Tiểu luận môn tài chính quốc tế the stucture of international balance of payments of vietnam during the period 2010 2015 and meanings of the research problem

If the overall balance is surplus, it is moved to the official reserves account which raises the foreign exchange reserves.. Impact of balance balances to economic The balance of payment

Group 2

Đặng Hải Linh Nguyễn Hữu Bảo Nguyễn Huy Minh

Đỗ Thị Mỹ Hạnh

Đỗ Quang Huy

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A- OVERVIEWS

1 Definition

 The balance of payments, also known as balance of international payments and

abbreviated B.O.P., of a country is the record of all economic transactions between theresidents of the country and the rest of the world in a particular period (over a quarter

of a year or more commonly over a year)

 According to the Government's Decree No 164/1999 / ND-CP of November 16, 1999

on the management of Vietnam’s international balance of payment, the international BOP is prescribed by a systematic comprehensive balance sheet Set of indicators on transactions between residents and non-residents in a given period Accordingly, the State Bank of Viet Nam was designated as the main chair for the establishment,

monitoring and analysis of the BOP

2 Structure of BOP

 Trade Balance

It is the difference between exports and imports of items, typically referenced as visible or tangible items In case the exports are higher compared to imports, you will see trade surplus and if imports are more than exports, you will have trade deficit Trade balance shows whether a nation enjoys a surplus or deficit Developing

countries usually have trade deficit The trade balance is a part of current account

 Current Account

- In the current account, merchandise trade is entered first There are actually a large number of distinct items which belong to the goods category Export receipts are shown on the credit side and the imports are shown on the debit side The second item that is recorded in the current account is invisibles T

- he current account consists of trade in services, dividends, unilateral receipts,

investment income, etc After entering the details, balancing is performed for the current account This balance is referred to as the balance of current account When debits are more than credits deficit occurs

- Current account surplus will take place when credits are higher than debits Current account balance is extremely important It exhibits a country’s earning and payments

in foreign currency A surplus balance improves the country’s financial position It may

be utilized for growth and development of the country

 Capital Account

- The Capital account includes all the short-term and long-term transactions between a country and the world Usually, these types of flows of money are related to saving and investment, but speculation has turned into a major component of the account in recent times

- In the capital account, both direct and portfolio foreign investment is

recorded External assistance and commercial borrowing are presented net

repayment Direct investment identifies the money which moves across national boundaries with the intention of investing in a business Portfolio investment moves across national boundaries with the intention of purchasing shares and bonds The Official reserves means the reserves of gold and foreign exchange kept by the Reserve Bank of India to be used by the government

 Errors and Omission

According to double entry book – keeping concept for every credit, there exists a matching debit and thus, there must be a balance in BOP as well In reality BOP may not balance Once various types of international financial flows are recorded, the

statistical discrepancy, referred to as errors and omissions, is also recorded The

statistical discrepancy occurs due to complications associated with collecting balance

of payments data You can find different sources of data which occasionally differ in their approach

 Foreign Exchange Reserves

Foreign exchange reserves exhibits the reserves that are kept in the form of foreign currencies If the overall balance is surplus, it is moved to the official reserves account which raises the foreign exchange reserves It may be in form of dollar, pound, gold and Special Drawing Rights (SDRs)

3 Impact of balance balances to economic

The balance of payments affecting the economy in general and international trade in particular is expressed in the following aspects:

 Affecting the exchange rate:

- The relationship between balance of payments and exchange rates is reflected by the following simple model:

X: export turnover M: import turnover CI: capital inflow

CO: capital outflow FXB: foreign exchange reserves of a country

- In a fixed-exchange monetary system, governments will ensure the balance of

payments, if the balance of payments is disequilibrium, the government will intervene

in the money market through foreign currency reserve account

Balance of official reserves (FXB)

Balance of payment (BOP)

 If the sum of the current balance and the capital balance is greater than 0, the

domestic currency demand, the government will intervene in the market by selling domestic currency to foreign currency and gold to bring the balance of payments back

 If the total of the current balance and the capital balance is less than 0 (zero), the government must intervene through the purchase of local currency in foreign currency

or gold reserves

currency markets The balance of the current balance and the capital account will be established automatically through exchange rate changes

 Influence on floating exchange rate management:

- Although exchange rates are determined based on market conditions, countries are still trying to maintain their desired exchange rates So most countries have sought to change the market value of a currency by indirect tools instead of direct intervention One of those tools is interest rates

- A country that wants to protect its money in the currency market may choose to raise its local currency rate to attract additional external funds This changes market factors and creates a need for additional local currency In the process, governments have entered the currency market to implement solutions to maintain value for money

 Impact on economic development:

- Although a surplus or deficit of current account can not be said to be good or bad for acountry, from a national income perspective, the deficit of current accountmay

negatively affect total national product and employment Conversely, the surplus will have a positive effect

- Economic development always requires the import of goods and services from the source of foreign currency for export, if the import is larger than the amount of foreigncurrency earned, the trade balance deficit However, some developing countries need

to import material and technology that can be used to industrialize and modernize the economy, the "deficit" is a necessity Moreover, from a capital mobility perspective, trade deficit means that the country is establishing long-term credit holders with the rest of the world while only short-term debtors

 Impact on foreign currency sources and use of foreign currency funds:

The balance of payments of a country is quite adequate for a country's income and money flows All economic and business activities occurring within a country are

usually expressed in domestic currency but international transactions are usually expressed in foreign currency, so the deficit or surplus of the balance of payments both affect foreign currency sources and the ability to use foreign currencies and transactions

 The source of the debt crisis:

The source of foreign currency into a country such as investing and transferring moneycan make the country's balance of payments surplus, but a major problem is growing foreign debt:

 Firstly, your debt is foreign currency debt, of which more than 90% is usually US dollar.This debt usually has to be paid both principal and interest from three main sources:(1) Foreign currency earnings from exports;

(2) Additional foreign debt for debt repayment;

(3) Foreign direct investment

However, creditors often want countries to pay off their debt by foreign exchange earnings from exports, but not every country can borrow from it.

 Secondly, global economic crises have exacerbated inflationary pressures and made the developed economies (usually creditors) suffer from currency hardship, which could raise interest rates, offer limited solutions to the borrowing countries that make

it difficult for their economic activities

B- THE STRUCTURE OF INTERNATIONAL BALANCE OF

PAYMENTS OF VIET NAM DURING THE PERIOD 2010-2015

I.Current Balance

1 Balance of trade

- In 2011-2015, The improved trade balance contributes positively to economic growth and is one of the most important factors in reducing exchange rate pressures and improving overall balance However, the trade deficit rate was mainly due to a

slowdown in domestic production (including reduction in imports of manufactured goods, machine, equipment, consumer goods)

- On exports: In the period 2011-2015, exports of goods have achieved high growth rates, more than three times the GDP growth rate The proportion of Vietnam's

exports in total world exports has more than tripled in 15 years from 0.25% in 2001 to 0.8% in 2015, Vietnam agricultural products Although the share of contribution is low,this indicates a greater degree of deepening and widening participation of Vietnam in the world value chain, significantly improving the position of Vietnam in general and Vietnamese goods in particular

- On imports, the share of imports in total export turnover tends to decrease,

contributing to improving the trade balance of Vietnam In the period of 2011-2015, Vietnam's average import increased by 14.36% / year, lower than the two periods (2001-2010)

Figure 1 The balance of trade Vietnam 2011-2015

Unit: million USD

- However, in the period 2011-2015, the improvement of the trade balance is not really sustainable, which is due to:

- Exports of the FDI sector tended to increase in the structure of imports and exports, indicating the dominance of the FDI sector as well as the difficulties and weaknesses ofthe domestic sector From 2000 to now, turnover Exports of FDI sector continued to increase with high growth rate, especially after 2008, contributing to strengthening theposition of this sector in the total export of Vietnam This is also one of the reasons that the structure of importation by commodity of Vietnam has changed, the

proportion of imported raw materials auxiliary materials for FDI sector increased whilethe proportion of imported goods to the zone The domestic sector continues to

decline

Figure 2 Structure of Vietnam's exports by sector exports

Unit: %

- The structure of export goods is mainly low-value items Although the share of value ofagro-forestry -fishery products, heavy industry and minerals (except for 2012) tends todecrease while the proportion of light industrial products increases, the main export items are High-labor intensive goods such as textiles and garments, footwear,

telephones, computers, etc., thus, the actual value added for Vietnam is decreasing

Figure 3 The structure of exports by commodity group

Unit: %

- The export market structure is slowly changing Vietnam's main consumer markets areASEAN, the United States, Japan and China This increases the dependence of Vietnam

on these countries, especially China In the period 2001-2015, the trade deficit

between Vietnam and China has increased continuously, with China's trade deficit on China's total exports to China at 13.32% in 2001 and rising Up to 192% by the first ninemonths of 2015

- However, averaging over the 5-year period, it can be seen that this proportion of the period 2011-2015 is lower than in the previous period 2006-2010 and higher than in the 2001-2005 period Specifically, the proportion of China's trade deficit on total exports to China in 2011-2015 is estimated at 161%, 190.41% for 2006-2010 and 52.69% for the period 2001-2005

2 Balanced service

Table 1 Balance of services Vietnam 2009-2014

Unit: million USD

Chi 8178 9921 11859 12500 13200 15000

- So far, Viet Nam's balance of payments has always been in deficit From 2010 up to now, the balance of service deficit has started to increase at a rapid pace and there aresigns of concern If the deficit was $ 2.42 billion in 2009, the figure was $ 2.98 billion in

2011, and $ 3.1 billion in 2012, down slightly in 2013, then in 2014 then deficit

Reaching a high of $ 4 billion The previous year (2008 pouring) deficit is always less than $ 1 billion

- The balance of services of Vietnam is always deepening because import of services is always more than export Vietnam is still large trade deficit due to trade deficit in transport services, insurance services Despite the trade surplus in tourism but not offset

Table 2 Export-import tourism services-transport 2010-2014 (billions of USD)

Unit: billion USD

turnover and did not change much compared to In the previous year, service import reached $ 15 billion, up 5.6%, of which transport and insurance services accounted for

$ 8.1 billion, accounting for 5.4% of total turnover and up 12.6% The case for 2014 is about $ 4 billion and has been on the rise in recent years mainly due to imports of transport services as imports from abroad are still in the mainstream When Vietnam undertook commitments to open services markets within the framework of the WTO and the ASEAN Community from 2015 and the Pacific Economic Partnership

Agreement TPP in the near future

- In terms of exports of travel services (transport, telecommunications, insurance, government services and other services), tourism services exports increased with highest speed at 16% half of the corresponding increase in total exports of services Tourism services account for the largest share of total service exports and are

constantly increasing (in 2005, 53.9% in 2005, 71.7% in 2005, 59.7% in 2013)

- The proportion of export turnover in total exports of goods and services is low and decreased from 9.4% in 2010 to 7.7% in 2012 and 7.4% in 2013 Export turnover ratio Services on GDP by service sector are low and fall to 19.7% in 2015 to 17.8% in 2010 and 14.2% in 2013 This rate in 2013 of service exports is low and far from the export

of goods to GDP 77.1%

- The propotion of exports of transport services in total service exports was completed and dropped rapidly from 30.9% in 2010 to 25.6% in 2011, to 21.5% in 2012 and into 20.9% in 2013

II Capital Account

 Foreign Direct Investment :

- According to statistics of the Foreign Investment Department (Ministry of Planning andInvestment), as of 20.12.2016, both countries have 22 509 valid projects with a total registered capital of 293.25 billion close USD.Implementation of capital accumulated FDI projects estimated at more than US $ 154.54 billion (roughly 53% of total

registered capital in force).FDI was invested in 19 of 21 sectors, including industrial sectors processing and manufacturing accounting for the largest proportion (58.8% accounted for the total registered capital), business real estate ranked second (17.7%

of the registered capital).There are 116 countries and territories have invested in