In part, this reflects the Economist Intelligence Unit's forecast that the govern- ment's revenue position will improve as economic growth accelerates and as global crude oil prices ri[r]
Trang 1Country Report
Vietnam
September 2010
Economist Intelligence Unit
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Trang 2operations across national borders For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide
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ISSN 1356-403X
Symbols for tables
Trang 3Monthly review: September 2010
11 The political scene
13 Economic policy
15 Economic performance
Data and charts
17 Annual data and forecast
18 Quarterly data
19 Monthly data
20 Annual trends charts
21 Monthly trends charts
22 Comparative economic indicators
Country snapshot
23 Basic data
24 Political structure
Editorial closing date: September 5th 2010
Trang 4Bl
ack R.
HANOI
Ha Dong Nan Dinh Ninh Binh
Th u Da u Mot
Chau Doc
My Tho Vinh Long
Thanh Hoa
Vinh Quynh Luu
Ban Me Thuot
Kon Tum
Pleiku
Tuy Hoa Qui Nhon
Phu Vinh
Ben Tre Rach Gia
Bao Loc
Song Tay
Yen Bai
Phu Tho Lai Chau
CHINA
LAOS
SOUTH CHINA SEA
Gulf of
Thailand
Gulf of Tonkin
Trang 5Executive summary
Highlights
September 2010
• The Communist Party of Vietnam's 11th national congress, due in January
2011, is expected to usher in a new generation of leaders and so will set the tone for the policy agenda for the next five to ten years
• The government will continue to give off mixed signals regarding the direction of fiscal and monetary policy as it struggles to contain inflation while simultaneously trying to achieve lofty targets for economic growth
• The State Bank of Vietnam (SBV, the central bank) may move to loosen monetary policy in the short term
• Real GDP growth is expected to reach 6.4% in 2010 and 7% in 2011
• Consumer price inflation will accelerate to an annual average of 8.3% in 2010-11 Global fuel prices will rise on an annual average basis in 2010, and demand-side pressures will also push up the general price level
• Policymakers are likely to face an ongoing battle to keep the local currency, the dong, stable against the US dollar
• The deficit on the current account is expected to reach 9.6% of GDP in 2010, before narrowing to 8.4% in 2011
• The government’s probe into the financial status of a state-owned company, Vietnam Shipbuilding Industry Group, has become a criminal investigation
• The SBV undertook another currency devaluation on August 16th 2010, surprising markets by lowering the value of the dong against the US dollar earlier than many investors had expected
• The Ministry of Finance has confirmed that it will go ahead with plans to introduce price controls on certain products if it is deemed that price move-ments are "abnormal"
• According to government figures, the trade deficit hit US$900m in August, compared with US$978m in July The deficit for the first eight months of 2010
is estimated at US$8.2bn, compared with US$5bn in the same period last year
• Inflation held steady in August, with prices rising by 8.2% year on year
• There is a risk of a supply crunch in the rice market, which would push up global prices for the commodity This would affect inflation in Vietnam, although is it likely that price controls on rice would be implemented
• In the first eight months of 2010 crude oil production fell by 14.6% year on year to 9.8m tonnes Meanwhile, the value of exports has fallen to US$3.3bn, a decline of 20.5% year on year
Outlook for 2010-11
Monthly review
Trang 6Outlook for 2010-11
Political outlook Leading members of the ruling Communist Party of Vietnam (CPV) are showing signs of nervousness ahead of the party’s next national congress, with hardliners (who appear to have the upper hand) promoting a tougher line in terms of tackling dissent The 11th party congress, which is due to take place in January 2011, is expected to usher in a new generation of leaders and so will set the tone for the CPV’s social and economic policy agenda for the next five to ten years The party’s general secretary, Nong Duc Manh, is expected to be replaced, having already served two successive terms, while the president, Nguyen Minh Triet, is likely to step down citing health problems The prime minister, Nguyen Tan Dung, could be elected for another term, but ongoing economic instability in Vietnam, combined with the fallout from an embarrassing financial scandal involving a major state-owned enterprise means that he and his reformist allies, including two deputy prime ministers, Hoang Trung Hai and Nguyen Thien Nhan, could be eclipsed by figures with conservative tendencies Those lining up in opposition to the prime minister include the public security minister, Le Hong Anh, the CPV’s head of personnel and organisation, Ho Duc Viet, the head of the party secretariat, Truong Tan Sang and another deputy prime minister, Nguyen Sinh Hung There will be much jockeying for position within the leadership in the coming months, but
it will be largely invisible from outside of the party
The CPV’s success in promoting economic growth, even during the global downturn in 2009, has contributed to a sense of political apathy and has enabled the party to maintain its long-standing claim that it has the right to govern unchallenged However, its legitimacy and its defence of the virtues of the one-party state are being questioned (mainly in Internet forums), especially
in relation to economic uncertainty, pervasive corruption, environmental degradation and strongly felt grievances relating to land seizures Reflecting such threats, the leadership will remain anxious about the activities of political dissidents and will not hesitate to suppress opposition activism The regime’s crackdown on opponents who advocate genuine democratic reform could intensify as the national party congress draws closer
In the next few years the CPV’s leaders will continue with their efforts to demonstrate a degree of political openness, but the sort of political reform that could threaten the party's hold on power will be eschewed The National Assembly (the legislature) will continue to become a more effective law-making institution and shed its rubber-stamp tag Its deputies will become increasingly assertive in calling on ministers to account for their performance and in amending, or even blocking, proposed legislation and policy The government is likely to have been embarrassed by a recent and unprecedented decision by the assembly to block a major government proposal, in the form of a US$56bn bullet-train project However, given that almost all of the assembly's deputies
Domestic politics
Trang 7are CPV members, there is no suggestion that the body will evolve into a genuinely independent branch of power
Vietnam will play an important role in developments in South-east Asia this year, having taken over the revolving chair of the Association of South-East Asian Nations (ASEAN) in January The government’s stated priority during its year-long stint in the ASEAN chair is to promote co-operation within the group Vietnam is also keen to foster closer ties with China Although sensitive issues, such as sovereignty over disputed islands in the South China Sea, could create diplomatic tensions, on the whole Sino-Vietnamese relations will continue to strengthen This is unlikely to damage Vietnam’s links with the US, as the Economist Intelligence Unit expects the Vietnamese government to continue to maintain a balance by avoiding too close an alignment with one country at the expense of ties with the other However, relations with the US could be strained by US allegations of human rights abuses in Vietnam, and also by trade disputes
In the forecast period the government is expected to devote considerable energy to developing Vietnam’s commercial links with other countries, and it appears eager to push ahead with free-trade agreements (FTAs) Vietnamese and EU officials have agreed to begin negotiations on an FTA, and Vietnam has also started talks with the aim of joining the Trans-Pacific Strategic Economic Partnership, which at present comprises the US, New Zealand, Singapore, Chile, Brunei, Australia and Peru
Economic policy outlook The government continues to give off mixed signals regarding the direction of fiscal and monetary policy, as it struggles to contain inflationary pressures while at the same time trying to achieve lofty economic growth targets After surging in 2009, credit growth slowed sharply in early 2010 as the State Bank of Vietnam (SBV, the central bank) removed the cap on lending interest rates However, since then the authorities have put pressure on banks to lower their rates Such apparently contradictory moves raise concerns about the lack of a clear monetary policy strategy The authorities appear keen to introduce more controversial moves, such as price controls on private and foreign businesses, to keep prices stable If implemented, such drastic measures would undermine confidence in economic management in Vietnam They would also indicate that those in the government who favour a more liberal approach to economic policymaking have been sidelined by others with a controlling mentality who aim to expand the state’s involvement in the management of the economy
We expect the budget deficit (excluding on-lending) to narrow to 7.7% of GDP in
2010 and 6.8% in 2011, after widening to an estimated 8.9% of GDP last year In part, this reflects the Economist Intelligence Unit's forecast that the govern-ment's revenue position will improve as economic growth accelerates and as global crude oil prices rise from the lows to which they sank in 2009 (the Vietnamese government derives substantial tax revenue and royalties from the oil and gas sector) However, expenditure will remain high as the government
Policy trends International relations
Fiscal policy
Trang 8continues to spend relatively heavily on infrastructure and social welfare programmes; the IMF recently revealed that there was considerable uncertainty
as to whether a planned reduction in investment spending would be achieved Moreover, there are concerns about how the government will finance its deficit
in the next two years, as it is already borrowing heavily to fund its off-budget economic stimulus programmes In January 2010 the government raised US$1bn through an international sovereign bond issue, but this was at a premium, and in recent months it has struggled to sell domestic bonds, partly owing to its reluctance to meet the demand for higher yields
The SBV will continue to take a short-term view with regard to monetary policy
It will take adequate steps to adjust policy when this is made necessary by rising inflation or overly tight financing conditions, but it will do so on an ad hoc basis There will be no clear medium- or long-term policy stance on inflation or the maintenance of a stable exchange rate The mainstay of the SBV's policy approach will be to ensure that the cost of financing does not undermine economic growth Meanwhile, the SBV's exchange rate policy, or the seeming lack thereof, will continue to add to the perception that the authorities are struggling to maintain stability in the domestic economy
After raising its main policy interest rate, the prime rate, by 1 percentage point to 8% in December 2009 (having lowered it from 14% to 7% between mid-2008 and early 2009), the SBV has since kept the rate on hold Although the central bank has removed the cap on commercial bank lending rates (which were previously limited to 1.5 times the prime rate), the government has recently called for lending rates to be cut to spur credit growth, as the scrapping of the cap led to an immediate rise in commercial bank lending rates of 2-3 percentage points As inflation has yet to return to double-digit rates, the authorities may delay further tightening or might even loosen policy Now that the direct link between the prime rate and commercial bank lending rates has been severed, any future tightening may come not in the form of increases in policy rates through the use of other instruments
Economic forecast
International assumptions summary
(% unless otherwise indicated)
US$ 3-month commercial paper rate 2.18 0.26 0.22 0.35
International assumptions
Monetary policy
Trang 9International assumptions summary
(% unless otherwise indicated)
2008 2009 2010 2011
Commodity prices
Food, feedstuffs & beverages (% change in US$
in that country On a more positive note, a degree of calm has returned to debt markets in the euro zone, following the announcement of a €440bn (US$500bn) financial stability facility
Asia will witness strong economic growth in 2010-11, although the need to scale down the massive credit expansion in China that has been implemented in the past year could cause instability A downturn in China would hit Vietnam's export sector, as it is the country’s third-largest export market after the US and Japan Vietnam's export sector could also face difficulties as a result of the expected slowdown in the US economy in 2011 and the ongoing sluggishness
of the recovery in Europe Although Vietnam will benefit from a rise in national demand, increases in the global prices for crude oil, industrial raw materials and rice will contribute to domestic inflationary pressures
inter-Gross domestic product by expenditure
(D bn at constant 1994 prices where series are indicated; otherwise % change year on year)
Trang 10Gross domestic product by expenditure
(D bn at constant 1994 prices where series are indicated; otherwise % change year on year)
a Actual b Economist Intelligence Unit estimates c Economist Intelligence Unit forecasts
d Contribution to real GDP growth (as a percentage of real GDP in the previous year)
Economic growth in Vietnam is expected to be strong in 2010-11, averaging 6.7%
a year Nevertheless, this will still be below the rates of real GDP growth that were witnessed prior to the global economic downturn in 2008-09 Growth in economic activity in Vietnam will be underpinned by rises in consumption, investment and exports Exports will be boosted by solid growth in global trade throughout the forecast period, and by demand for Vietnamese goods and services from the US, China and European markets However, growth in imports will also be strong, acting as a drag on real GDP growth in 2010-11 Our GDP forecast for Vietnam is subject to both upside and downside risks The negative scenario entails a weaker global recovery than we currently expect, with subdued growth in Vietnam's major export markets This could be the result of a number of factors, including unexpected economic shocks in other emerging markets in Asia or a deepening of the European financial crisis If either of these two developments were to occur, it would mean weaker demand and prices for Vietnam's exports, hitting incomes This in turn would have a knock-on impact on consumer and business spending, and act as a drag
on growth On the positive side, there could be an unexpectedly strong rise in domestic demand, driven by high confidence levels on the part of both businesses and consumers Moreover, if Vietnam's main trading partners enjoy stronger economic growth than we currently forecast, this could provide additional support for the country's exports of goods and services
On the supply side, growth in the industrial sector will accelerate in 2010-11 There will be an improvement in manufacturing output compared with 2009, but growth in demand for Vietnam’s manufactured exports will remain lack-lustre in the next two years compared with the period that preceded the 2008-09 global recession Growth in the services sector, which was the main engine of economic expansion in 2009, will also accelerate, with retailing and financial services making major contributions to growth
Consumer price inflation will accelerate to an annual average of 8.3% in 2010-11, having slowed to 7% in 2009 as a result of a drop in food and fuel prices Global fuel prices will rise on an annual average basis in 2010, and demand-side pressures will also push up the general price level Moreover, global rice prices are expected to increase, which is likely to have an impact on domestic rice prices in Vietnam However, the government could introduce
Inflation
Trang 11price controls on rice (a staple food in Vietnam) to prevent price hikes from having a serious impact on the population's living standards
By making credit cheaper and actively encouraging domestic banks to lend, the government has successfully boosted demand for credit Assuming that the authorities continue to maintain a policy bias towards supporting growth rather than stabilising prices, we forecast that the outstanding stock of domestic credit will rise by an average of nearly 30% a year in 2010-11 The risks to our inflation forecast therefore remain on the upside
Policymakers will continue to face a challenge in terms of maintaining stability
in the currency's exchange rate against the US dollar The SBV has devalued the dong on three occasions recently: in November 2009, February 2010 and again
in mid-August The devaluations resulted in a cumulative drop of over 7% in the dong's value against the US dollar Until there are clear signs that the trade deficit is narrowing and inflationary pressures are receding, it is unlikely that downward pressure on the dong will ease In the next two years the SBV may try to engineer a controlled, gradual fall in the value of the local currency, but it will probably have to opt for further devaluations, a widening of the currency’s trading band or both The dong is forecast to depreciate to an average of D19,107:US$1 in 2010 and D19,612:US$1 in 2011
The current account will remain in deficit in 2010-11 Despite a recovery in exports, the release of pent-up demand for imports and an acceleration in consumption and investment growth will mean that the merchandise trade deficit will remain worryingly wide in 2010-11 The services and income accounts will also stay in the red Capital and financial inflows (including official foreign borrowing) will increase from the low levels to which they sank
in 2009 Vietnam has already succeeded in raising US$1bn through a ten-year sovereign bond issue in January 2010, and foreign direct investment inflows are picking up, albeit modestly The country's international reserves position will therefore improve in 2010-11, having deteriorated sharply in 2009 However, reserves are not expected to return to their 2008 highs in the next two years
Forecast summary
(% unless otherwise indicated)
2008 a 2009 a 2010b 2011b
Gross agricultural production growth 4.4 1.8 3.3 3.0
Consumer price inflation (end-period) 20.0 6.5 8.5 7.6
Exchange rates
External sector
Trang 12Exchange rate D:US$ (av) 16,440 17,800 19,107 19,612
Exchange rate D:US$ (end-period) 17,433 18,472 19,410 19,821
Exchange rate D:¥100 (av) 15,905 18,995 21,351 21,913
Exchange rate D:€ (end-period) 24,234 26,474 24,262 23,884
a Actual b Economist Intelligence Unit forecasts c Economist Intelligence Unit estimates
Trang 13Monthly review: September 2010
The political scene The condition of Vietnam’s state-owned sector became a hot political issue in August A government probe into the financial status of a state-owned enter-prise (SOE), Vietnam Shipbuilding Industry Group (Vinashin), has escalated into
a criminal investigation A former chairman and chief executive of Vinashin, Pham Thanh Binh, was arrested and detained on August 4th for allegedly violating state management regulations and contributing to the near bank-ruptcy of the firm It will not have helped Mr Binh’s cause that the scandal has embarrassed his ally, the prime minister, Nguyen Tan Dung Mr Binh’s replacement, Tran Quang Vu, was subsequently removed from his position on August 29th at the urging of investigators; a financial restructuring specialist, Nguyen Quoc Anh, has taken over his duties
Since assuming the premiership in 2006 Mr Dung has pushed for the expansion
of SOEs, in part because of an inherited ideology within the top ranks of government For nearly two decades Vietnam has aimed to create powerful SOEs in order to keep key parts of the economy in Vietnamese hands The country’s political rulers believe that local firms are not yet ready to compete head-to-head with foreign companies During his time as prime minister,
Mr Dung has brought many of the biggest SOEs under his direct control, sidelining several of the government ministries that previously supervised important firms, such as PetroVietnam and Vinashin This helped to channel more power directly to Mr Dung, who then encouraged these firms to re-model themselves as diversified conglomerates This strategy allowed both the SOEs and the prime minister to amass still more influence But it also fuelled resent-ment among Mr Dung’s detractors in the ruling Communist Party of Vietnam, a number of whom previously had powerful roles overseeing the state-owned sector
The very public arrest of Mr Binh is being viewed in some quarters as an attempt to clip the wings of Mr Dung ahead of the 11th party congress, where a second term for the prime minister is by no means assured Notably, a deputy prime minister, Nguyen Sinh Hung, who is leading the investigation into Vinashin, was previously the finance minister and the direct supervisor of several big SOEs before Mr Dung took control of them Mr Hung is also seen as
a possible rival for the premiership These two factors raise serious questions about Mr Hung's impartiality regarding the Vinashin case It is possible that if it were not for Mr Dung’s personal connections to Vinashin and Mr Binh that the company’s financial problems may have been dealt with behind the scenes and with comparatively little fanfare
Nevertheless, the extent of Vinashin’s financial problems would still have been likely to emerge The shipbuilder has borrowed as much as US$3bn in recent years in order to finance its rapid expansion into cargo transport, hotels and brewing According to the government’s initial report, the global economic downturn severely hit demand for ships and cargo services as global trade
Mr Dung is scandalised by the
failure of Vinashin