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January - February 2010

The High Cost of Market Economy Label It has fascinated Vietnam watchers, particularly those from the West, to discover the metamorphosis of the country transforming itself from a closed political system into an aspiring market economy.

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• The High Cost of Market Economy Label

When there is Opportunity, there is Challenge






Good news for Vietnam, which has set itself a 2010 target of embracing middle-income status.

The World Bank’s approval last December of the provision of $500 million in loans to Vietnam, its biggest ever, has virtually endorsed the once war-ravaged Southeast Asian nation's impending elevation to middle income status.

World Bank Vice President for the East Asia and Pacific region Jim Adams called it a significant milestone for Vietnam, a country which will have moved from the category of highly indebted country to middle income status in less than seven years.

The loan marked the first to the fast-growing communist country from the bank's low-interest lending arm, the International Bank for Reconstruction and Development (IBRD), which provides credit to mainly middle income nations.

The newly approved loan is aimed at supporting a programme of public investment reforms in Vietnam. The loan "is aimed at addressing" weaknesses in public investment processes highlighted during recent "macroeconomic turbulence."

It is the first of two single-tranche operations that will support the country's stimulus programme in response to the economic crisis.

Over the last two years, Vietnam has experienced a succession of shocks starting with massive capital inflows in 2007, a surge in commodity prices in 2008 and export declines as a result of the global economic crisis.

Stimulus measures adopted in late 2008 and supplemented in early 2009 contributed to strong growth, projected to be 5.2 percent this year, the bank said.

According to World Bank country director for Vietnam Victoria Kwakwa, the quality of Vietnam’s future growth would depend on reforms to beef up public investment processes.

The areas to be strengthened under the reform program include environmental screening of publicly funded infrastructure projects as well as strengthening public financial management and regulatory framework for private participation in infrastructure.

Until this latest loan approval, World Bank support to Vietnam had come from the International Development Association (IDA), which provides interest free loans to the world's poorest countries, the Washington-based bank said in a statement.

The World Bank declared Vietnam IBRD-eligible in late 2007 but the Vietnamese government has requested a gradual transition to borrowing from the bank on IBRD-only terms. It will continue to access IDA funds indefinitely.

The World Bank begins to provide IBRD lending when countries hit a per capita income of $1,025 for two consecutive years, virtually endorsing them as middle income level economies.


AseanAffairs’ interview with H.E. Mr. Pham Gia Khiem, Deputy Prime Minister and Minister of Foreign Affairs

Asean: The Year of Vietnam
Q: Vietnam is soon taking over the rotating chairmanship of Asean from Thailand. What should Asean expect from this change in chairmanship?
A: Vietnam assumes the Asean Chairmanship amidst the dramatic transformation of the association towards the building of the Asean Community in 2015 and the enforcement of the Asean Charter. Asean has worked out the vision and roadmap for such a Community, taking the Charter as its legal foundation. It is now essential to take concrete ways and means to translate these targets into reality. Therefore, the year 2010 is a crucial for Asean to accelerate the implementation of Asean’s goals and roadmaps.

As the Asean chair, Vietnam has chosen the theme of “Toward the Asean Community: from Vision to Action” to affirm that Asean’s core duty in 2010 is to accelerate the actions and materialisation of its goals and agreements.

Vietnam’s Asean Priorities
•    taking appropriate ways and means to accelerate the effective implementation of plans and programmes including Asean Economic Community and identify priorities to mobilise the resources for implementation.
•    increasing practical efforts to translate the Charter into reality by improving organisational structure, and strengthening the legal framework and institutional platform for the Asean Community.
•    broadening and strengthening the cooperation with partners, and strengthening East Asian cooperation through forums wherein Asean plays the central role like Asean+3, EAS and ARF while further promoting Asean’s role and position in regional and international forums like APEC, ASEM, UN, WTO and G20.

As the Asean chair in 2010, Vietnam will give priority to the enhancement of Asean economic linkages through different concrete measures to accomplish the objective of building the Asean Economic Community by 2015.
Besides, to help promote regional economic connectivity and establish the Asean Economic Community, Vietnam will work closely with other Asean members to formulate a Master Plan on Asean Connectivity with a view to creating closer connectivity on road, rail, air and sea transport and IT infrastructure among regional economies.

A Big Kick-Start
Q: How prepared is Vietnam to join the Asean Economic Community? How important is intra-Asean trade for Vietnam? Will the Asean single market be a great opportunity for Vietnam’s export?

A: Intra-Asean trade is very important for Vietnam. Vietnam’s trade with Asean was $ 29.9 billion in 2008, accounting for over a fifth of Vietnam’s international trade and equivalent to Vietnam’s total trade in 1995, before its entry into Asean. In recent years, Vietnam-Asean trade has grown by 15-16 percent on average per annum. Today, four out of ten Asean countries are among Vietnam’s top-ten trading partners with the turnover of over $ 1 billion per year.
The establishment of the Asean single market in 2015 also means the removal of tariffs and other trade barriers. If such conditions fully materialise, Vietnam’s exports to other Asean countries would certainly go up. In addition, the establishment of a single Asean market by 2015 is also a big kick-start for Vietnam and other Asean members to better utilise their comparative advantages and increase Asean’s exports originated from Vietnam to its partners’ markets.
Unity in Diversity

Q: Do you think the disparities – different political systems and levels of economic development among Asean members – could delay or derail the association’s drive to set up a single market?

A: Building the Asean Community by 2015 is the common goal and mission of all ten Asean members. At present, Asean is focusing all its efforts to effectively implement the roadmap for Asean community building with the political-security, economic and socio-cultural blueprints.
The differences, particularly in terms of economic development levels among Asean members, represent an obvious challenge. Asean has been working on appropriate measures to overcome this challenge and facilitate the development of “unity in diversity”, allowing member countries to supplement each other in their development process.

Production Hub in the Value Chain

Q: Vietnam is seen as the fastest-developing economy in Asean and has attracted great interest from foreign investors. What would you attribute this success to and what can be done to keep investors interested?

A: After 20 years of renewal, Vietnam is now seen as an attractive and reliable destination for foreign investment and businesses. FDI inflows have increased significantly in recent years. In 2008, registered FDI reached the record high of $ 71.2 billion, almost triple the 2007 figure. In 2009, despite the economic and financial crisis affecting global FDI, Vietnam still ranks high in the region with the FDI of $ 21.5 billion.

Vietnam has a high degree of socio-economic stability. The economy has been growing fast at a stable annual rate of 7-8 percent. Increasing investment in socio-economic infrastructure has met the needs of development and integration into the global economy. If the Vietnamese economy is connected to other regional markets through the integration process, Vietnam could become an access point to the East Asia market.

The institutional system has been improving, with more transparent business environment and favourable conditions that guarantee the success of investors and businesses coming to Vietnam.

Besides, the economy has been more and more integrated into the world economy. Vietnam is now a member of WTO and has trade relations with more than 220 countries and territories. The implementation of AFTA, WTO commitments and other bilateral and multilateral cooperation agreements has also helped bring about important progresses in Vietnam’s external economic relations.
The world economy is experiencing complicated and unpredictable developments. In that context, each country needs to develop appropriate policies to ensure growth quality, maintain macroeconomic stability, prevent the recurrence of high inflation, and improve social security.
In order to maintain competitive advantages, particularly when Vietnam is entering a new development stage to become an industrial country in 2020, we are making great efforts to turn Vietnam into a production centre in Asia’s value chain - an important service gateway of Southeast Asia and the Mekong sub-region.

Getting into the Development Orbit

Q: How would Vietnam ensure that its economy stays on the growth track and immune to risks of a recurring crisis?

A: Vietnam has set out goals for the economy’s growth to reach 6.5 – 7 percent in 2010 and higher in the following years. In the last few months of 2009, the world economy showed initial signs of recovery. However, things remain shaky. On the other hand, the post-crisis period will also pose great challenges to the maintenance of macroeconomic stability and the regain of high and sustained growth.
The Vietnamese government has been aggressively implementing comprehensive measures to curb the economic downturn, maintain a relatively stable economic growth, safeguard macroeconomic stability, improve social security and ensure political stability and social security.
We will continue to restructure the economy to improve its quality, efficiency and competitiveness through infrastructure development, with priority given to high value added sectors using advanced technologies related to environmental protection.
We are making efforts to address certain issues including measures aimed at breakthroughs in institutional building for our market economy, particularly the reform of state-owned enterprises, administrative procedures and governance.
We also need to increase investment in human resources, science and technology to gradually position Vietnam in the development orbit based on high-quality human resource.

Corruption: The Fight Goes On

Q: It is interesting to learn that Vietnam is relentless in fighting corruption. What kind of progress you are looking at in this anti-graft drive?

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