Vietnam Economic Issues

ABSTRACT:

During the past years, Vietnam economy has made a number of significant achievements. Since the beginning of the cause of renovation (Doi Moi) initiated by the Communist Party, the country's state has changed substantially compared to the period of pre-renovation. The economy has recorded high growth rates for several years in a row. People's living standards have been considerably improved. Since the market opening-up, the number of foreign investors rushing to Vietnam has risen surprisingly, resulting in a huge increase in Foreign Direct Investment (FDI). In 2006, Vietnam has successfully fulfilled and exceeded almost all development targets set by the National Assembly. The economic growth rate is 8.17%; that of industry is 17%; the service sector has posted a high development rate, especially retail industry; high export value has been maintained, reaching $ 39.6 billion; there has been a reduction in trade deficit in terms of net value and proportion of import and export. FDI and ODA attraction remains strong. Vietnam's accession to WTO and hosting of APEC demonstrate successful diplomatic and economic activities. The approval of the Permanent Normal Trade Relation by the US Congress is an evidence of Vietnam's increasing importance in the world stage. The development of Vietnam's Stock Exchange with its vibrant activities in recent months is also a positive sign to some extent. All of those accomplishments prove that the country is initially integrating into the world economy successfully. However, Vietnam's continuous high growth rates for many years raise a question over the viability of the development. Could the economy maintain such a vigorous development in the coming years ? Or heating development will be followed by a severe collapse due to implicit problems ? This document is to be divided into three sections to discuss the economic issues of Vietnam economy in the stage of integration and globalization.

- Part 1: Vietnam economy at a glance.

- Part 2: Vietnam economic issues assessment.

- Part 3: Solutions to the issues.

A. OVERVIEW OF VIETNAM ECONOMY OVER THE PAST YEARS.

1. Domestic policy.

Viet Nam embarked on the Doi Moi policy in 1986. Since then, the country has seen dramatic changes, first and foremost in the economic thinking. The centrally-planned economy was replaced by the socialist-oriented market economy; national industrialization and modernization were initiated together with the policy of multilateralization and diversification of external economic relations, opening-up and international integration.

The 1987 Foreign Investment Law was the first legal document that helped form the legal framework for the Vietnamese market economy. In 1991, the Private Enterprise Law and Corporate Law were introduced. The amended 1992 Constitution affirmed the existence and development of a multi-sector economy under a market mechanism, including the foreign-invested sector. This was followed by the promulgation of a number of laws essential for the formation of the market economy, including Land Law, Tax Law, Bankruptcy Law, Environment Law, and Labour Code etc. Hundreds of ordinances and decrees were enacted by the Government to guide the implementation of these laws, which help ensure national socio-economic development.

Along with the law-making process, market economy institutions have also been established. Government policy advocates the elimination the central planning mechanism, the emphasis on monetary - market relations, the focus on economic management measures and the establishment of a wide range of financial institutions, banks and basic markets for money, labour, goods and land, etc. The administrative reform was also promoted by the authorities.

Overall, tremendous economic reforms taking place over nearly two decades of Doi Moi have yielded encouraging results. External economic relations have been expanded and the flow of foreign direct investment has increased. Export of goods and labour, tourism industry and remittances from overseas Vietnamese have been strongly promoted to generate increasing foreign earnings for Vietnam.

During 20 years of Doi Moi, GDP of Vietnam saw a sustained growth, which stood at 8.2% in 1991-1995 as compared to 3.9% in 1986-1990. This rate dropped to 7.5% in 1996-2000 due to the impacts of the Asian financial crisis. Since 2001, GDP growth recovered on a year-on-year basis, reaching 6.9%, 7%, 7.3% and 7.7% for 2001, 2002, 2003 and 2004 respectively. The figure for 2005 was 8.4%. Vietnam has now succeeded in gradually replacing the centrally-planned economy, bureaucracy and a subsidy mechanism by a socialist-oriented market economy with growing dynamism. The GDP growth rate of 7 to 8% has been sustained, along with stronger industrialization and expanded integration with the world and regional economy. Vietnam has enjoyed a sharp rise in trade volume, especially exports, and an increase of foreign investment and income.

The ratio of the industry and construction rose from 38.13% in 2001 to 41.03% in 2005; the service from 36.63% up to 38.08%; and only the agriculture, forestry and fishery from 23.24% to respectively.

The economic structure has also witnessed significant changes. From 1990 to 2005, the contribution of agriculture sector dropped from 38.7% to 20.89% , while that of the industry and construction was up from 22.7% to 41.03% . The service sector relatively stabilized, 38.6% in 1990 and 38.08% in 2005. In each sector, the structure has also positively shifted. The agriculture sector has seen a decline in the role of agriculture and forestry from 84.4% to 77.7% during the period 1990-2003, while fishery gained a higher share. In the industrial sector, the proportion of the processing industry was up from 12.3% in 1990 to 20.8% in 2003 with improved product quality. In the service sector, the share of high-quality services such as finance, banking, insurance and tourism, etc. is increasing rapidly.

Upon the amendment of the Enterprise Law in 2000, private businesses have enjoyed strong encouragement for development. This Law institutionalized the freedom of all individuals to do business in areas not prohibited by law. In the 2000-2004 period, 73,000 private enterprises were registered, up by 3.75 times against the period of 1991-1999. By 2004, the total number of private enterprises operating under the Enterprise Law amounted to 150,000 with the total capital of VND 182 billion. From 1991 to 2003, the private sector's share in GDP was up from 3.1% to 4.1%; other non-state sectors increased from 4.4% to 4.5%; and foreign-invested sector from