The Viet Nam economy has achieved significant results during implementation of "The strategy on stabilisation and socio-economic development up to the year of 2000": inflation has declined from 67% in 1990 to less than 10%; average economic growth reached 8% per annum during 1991-1997, which has facilitated the improvement of the population's living standards; the ‘open’ economic policy has achieved important results, which has promoted trade and investment, etc. In recent years, however, especially since 1997, new difficulties have occurred. One of the reasons is the regional financial and monetary crisis. Negative effects of the crisis have become more serious during 1998-1999. In addition, the complicated changes in the global climate has also strongly affected Viet Nam. Recently storms, floods and droughts have become severe in Viet Nam.

In 1998, the GDP growth rate was the lowest recorded in the last decade, accounting for only 5.8%. Meanwhile, the average rate during 1991-1997 was 8% per annum. More concerning is that economic growth has tended to decline in recent years: it was 9.5% in 1995, 9.3% in 1996, and 5.8% in 1997. It is estimated that GDP grew only at 4% in the first quarter of 1999.

Agriculture is an important economic sector, which employs two-thirds of the labour force and produces one quarter of GDP. Value-added agriculture production increased by 2.7% in 1998, lower than that of 4.3% in 1997 and 4.4% in 1996. Food production increased tremendously, reaching 31.8 million tons, increasing by 1.2 tons in comparison with that of 1997, contributing to food security. Meanwhile, high level of rice exports was maintained at about 3.8 million tons in 1998.

The Industry and construction sector, accounting for one-third of GDP, has been facing difficulties due to low efficiency and competitiveness. Industrial gross output increased by 12.1%, of which the public sector increased by 7.9%, the business/private sector increased by 6.7% and the foreign-invested sector continues to grow quickly, reaching 23.3% which makes the foreign-invested sector account for one-third of industrial production, contributing to improvement of efficiency and competitiveness. Total development investment increased insignificantly.

The growth rates of the services sector declined significantly, especially trade, tourism, and transport. Retail sales value of goods and services of the domestic sector reached VND180,000 billion, an increase of 14.2% in nominal terms, but only by 4.6% in real terms. The main reason was the influence of factor prices.

Major features of the Viet Nam’s economic performance in the first two quarters of 1999 are described as follows:

• GDP growth rate accounted for 4.5%, in which GDP contributed by agricultural economic sector grew 2.7 % ; by the industry and construction sector: 7.5%; by services: 2.8%.
• Economic Success. Many sectors and fields of business and production realized considerable achievements:
• The value of agriculture, forestry and fisheries output increased at a level higher than that in the same period of the previous year. Food production output in paddy equivalent increased by 410,000 tons in comparison with that in the same period of 1998.
• Export revenue increased from 2.7% in 1998 to 7.7% in 1999.
• Foreign invested industrial sector continues to grow rapidly.
• The value of the services sector output increased due to an increasing number of tourists pushing hotel and restaurant services also grew.
• Shortages. The economy, however, continues to face several major difficulties, and new challenges are emerging such as: economic efficiency is still low, and competitiveness remains weak. In context of the above factors, without reform, Viet Nam will lose momentum for development and for improving the sustainability of long-term growth. Therefore, Viet Nam’s government has designed policies for State owned enterprises reform such as equitization and privatisation.

Inflation expressed in domestic CPI maintained a rate of 9.2%, of which:

• Food and foodstuff increased by 12.3%

• Beverage by 5.3%

• Garment, shoes and sandals 2.3%

• Housing and building materials 1.7%

• Domestic tolls and equipment 2.5%

• Pharmacy 8.7%

• Transport, post and communications 3.0%

• Education 9.6%

• Culture and sports 1.3%

• Other services 4.0%

In the context of reduction in growth rates of production and businesses and one million youths entering the labour force a year, the number of urban unemployed and rural underemployed is increasing.

According to results of a survey announced at the end of 1998, the unemployed and underemployed situation is as follows:

• The unemployment rate in urban areas in 1998 is 6.6% (for those above 15 years old) and 6.85% for those engaging in economic activities. Therefore, in comparison with that of 1997, the unemployment rate increased by 0.78% (for those above 15 years old), and 0.84% for those engaging in economic activities and has increased in all economic regions. The urban unemployment rate, especially, increased rapidly in the Red River Delta by 8.25%, (of which Ha Noi by 9.09%). The female unemployment rate is still higher. The survey results also show that the unemployment rate has tended to systematically increase from 1996 to 1998. Urban unemployment rate two-thirds of the provinces and province-equivalent cities has increased during recent years.
• Rural underemployment is evaluated through time-use rate. The survey results show that time-use rate of the population above 15 years old engaging regularly in economic activities during 12 months on average is 70.88%, a decline of 2.02% in comparison with that of 1997. For the labour force of working age, the working time-use rate is 71.13%, a decline of 2.01% in comparison with that of 1997. And for major activities in rural areas, working time-use for the whole economy is 61.37%. For the Red River Delta it is only 52.42%, the lowest in the economy. Of eight economic regions, only one region achieves working time-use rates above 75%.

Exports in 1998 reached almost US$9.4 billion, increasing by only 2.4% in comparison with that of 1997. Growth rates in previous years were above 20%. The main reason is the strong decline in exports prices, especially the prices of crude oil and some agricultural products (the terms of trade has deteriorated-if prices remain at level of previous year, the exports value might increase above 10%). However, exports from foreign investment projects still increased by 11%, reaching US$2 billion, owing to the high quality of products and expansion of the market.

At the beginning 1999, export-import is still facing difficulties, however, exports in the first six months of 1999 increasing by 7.7% and imports decreasing 20% respectively in comparison with the same period in the previous year.

By the end of 1998, Viet Nam issued licenses for more than 2000 FDI projects with total capital of US$35 billion. Disbursements reached US$14 billion, which significantly contributed to improvements in efficiency and competitiveness of the economy. At present, FDI projects produce about 10% of GDP and one-third of domestic industrial production output. However, as Viet Nam’s main counterparts come from East Asia and as Southeast Asia, has been affected by the crisis, it has been very difficult for these economies to increase their commitments and to implement committed contracts. This has made it difficult for Viet Nam to raise capital as well as expand markets. Therefore, during 1998 new commitments received by Viet Nam were only US$4 billion, which equalled 50% of the level in 1996, (the year before the crisis) and disbursements were only US$1 billion which equalled one third of 1997 implementation.

Through six conferences, donors have committed US$13 billion to assist Viet Nam. The three largest donors, including Japan, the World Bank and the Asian Development Bank, account for 70% of total committed capital. ODA disbursement has improved, total disbursement during the past three years was US$3 billion, still slower than planned. ODA projects focus on improvement of the legal framework, human resource training, improvement of economic and social infrastructure and promotion of development of economic sectors.

In the context of the devaluation of regional currencies from 30% to 80% during last two years, Viet Nam has realigned its official rates three times. In 1998, the realignment depreciated VND about 11%. This has contributed to lessen the price pressure from exports commodities from economies which strongly devaluated their currencies, such as Thailand, Indonesia and Korea.

At the same time, the government of Viet Nam has also implemented foreign exchange controls, export-import controls and controls of commercial credit for imports, in order to avoid debt shocks. Thanks to these consistent measures, outstanding short-term debt for short-term commercial credit activities reduced from US$1.5 billion in 1997 to about US$350 million in 1998.

The government has also controlled more strictly foreign borrowings, including government borrowings and private borrowings, because it relates to debt service capacity of the economy. At present, as a result of negotiations at Paris Club and London Club and strict control of borrowings and debt services, the total debt is about US$9 billion equivalent (excludes Russian debt in transferable roubles, which are under negotiations).

During 1997, 1998 and at the beginning of 1999, the government has issued many policy measures in order to stabilize the economy and stop the process of economic decline.

Facing continuous declining growth rates, the government has issued a series of new policies in order to bring about internal forces and to mobilize effectively foreign resources:

• To focus on agricultural and rural development, where 80% of the population lives and one third of GDP is produced; at the same time to favorably facilitate all economic sectors to invest in production and business development.
• To expand markets by promoting demand on the domestic markets and improving exports efficiency and to expand to new markets.
• To address urgent needs in financial, monetary and banking sectors in order to improve the effectiveness of banking activities.
• Reorganization and renovation of the state-owned enterprises (SOEs) which are divided into three categories:
• Public interest and important SOEs which need to be maintained and to improve efficiency;
• Nationally economic important SOEs which need to improve the efficiency of production and business
• Medium and small scale enterprises, their ownership can be transferred and diversified; these SOEs account for one half of existing SOEs, their capital is small and operate inefficiently.
• To implement poverty alleviation programs, job generation
• To continue to implement administrative reforms and to improve capacity in governance and execution.

Economic growth in 1999 is expected to be 4.5% and for 2000 at about 5.5% and growth rates will continue to gradually improve, albeit difficult to reach growth rates of 9%-10% as that of mid-1990s.

Major obstacles to achieving higher growth rates include both subjective and objective reasons:

The regional economic recovery will take place slowly and will be complicated; the prices of some Viet Nam export products will remain low (crude oil price fluctuates around US$12 per barrel, and the rice price continues to decline). In addition, the demand on international markets is not expected to increase rapidly, which will affect Viet Nam’s exports.

This is the most important reason, which decides the speed of economic recovery. Efficiency and competitiveness of Viet Nam goods are still relatively low. The prices some commodities produced in Viet Nam are double those of imports. Meanwhile, during the process of implementation of the commitments for AFTA integration, (from now up to 2006) Viet Nam has to reduce tariffs to 0%-5%, which will make the competitition more severe.

Viet Nam: Overall Economic Performance

Source: Asian Development Outlook (ADB, 1999)

Table 2. Forecasting Summary (% change from previous year)

Note: The IMF forecast is from the World Economic Outlook (IMF, April 1999). The ADB forecast is from the Asian Development Outlook (1999).