Vietnam's Economic Strategies Applauded by Multilaterals

HANOI, Dec 6 Asia Pulse - Vietnam has received a positive report card from multilateral institutions, who have praised the country's industrialisation and international integration and predicted that strong economic growth will continue.

But there is also a warning that Vietnam will need to reform its banking system and mobilise more investment from its people's savings and private enterprises, if it wants to realise its ambitious modernisation agenda.

The comments came in separate statements from the United Nations Conference on Trade and Development [UNCTAD] and the Asian Development Bank [ADB].

UNCTAD issued a statement which lauded the renovation process and noted the country's exemplary achievements at attracting foreign direct investment [FDI] over the past decade.

In the 1990s, annual average FDI into Vietnam grew 16-fold. In 1988-1991, the average was just US$141 million a year; but by 1996-1999 this figure was US$2.2 billion (peaking at $2.7 billion in 1997).

During that time, FDI inflows grew seven times more quickly in Vietnam than across Southeast Asia as a whole, moving from a 1.4 percent to a 9.5 percent share of the ASEAN total.

But UNCTAD noted that since the onset of the Asian financial crisis, FDI into Vietnam has declined, and is "far from the levels the country could potentially attract".

The statement welcomed Vietnam's program of reforms aimed at attracting foreign investment and liberalising the regulatory framework, although adding that even more administrative reform was needed.

The reforms have allowed foreign investors to wholly own their Vietnamese businesses, and already-operating firms can merge, consolidate or split their business.

Other changes have allowed contracting parties to joint ventures to set their own contribution levels to the legal capital base, or even become wholly foreign-owned.

FDI registration procedures have been relaxed, taxes lowered, foreign currency rules widened, and land-use rights can be used as collateral to borrow from foreign bank branches operating in the country.

Visa restrictions on foreign professionals have been eased, and many export businesses will be able to get licences automatically from 2002.

"All these measures have helped to improve the regulatory framework, but much remains to be done, especially in terms of implementation," UNCTAD said.

The UN body said procedures needed to be further streamlined, regulations made more predictable and transparency had to be brought into line with international practice.

UNCTAD also hailed Vietnam's efforts to improve bilateral and multilateral economic co-operation in the international arena, citing the slew of bilateral investment treaties and double tax treaties Vietnam has signed, and its participation in international forums.

Meanwhile the ADB's Country Economic Review said that after two years of slowdown, the Vietnamese economy is showing signs of recovery.

The Government estimates that real gross domestic product [GDP] grew by 6.2 percent in the first half of 2000, with 6.1 percent growth tipped for the full year and 6.4 percent for 2001.

The ADB predicted that domestic demand will continue to pick up, backed by a gradual recovery in investment.

The Bank acclaimed Vietnam's progress in fighting poverty. Between 1993 and 1998, the incidence of poverty, as measured by the head count index, dropped from 58.2 percent to 37.4 percent.

But economic growth had been the key factor in reducing poverty, the ADB said, meaning that some socio-economic groups - such as those in areas that are predominantly agricultural, poor or inhabited by ethnic minorities - had not done as well as those elsewhere in the country.

In 1999, Vietnam experienced bumper harvests but sluggish demand. Nevertheless, industrial and construction activity grew 7.6 percent that year, boosted by mining, quarrying and crude oil production.

The Bank said weak demand hurt the manufacturing sector in 1999, and the services sector also underperformed.

The ADB predicted that the Budget deficit would widen to 3.5 percent in 2001 from 3.2 percent this year, driven by the cost of structural reforms.

Rapid liquidity growth last year would see inflation pick up to 2.5 percent by the end of 2000, rising to as much as 5 percent by late 2001, the ADB warned.

Export growth will nudge 13 percent over the whole year, while imports will surge 17.3 percent. The current account surplus is predicted to slip back to 2.3 percent.

The ADB said the dong is under pressure from various quarters, and would perhaps need to be managed more flexibly next year.