During implementation of "The strategy on stabilization and socio-economic development up to the year of 2000", the Viet Nam economy has gained significant achievements. First of all, the inflation rate has declined from 67 percent in 1990 to nearly 0 percent in 1999-2000. Secondly, the average economic growth rate was 7.6 percent per annum during 1991-2000 and 7.0 percent in 1996-2000 years despite the financial crisis in the region. It facilitates the improvement of the population’s living standards. Poverty reduction also gained many achievements included a doubling of the average monthly income per capita from 1994 to 1999. In addition, the gap between the lowest income quintile and the highest one increase from 6.5 times in 1994 increased to 8.9 times in 1999.

In 2001, the economy has recovered with growth rate of 6.8 percent after it grew only 4.8 percent in 1999 and 6.7 percent in 2000. It was one of the highest growth rates in the region. In 2002, because of new difficulties in international trade, especially impacts after the September 11 events in America, foreign direct investment (FDI) has decreased. However, in 2002 and 2003, a more optimistic economic situation is expected in the agriculture, the domestic market and services sectors. Meanwhile the industry sector continues to grow at a rate of 14.0 percent per year. Manufacturing increased by 9.2 percent in 2001 and the same rate is estimated in 2002, while construction recorded a robust performance of 13.0 percent as result of the implementation of infrastructure projects and urban development projects in major cities.

REAL GROSS DOMESTIC PRODUCT  : In 1999, under the financial crisis situation in the region, the GDP growth rate of Viet Nam’s economy slumped to the lowest in the last decade, only 4.8 percent. The average rate during 1996-2000 was about 7 percent per annum. There had been declining tendency in the economic growth during 1995 to 1999, growth being: 9.5 percent in 1995, 9.3 percent in 1996, 8.2 percent in 1997, 5.8 percent in 1998 and 4.8 percent in 1999. However, there are a signs of recovery, as the growth rate increased from 4.8 percent in 1999 to 6.7 percent in 2000 and 6.8 percent in 2001. A higher growth rate can be achieved this year and in coming years.

Agriculture is an important economic sector, employing 62 percent of the labor force and producing 23.6 percent of GDP in the year 2001. Value-added of agriculture production increased by 4.8 percent in 1999 to 6.8 percent in 2000 and 2001. In 2002 a growth rate of nearly 4.0 percent of value added in agriculture sector can be achieved. Based on a structural adjustment in cultivation, food production accounts for 63 percent in 1996 and less than 60 percent in 2001 with greater food security. Rice exports remained steady at about 3.7 million tons in 2001 and about more 3 million tons of rice export this year. Fishery increased rapidly at growth rate of over 5 percent and fishery export contributed US$2 billion to GDP in 2001.

The industry and construction sectors accounted for 28 percent of GDP in 1995 and this proportion increased to 38 percent in 2001. However, this sector is facing the difficulties of low efficiency and competitiveness. Industrial gross output increased by 14.2 percent in 2001, of which the public sector increased by 15.3 percent, the local private sector increased by 20.3 percent and the foreign invested sector grew slowly at only about 12.1 percent due to the international market. In 2001, the foreign invested sector accounted for 35.0 percent of industrial production and also contributed to improvements in efficiency and competitiveness.

Total development investment in 2001 increased slightly, VN$163500 billion or US$11 billion, from VN$145333 billion in 2000 (more US$10 billion). Total development investment increased by 12.2 percent per year in 2001, of which public sector investment increased by 13.4 percent (accounting for 58 percent), the non-public sector increased by 11 percent (accounting for 23.6 percent) and FDI by 10.1 percent (accounting for 18.3 percent). FDI inflow has been increasing during past few years with some big projects such as gas pipeline, power plants and industrial factories.

Service sector growth rates also increased over the last two years from 2.2 percent in 1999 to 5.3 percent in 2000 and 6.1 percent in 2001. In the first six months of 2002, service sector growth increased only 5.9 percent due to the international market. However, retail sales of goods and services in the domestic sector reached VN$238,123 billion in 2001, an increase of 8 percent and in the first six months of 2002, it increased by 12.5 percent. The main reason was the low inflation rate of 2.9 percent in the factor market and good domestic policy.

Major features of Viet Nam’s economic performance in the first half of 2002 are described below:

• It is estimated that GDP grew at 6.7 percent, of which value-added the agriculture sector increased by 4.0 percent, the industry sector by 9.4 percent and the service sector by 5.9 percent;

• Gross industry value increased by 13.9 percent. Non-public sector value increased rapidly by 20.0 percent per year in 2000-2001 and 19.1 percent in the first half of 2002 after the implementation of a new law on "business". Public sector value increased more than 11 percent, contributing about 40 percent of gross industrial value and FDI contributed 36.1 percent.

• Total investment increased by between 11 and 12 percent per year in 2000-2001, contributing 33.7 percent of GDP and it still continues to increase. Many big and important projects such as power plants, transportation system, bridges, telecommunication, etc, were developed.

• The transportation sector increased by less than 6 percent, even though the railway had many improvements.

• Local market and tourism is developing quickly with growth rate of over 12 percent.

Alongside these achievements, there were many difficulties such as slow growth rate and weak competitiveness in the service sector. International trade fell to -5.9 percent, but exports from FDI projects increased to 14.5 percent.

INFLATION : Inflation in terms of the domestic CPI was low with a rate of 0.1 percent in 1999, -0.6 percent in 2000 and 0.8 percent in 2001. In the first six months of 2002, the consumer price index increased by 2.9 percent compared to last year:

POPULATION, LABOR FORCE AND EMPLOYMENT : During the last ten years, Viet Nam has achieved significant progress in reducing the growth rate with average annual growth rate of only 1.7 percent. The population growth rate in 2001 was 1.35 percent.

Poverty by new food security standards now affects for only 16 percent of population and will affect to less than 10 percent by the year 2005. However, living standards in mountain areas and ethnic groups were very low.

The total employed labor force in the economy in 2000 was 36.7 million persons with 3.5 million persons employed in the public sector. The number of urban unemployed and rural underemployed is increasing due to reductions in the growth rates of production and businesses and the entry of more than one million youths into the labor force last year.

According to a recent survey, the unemployed and under-employed situation is described as follows:

·         The unemployment rate in urban areas was 6.44 percent in 2000 and 6.28 percent in 2001. In the Red River Delta was 7.34 percent in 2000 and 7.07 percent in 2001.

·         Rural under-employment is evaluated through time-use rate is about 26.1 percent in 2000 and 25.6 percent in 2001. The rates reflect the effects of low investment in rural areas.

EXPORT AND IMPORT : Exports in 2000 were US$14.5 billion and in 2001 were US$15.0 billion, while the value of exports in the first half of 2002 was US$7.25 billion or growth rate in the first half of 2002 was -5.9 percent, with exports from the FDI sector increasing by 14.8 percent and from local areas decreasing by 6.8 percent. The main elements of the decrease in exports were that the crude oil export value was US$1.5 billion (down by 16.7 percent) and other export volume were down: in fishery was US$816 million (down 2.4 percent); electronics to US$226 million (down 28.4 percent): coffee to US$137 million (down 45.6 percent). At same time, prices of some goods decreased.

Imports in the first half of 2002 were US$8.4 billion, increase by 8.1 percent.

Exports for 2002 will increase slightly and reach about US$16 billion. Imports are estimated to be a total of US$17 billion, which means the trade balance will be US$1 billion.

FOREIGN INVESTMENT : By the end of June 2002, Viet Nam had 3348 effective FDI projects with total capital of US$38.58 billion. Disbursement reached more US$20 billion, which contributed significantly to improvements in the efficiency and competitiveness of the economy. In the industrial sector, FDI has over 2100 projects with total capital of more than US$20 billion. At present, FDI projects produce about 13 percent of GDP and 36 percent of gross industrial production output and employ 450,000 workers. However, from 1997, FDI inflows to Viet Nam decreased since Viet Nam’s main FDI partners come from East Asia, which was suffering from the financial crisis. FDI inflows in the first half of 2002 fell by 55 percent to less than USD 500 million. In 2000, the National Assembly approved the New Revised Law on Foreign Direct Investment, which has many improved articles with improvements relating to:

• foreign currency;

• taxes and import duty;

• land-use rights and mortgage of land-use rights;

• management of joint venture companies; and

• approvals and licensing.

In July 2000, the Securities Trading Center was opened in Ho Chi Minh City and there will be a similar center in Hanoi. After two years of trading, we have gained much experience in this new market.

Through the conferences, donors have committed US$20 billion. The three largest donors, Japan, the World Bank and the Asian Development Bank, contributed 70 percent of the total capital committed. Disbursement from the Overseas Development Agency (ODA) has improved, total disbursement during recent years being US$10 billion. ODA projects focus on the improvement of legal frameworks, human resource training, environmental protection, improvement of economic and social infrastructure and the promotion of economic sector development.

EXCHANGE RATE : In the context of devaluation of regional currencies, Viet Nam has to make adjustments. In the last few years, the realignment resulted in a depreciated Vietnamese dollar (VN$) and now the VN$ has stablised around 15000 VN$ per US$. The government of Viet Nam continues to implement foreign exchange controls, export-import controls and controls of commercial credit for imports, in order to avoid debt shocks. The government also controls foreign borrowings more strictly, including government borrowings and private borrowings, because of their relationship to the debt servicing capacity of the country. At present, as a result of negotiations at the Paris Club, London Club, with Russia, and strict control of borrowings and debt serviceing, the total debt is about US$12 billion equivalent.

POLICY ADJUSTMENT : During 1997 to 2002, the government issued many policy measures in order to stabilize the economy and stop the process of economic recession.

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

• Focus on agricultural and rural development, where 75 percent of Viet Nam population lives and one fourth of GDP is produced; and at the same time to favorably facilitate all economic sectors’ investment into production and business development. From 2000 with business law, domestic investment from private sector has been increasing;

• Expand markets by promoting demand in domestic markets and improving export efficiency--and by expanding to new markets. Currently, exports take 45 percent of GDP and their share of international trade with GDP is 100 percent;

• Address urgent needs in financial, monetary, and banking sectors in order to improve the effectiveness of the banking activities;

• Reorganize and renovate of the targets for state-owned enterprises (SOEs): including a reduction in the number of SOEs by 3000 units in 2003 and by 2000 units in 2005.

• Implement poverty alleviation programs and job generation. National program for poverty people with 1.5 billion USD is implementing. In May 2002, Prime Minister’s office has approved "The comprehensive poverty reduction and growth strategy" (CPRGS) for 2010; and

• Continue to implement administration reform and to improve capacity in governance and execution.

SHORT-TERM OUTLOOK

Economic growth in 2002 is expected to be between 6.5 percent and 7.0 percent, and for 2001-2005 at about 7.0 percent, of which:

Major obstacles to high growth rates include both subjective and objective reasons.

The regional economic recovery is complicated and will take place slowly. The prices of some Vietnamese export products are continuing to decline. In addition, demand by international and regional markets is increasing, but competitiveness will be stronger. China is now a member of the WTO and in 2002-2003 the Asean Free Trade Agreement (AFTA) was completed in six ASEAN economies; Singapore, Brunei, Indonesia, Malaysia, the Philippines and Thailand. It required Viet Nam to implement the following objectives:

·         Promote rapid and sustainable economic growth coupled with attainment of social progress and equity;

·         Create an equal business environment for all types of enterprises from all economic sectors; and

·         Continue with structural reforms to bring about a transformation of the nation's economic structure, and SOEs reform.

The lower fiscal deficit earlier projected in 2001 gives room for implementing SOE and banking reform. The government also took steps to strengthen expenditure management. In September 2001, the Master Plan of Public Administration Reform for 2001-2010, which includes suggestions for public finance reform, was approved by the government. The government initiated, also in March 2001, a three-year SOE reform framework that provides for the equitation, liquidation and merger of around 1,800 small and medium-sized SOEs. Significant progress was made in trade reform in 2001 and 2002.

At the same time, however, efficiency and the competitiveness of Vietnamese goods are still low, and the prices of some commodities produced in Viet Nam are double those of imported goods. Meanwhile, during the process of implementing of commitments necessary for AFTA integration, from now to 2006 Viet Nam has to reduce tariffs to between 0 and 5.0 percent, which makes improving competitiveness even more difficult. Viet Nam is now participating in the ASEAN competitiveness study with the aim of improving the economy. A bilateral trade agreement between Viet Nam and America was approved at the end of 2001 and Viet Nam has now started toward the goal of accession to the World Trade Organisation by 2004.

ANNEX 1

VIET NAM: OVERALL ECONOMIC PERFORMANCE

Annex II

VIET NAM: FORECAST FOR 2002-2003

Annex III

VIET NAM: MEDIUM-TERM FORECAST 2003-2005