased nine fold compared with the mid-1990s.

Businesses currently have great demand for human resources training but the demand has not yet been met, mainly because they have not found quality service providers and do not have confidence in the quality of existing training centers.

Besides training, they also need other services such as information necessary for their production and trading activities, promotion, marketing, product design, technical consulting, import-export assistance, tax consulting, transport, forwarding, insurance, and machinery and equipment repair and maintenance. Again, service providers are not yet able to meet their demand.

Business development service market
HCM City 59%
Hanoi 33%
Danang 3%
HaiPhong 2%
Dong Nai 2%
Binh Duong 1%
(Source: GTZ and Swisscontact)

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New Hotels and Offices A-building.  Along with a flock of foreign tourists into Vietnam, many investment projects in hotels and resorts are being carried out - a new sign of development for the Vietnamese tourism industry. Large, existing projects revived include

Asiana Plaza. Kumho Saigon Joint Venture advises it will submit plans to build a multi-use tower located at 39 Le Duan, District 1 to the MPI in September. See Photo.

According to a senior official of the JV, the Asiana Plaza complex, a US$223-million JV between Korea's Kumho Construction and Engineering and Vietnam's Saigontourist and District 1 Housing Development, will include a luxury apartment building, a 5-star hotel and retail shops. 

Construction of the project, licensed in 1996, was to start in October 1997 and to complete in three years. However, the Korean partner asked for permission to delay due to financial difficulties.

The JV leased the project site in 2000 to commercial establishments on a contract due to  expire in September. The partners will discuss how to proceed with the project. The current demand for office space now is higher than that for hotels. STW

Park Hyatt Hotel.  See Photo. Five local banks in HCM City agreed to provide the Grand Imperial Saigon with US$ 22.5 million to continue work on the half-finished 5-star Park Hyatt Hotel on Hai Ba Trung Street, District 1.

Under a loan agreement, Bank for Investment and Development of Vietnam (BIDV) will provide US$ 9 million, Bank for Agriculture and Rural Development US$ 6 million, Bank for Foreign Trade of Vietnam US$ 4 million, Industrial and Commercial Bank US$ 2 million and Saigon Thuong Tin Bank US$ 1.5 million. The loan will be repaid in 12 years, including a two-year grace period, and half will be disbursed in U.S. dollars for the import of equipment.

Work on the 259-room hotel project will resume this month and is expected to be completed in 2004. A Malaysian bank previously financed the US $ 44-million project but the lending was interrupted due to the regional financial crisis in 1997. Park Hyatt, an experienced hotel management company, will manage it.

Grand Imperial Saigon, which has an authorized capital of US$19 million, is a joint venture between Industry Construction Company (30%), Hong Kong's United Concord International (19%) and Malaysia's Radian Investment (51%).

 PetroVietnam became the new owner of a long unfinished government-owned building at 1-5 Le Duan Boulevard, District 1, HCM City. See Photo.  The company will spend US$ 30 million on the half-finished project and use it as a petroleum administration center for the southern region. The Government originally planned to build the high-rise to house all the rep offices of ministries in HCM City, but later scrapped the plan. Another reported projected use as an exclusive hospital for Party Members was also put off.  All PetroVietnam's subsidiaries will be housed there and the unused space will be leased.

On the small side, with an investment capital of VND50 billion [US$3.3 million], the Saigon-Binh Chau Shareholding Co. put  the Binh Chau Resort’s Phase 1 into operation as a three-star spa in Vung Tau.  Offering a beach at Ho Coc, the former Binh Chau Resorts mud soaking, mineral water baths, hot water soaking for feet therapy, and camping, the Binh Chau Resort is in the middle of a rare primitive forest in southern Vietnam.

Another new resort is Siva Tourist Village in Mui Ne, Phan Thiet, Binh Thuan Province. The Binh Thuan Food Co. spent VND10 billion [US$ 656,000] constructing the hotel-restaurant complex after the ancient Champa architecture. Ocean swimming, fishing, flying kites, and scuba diving are among the services offered.

Some southern localities have focused on building new recreational areas or upgrading existing ones. Ba Ria-Vung Tau Province has upgraded National Highway 55 linking local resorts from Vung Tau to Long Hai and Binh Chau to attract more visitors to these sites. - STW

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Investment road show in the U.S. Deputy PM Nguyen Manh Cam witnessed the signing of a cooperation agreement between Vietnam's Ministry of Planning and Investment (MPI) and Texas during his 10-day June tour of the U.S. to attract investment in Vietnam.

The agreement aimed to boost economic and investment cooperation between Vietnam and Texas that possesses strong advantages in petroleum, agriculture, telecom and information technology.

Cam’s  mission toured Texas, Washington, Massachusetts, Pennsylvania and New York. Meeting with senior U.S. officials and big companies (Motorola, Dell, Conoco, Unocal, Boeing, Credit Suisse-First Boston, New York Life Insurance and AIG), he urged the U.S. to clear hurdles to bilateral relations and cooperation, especially the Jackson/Vanik Amendment for Vietnam and the Vietnam Human Rights Bill. He also asked the U.S. to support Vietnam's bid to join the World Trade Organization (WTO) and to set up a mechanism to settle disputes arising in the course of the bilateral trade agreement (BTA) implementation.  - STW

USA Investment structure in Vietnam by sector in 2001 (%)
Agriculture, forestry & fisheries 10.37
Industry 41.85
Transport, post 15.14
Science, technology 0.34
Education, training 1.96
Health, society 1.29
Culture, sports 1.17
Total 100.00
(MPI)

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HEAVY INDUSTRY REPORT:

The coal industry sold 7.4 million tons in the first half of this year, up 21% over the same period last year. The figure includes 3 million tons for export, up 46%, and 4.4 million tons for local sales, up 8%. Sales totaled VND3,500 billion, up 23% and 57% of the year's target. The industry expects to sell 14.5-15 million tons this year and export 5-5.5 million tons. 

Steel demand in Vietnam is estimated at 3.5-4 million tons this year, including two million tons of construction steel, 1.5-2 million tons of steel sheets and alloy steel. According to Vietnam Steel Corporation, the amount of construction steel stockpiled by the end of May was 149,000 tons, the lowest in four years due to high demand. Domestic production capacity amounts to 3.5 million tons a year, 1.5 million tons higher than demand. 

Cement demand for this year is estimated at 20 million tons, up 3.7 million tons against last year and two million tons higher than the original estimate. Consumption in the first half of this year is put at 9.5 million tons, up 1.5 million tons on a year ago. 

An official from the ministry's Construction Materials Department says a cement shortage will likely occur in the fourth quarter of this year and early next year. The ministry asked cement producers to increase production to prepare more stocks. Additional clinker imports will be allowed with some 2.5-3 million tons for this year, 0.5-1 million tons higher than expected.

At present, all cement plants are running near full capacity. While several cement projects are prepared to get off the ground, low-quality Chinese cement continues to penetrate the local market via the border and the sea in the North. According to Vietnam Cement Corp., the illegally imported poor quality cement is sold at cheap prices, often as much as US$ 13/tonne lower than local cement posing dramatic losses to local industries and safety concerns for construction works.

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Massive gas pipeline reaches Long Hai

The complete pull of the 26-inch diameter pipeline took about two days. For the last section of the pull, the pipeline emerged from the water through a 200m long cofferdam (a sheet piled excavation) onto the beach.

Over the last three months, construction activities on Long Hai Beach have been aimed at bringing the pipeline ashore so it can be connected to the onshore section of pipeline that leads to BP’s new gas terminal at Dinh Co in Ba Ria-Vung Tau.

Before its arrival at Long Hai, the Semac had completed 283km of pipelay in 80 days, consisting of 23,708 pipe joins, each 12m long, commencing at the Lan Tay Field in March of this year.

"Pipelay will be completed in mid-July and the first gas will be delivered to Dinh Co Terminal in November," Will Banks, project engineer pipeline of Nam Con Son Gas Project told Viet Nam News during an interview at the site on Long Hai Beach last Thursday.

When commissioned, the pipeline will deliver gas from BP’s Lan Tay Field in the Nam Con Son Basin, approximately 361km from Long Hai.

Viet Nam Oil and Gas Corp. (PetroVietnam) and BP turned ground for the Nam Con Son Pipeline Project at Dinh Co Terminal on May 31 of last year after a prolonged period of discussions and negotiations.

The US$565 million Nam Con Son Pipeline Project will create a pipeline for transporting gas from fields in Nam Con Son Basin, on the continental shelf off southeastern Viet Nam, to Phu My power complex in Ba Ria-Vung Tau Province’s Tan Thanh District.

The 399km pipeline will have a capacity of 2.7 billion cu.m per year in the first stage of the project.

This is a joint venture between PetroVietnam (51 per cent stake), the UK’s BP (32.67 per cent), and Norwegian Statoil (16.33 per cent). BP is now operating the entire Nam Con Son Pipeline Project.

The pipeline is part of the larger Nam Con Son Gas Project, which encompasses gas production, transportation and power generation.

The $1.3 billion gas project’s upstream section will produce 3 billion cu.m of gas per year from the reserves of 58 billion cubic meters. The midstream section will produce 11.3 million cu.m of gas per day through the terminal.

BP will invest in the 715MW Phu My Combined Cycle Plant No. 3, known as Nam Con Son’s Power Project.

The thermal power plant will be a BOT (build-operate-transfer) project wholly owned by BP.

A fertilizer plant will also be located near the Phu My Industrial Complex.

The gas project will enable the generation of some 12 billion kWh of electricity per year, equivalent to 40 per cent of the current national demand, thus reducing power shortages.

"Forecasted gas prices and the economics of the plan seem agreeable to Vietnamese authorities, and will offer BP a fair rate of return on its investment," said President and Director General of BP Viet Nam Steve Walker.

"It will be several years before BP sees a return on its investment, but we plan to provide offshore gas to Viet Nam for 30 or 40 years," Walker told Viet Nam News during the ground breaking ceremony at Dinh Co. — VNS

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US poised to become top buyer of Vietnamese seafood

HCM CITY — The US will, before long, be the biggest market for Vietnamese seafood, American Vice Consul General Sharon White told a seminar in Ho Chi Minh City at the weekend.

Therefore "Vietnamese partners should pay attention to conditions in the US," she added.

"Last year, Viet Nam exported US$85 million worth seafood to the US, and I believe that the number will continue to increase every year," Sharon told delegates at the third annual seminar on exporting seafood to America.

Seafood proved the nation’s third largest revenue earner in 2001, at $1.8 billion, an increase of 20 per cent over the previous year.

Viet Nam has set its sights on revenue of $4.5-5 billion in 2010 from seafood exports and hopes to sell 335,000 tonnes of shrimp, 300,000 tonnes of fish and 500,000 tonnes of shellfish. — VNS

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Plans for Power.  Electricity of Vietnam signed a contract to build the 450 MW Phu My 4 gas-fired power plant with a consortium of Alstom (France), Marubeni (Japan) and Lilama (Vietnam). The US$ 216-million project, to be commissioned in 2004, will receive gas from the Nam Con Son Basin. The tender helped reduce its cost by US$ 44 million from the original estimate of US$ 260 million.

Between now and 2010, thirty-seven (37) power plants will be built and expanded with a total capacity of 12,400 MW. According to Electricity of Vietnam Corp., the number includes 22 hydropower plants with a total capacity of 4,000 MW, 8 gas-thermal power plants with of 5,200 MW, and 7 coal fueled power plants with 3,200 MW. The new projects will raise total generation capacity of Vietnam's power plants to 20,500 MW by 2010, of which hydropower makes up 40%, gas-diesel thermal power 38.5% and coal thermal power 21.4%. — STW

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US Textile Import Quotas.  Deputy Minister of Trade Luong Van Tu, upon returning from a recent market study tour of the U.S. reportedly said the U.S. seeks to protect its textile industry while garments would face no restriction. Tu also attended a meeting to forge a textile agreement between the two countries last week. According to a trade official, the meeting did not conclude a bilateral textile and garment agreement but only discussed protective measures for the U.S. textile industry.

It was earlier reported in Vietnam that during previous trade talks American negotiators agreed upon a quota-free period for Vietnamese textiles and garments so that Vietnam could import relevant materials and accessories from the U.S. — STW  [Note: International commentators suspect the Vietnamese  have run into this conflict before. It is the challenge of trying to put a good face on hard facts that often winds up as reports of miss-information from not understanding or just not reporting the full picture. See for example the next dispatch below about bank ratings.]

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Vietnam's bank ratings -Fitch, Standard and Poor's, and Moody's. Fitch Ratings gave several banks in Vietnam low ratings following a Fitch team's visit to Vietnam in April at the Government's request.

The company gave an E rating, the lowest ranking, to the Bank for Investment and Development of Vietnam (BIDV) and the Industrial and Commercial Bank. The Bank for Foreign Trade of Vietnam (Vietcombank) was given a D rating, which is slightly higher than the other two banks, in recognition of its superior finances and operations. The D rating also went to Saigon Thuong Tin Bank (Sacombank), Asia Commercial Bank (ACB) and VID Public Bank, a JV between BIDV and Malaysia's Public Bank. Bank for Agriculture and Rural Development was not rated because it has not been completely separated from the Bank for the Poor.

Fitch Ratings offers A for very strong banks, B for strong banks, C for average banks, D for banks which have weaknesses of internal and/or external origin and E for banks with very serious problems that require support.

According to banking experts, banks should not worry about the low ratings as they are undergoing restructuring under the Government plans. They can receive higher ratings after the restructuring plan is completed.

The Finance Ministry invited Fitch Ratings, Moody's and Standard & Poor's to rate banks in Vietnam. Standard & Poor's gave Vietnam a BB rating. BB is ranked fifth and bonds given this level are considered relatively safe.  

Moody's gives Vietnam positive ratings.  Vietnam's plan to issue bonds on the international market this year is given a strong boost after Moody's Investor Service changed the outlook for the country to positive from stable.

The rating agency announced a B1 foreign currency country ceiling for bonds and notes, and a B3 foreign currency country ceiling for bank deposits. It said the outlook change was prompted by an improved external payment position, political and economic stability, and a credible commitment by the Vietnamese Government to advance structural reforms.

Moody's is the third international credit rating agency that issued an assessment of Vietnam's credit risk. Earlier, Standard & Poor and Fitch Ratings gave BB- and BB ratings for Vietnam's long-term foreign and local currency debts respectively. However, Moody's said that the future course of Vietnam's ratings would depend on whether progress in the country's economic, financial and legal reforms would be sustained.

Susan J. Adams, senior resident representative of the International Monetary Fund (IMF) in Vietnam, said the ratings of the three international rating agencies were good for Vietnam and the IMF would consider raising the ceiling volume of commercial loans for the country.

If the institution makes such a decision, Vietnam will be able to raise more capital from foreign sources via bond issues. Vietnam pledged with the IMF to keep commercial debts at a maximum US$500 million. Local enterprises have received Government guarantees to borrow up to US$350 million so far.

The Finance Ministry plans to issue bonds on the international market in the second half of this year.  - VIR and STW

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NOTE:  The above dispatch taken from three State controlled sources can present a misleading impression of strength of ratings absent an explanation of the Standard and Poor’s and Moody's Ratings Schedule:   

Standard and Poor's found at http://www.standardandpoors.com/ResourceCenter/RatingsDefinitions.html

AAA : The operations provide extremely strong protection against losses from credit defaults. ‘AAA’ is the highest  rating assigned by Standard & Poor’s.

AA : The operations provide very strong protection against losses from credit defaults. It differs from the highest-rated insurers only in small degree.

A : The operations  provide strong protection against losses from credit defaults. It is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher-rated institutions.

BBB : The operations provide adequate protection against losses from credit defaults.  However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the institution to meet its financial commitments.

Institutions rated ‘BB’, 'B', 'CCC', and 'CC' are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘CC’ the highest. While such institutions will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

BB : The operations provide uncertain protection against losses from credit defaults. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions that could lead to the institution’s inadequate capacity to meet its financial commitments. [This is rating given to Vietnam]

B : The operations exhibit vulnerability to losses from credit defaults, but the institution currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the institution’s capacity or willingness to meet its financial commitments.

CCC : The operations make it extremely vulnerable to losses from credit defaults. and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments.

CC : An institution rated 'CC' is CURRENTLY HIGHLY VULNERABLE

Plus (+) or minus (-) The ratings from ‘Aa’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.  

Moody's Ratings are found at http://www.moodys.com/moodys/cust/ratingdefinitions/rdef.asp

In discussions about Moody’s approach to credit analysis, Moody’s analysts are often asked what financial ratios we use to determine our ratings. In reality, no one ratio, or even a set of ratios, will lead us to a specific rating conclusion. Rather, our ratings reflect the combined input of quantitative as well as qualitative analysis.

Moody’s ratings are intended to provide a forward-looking opinion on a company’s ability to meet its debt obligations in the future. They distill our analysis into a univers