A 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~j LL1 y _ C 4tj 1 l G -+ u3XW4 VI ETNAMA Preparing for Take-miff ? How Vietnam Can Participate Fully in the East Asian Recovery An Informal Economic Report of the W'orld Bank Consultative Group Meeting for Vietnam Hanoi, December 14 - 15, 1999 Currency Equivalents Currency Unit = dong US$1 = 14 008 dong (November 1999) GOVERNMENT FISCAL YEAR January 1 to December 31 ABBREVIATIONS AFTA Asean Free Trade Agreement AMC Asset Management Company ASEAN Association of Southeast Asian Nations CIE Center for International Economics BOT Build-Operate-Transfer BRC Bank Restructuring Committee DFID Department for International Development, UK EER Effective Exchange Rate FDI Foreign Direct Investment GSO General Statistics Office HEPR Hunger Eradication and Poverty Reduction HCMC Ho Chi Minh City IDA International Development Association JSB Joint-stock Bank JV Joint-Venture MOF Ministry of Finance MOLISA Ministry of Labor, Invalids and Social Affairs MPI Ministry of Planning and Investment MPDF Mekong Project Development Facility MOT Ministry of Trade NERC National Enterprise Reform Committee NPL Non- Performing Loans NGO Non- Governmental Organisation NTB Non- Tariff Barriers NTR Normal Trade Relations ODA Official Development Assistance PSF Private Sector Forum SBV State Bank of Vietnam SME Small and Medium Enterprises SOCB State Owned Commercial Bank SOE State-Owned Enterprise UNDP United Nation Development Program VAT Value Added Tax VLSS Vietnam Living Standard Survey WTO World Trade Organization Acknowledgements The World Bank team is grateful to officials of the State Ban:k of Vietnam, the Ministry of Planning and Investment, the Ministry of Finance, and the Prime Minister's Advisory Group for their support and cooperation without which this informal report would not have been possible. Comments on the draft report were received from the following: Mr. Cao Si Kiem, Vice Chairman of the Committee on Economic Cooperation, Madam Duong Thu Huong, Deputy Governor, State Bank of Vietnam, Mr. Nguyen Thieu, Advisor to the Goverment, Mr. Le Dang Doanh, Chairman of CIEM and Mr. Nguyen Quang Thai, Vice President, Development Strategy Institute. The report was written by a team comprising of Kazi M. Matin, Pham Minh Duc, Nguyen Van Minh, Thang-Long Ton, and Dinh Tuan Viet. Other major contributors were Leila Webster, Arnold Sowa, IgorArtemiev, Daochi Tong. Written contributions were provided by Bob Warner and Nguyen Nguyet Nga. Comments on earlier draft were received from Nisha Agrawal. Bob Baulch, Naoko Ishii, Anil Malhotra and Paul Stott. Secretarial and publishing support was provided by Vu Tran Phuong Anh, Nguyen Thu Hang, Hoang Thanh Ha and Tran Kirmn Chi. The team would like to thank Andrew Steer for providing ideas and inspiration during the preparation of the report. VIETNAM: PREPARING FOR TAKE-OFF? An Economic Update TABLE OF CONTENTS EXECUTIVE SUMMARY.......................... Chapter 1: Recent Economic Situation ..................................................1I Slow Growth .............................................................2 Falling Investment ................................................. 2 Pick Up in Export ..................................................3 Lower Imports ..................................................4 Declining Revenue ..................................................6 W eakening State E nterprises and Banks ................................................. 8 Rising Urban Unemployment .................................................. 9 Chapter 2: private sector performance .................................................. 11. Key Facts about the Private sector .................................................I I Key Constraints Facing the Private Sector and ReformAgenda ........ ................................. 13 Annex 2.1 ................................................. 99 Chapter 3: Policy Reforms for Higher Growth ............................................. 25 Trade Policy ................................................. 26 Banking Reform........ 31.. ;.. SOE Reform .......... 36 Annex 3.1 .......... 43 Chapter 4: Medium-term Outlook and External Financing ............................................ 45 Growth under Slow and Accelerated Reform ............................................ 46 External Debt Management ............................................ 48 External Financing Requirement ............................................ 49 REFERENCES STATI STICAL APPENDIX Text Tables Table 1. 1 GDP Growth Rates (percent) .........................................................2 Table 1.2 Fiscal Situation .........................................................7 Table 1.3 Financial Status of Weak SOEs .........................................................8 Table 1.4 Unemployment Rates .........................................................9 Table 2.1 Private Sector's Share in 1998 GDP (percent) ........................................................ 11 Table 2.2 Private Registered Manufactures Are Export-Oriented ...........................................1 2 Table 2.3 Forms of Foreign Investment Inflows (percent) ...................................................... 12 Table 2.4 Major Constraints Identified by Private SMEs' Managers ....................................... 15 Table 3.1 Private Participation in Foreign Trade ........................................................ 28 Table 3.2 SOE Equitisation as of August 31, 1999 ........................................................ 37 Table 3.3 SOEs Under Equitisation ........................................................ 38 Table 4.1 World Growth, 1981-2007 ........................................................ 45 Table 4.2 Growth Projections Under Accelerated Reform ...................................................... 47 Table 4.3 External Balance, 1998-2002 ........................................................ 48 Table 4.4 Vietnam: Debt Stock and Debt Services ........................................................ 48 Table 4.5 External Financing Requirements, 1999-2002 ........................................................ 50 Text Figures Figure 1. 1 FDI Commitment and Actual Disbursement .........................................................3 Figure 1.2 Growth of Key Exports in US$ Value .........................................................4 Figure 1.3 Price and Volume Index for Five Commodity Exports ..............................................4 Figure 1.4 Effective Exchange Rate Movement .........................................................5 Figure 1 .5 Year-on-year Inflation .........................................................6 Figure 2.1 Industrial Employment by Sector .........................................................13 Figure 2.2 Share of the Private Sector in Total Credit ........................................................ 19 Figure 3.1 Vietnam's External Sector ........................................................ 27 Figure 3.2 Composition of Vietnam Exports ........................................................ 27 Figure 3.3 Import Coverage of Import Restrictions ........................................................ 30 Figure 3.4 Production coverage of Import Restrictions ........................................................ 30 Text Boxes Box 2.1 Private Investment Measures in 1999 ........................................................ 14 Box 2.2 Private Investment Reform: A Three-Year Agenda ............................................... 17 Box 2.3 Framework for Household Enterprises ........................................................ 17 Box3.1 Trade Reforms in 1999 ........................................................ 28 Box 3.2 Opening up to International Trade: A three-year Agenda ...................................... 29 Box 3.3 Banking Reforms in 1999 ........................................................ 32 Box 3.4 Developing a Healthy Banking System: A Three-Year Agenda ............................ 35 Box 3.5 Likely Components of SOCB Restructuring Plans ................................................ . .36 Box 3.6 S tat e Ent erprise Reforms in 1999 ........................................................ 37 Box 3.7 Improving Efficiency of the State Enterprise Sector: A Three-Year Agenda ......... 39 Box 3.8 Recommendations for the Assistance Fund for SOE Reform ................................ 42 PREPARING FOR TAKE-OFF? How Vietnam Can Participate Fully in the East Asian Recovery Executive Summary Vietnam can benefit greatly from the East Asian economic recovery, but it has not yet implemented the policy changes required to do so. For the past decade Vietnam has consistently enjoyed economic growth that equaled or exceeded the average rate for the East Asian Region. In the process, it has brought impressive gains in incomes and the quality of life to its citizens. But Vietnam now faces the possibility of becoming one of the slower performers in the region. In the two years of East Asian recession, Vietnam has followed a cautious economic stance, giving priority to ensuring macroeconomic stability rather than taking risks in order to achieve higher growth. This has led to some successes. Contrary to fears eighteen months ago, Vietnam has avoided the serious balance-of-payments, fiscal or banking crises thai: have been common in the region. In the meantime, the Government has undertaken important preparatory work for serious reform in the banking, state enterprise, and trade sectors, and for creating a more supportive environment for the private sector. In this regard, Vietnam is wel l positioned for the fluture. Hoowever, the implementation of these changes is only now beginning, and it is not yet clear whether action will be firm or rapid enough to help turn around the economy. At root., Vietnam's growth over the medium term depends upon whether Vietnam becomes a truly "multi-sector' economy, in which the private small, medium and large businesses are able to grow and compete in an undistorted environment with the same freedoms as state enterprises. Economic Developments in 1999 Two years of low growth -- around 4 percent in both 1998 and 19 99, less than half the rate of the previous seven years - have begun to take their toll on unemployrnent (urban unemployment up to 7.4 percent from 6 percent in 1997), on enterprise profitability, and on public revenues. The remarkable progress in reducing poverty over the past decade may have stalled, especially in urban areas. The level of investment as a share of GDP has fallen from 29 percent in 1997 to an estimated 19 percent in 1999, the lowest since 1993. Only half of this decline is due to the fall in foreign investment flows from very high annual levels of $2 billion in 1995-97 (equivalent to 8 percent of GDP) to $600 million in 1999. Public revenues have also suffered sharply, declining from 23 percent of GDP in 1996 to less than 18 percent in 1999 - due primarily to the declining financial performance of the state enterprise sector, and the more difficult climate for enterprise generally. As usual, the Government has behaved prudently and not allowed this decline to lead to fiscal instability, choosing to cut expenditures accordingly. Commendably, the Government has sought to protect social expenditures, which may have helped cushion the impact of the recession. There have been two bright spots in Vietnam's performance in 1999. The first is agr-iculture, which has grown by almost 5 percent - thus compensating for the modest industrial growth and even ii Vietnam: Preparing.for Take-off? more modest growth in services. Rice production has grown by 2 million tons to 31 million tons, with exports rising from 3.5 to 4.2 million tons, another record. Diversification within agriculture - which has been the source of much of the poverty reduction over the past five years - continued, as livestock and fisheries did quite well. The second encouraging sign has been exports, which are expected to be up by 14 percent in value terms this year. Export volume has increased by more. Growth was across a broad array of goods and commodities, and with strong growth of exports to both Asia and Europe. Manufactured export earnings rose by 18 percent, helped in part by the opening of factories during 1998 and 1999. Commodity or primary export earnings rose by 13 percent. For the first time, nearly half of all exports were undertaken by domestic and foreign private companies. The Potential Contribution of the Private Sector The Prime Minister's opening speech to the National Assembly in November 1999 emphasized the priority of creating a climate conducive for private sector development. Two facts provide encouragement to action for creating that climate. First, the "doi moi" reforms of the late 1980s and 1990s were extraordinarily effective in galvanizing the energy of millions of individuals and households who diversified and expanded their agricultural production rapidly, and set up many micro-enterprises, especially in the service sector. The later opening to foreign direct investment in the mid-i 990s also had rapid and positive impact in bringing in resources and technology. Second, important new evidence (see the companion report to this one: "Alhacking Poverty") shows that this growth has been possible without serious deterioration in the distribution of income. Particularly important, in rural areas, where growth and poverty reduction have been especially noteworthy, the relatively egalitarian distribution of income has remained largely unchanged. Less encouraging is that the sources of growth and poverty reduction that have benefited the nation so greatly - primarily agricultural productivity growth and diversification, the emergence of small enterprises in the service sector, and high foreign investment inflows - while hopefully playing an important role in the coming years, cannot by themselves sustain the momentum of employment growth and poverty reduction. Of primary importance for the future will be the emergence of a vibrant domestic private sector. Today, the private sector accounts for half of GDP, a share that is relatively unchanged over the past five years. The great bulk of this is accounted for by the household, mainly farm-based and services sector (34 percent of GDP), and foreign invested businesses (1 0 percent of GDP). The domestic non-household private sector - still mainly in the form of small and medium enterprises -- only accounts for 7 percent of GDP. Within this overall picture there are important trends that are illustrating the powerful contribution that the private sector can bring and pointing to hope for the future. In the manufacturing sector, for example, there are now some 600,000 micro-enterprises and 5600 private small and medium enterprises (SMEs) that account for around 28 percent of manufacturing GDP. These provide a significant base for future growth. In addition, private SMEs, especially the larger ones, have become the leading edge in generating exports; for example, private SMEs that are employing more than 100 workers in sectors such as garments, footwear, seafood and so on, are, on average, exporting more than 75 percent of their product. Finally, the private sector is demonstrating its ability to generate employment; household enterprises and private SMEs now account for 65 percent of manufacturing employment (while accounting for 28 percent of output). ExecultiveS'uinnary iii Despite these signs of hope, the private sector in Vietnam remains more constrained than in other countries of the region, including China. Measures have been taken recently to address some of these constraints (see Box 1). The passage of the Enterprise Law and the announcement of a private sector action plan in June 1999 (see Annex 2.1) are potentially very positive indeed. Actions on both. especially the issuance of clear implementing decrees for the Enterprise Law, will determine their impact. As of now, the private sector continues to face more restrictions on entry, has poorer access to imported inputs and export outlets, experiences greater difficulties in obtaining and utilizing land- use rights, and has less access to credit (because of the banks' biases against it) relative to other countries of the region. More importantly, countries of the region are liberalizing more rapidly thereby making the gap wider. That may explain why, for example, this year private foreign investment has been returning to Korea, Thailand and Malaysia, but not yet to Vietnam. Box 1. Creating A Supportive Environment for Prival:e Investment Measures Adopted in 1999 Overthe pastycar,the Governmenthas: * Approved the Enterprise Law, eliminating discretionary restrictions on the rights of any legal entities and individuals to establish private business, simplifyiing substantially registration procedures, creating a basis for unified legislation covering all kinds ofenterprises including equitized enterprises (June). * Established a Steering Commnittee for Private Sector Development (April). * Developed a detailed private sectoraction program (SeeAnnex 2. 1) under the Miyazawa plan (June). AThree-yearAgenda * Issue all decrees to implement the Enterprise Law. * Develop and announce a medium-tern strategy for private sector development. * Issue decree to allow private SMEs to join together to form wholly private Vietnamilese business associations on a provincial or national level, without participation of state-owned enterprises (SCIEs) or government agencies. * Allow land-use rights to be freely transferable, along with sales of buildings, and establish simple land and building registration procedures. * Phase-out dual pricing system for foreign and domestic entities. * Remove the foreign exchange surrender requiremenit. * Clarify laws associated with private participation in infrastructure (e.g. BOT, BT, etc.) particularly on lenders' step-in rights in case of default, on arbitration and governing law, on force ma jeure clauses and on terminiation clauses. * Introduce interest-rate flexibility. * Announce sub-sectors that are eligible automatically for 100 percent foreign ownership. * Abol ish supplementary personal income tax, and lower the marginal rates. * Uniify corporate income tax rates for foreign and domestic enterprises. Reforms in state-enterprises, banking and trade are likely to contribute as much to harnessing private SMEs and foreign-invested enterprises as measures to liberalize private entry and expansion. Trade reform helps the private sector by enhancing its access to imported inputs and to export outlets. But more importantly by reducing import protection as well as explicit and implicit export taxes, it encourages more investment in exports and agriculture, and thus creates more employment for the same investment. SOE reform, in the form of equitizations and divestitures, could jump-start the private corporate sector, by adding quickly to the number of private SMEs. Restraint on bank credit to SOEs, aimed at instilling more financial discipline, can reduce "crowding-out" of credit to the private sector. Bank restructuring ancl reform will help to reduce non-performing loans (NPLS), improve liquidity, lower the share of policy-lendilg and re-orient bank management to view all loans on their commercial merit, including loans to the private sector. iv Vietna7n: Preparingfor Take-oft? On the institutional side, access to information, formation of private Vietnamese business associations and better availability of business services are among the requirements for better performance of the private SMEs. Supporting institutions - such as the courts, accounting systems, public information processes, and private business associations - are currently providing insufficient support to the operation of the market, especially to private SMEs. Information on the domestic economy, including budgetary data, has recently become more accessible, but information from outside Vietnam on markets, trends and technology are still difficult to access. "Firewalls" and the high cost of the internet, limit access to knowledge, as does the absence of Vietnamese business associations. Availability of key business services like accountancy, computer and consulting services, design and packaging, distribution logistics, market research, and training, remain limited, and need to be encouraged. Policy Reforms for Higher Growth There are three broad areas of structural change that have rightly received special attention over the past 18 months. in addition to private investment climate discussed earlier, as the Government has sought to improve the efficiency of scarce investment resources: * Creating a sound banking system * Reforming the state enterprise system * Opening up to international trade Over the last twelve months, a number of important measures have been taken (see below), but the overal1 pace of reform has not yet been sufficient to overcome the deteriorating economic situation. Important analytical and preparatory work has been undertaken in each of these areas for more comprehensive actions in the coming three years. Creating a Sound Banking System. Vietnam's banking system has problems common to many countries in the region: high NPLs, poor management practices, and an inability to intermediate effectively between savers and investors. The cost to the economy of these weaknesses is high - in terms of lost growth and efficiency and vulnerability to crisis. Recognizing this situation, the Bank Restructuring Committee (BRC) has recently developed the elements of a program of reform for the banking sector aimed at restoring the financial health of banks and at creating appropriate incentives for prudent banking in future. The first round of actions have focused on restructuring joint-stock banks (JSBs) in HCM City, because of their high vulnerability and the economic importance of the city. The BRC has taken actions to close four JSBs, merge two others and place several others under special management or under special supervision of the State Bank of Vietnam (SBV). Several new regulations have also been issued to improve the incentives-for prudential banking and for shifting policy-lending from banks to a budgetary-fund. The main challenge for the next three years is to restructure banks to get them to operate commercially. For this purpose loan work-outs have to be carried out effectively, and state-owned commercial banks (SOCBs) have to develop and implement detailed restructuring plans. For loan work-outs, the BRC is planning to establish an Asset Management Company (AMC) to deal with non-recoverable debts that have collateral and work-out units in SOCBs to deal with the NPLs that are recoverable. The main challenge for restructuring SOCBs is to strengthen management sufficiently to prevent the recurrence of the high levels of NPLs and to create a market-oriented credit culture. Executive Sunnarvy v Box 2. Creating A Sound Banking System MeasuresAdopted in 1999 Over the past year the Government has: * Completed financial assessment by SBV of all 51 JSBs and independent diagnostic audits of 4 large SOCBs by international conlsultants (February) * Developed preliminary action plans for(a) restructuring all 51 JSBs and (b) operational restructuriig strategy for all SOCBs (March). * Issued regulations on "special control" regime including revoking licenses of troubled banks and "special supervision" regime which strengthens supervisory oversight (April). * Closed 4 JSBs in HCM City, placed another 6 JSBs under SBV's "special control" regime and merged 2 JSBs ( November). * Initiated development of a legal framework for removing non-commercial lending activities from SOCBs: submitted to the Government a plan to hive off Bank for the Poor as a policy bank to lend to socially targeted groups (June) and issued a decree on establishment of a Development Supporil Fund, funided by the budget, to provide loan guarantees and interest subsidies for strategic purposes (July). * Issued several prudential regulations for banking operations, namely assets classification and loan-loss provisioninig; financial ratios for safe operation of credit institutions; organizatioin and autilority of bankiig inspector, deposit insurance and collateral regulations. AThree-year Agenda * Restructuring-JSBs an,dSOCBs - Create a sound and transparent mechanism for resolution of fai led/ troubled financial institutions. - Enforce regulatory framework forall 51 JSBs and complete implementation of action plans for all JSBs. - Establish anAMC and work-out-units in SOCBs. - Agree on key elements of restructuring plans between each SOCB and the Government (e.g. strengthening maniagemilenit, resolving NPLs, and developing conditions for phased recapitalization). - Complete detailed restructuring plan for each SOCB and develop an implementation timetable. - Equitize one ofthe four large SOCBs by the end of2002. - Remove non-commercial lending by SOCBs, except under special circumstances when an explicit government guarantee is available. * Strentgtlhenin1g Regulattory & Supervisory Legal Framework - Adopt the international definition for classifying NPLs, where if any installment of a loan is overdue, the total value ofthat loan is classified as NPL. - Adopt regulations that prohibit banks and financial institutionis from lending to shareholders and directors, including persons or entities related to them. - Move towards a risk-based approach to bank-supervision - Develop detailed plan to adopt international accounting standards for banks and borrowers. - Initiate trainiing programs for banking staff in credit risk management. * Leveling the Playing FieldforAllBanks - Relax restrictions on dong deposit mobilization by foreign banks. - Ensure that SOCBs have no preferential treatment relative to J SBs. vi Vietnam. Preparing for Take-oft? Improving State-Enterprise Efficiency. The SOE sector, with around 5800 enterprises, accounts for about 30 percent of GDP, 20 percent of total investment, 15 percent of non-agricultural employment, and around 50 percent of outstanding domestic bank credit. The 200 largest ones account for 60 percent of state capital and 40 percent of total debt. The group of "worst-performing" SOEs, classified on the basis of profitability and debt-levels, includes small, medium and large enterprises. The National Enterprise Restructuring Committee (NERC) has developed a comprehensive program of SOE reform, though it remains to be approved by the Government. This program seeks to diversify ownership through equitization and divestiture, to consolidate the state enterprise sector through liquidations and mergers and to restructure large troubled SOEs through downsizing and other measures to improve efficiency. There is no doubt that implementation of this program is now urgent as a large proportion of medium and large SOEs are generating losses and piling up additional debts, that the country cannot afford. Box 3: Reforming State Enterprises Measures Adopted in 1999 * Completed classification of SOEs using financial/ economic criteria and 1997 enterprise-by-enterprise database of the Ministry of Finance into worst-performing and poorly-perfornming SOEs. * Registered 434 SOEs for equitization and completed 146 privatizations (where more than 65 percent shares sold), 37 equitizations (where 51 to 65 percent shares sold) and 41 minority sales; another 210 SOEs are at various stages ofthe equitization process (November). * Issued regulations for outright divestiture, transfer, sale, and lease of small SOEs, which permits divestiture through auctions and without requiring conversion of SOEs intojoint-stock companies (September). * Issued decision to establish Restructuring Fund to fund severance payments and other activities from equitization proceeds. * Selected 100 large troubled SOEs for independent diagnostic audits (September). * Selected three general corporations (i.e. Seaprodex, Vinatex and Vinacafe) for developing specific restructuring- action-plans (September). * Issued resolution asking for amendment of Decree 44 to remove existing caps on the nuumber of shares that can be bought by individuals and/or legal entities in equitized enterprises (July). AThree -yearAgenda * Adopt, announce and implement a three-year comprehensive SOE reforn program with annual targets for equitizations, divestitures, liquidations, mergers and other forms of restructuring to cover a significant fraction of SOEs. * Amend Decree 44 to remove caps on shareholding of individuals and legal entities in equitized enterprises, to enhance transparency by announcing sale of SOEs in newspapers 30 days before bids are invited, and to improve effectiveness of sale by moving sale of shares of an SOE to an agency, outside the SOE. * Implement system to monitor quarterly changes in bank credit and budgetary support for 200 large highly- indebted SOEs. * Conduct operational reviews (i.e. diagnostic audits) for 50 large SOEs. * Develop and implement restructuring plans of the three selected general corporations (i.e. Seaprodex, Vinatex and Vinacafe) to enhance efficiency and competitiveness. * Enforce ceilings on bank credit to the SOE-sector, including a sub-ceiling on the 200 large highly-indebted SOEs. Recent actions to simplify the equitization procedures and to set targets for equitizations have raised the momentum considerably. The number of equitized firms has now risen to almost 250 - in Executive Suinrnary vii comparison with the 17 completed at end-I 997. 'Nearly two-thirds of these SOEs sold more than 65 percent of shares and another one-sixth, sold more than 51 percent. In the rest of the equitizations, the state continued to hold majority of the shares. In the coming years, equitizations and divestitures, of mostly small and medium SOEs (i.e. only ones with capital less than I 0 billion dongs), will have to cover a sizeable number of state-enterprises (say a third to a fourth) if it is to have a significant impact on SOE-sector and on private SME sector. Liquidations are planned only for the worst- performing and unviable ones, while mergers may be undertaken wherever consolidation will help to create a stronger enterprise. Together they can go a long way in consolidating the sector. Since most of the large ones are likely to remain in state hands, measures to encourage their managers to restructure and downsize to contain losses and return to profitability, are critical. A sub- set of these large and highly indebted SOEs could be subject to ceilings on annual credit flows (within a ceiling for all SOEs) and budgetary support, thereby providing incentive for restructuring. A series of "operational reviews" (or diagnostic audits) for another set oi'large SOEs would identify actions necessary to return them to better financial situation. In addition there are plans for restructuring three General Corporations (i.e. Seaprodex, Vinatex, and Vinacafe) on the basis of a case-by-case examination, the latter to be undertaken by international consultants of repute. Opening Up to International Trade. Despite significant liberalization over the last decade, Vietnam still has a more restrictive trade regime than its neighbors. On the import side, importing firms have limited trading rights and import licensing restrictions cover two-fifths of imports and nearly one-third of domestic production. This implies a high degree of non-transparency, limited access of private firms and of course unlimited protection for a significant share of industrial production. In addition import tariffs are both high and dispersed. On the export side, there are administratively-allocated export quotas on garments and rice and exporl taxes on several items. This year, the Government took a number of steps to reduce restrictions on foreign trade. These steps have included the freeing up of the rights of importing ancd exporting firms, reducing implicit and explicit export taxes, lowering the maximum tariff and the number of tariff rates (See Box 4). These steps have improved transparency, reduced rents to sr:ate enterprises, expanded access for all importers and exporters, as well as increased competition among trading and manufacturing firms. The freeing-up of trading rights has begun to give results. Nearly 3000 new private firms sought custom-codes within a year after freeing trading rights. This has raised the share of domestic private firms in the total number of trading firms from 35 percent in 1998 to 58 percent in 1999. Their share in the value of total imports and exports also rose to 14 and 15 percent respectively, in 1999. Thus the private sector (defined as foreign invested and domestic private enterprises) now cover nearly three-quarters of all trading firms and nearly half of all export and import value. ' An enterprise is said to be "equitized" when the share allocation and business plans are approved by the Government or a local People's Committee, and state shares have been sold. The state retains some ownership in all but 63 of these equitized firmis ranging from 5% to 60%. viii Vietnam: Preparing for Take-off? Box 4. Opening Up to Foreign Trade MeasuresAdopted in 1999 . Issued implementing regulations to free uip rights of all firms to export and import directly all products listed in firm's business licensewithoutrequiring license. Exporterswere alsogiven rights toexportproductsnot listed in their business license (January) . Issued implemiienting regulations to reduce the number oftariffrates to 12 (from 26) and the maximum tariffto 50 percent (from 60) except for six broad categories of goods, i.e. motorcars, motorbikes, petroleum products, alcohol, tobacco and used clothing (January) . Permitted private firms to export rice (February) . Began auctioning 20 percent of export quotas forgarment-exports (January) 1 Reduced foreign exchange surrender requirement from 80 percent to5 spercent ofavai lable balanices (August). A Three-yearAgenda * Adopt, announce and implement the phase-out of quantitative import restrictions, and replace with transitional tariffs. • Continue to expand auctioning of garment export quotas and improve the terms of auction, includinig transferability of quotas among firms. • Increase the share of rice export quotas al Located to private firms. • Cease granting ofnew discretionary exemptions on import-tariffs and of new import restrictions. . Eliminate remaining restrictions on firms' importing rights, so that they can import directly all non-restricted products, including those not listed in finn's business license. * Remove the foreign exchange surrender requirement. * Sign the Vietnam-US trade agreement to expand export markets, and move towards WTO accession. The highest priority in the coming months is to finalize a three-year plan for the phasing-out of import licensing restrictions and to sign the Vietnam-U.S. trade agreement, the latter in turn, being an important step towards joining the WTO. This would increase Vietnam's access to a major market for exports. The three-year plan for trade reform must include the phase-out of at least 17 of the 19 items on which there are import licensing restrictions, the freeing-up of trading rights for all importing firms, removal of foreign exchange surrender requirement and further expansion of private sector's access to garment and rice export quotas (see Box 4). Medium-term Outlook and External Financing The outlook for the coming years depends not only on what happens in East Asia and the world but also on what happens in Vietnam. The longer it takes the Government to adopt and announce the three year reform program that its ministries have developed, the higher will be the costs of reform. This is because investors and exporters, waiting for that signal, will delay their investments, raising Vietnam's costs in terms of foregone exports and GDP growth. Also, the SOEs will make more losses and pile up more non-repayable bank debt, thereby worsening the quality of banks' assets further; both raises the fiscal costs of reform. It is conceivable that Vietnam will opt for a slow reform program and not announce a pick-up in the pace of reform soon. A slow reform strategy may make it more difficult to sustain the reforms. For example, under the current pace of reform, public revenue as a share of GDP is likely to stay depressed, and possibly fall further, making it difficult for the Government to finance the costs of banking and SOE reform. There is thus, a serious risk that continuing a slow reform program that is not time-bound, would lead to a more permanent low growth path. Executive Sunmmary ix In the absence of clear direction in banking and SOE reform, and gradual liberalization of trade and private investment, Vietnam cannot benefit fully from the strong regional recovery that is underway. Efficiency of the state-enterprise sector will not improve. Banks will remain at risk for a longer period. Existing and potential exporters of manufactures and processed agriculture may not make the investments in additional capacity that is needed to benefit fully from rising regional demand and to sustain a sufficiently high annual export growth-rate. Polential foreign investors wil l not get the signal they need to come to Vietnam. Thus agricultural growth will be the mainstay of economic growth in the medium-term. Industry and services - state, foreign invested and private small and medium enterprises - will stagnate. A GDP growth-rate of 3.5 percent in 2000 and 3 percent thereafter is not an unlikely outcome under this scenario of slow r eforms. Growtlh UnderAccelerated Reforms. On the other hand, the adoption of a firm and time- bound reform agenda in the next few months will shift perceptions in favor of Vietnam. Existing investors and exporters will consider expansion in capacity to avail of new export markets and new opportunities. This will permit relatively high annual export growth rates. However, uncertainty about the timing and the impact of normalized trade relations with the US, as well as the magnitude of Asia's recovery make new investment for expanding export-capacity uncertain, and suggest a conservative export growth rate assumption. All these would be expected to generate higher growth than in the slow reform scenario, especially in 2001, and 2002. The growth-dividend from faster reform is likely to be small next year. But growth could pick up to around 6 and 7 percent in 2001 and 2002. respectively as the private sector responds positively to the adoption of accelerated reforms. For example, stronger recovery of both exports and investment is expected in those two years. The range for growth projections is shown in Table 1. e I na~~~~~~199 199 200 20 ' 2002 ,,,5() ~9~-F -5~ m E, .60- 7.-0 - ' g1 :,_ ~u.ite- -'Xk. *~-9 8.C_. -l0* - External Financing Under Accelerated Reform. The external financing requirement during 2000-2002 period., is likely to average around $2.5 billion per year if accelerated reform- is adopted. This requiremen-t_can be met by a combination of fo:reign investment inflows, disbursements from pre-viously committed ODA and of course from new commitments of quick- disbursing ODA. Given thrhe costs of reforms are likely to come through in the outer years, the requirements for quick-disburs~ing ODA is likely to be higher in the outer years. Foreign investment in-fl-ows and disbursements from committed ODA will cover, on average, around four-fifths of the external financing requirements. Since foreign investment flows hiave fallen precipitously in 1998 and then again in 1999, it is not judicious to assum-e that foreign x Vietnam: Preparingfor Take-oft? investment flows would reach 1995-97 levels. Announcing and implementing its three-year reform program, the signing of the Vietnam-US trade agreement, together with approvals of energy projects in the pipeline, would contribute to higher foreign investment than is the case today. With the pipeline of committed but undisbursed ODA standing at around $6 billion, disbursements from committed ODA can be expected to grow at around 10 percent a year as shown in Table 2. But this would still require significant improvements in Government's project implementation arrangements. Table 2: Sources of External Financing under Accelerated Reform (US$ billion) Projected 2000 2001 2002 Total Financing 2.20 2.53 2.92 Official grants 0.18 0.18 0.18 ODA loan disbursements 0.87 1.00 1.10 Foreign direct investment 0.75 0.85 1.03 Non-concessional borrowing -- -- -- Financing Gap 0.40 0.45 0.65 Soutrce: Bank staff estimates. Quick DisbursingAssistance. Last year donors pledged $500 million of quick-disbursing ODA to support reforms, but only a part of it is expected to be disbursed under the Miyazawa initiative. If the Government announces the adoption of the three-year accelerated reform program that it has developed, donors should be ready to commit additional quick-disbursing assistance. The World Bank, the IMF, and the Asian Development Bank have been in discussions with the Government on the form of this financing package. Other donors are considering such funding too. There are at least two reasons for providing such support. First, the reforms themselves - SOE, trade and banking reform -- will have costs. These include the costs of SOE-debt restructuring, of bank re-capitalization and of labor redundancy and will have to be funded through the budget. Also, the costs are likely to rise with time, being higher in the outer years as reforms proceed. The fiscal costs of an accelerated banking and SOE reform program, although small relative to other countries of the region, are considerable. Total capital costs are likely to be 8-10 percent of GDP (spread over several years) and annual current costs, around 1 percent of GDP. These capital costs stem from the take-over of SOE bank debts that are unlikely to be recovered and from re-capitalizing banks, mainly SOCBs. They will be funded in stages over the three-year period, as SOEs get liquidated, divested and equitized, and as banks get recapitalized. The current costs comprise of the interest-payments on the bond-financed capital costs and of course, the annual redundancy payments to SOE workers. Second, additional foreign exchange will have to be available for needed imports over the next three years, if there is to be an adequate supply response to the reforms. Executive Summary xi .The donor community has been playing an important role in Vlietnam for the past decade. Evidence to date has shown that ODA has been largely effective in Vietnam, both because rehabilitation of infrastructure has yielded high returns and earlier reforms had created a policy environment conducive to the effective use of ODA. It is expected that clonors will continue this role over the next three years, in close partnership with the Government of Vietnam, the NGO community and the private sector. If the Government adopts and announces accelerated reforms, which will lead to more productive use of aid, donors would be expected to sustain, and even increase, their assistance. Chapter 1: Recent Economic Situation Vietnam is still living in difficult times. The challenge of restoring higher growth and employment to sustain rapid reduction in poverty, remains. The regional crisis is abating, exports are recovering and macroeconomic performance is good. But private investor confidence remains weak and domestic demand continues to falter. Severe floods in the central region have imposed additional costs. Overall economic growth rate is 4 percent this year, the same as last year, but mainly because of stronger agricultural performance. Non-agricultural growth continues to slide. With per capita GDP growth lower than a third of the rate of earlier years, sustaining earlier rates of poverty- reduction or of employment generation will not be possible unless higher employment-creating growth is restored. Two years of low economic growth have taken its toll. Urban unemployment has risen to 7.4 percent from 6 percent in 1997. Imports are down and any pick-up in GDP growth will require faster import growth. The fiscal balance is under pressure as the share of revenue in GDP has fallen by nearly a quarter relative to 1996. Two consecutive years of stagnating domestic demand and rising import competition have hurt SOEs and the private sector. SOEs are able to accumulate further losses and debts, albeit at the cost of the budget and the banks. But the domestic private sector - household and corporate-Vietnamese enterprises -- has little cushion to do that. The country's banks. burdened at end- 1 997 by a high share of NPLs to SOEs, are more fragile and vulnerable today. The Government has continued to reform, though not at a pace that could compensate for the deteriorating economic situation. New and important legislative measures to facilitate entry of private enterprises and to liberalize trading rights have been taken, but the challenge of effective implementation remains. Private exporters have been given greater access to rice and garment export quotas and a private-sector action program has been developed but not announced. Actual equitizations of SOEs have picked up momentum relative to earlier years, but it fell short of Government's targets. Comprehensive and credible three-year programs for reforming state enterprises, banks, and the trade regime have been developed by individual ministries and agencies, but those programs have neither been announced nor adopted. There is a risk that Vietnam will not benefit fully from the strong regional recovery that is underway. Foreign investment is returning to Korea, Malaysia and Thailand but not yet to Vietnam. That is in part because investors, both domestic and foreign, do not know whether the Government will adopt accelerated reforms. Export growth has picked up sharply this year together with recovery in regional demand, but it may not be sustained without new investments. The Government needs to signal whether it will harness the drive and dynamism of all sectors, including its embryonic private SMEs. It needs to act now to show that waste is being cut and bailout of inefficient SOEs or inefficient banks will not be continued. Other countries, competing for the same foreign investment, are making those signals clear and Vietnam must too. 2 Vietnamn: Preparing for take-off? Slow Growth This year, real GDP is growing at around 4 percent,2 the same as last year. Higher agricultural growth has made this possible, as growth in industry and service sectors continued the downward slide that began in 1997. Thus non-agricultural growth is the lowest it has been in four years (see Table 1. 1). ~~~~~~~~~~~~~~~~~1 t 90 0 L s -- ~~ ti ----- 4- X o >_ _ .- V -s.-~ ~~~~~ ''-~~~~~~~~~~~)- ' X3 E ) ba s-i-ff I ;7 r~~bsdi -- -- Higher growth in rice, fisheries and livestock contributed to robust agricultural performance this year. Rice output is projected to rise to 31 million tons from 29 million and 27 million tons in 1998 and 1997 respectively. As a result, rice exports are expected to top 4.2 million tons this year, compared to 3.5 million tons last year. Livestock which has been growing quite rapidly for sometime, maintained its strength, while fisheries showed renewed vigor, in part led by strong export demand. Lower industrial growth in the first nine months was due to negative growth in construction and slower growth in both manufacturing and utilities; mining grew faster, mainly because production of crude oil rose significantly. Rising inventories of produced goods3 suggest weaker growth of manufacturing output in the remaining three months of this year. Slower growth in trade, real estate and the financial sector is dominating the decline in service sector growth. Falling Investment Total investment as a share of GDP fell sharply from 29 percent in 1997 to 19 percent in 1999, led no doubt by the fall in foreign investment, especially in 1998. Almost all components of investment fell this year. Public investment, funded by Govermment's own resources, rose slightly, largely due to mid-year efforts to enhance investments in rural infrastructure. Private investment by households and Vietnamese corporate sector fell by nearly two percentage points. SOE investment and ODA-funded public investment are-also down. 2 This estimate of real GDP growth rate of 4 percent in 1999 is lower than the Government's estimate of 5 percent, mainly due to differences in estimates for industrial and service sector growth rates. The difference is due to differences in estimates about the magnitude of fall in foreign investment inflows in 1998 and 1999, and of course differences in judgement about the impact ofthat larger fall in foreign investment and recent export growth rates on GDP growth. This is particularly true for growth-rates in manufacturing, construction, trade, real estate and financial services. In addition, since the annual estimate for 1999 is based on figures for nine-months, differences in estimated GDP growth rate also comes from differences in projections for the remaining months. Ministry of Industry reported millions oftons ofcoal, cement, steel, textiles, ceramic goods and sugar as stocks. Recent Economnic Situtation 3 Foreign investment inflow continued its decline this year. Recession as well as adverse investor sentiment contributed to the continuing decline in foreign investment disbursements. After an average inflow of $2 billion a year for three years until 1997, it fell to $800 million in 1998, and is running now at around $600 million this year. The biggest decline came in foreign investment from EastAsia and Japan, which is not surprising given the crisis in the region. However Figure 1.1 shows that declines in FDI commitments had started as early as in 1996. The fall in commitments in 1999 is likely to reduce future disbursements. w _ e- -- Recent Government0........... dss n. t t othe g p f 4 l l 1 E .b- -~~~~I AR r~~~~r i"X 7MPd'.q',d ELO Recent Government decisions on the development of gas fields and of thle gas pipeline will encourage future foreign investment in the energy sector. The US - Vietnam trade agreement, when it happens, will generate additional export demand and thus foreign investments in processed agriculture and manufactured exports. Most of that investment is likely to come from this region. Also the finalization of BOT projects in the pipeline could encourage new foreign investment in infrastructure sector. Though recovery in foreign investment to Vietnam, however strong, is unlikely to reach the levels of the 1995-97 period - because that was exceptional and because overall foreign direct investment flows to the region have declined -- it could be higher than what it is today. Pick- up in Exports There has been a dramatic pick-up in export earnings this year accompanied by ajump in the share of private sector in total exports. In the first eleven months of the year, the dollar value of exports rose by 20 percent, year-on-year, and is expected to grow by around 14 percent for the year as whole. This compares very favorably with the 2 percent growth last year. Also, for the first time, nearly half of total exports was conducted by domestic private firms and by foreign invested enterprises, and the share of domestic private sector in exports jumped from 4 percent in 1997 to 14 percent in 1999. Growth in earnings of crude oil, seafood, garments and footwear led the strong pick-up in total exports, as is shown in Figure 1.2. Both the Asian and European markets contributed to this spurt in export earnings, though strong recovery in regional demand was key. Crude oil export growth came from larger purchases by China and Australia, while seafood was due mainly to stronger demand in Japan and other Asia. Increases in garment exports went evenly to Europe and 4 Vietnam: Preparing for take-off? Asia, while Europe accounted for most of the growth in footwear exports. In fact Europe increased its share in total exports. Figure 1.2: Growth of Key Exports in US$ Value (9 months of 1999) 60.0% 40 0% 20 0% -20 0% Crude ofl Seatbod Garments Footwear I 1998 I1999 Soulrce General Department of Customs Availability of additional capacity permitted Vietnam to respond quickly to the strong recovery in regional demand. Capacity that came on-stream in 1997 and 1998 was not fully used due to the slump in export demand last year. Large increases in volume of crude oil, rice, coffee and rubber that underpinned the growth in export earnings, was thus possible. Only oil and rubber prices increased. The overall, price index for the five major commodity exports (i.e. rubber, coffee, rice, crude oil and coal), fell in 1999 (see Figure 1.3) for the second consecutive year. Quantities of seafood, garments and footwear, rose too, as prices remained relatively stable in 1999. Lower Imports Though total imports in dollar terms have fallen for the last two years, import volumes of most intermediate imports have grown. Total imports are expected to fall by 4 percent this year, after Figure 1.3: Price and Volume Index for Five Commodity Exports Weighted Price and Volume Change in Five Commodity Exports, 9M, 1997-1999 100 125 10 lo 112.23 4 75~u~ i 1997 1998 1999 O 'Volume l-Prtce l Souirce: General Department of Customs and WB estimates Note: Five commodities are crude oil, rice, rubber, coffee and coal Recent Economnic Situtation 5 a fall of 1 percent last year, it grew by only 2 percent the year before. This is largely due to declines in the imports of machinery and consumer goods. Imports of items like petroleum products, fertilizer, steel, synthetic fibres, and plastic raw materials actually rose in real terms this year, which in part permitted the rapid growth in exports of manufactures. However, economic recovery will clearly require faster import growth, given the depressed import levels today. As domestic investment picks up and domestic consumer demand rises, either imports will have to grow at a faster rate, or import restrictions will become more severe. Unless Vietnam is able to restore faster export growth, and/or significantly increase domestic savings performance as an alternative to foreign savings, it will have to continue to settle for a much lower growth path consistent with its lower import capability, or resort to other sources of' external financing -- largely shorter term, non-concessional debt -- that will certainly compromise the economy's ability to service its debt, and eventually create a balance of payments problem. While Vietnam's external reserves have increased, this is still insufficient to fund the higher import growth rate that maybe needed if domestic investment picks up. Exchange Rate Stable. The exchange rate has been stable in recent months, in terms of both nominal and real effective exchange rate (EER). The stability of the nominal rate has been helped in part by rising foreign exchange reserves. However, this rise in reserves to twelve weeks of imports, helped by a fall in imports and an unanticipated jump in exports, maybe difficult to sustain. Unless high export growth-rates are sustained, reductions in import restrictions or a pick-up in investment will generate pressure on the exchange rate. After appreciating during the regional currency crisis (when regional currencies depreciated sharply), the dong began to depreciate after the second quarter of 1998. This is because of devaluation of the dong undertaken by the Government. The real exchange today, remains only 7 percent more appreciated than in the first quarter of 1997. Falling Inflation. Average annual inflation is likely to be around 2 percent this year. In the first nine months, consumer prices rose by 1.8 percent on a year-on-year basis, which is less than a fourth of last year's inflation rate. This reflects significant monthly declines in food price index for the last six months, mainly due to a bumper rice harvest. Non-food prices have held relatively stable for most ofthis period, suggesting the absence of serious deflationary pressures. Figure 1.4: Effective Exchange Rate Movement (period-end) f f > _.___---- I n-d;li - M%L 0 I _ 1999QI1 9Q2 7--Real'EER -f nal EER s*wce WordBn -Note 1997QI = 100 Nofc: A-fallI in exchiange rate in Fig 1.4 implies exchange rate depreciation 6 Vietnam: Preparing for take-oft? Nominal interest rates have been reduced, albeit at a slower pace than declines in inflation. Thus real interest rates are much higher than 1998. The maximum lending interest rate has been lowered in stages from 1.20 percent per month to 0.85 percent per month but many banks are reported to be lending at below the ceiling rate. Domestic credit growth has slowed to 16 percent in the last 9 months and is likely to be around 14 percent for the year. Credit growth to the non-state sector has been much faster than earlier years. This is largely because the Government has restrained growth rate of credit to state-enterprises. This probably reflects lower demand from state enterprises as much in conimercial banks efforts to reduce lending less to the highly indebted and/or delinquent SOEs. However, with continued inflow of foreign currency deposits, money supply is expected to grow by 20 percent, much less than the 26 percent growth in 1998. Figure 1.5: Year-on-year Inflation Oi erall Inflation Food and Non-food Inflation 12% i ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2S;rnl /. - "~ ~ ~' 1o e v,f X .f P, Fe - S * 1 (v"M. [ 'O2W. _mI iJO .20 -__q q c ._,_i_q ___e85 iV x~ q, ,, ,* ,t q a | Food +Nrlm-food | Source: GSO and WB estimates Declining Revenue Fiscal performance in 1999 is on track, but revenue as a share of GDP has fallen substantially over the last three years. The fact that fiscal performance has been on track in both 1998 and 1999, reflects Government's realism in projecting the economy and in setting realistic and more achievable revenue and expenditure targets. What is worrying is that budgetary targets for revenue, have been set at lower shares of GDP for each year after 1996, and expenditure targets have been lowered to match that decline. Thus budget deficits have not been high. This year budgeted deficit for 1999 was modified in mid-year to allow widening it from the initial 1 percent of GDP to around 2 percent of GDP. But, since increasing capital expenditures, especially on rural infrastructure, proved more difficult than was anticipated in June, actual deficit is unlikely to exceed 1.5 percent of GDP this year. Most of the increase deficit is funded by domestic borrowing. Recent Economnic Sitluation 7 Revenue as share of GDP is down by 5.1 percent of GDP over the last three years. a decline of nearly a quarter of what it was in 1996. Nearly two-thirds of that decline happened in 1998 and 1999, two years of substantially lower growth. Reductions in revenue from corporate income tax and import tax contributed most of that decline. The former fell mainly due to continuing poor performance of state-enterprises. Harder times faced by private firms in 1998 and 1 999 - whether domestic private corporate sector or foreign-invested sector - also contributed. The decline in import tax revenue decline is owed to both a shift in the composition of imports away from consumer goods and of course a falling GDP share of imports in the last two years. It is therefore critical that the newly implemented value-added (VAT) tax system succeed in improving revenue collections significantly. Recent VAT concessions through many discretionary reductions in rates and exemptions, should therefore be withdrawn to ensure easier implementation of VAT and higher revenues next year. Table 1.2: Fiscal Situation Percent of GDP 1996 1997 1998 1999 Rev Rev Prel Est Total Revenues and Grants 22.9 21.1 19 17.8 °Tax Revenuc 10.3 9.0 8.9 8.7 Transfers From State Enterprises a/ 9.5 8.8 7.5 7.0 Other Non-Tax Revenues 2.5 2.6 2.0 1.6 Grants 0.6 0.8 0.5 0.5 Current Expenditures (exc. Interest) 16.4 15.7 13.7 12.4 Social Expenditures 7.5 7.6 6.9 6.4 Capital Expenditure (excl. on-lending) 5.7 6.2 5.5 5.9 Intercst (Paid) 1.0 0.6 0.6 0.6 Contingency 0 0.0 0.3 0.1 Total Expendituires 23.1 22.6 20.1 19.1 Overall Balance (Cash Basis) -0.2 -1.4 -I.1 -1.3 Note: All figures are rounded. a/ Transfer include all taxes, operating surplus, depireciation allowances and capital user fees Sottrce: Ministry of Finance and WB staff estimate Expenditures. Government has shown commendable restraint in lowering the share of public expenditure in GDP in tandem with declines in revenue. Expenditures were reduced by 4.3 percent of GDP over that period, but the GDP share of social sector (education and health) spending was maintained. Spending on economic services and general administration was cut and those cuts fell disproportionately on non-wage expenditures. Expenditures on social transfers fell the most, but most of this was because spending was shifted from the budget to the Social Insurance Fund. Capital expenditures have risen slightly relative to last year. Government had intended to raise it more by funding it with the issuance of state bonds worth more than one percent of GDP. But in actual fact, implementation of increased capital spending within a short time, especially in rural infrastructure, was not easy. With riegard to sector composition, industry and construction, irrigation 8 Vietnam: Preparingfor take-off? and transport sectors have not seen much changes during this period, while agriculture and forestry experienced a substantial increase in 1999.4 Weakening State Enterprises and Banks Even before the effects of the regional economic crisis came to be felt in Vietnam, it was estimated that less than two-fifths of SOEs were profitable. Half of them lost money in 1997. The "worst performing" and the "poorly performing" SOEs (classified on the basis of profitability and debt ratios) had high -debts of nearly 20 trillion and 43 trillion dong (i.e. $1.4 and 3 billion) respectively (see Table 1.3) as of the end of 1997. Table 1.3: Financial Status of Weak SOEs SOE Category Worst SOEs Poor SOEs Number of SOEs 711 1 ,989 Number of workers (000) 183 583 Total debt (VND trillion) 19.5 42.5 Bank debt (VND Irillion) 14 29 State capital (VND trillion) 1(0 52 Profit (EBT) (VND trillion) -0.25 5 Source: National Enterprise Reform Committee (NERC) The "worst performing" group of SOEs had average debt that was nearly twice the value of state-capital (nearly 50 SOEs in that group had debts that were several times state-capital). Since most of these SOEs were also loosing money, servicing that debt is likely to be infeasible. The pressures of falling domestic demand and greater import competition (from both formal and informal imports) only worsened the situation further in 1998 and 1999. This worsening SOE situation continues to undermine the economic health of the country in three ways. First, in the absence of reform actions, bank credit used to prop up weak unreformed SOEs implies wasteful use of scarce resources. Continued inefficient use of both credit and foreign exchange - producing goods that cannot be sold or sold only at a loss - is unsustainable, under current conditions of low foreign investment. More importantly, the private sector - farmers, household enterprises and registered Vietnamese firms - can make much better use of this credit and creating many morejobs in the process. Second, any growth in bank loans to SOEs, especially to the "worst performing" group of SOEs, risks a rapid increase in NPLs in banks. Levels of NPLs were high in 1998 (international audits show NPLs were much higher than official estimates)5 and further increases in their levels could lead to serious liquidity problems in the banks, threatening financial instability. The 1999 also see a large expansion of state investment credit-a concessionary type of financing provided by the Govemment for capital investment projects. Although this type of financing operates on the self-finance principle, the state budget is still subsidising the difference between the interest with which the fund is mobilized and the concessionary interest with wilich the fund is loaned out. Large surge of this finance this year would have substantial implications for the next year budget. 'Assumes the continuation ofthe faster increase in credit to poorly performing SOEs. Recent Economic Situation 9 Third, the fiscal costs of reforming SOEs and banks rise if reform is delayed. Though problems of Vietnam's banking system6 originate in incomplete earlier reforms of banking, slower economic growth and worsening SOE situation lead to still higher NPLs and declining capitalization in both JSBs (JSBs, which are non-state banks) and SOCBs. SOEs will have higher debts and more non-repayable debts and correspondingly banks will have higher non-recoverable loans. Both result in the need for higher budgetary support, than is the case now.7 Rising Urban Unemployment Continued economic slowdown translates directly into lower rate of employment generation and poverty reduction. Unemployment, especially urban unemployment has risen both in 1998 and 1999 for the third consecutive year. Rural underemployment is probably high, though annual figures are difficult to get. Thus rural-to-urban migration, which is likely to rise unless rural non-farm growth takes off could exacerbate the situation. Rising unemployment and underemployment is potentially the biggest source of instability in the economy. Unemployment in urban areas is officially estimated at 7.4 percent for 1999 (10.3 percent in Hanoi), and the underemployment rate for rural areas is reported at 28.2 percent.' Other sources cite fairly different figures, some higher and some lower; the VLLSS estimates are much lower unemployment rates of 2.2 percent for 1997/l998.9 Anecdotal evidence suggests that educated urban unemployment is on the rise. In many other countries such increases in unemployment have been accompanied by increased crime and violence. Table 1.4: Unemployment Rates 1992 1993 1994 1995 1996 1997 1998 1999 (Est.) Unemployment Rate in UrbanArea X.3% 7.3% 6.1% 6.4% 5.9% 6.0% 6.9% 7.4% Underemployment Rale in RuralArea - - - - 26.6% 25.5% 28.2% - Sot,,rce: Statistics on Labour anid Social Affais- MOLTSA & GSO - Socio-Economiiic Situation First 9 Moniths 1999, September 1999. 6At the end of 1998, Vietnam's banking system consisted of four SOCBs (accounting for 82 percent oftotal bank assets), 51 JSBs, whose shareholders include state-owned enterprises and private entities (accounting for 10 percent of total assets), and 23 branches of foreign banks and fourjoint-venture banks (together accounting for 8 percent of total assets. Total bank assets were equivalent to 38 percent of GDP at end-1998, total loans to 22 percent, and total deposits for 20 percent, indicating a relatively low degree of monetization of Vietnam's economy. It is estimated that the without corrective pol icies, the cost of bank restructuring (writing-off unrecoverable SOE loans and re-capitalizing banks) would increase by I or 2 percent of GDP annually fi-om the existing capital cost estimate of 8- 10 percent ofGDP. See World Bank and I MF (1999), "A Framework for Cutting the Losses ofSOEs", August 25, 1999. 'MOLISA defines unemployment in urban areas as those who currently are not working and underemployment as those who work less than fuil-time equivalent. Severe underemployment (working less thani 15 hlours per week) is estimated at 10 percent for urban residents and 12 percent for rural residents, and as moderate underemploymilent (working 16-39 hours per week) which is estimated at 12 percentofurban and rural residents for 1997/1998. 'The VLSS2 defined unemploymilent as anyone who had not worked in the previous 7 days and who wanted a job. 10 Vietnam: Preparing for take-off.? Thus faster growth in employment is becoming more urgent in Vietnam. This will not only require restoration of higher growth, but also more labor-using growth. Most of this has to come from exports of processed agriculture and labor-intensive manufactures. The next chapter shows that the emerging domestic private sector (household enterprises and private SMEs) contributed the most to industrial employment, notwithstanding its small size.'" For the private SMEs this was largely because of considerably greater export orientation. The private foreign invested sector contributed much more to output than to employment but its employment generation could be improved through greater export- orientation of FDI. It provided a quarter of industrial output but employed two-thirds of the industrial workforce Chapter 2: Private Sector Performance" The Prime Minister, in his opening speech to the National Assembly in November 1999, emphasized the importance of creating a climate conducive for private sector development. Tapping the potential of individual farmers' drive and dynamism through "doi moi" was key to rapid growth and employment creation during the 1990s (see World Bank 1999). Now, unleashing the potential of the private non-farm sector, to produce and to export, is likely to be key to restoring higher growth of income and employment in the next decade. This Chapter presents the key facts of private sector performance (i.e. performance of households and farmers, private registered small and medium enterprises, SMEs and the foreign invested sector) in respect of growth, exports and employment and the key constraints facing them, including recent actions taken to address them. Key Facts about the Private Sector Farmers, household micro-enterprises, private SMEs and relatively large foreign invested enterprises comprise the private sector in Vietnam. The "doi moi" of the late 1 980s and early 1 990s were extraordinarily effective in galvanizing the energy of millions of Vietnamese individuals who diversified and expanded their agricultural production rapidly, and set up many micro household enterprises as well as private SMEs. Foreign firms invested in majority-owned joint ventures or in wholly foreign-owned enterprises. Systematic data on performance of the private sector is limited. However, five important facts about their performance are worth highlighting. First, the share of the private sector in total GDP is now 51 percent (see Table 2. 1), which is roughly the same share as in 1993. During the 1995-98 period the domestic private sector, despite its many constraints, grew at 9 percent a year, only a percentage point lower than the growth of the state- owned sector. I ra11M!]" 11!S Q 9S(percent) .~~~. .. ....... ... .. ... ... This is based on the work done by Mekong Project Development Facility (MPDF). See "Leila Webster ,;A4Es on the Road to Prosyerity" for more detailed data anid analysis on the pr-ivate sector. 12 Vietnam: Preparing for Take-off? Second, less than half of manufacturing GDP is produced by private firms, but the share is increasing, with the domestic private sector dominating that share. Household micro-enterprises and private SMEs account for 28 percent of manufacturing GDP. There are around 600,000 micro enterprises in manufacturing, constituting a quarter of all micro-enterprises, and 5600 private SMEs in manufacturing accounting for 10 percent of manufacturing GDP. Third, private SMEs" in manufacturing, especially the larger ones, are highly export- oriented. Around 457 private manufacturers with more than 100 full-time workers (see MPDI, 1999) operate mainly in labor-intensive sectors like garments, footwear, plastic products, seafood and so on. On average these SMEs export around three quarters of their production (see Table 2.2) implying greater export orientation than SOEs. Foreign invested enterprises export around half their output. Table 2.2: Private Registered Manufacturers Are Export-oriented Number of Firms Exports/Output (%) (Unweighted Average) Garments and Textiles 159 80.5 Leather Products 34 85.0 Rubber and Plastic Products 22 75.0 Food and Beverages (incl. 71 63.2 seafood) Wood Products 65 75.1 Other Non-metallic Products 39 73.2 Basic Metals 9 n.a. Chemical Products 9 20.0 Others 49 74.4 TOTAL 457 75.3 Source: Data from MPDF (1 999) Fourth, foreign invested enterprises'3 now play an important role in the economy, accounting for a fifth of manufacturing output, and employing 300,000 workers. There has been a slight trend away from joint-ventures with state enterprises, and an increase in wholly foreign-owned investments (See Table 2.3). A large share of foreign investment in industry is in the production of import-competing goods in capital-intensive sectors. This is a reflection of the incentives offered to foreign investors in the form of protection Table 2.3: Forms of Foreign Investment Inflows (percent) Share in % 1994 1995 1996 1997 1998 Total Implemented Capital 91-98 Majority joint ventures 51.0 52.0. 59.0 65.0 51.0 56.2 Wholly foreign owned 16.0 18.0 27.0 33.0 17.0 23.7 Business co-operation 33.0 30.0 14.0 2.0 32.0 20.0 contract Source: MPI, Government of Vietnam "Vietnam's private SMEs on the corporate private sector as it is referred to, consist of three legalforms of regisiration: "private enterprises" (doanhnghiep Lu nhan), limited liability companies, and joint-stock companies. " Foreign-invested enterprises account for. around 20 percent of total exports of the country. Private Sector.Perfdrmance 13 to these sectors;'4 in particular, import licensing restrictions with unlimited protection, lhave encouraged over-investment for the domestic market, at the cost of export markets. Fifth, the domestic private sector is by far the most labor-intensive. Currently, household enterprises and private SMEs employ more than 64 percent of industrial workers while SOEs, accounting for the bulk of industrial output, employ only 24 percent. ' (see Figure 2. 1). Figure 2.1: Industrial Employment by Sector: 1997-98 Stare sector Houschold 37% - Porergo inivested Private SMEs 27%/ Souirce: GSO: Vietnam Living Standard Study 2, 1999 Key Constraints Facing Private Sector and Reform Agenda There has been progress in addressing the constraints that the private sector faces, althouigh real implementation of improved policies is only beginning, and many constraints remain. Today the private sector faces a better policy environment although a more difficult economic environment, than it did two years ago (see Box 2.1 for actions in 1999, and World Bank, 1998, for actions in 1998). There is better dialogue between the Government and the private sector, easier private entry after the approval of the Enterprise Law, improved incentives for foreign investors and greater private sector access to imported inputs and export outlets (see Box 3.1 in Chapter 3). However, with domestic demand and overall growth down, many private businesses in Vietnam have become less profitable and some are losing money. This is reducing private investment, including foreign investment. Without addressing several other constraints on private firms, private investment is unlikely to increase sufficiently for Vietnam to take full advantage of the strong regional recovery. The high rate of export growth in 1999, made possible by earlier investments, will be difficult to sustain. The constraints facing private firms now relate to difficult conditions for establishing and expanding businesses, insufficient incentives for both domestic and foreign investors, inadequate access to imported inputs and diew export markets (see Box 3.2), and weak institutions supporting market and private firms. 4 Stockpiles of cement, steel, glass, ceramic goods and sugar bear testimony to poor state investment policy. i Foreign invested enterprises employed only 12 percent of all industrial workers. 14 Vietnam: Preparing for Take-off? Reform in 1999. Regular dialogue between the Government and the private sector has helped create better understanding about the current situation. This began as an annual event in February 1998, but this year it was institutionalized as the Private Sector Forum (PSF) and made into a quarterly activity. Furthermore, at the request of the private sector, several PSF working groups were established on various issues in the second half of this year, which promises to make the dialogue a continuing one. The incentives for foreign investors were enhanced this year, albeit not as much as the PSF had sought. Wholly-owned foreign investments are now permitted more frequently, including the conversion ofjoint-ventures into 100 percent foreign-owned entities. The phase-out of dual pricing for foreign-invested firms has also begun. Land-rents have been lowered and land-use rights have been granted to foreign companies in the industrial and export processing zones. Dollar- denomination of wages is no longer required. Box 2.1: Private Investment Measures in 1999 This year the Government took the following measures: * Allowed Vietnamese private finns to contribute their land-use rights as equity in joint-venture, as long as they havepaid forland-use rights in full (February) * Formed the Private Sector Forum (PSF) to meet every quarter to discuss issues of interest to the private sector, foreign and domestic (March) . Established a Steering Committee for developing a five-year strategy for private sector development(April) • Announced a set of new incentives for foreign investors (May) * Approved the Enterprise Law, eliminating discretionary restrictions on the rights of any legal entities and individuals to establish private business, simplifying substantially registration procedures, creating a basis for a unified legislation covering all kinds ofeenterprises including equitized enterprises (June) * Announced a detaiLed private sectoraction program underthe Miyazawa initiative (cited inAnnex 2.1) (June) Recently, the GoverTnment developed a private sector action program (see Annex I for details) under the Miyazawa initiative. This program addresses not only the issue of easing private entry and leveling the playing-field, but also the creation of credit facilities and of promotion agencies to support the private sector. Three types of credit-facilities are proposed to supplement the current situation, while the three-year bank reform program tries to reorient and restructure banks to lend more to the private sector. These include a general credit facility for all private firms, an export credit facility for private exporters and a credit-guarantee facility for private SMEs. The promotion agencies Private Sector Pler/nrmance 15 proposed under that program include an SME-promotion agency and a technical center for supporting those private firms that require help in examining or adopting technology for its operations. The Enterprise Law, approved this year, provides a strong basis for liberalizing private entry and unifying the legal framework for most enterprises. It covers several types of enterprises - private, household, equitized, state-owned, and those owned by political organizations - as long as they take the form of partnership, limfted liability or joint-stock shareholding companies. It also simplified the registration process and established a short time-limit for registration. It also provided more flexibility to entrepreneurs - there was no minimum capital amount (except for financial sector firms) and the minimumnumberofshareholders fora limited liability and ajoint-stock shareholding company was reduced. Perception of Constraints. Managers' view of constraints, gleaned from the recent survey of private SMEs, suggests that these reforms were not sufficient.'6 Poor access to credit, faltering demand due to the regional crisis, absence of information and unclear Govcrnment policies are still viewed as the major constraints by this part of the private sector. Though there is no systematic survey of foreign-invested firms, they have revealed their views through the Private Sector Forum. Insufficiently liberal policy framework and slow implementation of existing policies stand out in their view. The reference to Government policies by both segments of the private sector covers a range of issues, including those of private entry, the legal framework for economic activities, land-use rights, incentives for foreign and domestic investors, and inadequate access to imported inputs and export outlets. On the institutional side, poor availability of information and of services are the major issues for private SMEs, and weak functioning of court and accounting system are the main issues for foreign investors. Not all policy issues affect all three parts of the private sector equally. Micro household enterprises are least affected by most of the restrictive regulations, trade and tax regime. There has been a suirvey of managers of 95 private SMES with more thlan I100 workers. BLut there has been no systematic survey of foreign-invested firm-s, but these firmns hav~e been active in the Private Sector Forumi where thley have been able to talk about constraints on their businesses. 16 Vietnam. Preparing for Take-off? and the land-problem. What affects them most is the restriction on expansion of their activities outside their localities. On the other hand, private SMEs and foreign invested sectors are affected by all the above-mentioned policy-constraints, with some elements being more of a binding constraint for one rather than the other. For example, restrictions on private entry, on access to imported inputs, export outlets and credit, and on land-use rights affect private SMEs disproportionately more than foreign invested enterprises. But the dual pricing system affects foreign invested enterprises more. Private Entry. Though the Enterprise Law, due to come into effect from January 1, 2000, is expected to ease private entry very significantly, it is not known whether the all-important implementing regulations will be ready by that deadline or whether their content will strengthen the liberal character of that Law. As is normally the case, actual implementation of this law will depend a lot on the content of the implementing regulations and discussions among sectors and ministries that have been going on for sometime. It is expected that the implementing regulations would do the following: . require companies to disclose information on share holding and share capital (where applicable) and debts secured against company assets and so on; . limit the registrar from seeking more documents (than is in the list cited in Article 13) or from examining a company's finances; • keep the list of Specialized Laws which can override the Enterprise Law (per Article 2 of Enterprise Law), as short as possible, maybe dealing mostly with use of natural resources, environment, and infrastructure but excluding the SOE-Law; . limit the number of sub-sectors that are banned or "conditional" for entry of private businesses (Article 6), and relate their choices mainly to security, safety, public health and similar areas. . reduce the number of licenses that businesses have to obtain and eliminate the need for frequent renewals of licenses. This would help to ensure that many of the constraints that the private sector faces in entering into businesses or expanding their operations, will be addressed during the implementation of the Enterprise Law. Private Sector Performance 17 Box 2. 2: Private Investment Reform: A Three - Year Agenda * Issue all decrees to implement the Law on Enterprise. * Develop and announce amedium-termn strategy forprivate sector development. * Issue decree to allow private SMEs tojoin together to form business associations on a provincial or national level, without participation of state-owned enterprises or government agencies. * Allow land-use rights to be freely transferable, along with sales of buildings, with simple registration procedures. * Phase-out dual pricing system for foreign and domestic entities. * Remnove the foreign exchange surrender requirement. * Clarify laws associated with private participation in infrastructure (e.g. BOT, BT, etc.) particularly on lenders' step-in rights in case of default, on arbitration and governing lawv, on force majeure clauses and on termnination clauses. * Introduce greater interest-rate flexibility. * Announce sectors eligible for 100% foreign ownership. * Abolish supplementary personal income tax and lower marginal rates. * Unify corporate income tax rates for foreign and donestic enterprises. The legal framework and the private sector Private sector activities in Vietnam including equitized enterprises are expected to be carried out under the new Enterprise Law. This would include household enterprises too. However, household microenterprises, that choose not to become a partnership or a company, would be guided by Decree 66 rather than the Enterprise Law (see Box 2.3 for details). And foreign invested firms are covered by the Foreign Investment Law together with its amendments. In that sense the legal framework for private enterprises is not fully unified yet. Box 2.3: Framework for Household Enterprises Household enterprises that are not companies will continue to be guided by Decree 66/{DBT, 2 March 1992. District Level People's Committees regulate household producers and small traders under this Decree. Establishment procedures are simple making market entry easy and low cost. Taxes are low, assessed on averaged incomes for sim ilar businesses in the samne geographic location. Limitations are that these small enterprises are only allowed to operate in the district where they are licensed; they have no legal person status and therefore legally can neither sign contracts nor export directly. Many legal provisions discourage Decree 66 entities from incorporating. Forexample, althoughi the costsof incorporation will presumably decline underthe Enterprise Law, they are likely to remain overten m illion dongs, a prohibitive suImi formostsmlall businesses. Once incorporated, business profittax is assessed on actual, not average profits. This would substantially increase the tax liability for profitable Decree 66 entities. Though land-use rights are easily accessible, restrictive leasehold transfer rules constrain the ability ofthese entities to sell their business as on-going ventures and the ability of creditors to recover against immovable assets. Decree 66 entities can avoid these difficulties by usingallotted residential land. There are three emerging issues related to the application of the existing legal framework to the private sector that can potentially undermine a level playing-field for the private sector. First, the fact that there is no government body that is responsible for making sure that all implementing legislations are consistent with the intent and content 18 Vietnam. Preparingfor Take-off? of the primary laws that are to be implemented. Serious inconsistencies come about as Ministries and/or People's Committees draft subordinate legislation responding to demands of state agencies without paying due attention to the letter and spirit of the primary laws.'7 Second, the absence of clarity about rules and insufficient specificity in regulations under which private firms receive permits/licenses, leaves considerable scope for interpretation and discretion." Since many administrative or commercial offenses are also criminal offenses under certain conditions, this makes private firms very insecure.'9 Third, where the laws are unclear, or there is conflict among them or where the scope for interpretation is considerable, there is a tendency - supported by various statements in Party and Government documents - for officials to favor state-agencies over private agencies. Actions to remedy these problems are being considered. Access, to Land The ability of businesses to be able to access, use and transfer land more freely and easily and to use it as collateral, is key to facilitating private sector growth. There have been two improvements this year in respect of land-use. The first improvement relate to Vietnamese companies, including private firms, that are now allowed to contribute their land-use rights as equity in joint-venture enterprises, provided companies have paid for their land-use rights in full. The second change this year is that land-use rights can be granted to foreign companies investing in industri al and export processing zones. However, three land-related issues remain to be resolved. First, land-use rights are differentiated based on the status of the holders, that create anomalies. For example, it is easy for Decree 66 household business entities to mortgage land and buildings constructed on residential land use rights, but identical businesses owned by companies and constructed on short-term leasehold land cannot. Similarly Decree 66 entities can convert their buildings to any business permitted under applicable zoning provisions, but companies using leasehold land cannot. Second, land-use rights under leasehold along with immovable assets, are not transferable without Government approvals on a case-by-case basis. The restriction on transfer causes difficulties in respect of constructing buildings on the land and later selling that building. Second, there is no comprehensive unified land registration system. This means that investors cannot identify users of land and land-holders have difficulty delineating their land area leading to disputes. It also makes it difficult for potential lenders to confirm the actual holders of land-use rights. Improving access and utilization of land use rights is part of the reform agenda. "Thiswasevident in some ofthe recentdecrees (e.g. Decree48 and Decree 85). Although market management boards are legally bound to inspect all types of business, it is reportedly the case that permission from supervisory authorities is requiredto inspect SOEs, butnotto inspectprivate SMEs. " For example, the administrative offence of doing business without appropriate permission becomes criminal offenses on the second breach. It is also a criminal offense to conduct business without a license; and /or to violate intentionally state economic management "principles and policies". Penal Code art. 168 (1986) shows that penalties range from one to seven years imprisonment, and Penal Code art. 174 (1986), penalties range from six months to five years imprisonment. Private Seclor Performance 19 Inadequlate access to imports and export outlets. While reforms over the last two ycars have improved access of firms to export outlets quite dramatically, access to imported inputs remains difficult (see Chapter 3 for details). On the export side, both domestic and foreign firms can now export directly, but they still face many problems in the processing of exports at the customs; the time taken for processing exports is still too long. On the import side, the problems are greater and are to be found at three levels. First, rights of firms to import products not listed in their business license, are restricted. Firms require import licenses from Ministry of Trade for each consignment or require a new business license with the relevant product listed in, neither of which have been easy to obtain. Second, many imported inputs are subject to non-tariff import-restrictions requiring another license to import. Third, clearance of imports at the customs remains a time-consuming and costly process. Inadequate Access to Credit. The share of bank credit going to the private sector has been rising over the last few years, albeit from a low share. Figure 2.2 shiows the rising share of credit going to the private sector. Figure 2.2: Share of the Private Sector in Total Credit 52.0% ° 50.0% - 48.0%- 46.0% - 44.0%- 42.0%- 40.0% 38.0%- 1995 1996 1997 1998 1999 Sozurce: based on Vietnam Monetary Survey, data provided by the State Bank of Vietnami+ This year the rate of growth of credit to the private sector was considerably higher though it is not obvious whether that can be sustained. T hough most of this credit goes to agriculture. there are signs of faster credit growth to the non-agricultural sector. However, access to medium-term investment capital remains insufficient. This is not only due to the fact that bank's deposit-base is mostly short-term, but also that private firms have a problem of fulfilling collateral requirements.20 Without access to investment capital for new equipment purchases and facility expansions, private SMEs continue to operate with mis-matched or otherwise sub-optimal production equipment and in typically very cramped factories. While bank restructuring and reform can be expected to improve banks' liquidity and alter bank management's orientation towards more commercial loans, this is likely to take time. In the meanwhile, new credit facilities may need to be established so that additional credit needed by exporters and the private sector is available. Not only are collateral requirements too high, valuations too low, and categories of acceptable collateral too narrow, but the fact that state enterprises do not need collateral to obtain loans means that the lion's share of available credit funds. most importantly scarce term resources, go to state rather than private firmis. 20 Vietnam: Preparing/fbr Take-off? Household microentrepreneurs' major problem is the shortage of working capital. For micro-enterprises, the solution is to allow non-bank financial institutions (often credit unions and NGOs) to provide credit services, as banks are rarely well-positioned for this task. But this faces two problems. First, how can the right delivery mechanisms for micro-credit be created. Second, can interest rates cover the higher cost of credit delivery; the latter is key to achieving financial sustainability of these micro-credit delivery mechanisms. Weak market-support institutions. Vietnamese institutions to support markets are still evolving and developing. In particular, courts, public information agencies, accounting services, trade promotion agencies and universities are only just beginning to support the market system and of course private enterprises. However, there is need to develop Vietnamese private business associations, additional channels for information flows from the outside world and business support services. Vietnamese private business associations do not exist.2' Such associations are important to business development for many reasons. Business people routinely learn a great deal from one another, and together form common sources of processed business information. Membership associations can provide collective services that individual businesses cannot afford, including the one related to developing business links with international companies. Associations can be advocates for their memberst interests and develop joint-business strategies in their sectors. Effective associations generally are those that function independently and are accountable, first and foremost, to their own members. Channels for accessing information are few for the Vietnamese entrepreneurs. Reliable economic information about the economy is now increasingly available, budgetary information which was kept secrete until recently is now being published. Managers have to operate with less information about products, markets, technologies, and trends than managers in other countries. There are limited sources of up to date, high-quality information within Vietnam, and looking outside of Vietnam is more costly. Internet firewalls and the high cost of accessing the Internet also limit access. When buyers or investors of various products come to Vietnam or inquire from abroad to find trading or investing partners, existing associations led by state enterprises or government agencies direct them to SOEs as potential partners. In official delegations, and trade shows, private companies are not promoted. In short, most of the limited information infrastructure in place channels information and opportunities to only state companies. Availability of business support services is limited. Greater availability of these services generally increases competitiveness by allowing businesses to outsource selected tasks to specialized experts. In many countries of the region, commonly out-sourced business services include: accounting, training, design, market research, data processing, advertising, and maintenance. Most private Vietnamese firms perform these functions in-house, thereby raising their In 1989, the Prime Minister issued Decree O1/CP and the Government Office promulgated guidelines 07/TCCP stipulating the organization and activities of public associations. Provincial governments then issued guidelines at the local level that allow groups of people and institutions to set up associations with clear objectives that are in keeping with the political guidelines of the Communist Party of Vietnam, the Constitution of Vietnam, and permitted bythe People's Committees. Private Sector Perfbrmance 21 fixed costs and foregoing the benefits of specialization. Rapid developmcnt of the information technology and telecommunications networks facilitates delivery of many business services as it has in Vietnam, in the case of translation services. So the problem may be one of demand as well .22 22 Vietnamese managers seemed unaware of the benefits of specialization that accompany outsourcing and were, in any case, leery of sharing business informatioti with those outside their firms. Instead, they depended on in-house employees for these tasks-far from current thinking that building competitive businesses depends on significant outsourcing of services to specialists who can deliver high-quality services in the quantities and time period required and on a variable cost basis. 22 Vietnain. Preparing fbr Take-off? Annex 2.1: Japanese Support for Promoting Private Sector Development In response to the Vietnamese Government's plans to establish a more favorable climate for private sector, the Japanese Government agreed to provide financing of Y20 billion in mid 1999 to help formulate and implement the Private Sector Promotion Action Plan. The specific measures supported under program were: First, defining the government's policies to promote the private sector. Second, guaranteeing equal treatment between private enterprises and state-owned enterprises in respect of financing, licensing, customs, quota allocation, taxation, and other areas. Third, allowing private enterprises to conduct business freely without interference according to the scope of the law. The action plan is expected to be implemented by the Government from the third quarter this year to the end of 200 1. Financial Environment * issue a decree on the organisation and operation of a Development Support Fund where a suitable ratio of funds is used to meet investment credit demand of the private sector (Decree 50/1999/ND- CP issued July this year) * establish a credit fund to lend to SMEs through financial organisations including private joint stock banks (Sept., 1999) * form a national export support fund to provide finance and guarantees * issue a decree on loan guarantees enabling banks to self determine mortgage policies by repealing strict regulations on collateral (Oct., 1 999) * abolish the ceiling lending rate of credit organisations and conduct monetary control in line with a base rate (Dec., 1999) * establish a credit guarantee support fund for SMEs (Dec., 1 999) * expand the inter-bank market based on the decree on bills (expected to be issued in Dec., 1999) * issue a guiding circular on Decree 86/-CP (Dec., 19, 1996) on regulations concerning auctioning assets to strengthen disposal by auction of mortgaged land-use-rights (Dec., 1999) * conduct a study appraising collateral requirements (Dec., 1999) * issue regulations on deposit insurance and establish a deposit insurance organisation (Dec., 1999) * speed up implementation of Decree 17/1999/ND-CP (March 29, 1999) on converting, transferring, leasing, etc. of land use-rights (Q3 and Q4, 1999) * inaugurate the stock exchange centre based on Decree 48/1 998/CP (Jan., 2000) * form a credit fund to grant credit via preferred financial organisations Business Environment * conduct training schemes in provinces for the domestic investment stimulus pol icies (Aug., 1999) * issue decree on selling, leasing, assigning SOEs to enable the participation of the private sector (Aug., 1999) . amend and supplement Decree 63/CP-1996 on infringements on intellectual property right settlement and international commitments agreed upon by Vietnam (Sept., 1999) * issue new tender regulations to ensure equal treatment to every economic sector including the Private Sec/or Per/fobr71ance 23 private sector (Nov., 1999) * publish a definitive list of prohibited trading or areas of business (Nov., 1 999) * issue a decree regulating in detail the implementation of some articles of the Law on Enterprises (Dec., 1999) . issue a decree on business registration whereby private sector registration is unimpeded and to minimise procedures for enterprise registration (Dec., 1 999) * promulgate a decree on Most Favored Nation and Nation Treatment to produce an equal business environment for both overseas and domestic investors (Dec., 1999) * carry out the Law on Enterprises nationwide (Jan., 2000) * speed up the establishment and development of private business and export associations (Feb., 2000) issue incentive policies for SMEs in Vietnam (March 2000) revise the Law on Customs (2000) strengthen tender activities and import and export quota for the private sector improve the business environment for foreign-invested businesses (Dec. 1999) maintain frequent meetings between businesses and state managerial bodies equitise 400 SOEs in 1999 and 1,000 in 2000. Establish an equitisation support fund and loosen overly strict regulations (Nov., 1999) . remove unequal treatment to all sectors by repealing Decision 417 of the SBV (Circular 03/TTLB-NH-TC and Decision 09 of the SBV) on extending loan duration (Dec., 1999) amend and supplement Decree 77/CP on BOT investment regulations (Mar., 2000) strengthen laws on accounting and auditing standards (2000) establish an unemployment insurance system (2001) Organisational Structures establish an SME organisation as a functional governmental body to encourage the private sector (Feb., 2000) * form a private sector committee to facilitate its growth (Feb., 2000) * found a center to support implementation of private sector development . establish a technical center to support the private enterprise technological advancement (May., 2000) * facilitate private business associations * regularly survey private enterprise (from Q3, 1999) * strengthen and develop training networks and human resources for the private sector Chapter 3: Policy Reforms for Higher Growth Against the backdrop of difficult economic situation described in Chapter I and the state of private sector performance described in Chapter 2, decisive and bold actions are necessary to ensure restoration of higher growth and rapid poverty reduction. To capture every opportunity and to use every resource available (including all its people), Vietnam must: Maximize efficiency and mobilize resources. Vietnam must do more with less while trying to mobilize more. To achieve this, existing enterprises, whether state-owned or private, must use existing resources more efficiently and additional resources should be channeled to more efficient activities. Efficient enterprises, especially private SMEs in rural industry and exports inust get more of that credit. Efforts to mobilize more savings, domestic\and foreign, must be pursued in parallel, though attracting more foreign investment will be more difficult than past years. Harnessproductivepotential of the private sector. A vigorous private sector (consisting of farmers, household enterprises, private SMEs and foreign-invested enterprises) will need more freedom to operate and better services from a modern banking sector and other service-sector firms to contribute to the above imperative. Reform of state-enterprises, private investment, trade and banking, is expected to address bothl imperatives. Measures in each area complement and reinforce those in other areas, to encourage all existing enterprises, private and state, and to increase efficiency. Similarly, faster expansion of the private sector is likely to increase employment and exports as well as the overall efficiency of the Vietnamese economy because it uses more labor than capital and uses both more efficiently. Private sector's potential can be harnessed not only by reforms that deregulate and encourage private investment (see Box 2.2) but also other reforms. Trade reform helps the private sector by enhancing its access to imported inputs and to export outlets. SOE reform., in the form of equitizations and divestitures, could jump-start the private corporate sector, by adding quickly to the number of private SMEs. Restraint on bank credit to SOEs, aimed at instilling more financial discipline, can reduce "crowding-out" of credit to the private sector. Bank restructuring and reform will help to reduce non-performing loans, improve liquidity, lower the share of policy- lending and re-orient bank management to view all loans, including loans to private firms, on their commercial merit. These same reforms are also expected to improve performance of existing enterprises more directly. Liberalized trade as well as easier domestic and foreign private entry would increase competition and create incentives for increased efficiency. Trade reform - that phases out import licensing restrictions, and reduces both implicit and explicit export taxes - not only increases transparency and competition, but also raises 26 Vietnam: Preparing.fbr Take-oftf? returns to exports and agriculture and encourages investors to move into more productive areas. SOE reforms, that shift ownership of SMEs to the private sector, restructure and downsize large SOEs and subject them to the discipline of harder budget constraint, help to limit waste and to generate pressures for more efficient SOE performance. Banking reform - aimed at restructuring, at improving prudential regulations and supervision, at leveling the playing field and at improving governance in SOCBs - will reduce the banks' liquidity crunch, increase competition among banking services, create incentives for prudent banking and reorient banks' management to move towards the private sector. Last year, the Government implemented reform measures in trade, banking and SOEs. Many of the reforms implemented in the last two years have begun to show results. Liberalization of trading rights and the approval of the Enterprise Law have expanded private firms' participation in import and export activities of the economy. Various export promotion measures - allowing private rice exports, auctioning garment export quotas, providing financial incentives to exporters, removing restrictions on foreign invested enterprises to export, eliminating many export taxes have led to a significant pick-up in export volume this year. SimilarLy, simplification of the equitization procedures have accelerated actual equitizations. (see boxes in relevant sections of this Chapter.) Adoption of ani Accelerated "Doi Moi" Program. Over the last twelve months, individual ministries, in consultation with international financial institutions have drawn up three-year reform plans in the areas of trade. state enterprises, and banking. This period was used very effectively to analyze relevant data on state-enterprises, banks and trade policies, as well as to access external experts for help with the diagnosis, with discussions about possible solutions, and with learning from other developing countries' experiences. Many steps were taken by individual ministries to internalize the specifics of the program and to agree on the key reform measures over the three- year period. However, it is unclear when the Government will formally adopt and announce this three-year accelerated "doi inoi" program. Greater the delay in adopting the program, higher the costs. Investors and exporters, waiting for the signal, will delay their investments, leading to costs in terms of foregone exports and GDP growth. SOEs, without corrective actions, will make more losses and pile up more non-repayable bank debt, thereby worsening further banks' quality of assets, this raises the fiscal costs of reform. Trade Policy Over the last 10 years there has been significant liberalization of foreign trade in Vietnam (See Annex 3.1 for various measures taken in each year since 1 989)2". The country remains committed to continued trade reform under AFTA, APEC and other bilateral trade agreements, but the actual pace of liberalization continues to be a gradual one. In 2 See Annex 3.1 on trade policy where details of Vietnam's trade liberalization since 1989 are described. Policy Reforms for Higher Growth 27 addition, too often liberalization measures have been accompanied by new trade restrictions to protect specific industries. During the 1992-97 period, a number of improvements in trade policy took place. The maximum tariff rate was reduced to 80 percent and the number of bands reduced to 35. The share of imports subject to non-tariff barriers fell from four-fifths to two-fifths. Partly in response to those measures the share of exports plus imports to GDProse from 0.5 to 0.8. Figure 3.1: Vietnam's External Sector Figure 3.2: Composition of Vietnam's Exports o.s 100°S - ~~~~~~~~~~00 0.8 Il a--tt;;:; ~~~~~~~~~~~~~~~~~80% -.-equipment 0.6 OE, _ s=ll!l 0.5 @ Mineral fuels etc L 0.4o° 60% Basic anufactureS 0.4 ~~~~~~~~~~~~~~~~~~~0.60 x 0.3 Animal and vegelab>s o 0.2 ,2 40% Crude materials excl fuels 0.1 _ 1993 1994 1995 1996 1997 1998 20%Dtllr9eenimls . t a | | + Openness 0%' 1990 1991 1992 1993 1994 1995 1996 Nonetheless by end 1997, Vietnam continued to have a highly restrictive foreign trade regime. Firms and enterprises did not have automatic trading rights; they were not able to export and import without obtaining a license from the Ministry of Trade for every export and import consignment. This gave state-owned firms much greater access to imported inputs, to rents and to export outlets because of their privileged access. Second, non-tariff import restrictions - quotas and discretionary import licensing - covered two-fifth of imports and nearly one-third of domestic production, suggesting a high degree of non-transparency, significant rent-seeking activity, limited access of private firms and of course unlimited protection for a significant share of industrial production. Third, on the export side, there were administratively-allocated export quotas on garments and rice and export taxes on a host of other items. Fourth, tariffs were both high and dispersed. Reforms in 1998 and 1999. The Government took a number of steps over the last two years to reduce these restrictions on trade. These steps have included the freeing up of trading rights, the liberalization of exports and the reductions in maximum tariff rate and the number of tariff rates. (See World Bank 1998 and Box 3. 1). These steps have improved transparency, reduced rents to state enterprises, expanded access for all importers and exporters, as well as increased competition among trading and manufacturing firms. 28 Vietnam: Preparing for Take-off? Box 3.1: Trade Reforms in 1999 * Issued implementing regulations to free up rights of all firms to export and import directly all products listed in firm's business license without requiring license. Exporters were also given rights to export products not listed in their business license (Jan) * Issued implementing regulations to reduce tie number of tariff rates to 12 (from 26) and the maximum tariff to 50 percent (from 60) except for six broad categories of goods (Jan) * Penn itted private finns to export rice (Feb) * Began auctioning 20% of export quotas for garment-exports (Jan) * Reduced foreign exchange surrender requirement from 80% to 50% of available balances (Aug) Freeing- Up Trading Rights. The trading rights of registered firms in Vietnam were freed-up in July 1998, with the issuance of implementing regulations. Thus, enterprises with business registration are no longer required to obtain an export or import license from the Ministry of Trade to export or import any product that is listed in their business registration licenses. In addition, registered enterprises can even export new items that are not listed in their registration licenses, as long as they notify the registering authority of the new products they wish to export and obtain a custom-code. Foreign invested firms are allowed to do the same. However, registered firms wanting to import new products still cannot do that; they will have to await the issuance of implementing decrees for the Enterprise Law to have the same right.24 This freeing-up of trading rights prompted rapid growth in the number of enterprises that export and/or import today, especially private trading firms (see-Table 3.1). Nearly 3000 additional private firms sought custom-codes within a year after freeing trading rights. This implied a jump in the share of domestic private firms in total number of trading firms from 35 percent in 1998 to 58 percent in 1999. Domestic private firms' share in actual exports and imports of 1999 was 15 percent and 14 percent, respectively. Thus the private sector (foreign invested and private SMEs) accounted for nearly three-quarters of all trading firms and nearly half of all export and import trade. Table 3.1: Private Participation in Foreign Trade Enterprise Share of Enterprises Share of Exports (%) Share of Imports (%) in Trade (%) .jul-98* Jul-99 1997 1999*" 1997 1999** State Owned Enterprises 38 27 70 57 68 53 Non Statc Enterprises 35 58 10 15 4 14 l Foreign Invested 27 15 20 28 28 33 Enterprises Total 5,100 8,177 9,145 8,175 11,622 8,225 enterprises enterprises $ mil. $ mil. $ mil. $ mil. * Decree 57/CP/1998 on the implementation of the Trade Law was issued in July 31, 1998 and became effective from August 15, 1998. ** Related to 9 months trade value. Source: MOT and General Department of Customs 24 Foreign-invested enterprises are eligible to import under the Foreign Investment Law. Policy Reforns for Higher Grow4th 29 Liberalized Exporls. On the export side, two important steps were taken. First export taxes on a number of products,25 including rice, were eliminated. Second, the private sector's access to export quotas on garments and rice was expanded. Auctions were introduced, and nearly a fifth of garment export quotas were auctioned in December 1998. The private sector represented 44 percent of the bidders and 26 percent of the winning bids in that auction. In 1998, rice export quotas were allocated to private firms, and in 1999 such allocation was continued; in addition, foreign firms were allowed to buy rice directly from farmers to export too. As of today 14 percent of the firms exporting rice are private but they export only 5 percent of total rice exports. Liberalized Imports. On the import side, there have been fewer steps taken during this period. The maximum import tariff was reduced in two stages to 50 percent (with six categories of goods exempted from that maximum)26 from 80 percent, and the number of tariff bands were reduced to 12 from 35. But there were no reductions in quotas and licensing restrictions on imports. However, access to foreign exchange was eased. All enterprises, including foreign invested enterprises, were asked to surrender and convert into local currency, 80 percent of their foreign exchange balances in early 1998, but this restriction was eased in September 1999, when the surrender-requirement was reduced to 50 percent of foreign currency balances. Agenda for Trade Policy. The highest priority in the coming months is to finalize a three- year plan for the phasing-out of import licensing restrictions and to sign the Vietnam-U.S. trade agreement, the latter in turn, being an important step towards joining the WTO. The three-year plan should include the removal of import restrictions on at least 17 of the 19 products, their replacement with "transitional" tariffs, the freeing-up of trading rights for all importing firms, removal of foreign exchange surrender requirement and further expansion of private sector's access to garment and rice export quotas (see Box 3.2). Box 3.2: Opening up to International Trade: A Three-year Agenda o enTe place with transitional o t t egare t aae ts auction, including Oo l1irEase th sar.e of ri.e e.x.,prtr quotas alloc@ated to pri~tirsZ3,;m:s - ____-__ o (s rR.n 0 ;e.w dts ret.t@-ir rFep.Men6pt.toms onpai'tsdiiI imp fnwiWp@]ttriNes5trtiFic,l'S. o l1li.mnt reann r,e-str,ictejons on firm'importingrigh., o-sU -j~~iot difyarlw no rsictted- o o 2:oe i..ethue for.eilgn ;e-xcanog-esurrendEerreqeuiinemen..5 o sIign teVenm raa e agjgiwell to @leand re-x'prtmarkets, and mve owads 1 ccesio 25The products are as follows: Fish and crustaceans, maize, rice, coal, natural rubber, raw hides, skins and leather. Remaining export taxes are on: cashew nuts, nmineral ores, crude oil, scrap metal and wood products. 2 The exceptions are: automobiles, motorbikes, refined petroleum products, alcohol, tobacco and used clothing. 30 Vietnam: Preparingfor Take-off? If implemented, this trade reform agenda will lead to several improvements in Vietnam's trade and incentive regime. First, as trading rights are further liberalized and private firms get a bigger share of export quotas, there will be greater competition among trading firms and much greater access of the domestic private SMEs to-imported inputs and to export outlets. Second, as non-tariff import barriers, like import-licensing, are removed, the import regime will become more transparent, access to imports by all firms more equal and tradable goods more price-responsive. Third, SOEs will be exposed to more discipline and competition; they will loose rents from privileged access to licensed imports and face some increases in import competition. Fourth, lower import protection and lower implicit and explicit taxes on exports will improve incentives for investors to move towards processed agriculture and manufactured exports. Import Licensing Restrictions. Import licensing in Vietnam aims to control certain import items to ensure that imports plus domestic production is equal to predicted domestic demand. These import licensing restrictions27 currently cover approximately two-fifths of imports and around a third of domestic production of goods (CIE 1999). This means that changes in world prices are not transmitted to a significant segment of import-competing goods (i.e. two-fifth). Also, nearly a third of domestic production receives relatively unlimited protection through these restrictions. Fig 3.3: Import Coverage of Import Restrictions Specialised Banned goods management 3% 13% Decision 254 goods 5% - Imports not Decree 57 ~ ~ subject to QRs goods 60% 19% Fig 3.4: Production Coverage of Import Restrictions Production subject to QRs -iixi ~29% Production not subject to QRs 71% 27 Products subject to import licensing restrictions (QRs) fall into three main groups: goods subject to import licensing and quotas under Decree 57 and Decision 254, goods subject to specialised management by line ministries, and goods banned from import due to non-trade reasons. Policy Reforms for Higher Gro-wth 31 The Government is considering plans to remove import licensing on 17 of the 19 such items, to be staggered over the next three years. The first stage of this removal is expected in January 2000 for nine items. Import restrictions on two items, sugar and petroleum products pose special problems and there appear to be no immediate plans on for their removal. Sugar production has expanded considerably over the last three years (by 40 percent for granulated sugar and by 30% for sugarcane), but is not competitive. The industry currently employs 40,000 workers in sugar-factories and nearly 1 million in sugar-cane farms. So the Government is worried about the rapid loss of capital and jobs in that industry, if import licensing restrictions are removed, since protection by tariffs is not deemed as effective as by quotas and licensing. Further study of the sugar industry is required to ascertain first whether certain improvements in sugar production can improve efficiency and second what policies can ensure that those improvements are encouraged in the coming years. On petroleum products, the reasons for continued import licensing are less clear. There is little domestic production at present, and almost all demand is met by imports. Currently, domestic retail prices are stable, even when international prices fluctuate. This means that the import licensing restriction permits importers to reap windfalls when world prices fall and import tariffs are not raised. But even more important is the risk of new but inefficient investments in this sector behind import barriers, which could impose additional costs on the economy. I-lowever. the Government views at least one such investment covering. around half its demand for petroleum products, as essential to national security. Private Sector's Access to Export Quotas. The Goverm-lent plans to continue to expand private sector's share of export quotas in garments and rice. For garments, it wants to proceed gradually by raising the share that is auctioned. As many successful bidders at the f1irst auction failed to utilize the quota that they purchased, the Government has become cautious.27 For rice, the Government has opted to continue administrative allocation of quotas, but to raise the share of private firms in the allocations each year. Banking Reform Reforms int 1998 and 1999. The Govemment's objectives for this second round of reform-to develop a safe, sound, and competitive banking system that will help protect macroeconomic stability, instill financial discipline, and intermediate effectively i.e. mobilize more savings and allocate them to more efficient uses - are very appropriate. Also the Government's overall reform _N This is in part due to inexperience of firms and in part due to state-owned-enterprises' desire to retain their levels of access to the quotas. The result was excessively high bids as evident from wide ranges of bid prices and by the fact that in all cases bids exceeded reserve prices (e.g. in one category bid was 17 times the administered price for quota i.e. reserve price). 32 Vietnam: Preparingfor Take-of? approach - developing a comprehensive program, relying on market-based instruments.29 and implementing SOE reforms at the same time - is the right approach. The Government of Vietnam began this round of banking reforms witlh the approval of two Banking Laws in November 1997 and the formation of the Bank Restructuring Committee (BRC) in April 1998. Since then, BRC has developed a five-track banking reform program, though not all tracks have been fully formulated: * restructuring JSBs * restructuring SOCBs * improving regulatory, supervisory and legal framework * leveling the playing field for all banks, and * developing human capacity and resources in the banking sector. Box 3.3: Banking Reforms in 1999 The following measures were taken: * Completed financial assessment by SBV of all 52 JSBs (Mar) and independent diagnostic audits of 4 large SOCBs by international consultants (Feb) . Developed a preliminary action plans for restructuring all 51 JSBs and operational restructurinig strategy for all SOCBs (Mar). . Issued regulations on "special control" reg-ime including revoking licenses of troubled banks and "special supervision" regime which strengthens supervisory oversight (Apr). . Closed 4 JSBs in HCM City, placed another 6 JSBs under SBV's "special control" reginie and merged 2 JSBs (by Nov). . Initiated development of a legal framework for removing non-commercial lending activities from state owned commercial banks: submitted to the Government a plan to live off Bank for the Poor as a Policy Bank to lend to socially targeted groups (Jun) and issued a decree on establishment of a Development Support Fund to be funded by the budget to provide loan guarantees and interest subsidies for strategic purposes (Jul). • Issued several prudential regulations for banking operations, namely assets classification and loan-loss provisioning; financial ratios for safe operation of credit institutions; organization and authority of banking inspector, and deposit insurance and collateral regulations (Sept). 29 At the end of 1997, Vietnlamil's banking system consisted of four state-owned commercial banks (accounting for 82 percent of total bank assets), 51 joint-stock banks, whose shareholders include state-owned enterprises and private entities (accounting for 10 percent of total assets), and 23 branches of foreign banks and four joint-venture banks (together accounting for 8 percent oftotal assets. Total bank assets were 38 percent ofGDP, total loans, 22 percent, and total deposits, 20 percent, indicating a relatively low degree of monetization of Vietnam's economy. Country experiences show that a particularly costly altemnative in terms of long-tenn growth is the recourse to nonmarket instruments of bank restructuring-interest and exchange controls, strengthening of state banking and directed lending to priority sectors, lin iting competition, and restricting the scope of banking activities. Policy Reforms/for Higher Growvth 33 The Govermnent started with diagnosing the nature and extent of banking problems in the JSBs and the SOCBs. Independent diagnostic audits of the four SOCBs and the SBV assessment of the 51 JSBs found that NPLs in both JSBs and the SOCBs were substantially higher than those estimated earlier. On the basis of this diagnosis, the Government rightly decided to deal witll therestructuring of JSBs in HCM City as the first priority together with improvements in prudential regulations. Restructuring of the other JSBs and the four large SOCBs, as well as leveling of the playing field for all banks were to follow. This is because JSBs in HCM City were found to be the most vulnerable segment of the banking sector, given their level of distress and the fact that HCM City was the most important business center. "' Restructuring.JSBs. Restructuring JSBs, especially those in HCM City is underway. The financial health of all 51 JSBs was assessed and steps were taken to address the most acute problems. Based on triggers that included measures of insolvency, illiquidity, and losses relative to capital, the SBV intervened in several JSBs under two different regimes. First, there is a "special control regime", under which teams from the SBV take over all aspects of bank operations and management. Second, there is a "special supervision regime," under which prudential oversight is strengthened in order to correct shortcomings in operations. In the latter, the existing management continues to run day-to-day operations of the JSBs but under closer supervision of SBV. As of December 1999 the following actions have been taken: * Several JSBs put under "special control" • 4JSBsclosed * 2JSBsmerged * Several JSBs under "special supervision" Restructuring SOCBs. Restructuring SOCBs is still in its early stage. International audits of four large SOCBs were completed in early 1999. Major weaknesses of SOCBs were identified in the international audits and in SBV's own assessments. Governance problems and management weaknesses were found to be common. Accounting practices made credit-evaluation problematic. In SOCBs the legacy and the culture of the "mono bank" system had not encouraged managers to actively pursue the basic objectives of bankers in market economies." Their "frozen" loans (inherited from the monobank system) were cleared in the recapitalization exercise of October 1998. The problems cited in general strategy for the SOCB sector developed by SBV was the following: high risk profile of the banks' asset portfolios, low profitability, heavy reliance on lending activities, inadequate internal controls and poor information management systems. Based on these assessments, the SBV asked each SOCB to develop a restructuring plan aimed at improving the competitiveness of SOCBs, strengthening their internal operations and management, and integrating them with the international financial system. These plans would cover structural and operational actions including the following: 1' JSBs accounted for more than 25 percent of banking sector assets in that city and the city itself accounted for a quarter of Vietnam's GDP, two-fifth of foreign investment inflows, and over half of the country's exports. Together with foreign bank branches in Ho Chi M inh City, JSBs account for 60 percent oftotal lending in the city. Processing information about customers and investment opportunities, assessing risks through contingency-based credit appraisal, spreading risk through asset diversification, managing liquidity througlh active loan collection and continuous transformation of assets. 34 Vietnam: Preparing for Take-off? * Increase autonomy in formulation of business plans and the distribution of revenues; * Establish independent committees for internal control and supervision; * Cease policy lending by SOCBs * Develop and implement plans for addressing existing stock ofNPLs; * Design strategy for streamlining management operations and operational staff . Improve management information systems and accounting standards to comply with international accounting standards; and * Improve management development and staff training. Improving Regulatory, Supervisory and Legal Framnework. The SBV has taken several steps to improve banking supervision and prudential regulations. Following the promulgation of the Law on Credit Institutions, the SBV issued new regulations on the prudential ratio, on limits on lending to a single borrower, on limits on the use of short term funds for long term lending as well as on loan classification and provisioning. The latter marks an improvement in terms of clearer standards for loan classification and provisioning. However, this regulation unfortunately does not classify the whole value of the loan as overdue when any part of principal or interest is overdue. The SBV also issued regulations regarding the mergers, closures, and revocation of banking licenses for the joint stock banks. The SBV has also drafted regulations regarding off-site supervisory procedures. However, more work needs to be done, especially in loan classification and provisioning based on international accounting standards, and moving toward a risk based supervisory approach. There is also a need to enhance analytical and technical capacity of supervisors so that they can better analyze the financial information on the banks they supervise as well as the credit information of banks' borrowers. Also accounting standards need to be upgraded to international accounting and auditing standards. Agenda for Banking Reform. The agenda for banking reform over the next thee to four years will cover mainly the restructuring of SOCBs and JSBs, the development of the regulatory and supervisory framework and creation of a level playing field for all banks. On restructuring both JSBs and SOCBs, the authorities are planning to establish an AMC focusing on non-recoverable debts that have collateral. The AMC would be funded mostly by the government, and would buy and sell bank loans secured by the collateral that the banks could not liquidate because of the nature of assets, lack of documents, or origin of the loans. Although auction mechanisms have been piloted to sell foreclosed collateral, it has been a slow process. And it is likely to be a slow process in future if the enabling legal environment and the functioning of real estate markets are not improved. Private Sec/or Pe7 6rmance 35 Box 3.4: Developing a Healthy Banking System: A Three -Year Agenda Restructuring JSBs and SOCBs: - Create a sound and transparenit mechanism for resolution of failed/troLibled financial institutions. - Implemenitand enforce regulatory framework forall 51 JSBs and complete imiplenientation ofaction plans forall JSBs in phases. - Establ islh an AMC. - Agree on key elemetits of the restructuring action plans between Governmenit and SOCB that involve strengthening management, resolvingNPLs, and developing phased recapitalization. - Complete detailed restrticturing plan foreach SOCB and developan implementation timetable. - Equitize one ofthe four large SOCBs by the end of 2002. - Remove noni-coimmercial lending by SOCBs except in special circumstances where there is an explicit government gtiarantee. Strengthening Legal, Regulatory & Supervisory Framework - Adopt tihe international definition for classifying NPLs, where if any installment of a loan is overdue, the total value ofthat loan is classified as NPL. - Adopt regulations that prohibit banks and financial institutions from lending to shareholders and directors, includinig persons or entities related to them. - Move towards a risk-based approach to bank-supervision - Develop a detailed plan to upgrade accounting standards and systems for banks and borrowers to international standards. - Initiate training programs for banking staffin credit risk management. Leveling the Playing Field forAll Banks - Relax restrictions on dong deposit mobilization by foreign banks. - Ensure that SOCBs have no preferential treatment relative to J SBs. The goal of JSB restructuring is to reduce the number of JSBs by nearly half by closing, merging and consolidating existing JSBs. Bank-by-bank restructuring plans for JSBs emplhasize operational reforms, debt workouts, and recapitalization (including through an increase in the foreign ownership limit of bank capital). Public funds would be used sparingly for their recapitalization and under appropriate conditions. Separately, a decree providing a limited deposit protection scheme aimed at small depositors has been issued, and the framework to guide JSBs own restructuring is being issued in phases. On the SOCB restructuring, the main challenge is to reform them into commercially oriented and viable banks, in particular, by preventing the recurrence of high levels of NPLs and creating a market-oriented credit culture in their management. For this purpose, actions to address the existing stock of NPLs and to strengthen bank management are key. Each SOCB would have to develop a detailed restructuring action plan, covering the critical components cited in Box 3.5. 36 Vietnam: Preparing for Take-off? Box 3.5: Likely Components of SOCB Restructuring Plans Strengthening Management * Strengthen and safeguard bank management's independence and accountability with a view to giving it a clear mandate to carry out restructuring in order to achieve overall commercial objectives. * Cease requiring SOCBs to undertake policy (i.e., noncommercial) lending, except in limited and explicitly specified circumtstances with explicit government guarantees. * Use various methods, including technical assistance arrangements with reputed foreign banks to improve technical capacity of SOCBs' management. Resolving NPLs • Amend Decision 48 to (i) classify the whole value of a loan as overdue when any portion of the principal or interest payments are overdue, and (ii) treat rescheduled loans as overdue loans except for those that are rescheduled based on an agreement with the borrower to undertake actions to improve its capacity to repay the loan. * Estimate required loan loss provisions forthe stock ofNPLs as atend- 1999 using amended Decision 48. * Meetannual targets established for(i) the amountofloans thatwillbe recovered through liquidation ofcollateral by the AMC; and (ii) the amount of loans for which debt recovery strategies will be implemented by the SOCBs. This process will have to include debt reduction and write-offs funded from the government budget for SOEs that are subject to liquidation, divestiture, or equitization under the SO E refonl program. * Ensure adequate budgetary provisions to absorb the costs of SOCB reform based on the calculations for loan loss provisions underamended Decision 48. Phasing Recapitalization * Phase in recapitalization of SOCBs over a period of the time that is required to implement the SOCB restructuring plans and SOE reform * Implement initial recapitalization through funding for the AMC after classification of all loans are done according to amended Decision 48 * Remaining recapitalization for each SOCB could be tranched based on achievement of specific targets (e.g. for the resolution and recovery of NPLs, full provisions for loans granted or rescheduled from the beginning of 2000, reaching bank-specific operational targets, instituting annual audits by reputable firms based on international accounting standards, and so on). SOE Reform SOE reform started at the time of "doi moi" reforms in 1989. Mergers and liquidations reduced the number of SOEs from more than 12,000 to about 6,000 and lowered employment by more than a third. Most of the SOEs that were liquidated and merged were administered by the local authorities. Equitization was launched on a pilot voluntary basis in 199032 and implementation began only in 1992.33 There was very little support from managers and/or workers, given the uncertainty about job-security in equitized SOEs and thus only 1 7 enterprises had been equitized by the end of 1 997. SOEs were also weaned off direct budget subsidization at the same time. However, they continued to receive previleged access to scarce capital from other sources. Around the mid-I 990s, nearly 85 percent of foreign-invested joint-ventures were with other SOEs. Overseas development aid, disbursed through the government ministries, frequently found its way to centrally 2Decision No. 143-HDBT, May 10, 1990. 31 Decision No. 202-CT, June 8, 1992. Private Sector Performnance 37 -administered SOEs. These inflows sustained wholly-owned SOEs withlout major changes in management methods)4 But the onset of economic downturn has brought SOE reform back to the forefront as a pol icy priority (see Box 3.6 for reforms in 1999). Recent actions were aimed at demonstrating the Government's resolve in moving forward on SOE reform. There is progress in respect of classifying SOEs, in equitizing them and in issuing regulations for their divestiture and for a fund to finance the cost of worker redundancy due to SOE reform. Box 3.6: State Enterprise Reforms in 1999 The Governmenlt took the following measures this year: * Completed classification of SOEs using financial/ economic criteria and 1997 enterprise-by enterprise database ofthe Ministry of Finance into worst-performiig and poorly performing SOEs. a Registered 434 SOEs for equitization and completed 146 privatizations (where more than 65 percent shares sold), 37 equitizations (where 51 to 65 percent shares sold) and 41 minority sales; another 210 SOEs are at various stages ofthe equitization process (Nov). * Issued regulations for outright divestiture, transfer, sale, and lease of small SOEs, which peniiits divestiture through auctions and without requiring conversion ofSOEs intojoint-stock companies (Sept) * Issued decision to establish Restructuring Fund to fund severance payments and other activities from equitization process. * Selected 100 large troubled SOEs for independent diagnostic audits (Sept). * Selected three general corporations (i.e. Seaprodex, Vinatex and Vinacafe) for developing specific restructuring- action-plans (Sept). * Issued resolution asking for amendment of Decree 44 to remove existing caps on the number of shares that can be bought by individuals and/or legal entities in equitized enterprises (July). Equitizations. Equitization has picked up momentum relative to earlier years, even if it failed to reach the Government's targets. The cumulative total of equitized firms reached 224 by tle end of August 1999.35 This total includes four firms that have foreign investors among their shareholders. Only a few were considered relatively large (i.e., valued at about US$1 million). Table 3.2: SOE Equitizations as of August 31, 1999 >650/e of shares sold 5l-65o/e sold to non- Total majority to non-state investors state investors privately owned Registered and licensed 81 28 109 Not registered/licensed 65 9 74 or no data TOTAL 146 37 183* * Minority privately owned SOEs = 41 not shown above. Soturce: World Banik estimates using NERC's data. In 1994, when Prime Minister issued Decrees 90 and 91, introducing General Corporations, as a means of strengthening and consolidating the central SOEs, but those Corporations developed the clout to get access to the rising inflow of foreign investment and donor funding, as well as bank credit. An enterprise is said to be "equitized" when the share allocation and business plans are approved by the Governimienit or a local People's Committee. It does not imply that the approved amount of state shares have been sold. The state retains some ownership in all but 63 of these equitized firmis ranging from 5% to 60%. 38 Vietnam: Preparing for Take-off? From a macroeconomic perspective, the biggest short-term impact of equitization is likely to be in signaling support for the non-state sector. The small number of equitized firms and their relatively small sizes means that fiscal and quasi-fiscal benefits, as well as the impact on factor markets, will be limited. In terms of microeconomic improvements in productivity and efficiency, a survey of 14 of the first 1 7 firms to be equitized by end 1997, found that these equitized firms showed strong growth in revenues and profits, particularly those first to be equitized (MPDF 1998). However, it was noted that the good performance was largely the result of favorable firm-specific conditions. Indeed, initial advantages of profitability, limited debt, and few redundant workers were the reasons that these firms were selected for equitization. Strengthening Equilizalions. However, there are concerns that statutoly restrictions on individual and entity share holdings may have translated into dispersed ownership. Operational control of equitized firms may thus not go to those with the expertise and the incentive to manage efficiently. The table below shows different patterns of share ownership in equitizations. On the provincial level the insider orientation of equitization (i.e. share purchases by managers and workers) was most pronounced. In 63 percent of SOEs equitized by the peoples committees, employees acquired majority shares (at least, 50 percent of the company's charter capital). The state was left with the largest or decisive vote in 38 percent of the companies. Table 3.3: SOEs under Equitization Ministry, Number of Majority owned Majority owned State is the largest Corporation, or SOEs under by outside by employees shareholder or may Province equitization investors (%) (%) have decisive vote (%) MINISTRIES 43 33 40 27 MoTrade 7 28 57 15 Molndustry 4 25 50 25 MoConstructni 12 67 X 25 MoAgriculILulc 10 10 50 40 Tourism Admn 3 0 10( 0 MoTranspoit 5 40 40 20 MoFisheries 2 0 0 1(0 CORPORATIONS 22 19 43 38 Vina,caifc 3 0 66 33 EVN 2 0 0 100 Viialiines 5 20 60 20 Vinacoal 2 50 0 50 Northei-nFoocd I 0 100 0 Telecom GC 2 50 0 50 Chemical GC 2 0 50 50 Vinasteel I 0 100 0 Cemnt GC 2 50 0 50 Viniatex 2 0 50 50 PROVINCES 159 9 63 38 Hanoi 38 12 79 9 HCMC 20 10 40 50 Hai Phong 7 0 86 14 Da Nang 4 0 100 0 TuyenQ Quanlg 6 0 83 17 Phu Tho 5 0 l(0 0 Other provinices 79 6 51 43 Source: World Bank estimates using Government 's data Private Sector Performance 39 Centrally-owned SOEs were more successful in the search for outside investors. It is not clear whether these were either due to more attractive assets for sale, or whether there was easier access of private investors to these assets. The outsiders succeeded in acquiring operational control in 7 of the 12 equitized SOEs under the Ministry of Construction, 2 out of 5 under the Ministry of Transport, and 2 out of 7 under the Ministry of Trade. General Corporations expressed stronger preference for retaining the controlling interest in equitized SOEs, and they were less successful, than ministries. in attracting outside buyers for shares oftheir equitized SOEs. This suggests the need to broaden the menu of options to access additional capital and better management for these enterprises. There is clearly a need to take three steps. First, remove the existing ownership caps on share purchases by individuals and legal entities to allow majority purchases. This will permit private entrepreneurs with management talent and capital to buy majority shares in these SOEs. Second, increase transparency of the process of equitization through announcements and advertisements of sales at least a month in advance of accepting offers, to solicit interest. Third, move the authority to sell and issue shares outside the management of each SOE. These two actions will enhance access ofVietnamese outsiders to SOEs being equitized. Agenida for SOE Reform. Over the past year the National Enterprise Reform Committee (NERC), working together with line ministries and people's committees, have been developing a comprehensive program of SOE reform, based on classification of all SOEs using financial/ economic criteria. This reform program consists of measures aimed at: - Diversifying ownership (i.e. equitizations and divestitures) - Restructuring and downsizing large SOEs that are o remain in state hands - Reducing the number of SOEs that are non-viable (i.e. liquidations and mergers) Box 3.7: Improving Efficiency of the State Enterprise Sector: A Three-year Agenda 'rhensive'-S'O,E,riefMrm-program witli annual targets for ,~it.zatn dst.iwes, liqiations, mergers and other forms-of re,frucftring to cover a significant fraction of * S 1 ~forc-e c.e.iliings on . 13 redit to the lSlarseeor iiiing a suFeii8lv6l ain on tiheblaingeq itizedebteis, to ~~~~~~~~~~~~~~~~~~~~~~~~~~~~.f Itaisg. -, - 1;amu e - N tWXl S i rlllollllt@rg~~~~W,1UNArMerla-SlHIen 1Raso Z e _i;!,d~~~~~~~YMR-7s-lero ,dZ>!ap-s, . _i an 3K HU =a 13 'peav,e-1:@,pla , lFm7e -tr,e stlrr,u-cstLuring3rgTpnroant W WIiRrME =eslee--Idrgeenrg11[Ferp -a F ! 6XX - ' _-] ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i I 40 Vietnam: Preparing for Take-off? Ownership Diversification. Equitizations and divestitures, focussed predominantly on small and medium sized SOEs (i.e. with capital less than 10 billion dongs) may not be optimal. Data show that some of large SOEs have the most serious problems of performance and debt, and run the most risk of their losses and debts, growing the fastest. But the Government is concerned that sales of large SOEs to private sector will imply sales to foreigners, given the embryonic nature of the domestic private sector and their limited capacity to provide capital and management. This is something that they are not yet prepared to do at this stage of the reform procesq. Nonetheless, significant benefits to the economy can still come from equitizations and divestitures of a large number of these small and medium sized firms. If over the next three years, the Government is able to equitize 1,200 SOEs and divest 600 SOEs,36 that would have a very significant signaling effect for all investors. It would also help to jump-start the private SME sector. If also, a sizeable fraction of those equitizations have no controlling state shares and the proportion of non- state shares exceeds 65 percent, that would shift both ownership and control to non-state buyers. Also, since divestitures can involve auctions, competitive bidding, outright sales, transfer to workers, and leasing, this greater flexibility should allow faster divestment of small SOEs. Within this framework for policy actions emphasis for early and strong actions will be given to the group of SOEs identified as the worst performers. To support the reduction in the losses of SOEs, the Government intends to liquidate/bankrupt at least 300 of these worst loss-making SOEs, including some large ones, in 2000-2002 period. Such actions will be accompanied by programs to write off the debt for liquidated SOEs, as well as restructuring the debt for equitized or divested SOEs, and introduce appropriate social safety nets and funding for redundancy payments. Restructuring large SOEs. The program seeks to adopt a series of measures to encourage large SOEs to restructure and downsize, so as to control losses and return to profitability. For this purpose a number of different measures are envisaged. First, a quarterly monitoring system is planned to be established to monitor bank borrowing and budgetary support to the 200 large highly- indebted SOEs."7 Second, those 200 SOEs will be subject to credit sub-ceilings within an overall SOE credit ceiling to ensure that these enterprises have the incentive to implement policies and actions to reduce losses and to rationalize activities. Third, the Government will be conducting a series of "operational reviews' (or diagnostic audits) for a separate set of 50 large SOEs. Besides reviews of financial statements and information (short of full statutory financial audits), the consultants conducting these reviews will be expected to assess enterprises' product lines, markets, customers, industry conditions and SOE competitive positions on the national market and internationally. The Government and the relevant SOEs could then agree on actions to address key problems. ">Decree 103 of the PM, September 1999 permits divestitures of those SOEs with legal capital of less than VND I billion, or about US$ 70,000, and those with up to VND 5 billion, or US$350,000, if making losses. 37 Standardized content of the information (to be collected on a quarterly basis) has developed and will be collected from the following sources: SOEs themselves (basic company profile), state-owned commercial banks (debt, interest payments), and Ministry of Finance (loans, grants, transfers, subsidies, and tax arrears). Private Sector Per fbrmance 41 Fourth, the Government plans to restructure General Corporations on a case-by-case basis. They have already identified three tradable sectors and their respective General Corporations as candidates as pilots for developing and implementing specific restructuring action plans. Seaprodex, Vinatex, and Vinacafe are high profile General Corporations operating in tradable sectors whose successful restructuring would serve as a powerful model for other Corporations. By getting these General Corporations to focus on their core competencies, removing barriers to new private sector entrants, fostering competition, and re-orienting firms towards export markets, they would take a major step towards not only boosting economic growth and job creation, but also preparing for the opening-up under the AFTA arrangements. SocialSafetyNetsforSOE Workers. ReformofSOEs will lead to redundancies. During the SOE reform of 1989-92, nearly a third of SOE workers had to leave their jobs. It is therefore imperative that appropriate social safety nets are established for SOE workers before the reform program is implemented. These safety nets should aim to compensate workers for their loss of incomes and to ensure that they can fund themselves during a transitional period of unemployment. A special fund for the reorganization and equitization of SOEs (lhereafter called the Fund) was created by Decision 177/1999/QD-CP, issued by the Prime Minister on August 30, 1999. This Fund is aimed at providing severence payments to workers who loose their jobs from SOEs as well as training support. In addition, surprisingly, the Fund is also expected to invest in new SOEs as well as in helping workers buy shares in SOEs. These later two functions of the Fund is likely to detract from the main objective of assisting workers who are made redundant. Also, since budgetary funds are expected to be channeled into this Fund for severence payment to workers, it will be essential to ensure that "firewalls" between on the one hand activities related to severence payments and training support and on the other investing in SOEs and in shares for workers are established and maintained. Donors providing financing for severence packages would need such assurance in the use of their funds. The Government is in the process of establishing detailed implementing guidelines for Decision 177. It is therefore important to ensure that such guidelines ensure the greatest effectiveness and transparency in the use of Fund resources for redundancy payments. Experience in other countries suggest that the scope of the Fund, the eligibility criteria for access and the terms and conditions of the payments made/received need to be clearly specified to avoid problems later (see Box 3.8). Based on current estimates it appears that donor support of around $100 million dollars could finance redundancy of around 100,000 workers. 42 Vietnam: Preparingfor Take-off? Box 3.8: Recommendations for the Assistance Fund for SOE Reform Whatisthescopeofthefund: The Fund should be used for: - supporting severance payments and training allowance for new jobs (optional) for those workers who lose their jobs as a result of SOE reform. - compensating workers in SOEs to be equitized, who lose theirjobs; * Who should access the Fund: - SOEs that are implementing the reform program (i.e. equitizing, selling, liquidating and downsizing); - Workers in the above SOEs that leave theirjobswithin acertaintime limit(say 12-18 months afterequitization); * Who are ineligible: - Workers who are entitled to early retirement pension, or on temporary contracts, or have signed life-time contracts after September, 1999; * What are the terms and conditions: - The redundancy package could be the same for all workers, or vary with individual characteristics such as salary and seniority in the public sector, educational attainment, gender or region of residence. For example, the Fund could offer to pay a fixed amount (say 10- 1 5 million vnd) or a fixed number (say 15) of monithis of salary to all workers leaving their SOEjobs with the explicitconsent oftheir employer. - The regulations ofthe Fund should make it clearthat the assistance it provides is made on behalfofthe enterprises that are being reformed. New managers of (over-staffed) enterprise could have the right to offer an additional incentive (say 3 million vnd or 4 month salary) to certain workers to encourage them to leave, so that the total separation offerwould amount to 13-18 million vnd (or 19 month salary). - Workers usingthe Fund cannotbe allowed to return totheirenterprises forat leastseveral years. 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 mpoaed M Nanagerment nputs used of quota to produoe good shfts > exports to tarffs exempt from Highest tanff cluty reuced to 60 ;o Export per cent prooessingI zones * ImponI * Private sector zeguiones permits exports regiiation periminted frallowed - introduced eii mpo permt Export duty .~~~ Export all but 15 *mopeitForei n - from ~~~~~shipment procicts system e:aiu ivse Customstariff oompan on rioedt Hsytd mrvd *c relaxedt .Mngd sae plae ismlr_ rfr q d edgaged inm *Tradlicensing GATT Exe qIm enterprises rge a Special tes 0relaxed observer m aJoins ASEAN tariff reduced atowed to liberatising taxp of nt *uty rebateEstatxsiport 's 80 per*cent I mo export goods right to import introduced syste Licensing goots AFA list a ssioene ad ot Exort-import cemtnnies * HS system improved steps reduced to promulgated proces CEPT road n New tarift tExport-mpoq panies seven - Nianaged started map released with smler Customs, tariff ojmpanies allowved to introduced * Customis reduced veMagd intdued or register to egg n Trdeaao Export quotas import goods Rice quotas *3-schedule range and intoducedfor eqpored toersg~ in Trade dedaradon Expo red iced to rediced ~ hExport allocated by t rates t1he first timep internabonal agreenent form shipments poica nrdcd rlae trade with EU improved relaxed one rice six povinci e r e govenniuSentb Exp1rt of 1Export taxes Imports of 19Partal Decw1e 254 1 certan raised on tI sugar surrendear adds to list rf -- commodies products protibited requirements oondinonal limited to *Tm ray imposed imports relevant proTeipiorarSyoasae exporters pr ition tpcal saexte so associatuons imposed n tKeedd goods 1 989 1990 199 1 1992 1993 1994 1995 1996 1997 1998 1999 Chaptet 4: Medium-term Outlook and External Financing The Global Context. Vietnam's medium-term prospects hinge not only on what happens in Asia and the world but, more importantly, on decisions made in Vietnam. There are signs that the external situation will improve next year and beyond, especially in East Asia, though the recovery remains fragile (Table 4.1). The five East Asian "crisis countries' (Indonesia, Philippines, Korea, Malaysia, Thailand) are on average projected to stabilize this year and grow quite strongly in 2000 and beyond. Korea shows an exceptional recovery this year and China continues to he a stable economic anchor in the region with relatively high growth rate. The high-income economies ol Singapore and Taiwan, Province of China, have performed strongly. It is, however, important to recognize that the strength and speed of this East Asian recovery remain uncertain: it will depend on whether reforms in the crisis countries are sustained, and growth in Europe, America and Japan remains robust. Therefore some downside risks to these projections exist. UjiI1 8 3Wo wpnt) . _K , i-- Est. Projected 2000 2002-08 N2R - -~_ I 2.-6 2.9 3.2 odmmm ~aamaimE.S A. 2- 2 2.6 2 5 2.7 13.3 3.2 49 IU ;2-!7 4.2 4.9 8.1 8.5 66 01 '~5S 6.2 6.3 @6* b wo&. 6 - 7 4.4 5.3 5.3 131 5.lt-~~-6~4 I 2.7 4.4 5.0 &~~:(~il5 ismeasred t maketprices ad e.presed;rtI~7~k~e i atesl Growth rates over, L - ; - = ' *- No:i The Domestic Context. Fundamental to the medium-term outlook is the extent to which Vietnam adopts an accelerated reform program. Though the pace has picked up r ecently and efforts to develop detailed reform plans for the next three years are nearing completion, that is unlikely to be adequate to prevent continued slow growth. It is certainly insufficient to reverse the worsening perceptions of investors about Vietnam, given their current difficulties. Agricultural growth next year may be buoyant, but not as high as this year. In any case, faster growth of non-farm activities is key to future rural growth, and that will be unlikely without a credible announcement of the accelerated three-year reform program in trade, state enterprises, banking and in private investment regulations, that has been developed by ministries and agencies over the past year. Without announcement and implementation of the accelerated three-year reform program (cited in Chapter 3). growth will continue to be slow. The perceptions of potential investors as well as current producers and exporters will not improve. Even foreign investments that are in the pipeline may wait and watch, as will investments in the exports of light manufactures. Yet, these investments in new infrastructure and light manufactures are essential if export growth in response to recovery in regional demand is to remain high. This year's spurt in exports was 46 Vietnamn: Preparing.for Take-off? made possible by investments begun in 1997. Exporters, existing and potential, must have the incentive to improve competitiveness and to invest in the development of new export markets, and they do not have that present. The fact that the Vietnam-US trade agreement remains unsigned is not helpful either. So if accelerated reform is not adopted soon, Vietnam will be unable to attract the additional investment necessary to avoid low growth despite the strong regional recovery. Growth Under Slow andAcceleratedReform In the last two years, Vietnam has adopted a cautious economic stance, giving priority to ensuring macroeconomic stability rather than taking risks for higher growth. Contrary to fears eighteen months ago, Vietnam succeeded in avoiding a serious balance-of-payments, fiscal or banking crises. It also succeeded in implementing gradual reform of trade and private investment regulations, in initiating reform of state-enterprises and banks and in doing a lot of preparatory work to develop a detailed program of reform in banking, state enterprises and trade. But those actions proved insufficient to offset the reductions in investment and consumption demand or to avoid further declines in non-agricultural growth over these two years. Slow Reform. It is conceivable that Vietnam will continue to opt for this slow reform program and not announce a major shift in the pace of reform. There is, however, a serious risk that continuing a slow reform program that is not time-bound, would lead to a more permanent low growth path. A slow reform strategy may also make it more difficult to sustain the reforms. For example, under the current pace of reform, public revenue as a share of GDP is likely to stay depressed, and possibly fall further, making itdifficultforthe Governmentto finance the costs of banking and SOE reform. The fiscal costs of an accelerated banking and SOE reform program, although small relative to other countries of the region, are considerable. Total capital costs are likely to be 8-10 percent of GDP (spread over several years) and annual current costs around 1-2 percent of GDP. These capital costs stem from the take-over of SOE bank debts that are unlikely to be recovered and from re- capitalizing banks, mainly SOCBs. These costs will have to be funded in stages over the three-year period, as SOEs get liquidated, divested and equitized, and as banks get recapitalized in phases. The current costs comprise of the interest-payments on the bond-financed capital costs and of course the annual redundancy payments to SOE workers. In the absence of clear and firm direction in reform of banks and state-enterprises, trade and private investment, Vietnam cannot benefit fully from the strong regional recovery that is underway. Efficiency of the state-enterprise sector will not improve. Banks will remain at risk for a longer period. Existing and potential exporters of manufactures and processed agriculture may not make the investments in Additional capacity that is needed to meet rising regional demand and to sustain an average annual export growth-rate of 11-12 percent. Potential foreign investors will not get the signal they need to come to Vietnam. Thus agricultural growth will be the mainstay of economic growth in the medium-term. Industry and services - state, foreian invested and private small and medium enterprises - will stagnate. A GDP growth-rate of 3.5 percent in 2000 and 3 percent thereafter is not an unlikely ouLtconme under that scenario. Mediun-termn Outlook and External Financing 47 Accelerated Reforms. On the other hand, the adoption and announcement of a firm and time- bound reform agenda in the next few months (highlighted in Chapter 3) will shift perceptions in favor of Vietnam. Existing investors and exporters will consider expansion to avail of new export markets and new opportunities. This will permit relatively high annual export growth rates. However, uncertainty about the timing and the impact of normanlized trade relations with the US, as well as the magnitude of Asia's recovery make the new investment for expanding export-capacity uncertain, and suggest a conservative export growth rate assumption. All these could be expected to generate higher growth than the slow-reform scenario. especially in 2001, and 2002 (see Table 4.2). Growth could be around 6 and 7 percent in 2001 and 2002 respectively as the private sector picks up. For example, recovery of both exports and investment is expected in those two years. The range for growth projections is shown in Table 4.2. TaN O. I IF-4%tro"m O_ 2002- . G . .~~~~~~~~~~~~~~~~~~~, O_ i.0 0i1’iipl;~tl@h(J4) 4Tf ) 4i E5(9 55 -6 A 0-57-0 - 395 98-74 C(9-98 1 ' :o :k , 88.8 -10.0 2- 9F=Xr a) .uJ ' _ 11-?E6R., 4.-9-6.3 External Balance. The current account deficit has declined significantly as FDI has fallen and imports have remained depressed. The deficit fell to 4.9 percent of GDP in 1998, and to an estimated 1 percent of GDP in 1999 in sharp contrast with 8 percent of GDP in 1997. For 1999, total imports are expected to decline by about 3 percent and FDI disbursements to fall to around $600 million. With accelerated reforms and the additional external financing that would accompany such reforms, exports and imports will be able to grow at a sufficient rate to permit higher investment and growth, especially if it includes the signing ofthe US-Vietnam trade agreement. However, given the uncertainty all round. exports are projected to grow at an average of only about lI percent in nominal dollar terms over the next three years 2000-02. Imports are expected to reach recovered by 16 percent in 2000 after two-years of decline, and grow by 14 percent in 2002, slightly higher than the rate of exports. (Table 4.3). 48 Vietnam: Preparingfor Take-off? Table 4.3: External Balance, 1998 - 2002 (US$ billion) Prel. Est. Projected I 1998 1999 2000 2001 2002 * Exports (fob) 9.4 10.7 11.4 12.7 14.2 Imports (fob) 10.4 10.1 11.7 13.5 15.5 Trade Balance -1.0 0.6 -0.3 -0.8 -1.2 Services and transfers (net) -0.1 -0.3 -0.2 -0.0 -0.0 Of which: Interest payments 0.6 0.6 0.6 0.6 0.6 Current account balance (exc. Grants) -1.3 -0.2 -0.7 - I.0 -1 .4 Share in GDP(%) -4.9 -1 -2.5 -3.4 -4.4 Export value growth rate (%) 2 14 11 11 12 Import value growth rate (%) -I -3 16 15 14 Source Actual data: Vietnamese autihorities and World Bank estimates. FigLires are rounded. Projections: World Bank staff estimates. This year's resumption of high export growth is encouraging in that context. Vietnam has demonstrated that it is still competitive and also has the production capacity to respond quickly. But future rapid growth would require increased capacity. It appears that the production capacity set up in 1997 and 1998 was under-utilized, given the sudden collapse in export and domestic demand, especially in 1998, and thus could respond quickly this year to the recovery in regional demand. That excess capacity may be limited going into 2000 and is likely to be expanded only if the policy environment is improved. External Debt Management Vietnam's debt and debt service burden appears sustainable. Its total convertible debt stock stood at $10.8 billion at end- 1998 (or 42 percent of GDP), two third of which is public or publicly guaranteed. About half of the debt is concessional, and the remaining non-concessional debt is mostly linked to foreign investment projects. Total debt stock is projected to rise to $14.4 billion by 2002, with most ofthe growth in debt coming froin new concessional loans. Table 4.4: Vietnam: Debt Stock and Debt Services (US$ billion) a/ Estimated Projected 19981l 1999b1 2000 2001 2002 Total debt outstanding and disbursed (TDOD) 10.76 11.14 13.46 13.X2 14.38 Public 7.30 7.76 10.37 11.00 11.72 Multilateral 1.97 2.28 2.61 3.03 3.48 Bilateral 5.34 5.48 7.76 7.96 8.24 Concessional ci 3.66 3.98 6.46 6.86 7.24 Non-concessional dl 1.68 1.5) 1.30 1.10 1.00 Foreign direct investment 3.45 3.38 3.09 2.83 2.65 Key Debt Service Indicators (%) Debt service/XGNFS 15.3 15.3 14.3 12.5 10.6 Debt service/GDP 7.1 7.7 7.4 6.6 5.7 .Note: a. Includesfuturedisbursements. b. Convertibledebtonly. c. For 2000 onwards, includes the rescheduled ofnon-convertible Russian debt. d. Suppliers credit, financial institutions, export credits, and other private creditors. Sourt ce: World Bank staffestimated, based on information provided by the Government. Mediun-terin Outlook and External Financing 49 The debt-service burden is projected to average about 12 percent of exports of goods and nonfactor services for 2000-02. Despite low export growth rates in the coming years. current and projected debt service ratios remain manageable and sustainable. Despite this. Vietnam will go through different development stages with potential pressures on the current account balance. This calls for a prudent debt strategy that should go hand in hand with the country's efforts to mobilize international resources, both public and private. Increases in non-concessional borrowing should be within the limit that ensures debt service ratios not beyond the current ones. The Government agrees that drawing on non-concessional sources to fund larger investment and fueling higher growth rates would likely undermine macroeconomic stability, as experience in neighboring countries has shown. The rescheduling agreements with the Paris Club in 1993 and the London Club in 1998 normalized Vietnam's financial relations with major bilateral creditors as well as major commercial/banking creditors and removed the uncertainty in the country's international financial standing. The London Club's financial agreement was supported by the World Bank with an IDA Technical Grant and acredit of $35 million in 1998 to assist the Government in financing the upfront cost of debt reduction totaling about $54 million. The Government also has normalized its relations with most of the members of the former Soviet Union, converting debt denominated in ruble into hard currency at a favorable exchange rate. as well as some debt rescheduling. The Government has been in and out of the negotiation process with the largest non-convertible creditor, Russia, though some payments are being made annually in terms of goods on the basis of agreements negotiated each year witlh Russia.38 The Government has formulated an action plan on debt monitoring and debt management. Supporting decrees and regulations on external debt to clarify the roles of different agencies in external debt management have been issued and the donors are supporting the Government with technical assistance for debt management. External Financing Requirement In order to finance the inputs required to sustain the growth rates presented in Table 4.2, there will be a need for external financing of around $2.5 billion per year under accelerated refonn. This requirement will be met by a combination of foreign investment inflows, disbursements from previously committed ODA and from new commitments of quick-disbursing ODA. Foreign investment inflows and disbursements from committed ODA will together cover around four-fifths of the three-year financing requirements. Since foreign investment flows have fallen precipitously in 1998 and then again in 1999, higher FDI flows are likely only if the Government acts to improve the situation significantly. Announcing and implementing its three- i The Paris Club, of whicih Russia is now a member, has urged Vietnam to come to closure with the Russian debt within the terms negotiated at the Paris Club in 1993. Both countries have pledged to resolve this issue in a timely manner. 50 Vietnam: Preparingfor Take-off? year reform program, the signing of the Vietnam-US trade agreement, together with approvals of energy FDI-projects in the pipeline, would promote higher FDI flows. However, it would not be judicious to assume that higher foreign investment flows would reach 1995-97 levels, anytime soon. With the pipeline of committed but undisbursed ODA standing at around $6 billion, growth in ODA disbursements of around 10 percent a year is not unrealistic. But this would still require significant improvements in Government's project implementation arrangements. Table 4.5: External Financing Requirements, 1999-2002 (US$ billion) Prel. Est. Projected 1998 1999 2000 2001 2002 Financing Requirements 2.47 1.69 2.20 2.53 2.92 Current account deficit 1.27 0.25 0.67 1.01 1.43 Medium & long-tenn amortization 1.05 1.12 1.31 1.28 1.22 o/w FDI related loans 0.36 0.56 0.73 0.78 0.75 IMF repurchases 0.08 0.03 0.02 0.05 0.07 Reserve requirements -0.06 0.30 0.20 0.20 0.20 Financing Resources 2.47 1.69 2.20 2.53 2.92 Official grants 0.20 0.19 0.18 0.18 0.18 ODA loan disbursements 0.79 0.79 0.87 1.00 1.10 Foreign direct investment 0.80 0.61 0.75 0.85 1.03 Noni-conicessional borrowing 0.33 -- -- -- -- Short-term capital (net) -0.19 -0.15 Arrears (net) 0.13 0.25 -8.59 Debt relief 0.41 -- 8,59 -- Financing Gap -- -- 0.40 0.45 0.65 Source: Actuals: Vietnamese authorities. Projections: Bank staff estimates. Quick Disbursing Assistance. Last year, donors committed quick-disbursing ODA of $500 million but only $200 million has been committed under the Miyazawa initiative. If the Government announces the adoption of the three-year accelerated reform program, additional quick-disbursing assistance to support those reforms will be warranted for at least two reasons. First, the reforms themselves - SOE, trade and banking reform -- will have significant fiscal costs as cited above. There will be costs of SOE-debt restructuring, of bank re-capitalization and of labor redundancy that will have to be funded through the budget. These costs are likely to rise with time, being higher in the outer years as reforms proceed. Second, additional foreign exchange will have to be available for needed imports, if there is to be an adequate supply response to the reforms over the next three years. Both these reasons argue for strong donor support in the provision of this type of assistance. The World Bank, the IMF, and the Asian Development Bank have been in discussions with the Government on the form of this financing package. Japan has already committed an initial amount of quick-disbursing assistance under the Miyazawa plan, and is considering additional financing packages. Other donors are considering such funding too. Meditun-leri-n Outlook and External Finanicing 51 The donor community has been playing an important role in Vietnam for the past decade. Evidence to date has slhown that ODA has been largely effective in Vietniam.i, both because rehabilitation of infrastructure has yielded high returns and earlier reforms had created a policy environment conducive to the effective use of ODA. It is expected that donors will continue this role over the coming years, in close partnership with the Government of Vietnam, the NGO community and the private sector. REFERENCES Bhargavi Ramamnurthy, "The Private Manufacturing Sector in Vietnam 1991-97.: An Analysis of deceased", Stockholm School of Economics, EFI-The Economic Research Institute, August 1998 Centre for International Economics (CIE) "Non-TariffBarriers in Vietnain ", Canberra and Sydney. September 1999 Central Institute for Economic Management, "Vietnam Economy in 1998", 1998 Foreign Investment Advisory Service, "Vietnam: Attracting More and Better Foreign Direct Investment ", April 1999 General Statistical Office, "Statistical Yearbook", 1996,1997 and 1998 General Statistical Office, "VietnamnNational LivingStandard Survey 1997/98"', 1 999 Leila Webster, " SMEs on the Road to Prosperity", Mekong Project Development Facility, December 1999 Leila Webster and Markus Taussig, "Vietnam's Undersized Engine: A Survey of 95 Largest Private Manufactures ", Mekong Project Development Facility, June 1999 Patrick Belser, "On the Road to Labor-intensive Growth?", World Bank mimeo, October 1999 Per Ronnas, "The transformation of the Private Manufacturing Sector in Vietnam in the 1990s", SIDA, Stockholm School of Economics, EFI-The Economic Research Institute. World Bank and IMF, "A Frameworkfor Cutting the Losses of SOEs", Policy Note, June 1999 World Bank, "Country Framework Report on Private Participation in Infrastructure. Vietnam ", May 1999 World Bank, "Global Development Finance 1999 ", 1999 World Bank, "Global Economic Prospects ", 1998 and 1999 World Bank, "Note on Clarifying SOEs in Vietnam", March 1999 WorldBank, "Vietnam. AttackingPoverty", November 1999 World Bank, "Vietnam CountryAssistance Strategy 1998", August 1998 World Bank, "Vietnam: Rising to the Challenge ", November 1998 World Bank, "World DevelopmentReport 1999", 1999 Statistical Appendix Population and Employment Table 1.1 Population Table 1.2 Population by sex, bv sector, and by province Table 1.3 Total employment by sector National Accounts Table 2.1 GDP by industrial origin and by economiiic sector in currenit prices Table 2.2A GDP by industrial origin and by economic sector in constanit prices I'able 2.2B GDP by industrial origin -- growthi rate Table 2.3A GDP deflator Table 2.3B Chanige in GDP denlator Table 2.4 National accounlts: sources and uses Balance of Payments Table 3.1 Balance of payments Table 3.2 Merchanidise exports by comimilloditv I'able 3.3 Major imports by comimlodity Monetary Survey Table 4.1 Monetary survey Budget TI'able 5.1 Summary of budgetary operations Table 5.2A Government revenue Table 5.2B Governmienit revenue: percentage share Table 5.3 Functional classification of curienit expenditute Table 5.4 Economic classification of currenit expendituire Table 5.5 Governimiienit budget: capital expenditure Prices I'able 6.1 A Growvth rate of retail prices, by- month Table 6.1 B Retail price index, by monithi Table 6.2A Price index by commodity groups: (index December 1997 = 100) Table 6.218 Price index by comimiodity grotIps: monthly growth rates Agriculture Table 7.1 Agricultural production Table 7.2 Industrial crop production and yields Industry Table 8.1 Industrial production and nmLtiiber of'statc eniteprises Table 8.2 Major industrial products Table 1.1: POPULATION Population Growvth By Sex By Area Year (mid-year) Rate Male Female Urban Rural (000 persons) (%) (000 persons) 1975 48,030 - 1976 49,160 2.35 23,597 25,563 10,127 39,033 1977 50,237 2.19 24,197 26,039 10,116 40,114 1978 51,337 2.19 24,813 26,524 10,105 41,226 1979 52,462 2.19 25,444 27,018 10,094 42,368 1980 53,630 2.23 26,047 27,583 10,295 43,335 1981 54,824 2.23 26,665 28,159 10,499 44,324 1982 56,045 2.23 27,297 28,747 10,708 45,336 1983 57,292 2.23 27,944 29,348 10,921 46,371 1984 58,568 2.23 28,607 29,961 11,138 47,429 1985 59,872 2.23 29,285 30,587 11,360 48,512 1986 61.109 2.07 29,912 31,197 11,817 49.292 1987 62,452 2.20 30,611 31,841 12,271 50,181 1988 63,727 2.04 31,450 32,277 12,662 51,065 1989 64,774 1.64 31,589 33,185 12,919 50,801 1990 rev est 65,846 1.65 32,138 33,708 13,203 51,604 1991 rev est 66,935 1.65 32,586 34,349 13,450 52,454 1992 rev- est 68,042 1.65 33,150 34,892 13.024 53,994 1993 rev est 69,168 1.65 33,764 35,404 13,306 54,845 1994 rev est 70,313 1.65 34,314 36,502 13,711 56,366 1995 rev cst. 71,476 1.65 34,882 36,594 14,085 56,381 1996 rev est. 72,658 1.65 35,601 37,057 14,546 57,105 1997 rev est 73,860 1.65 36,332 37,523 15,140 57,709 1998 rev est 75,082 1.65 36.951 38,162 15,398 58,692 1999 cenistis 76,325 1.65 37,519 38,806 17,917 58,048 Note: Population by sex and by area may not add to the grand total due to the possible exclusion of the armied force and migrant workers For 1989- 1998, populationi by area is based on legal residency, and may not include the armied forces. The 1999 population census provides revisions in the total populationi for this year. and the 1999 census required further rcvisions for the previous years which are not yet available from the GSO. In the interimi, the figures for 1990-98 are re-estimated by extrapolation by Bank staff and are included here in italic Source: Census, April 1999. General Statistical Office, Statistical Yearbooks 1994-1998 Table 1.2: P8)PMIATIONISY SEX, BSEt ,ANIBY PROVINSCE. -1999 Population (1111 P-er,o't Regin[P/ro-i,nc Tolal MuleFeal Urban Hln-o I Ia 1Nc'i Ia _InPut,' I Ii No, 2,672 1,337 1,335 1.539) I 133 Itat lPhno 1,673 925 848 5 68 I HIS Sob-To'tal 4,349 2,162 2.1 M3 21ttl 2.238 Northern Moimnlum, I a GWang 603 2`)s 31)4 511' 552 Foyeu Qnaag 675 334 34 1 71 bi61l C-' Sang 491 241'' 251 54 437 Lanig Son 705 3501 355 132 5733 Lcl Chac 5819 297 2') 7 -2 5 17 lu4. ICut 595 297 248S ('246 'ten lai, 680 334) 34lI 13 (II, Bac Catn 275 138 138 411 235 Il ha tinayc n L046 521 52 5 2I11 82 7 S;on L.a 881. 442 439 113 761) I Ina tnal 7 58 3770 392 l-S 6053 Om,It Phol 1.042 532 5160 III 991 Phi, ' ho 1.262 OtO1 64 2 1 79 1,1183 Hae .."lt 941 457 484 X8 85 3 Ba, Gtatt 1 492 739 759 I1 09 1.381 Qa .... 'Mot L011 5)13 4112 443 $61 So b-Tot,ta 13,1889 6,491 6,508 3.394 1 1.162 lRed (j-eer 1Di'n I Ia Vay 2.387 1,163 1,224 I'll 2, 1 96 HIa. Dt'ntg 1.650 797 953 220 I 422 ln.g Yeta 1,06'1 516f 553 "13 't76 That [Biob 1.786 9 53 033 103 1,682 N:ttn I)tt,b 1,8988 919 '96') 27.1l 1.6S4 'Ila Nant 792 3784 407 474 3 Wtill Bltn 894 433 4531 1 13 771 Sob-Total 10,456 5,1169 9.3'38 1.11 9,444 Ntunb C-ttra) Connt That,6 I maj 3,469 1 694 1,7 73 3 18 3.1141) Nghe Att 2 858 I 407 1.451 242 2.1167 I a I,'ttt I 76') 623 6140 11 3 I ISO Qcattg Bmal 794 392 4(11 50 7(19 QoatigTtt 573 202 291 1351 439) Solb- Unttl 8.962 4,398 4,962 944 8,1119 S-iftIl- Cotral i. ous Thna Ibteno - I luc 111411 51 5 53') 7098 717 Qoang Nant 1.372 664 7119 Il.'JSll 1 177 D. Natg 6814 336 340 539H 146 Ocang Nna'. I 190 598(1 619( 17 1 1.1051 linb IA,nI 1.461 709 711 7151 1 I IPhu Yen 767 3'S) 3117 14') 630 Khatth Mti 1.031 5111 5231 37 6(56 NmnI TlIttati 503 248 25 5 I11'1 384 Bitnh .1 tmana 10(47 522 5 25 246 8112 Sah-Il,tal 9,1211 4,474 4,647 4. 156 6.729 CenoL Ilg bnd 17.a I a, '372 441 401 243 31 "ot,In 314 158t ISO It) 217 Dar I.a 1.~776 961 9 74 311 I 1421 Lamt Dontg 996 503 491235 1 Sub-Tot al 4,058 2,0155 2,9103 1,0893 2.975 It 1.Chu Muib Cit, and ta,ot Ho Cbh, M nl City, 5.03760 2,424 2.613 47(15q 937 Bittlt Doling 716 0 346 370 233. 483 Thy N itO 965 0 470 4111 13$ 84 1 (S1t1 itllietta 6540 333 321 '('1 D-nn N,t I 990 0 993 '197 6017 1383 luiari - Vu1,tn I,a 801 0 400 4011 333 468 Subt-lotal 1,634,966 5,9 .6112 4,562 Mcl.one WuI, i.tng At, I 366 604 6 60f 215 1,091 DJong' [hp 1,565 768 797 227 1.336 Ati G~atg 2,049 ],(0(' 1.114f 4103 1 646 'nit Gtang 1,605 777 829 213 17391 Belo Ting 1,297 627 016') IM 8 8,17 V'tnh Lung 1,01 0 490X 520 145 S65 'tea OttOi 966 4891 484 121 S4 I Catt flioa I 0 11 89 01 22 305 1 436 0'ae Iratto I 1 74 572 602 210i 564 Et- 7 t....g 1,494 7371 759 3311 1,163 Bac Lia 7316 361 3 76 tOt 556, Ca Man 1,118 552 960, 701, 4th1 sub-Total 16,13 1 7,867 8,228 2.752 13,379 Gran,d Iotal 2EyI3 37919) am 17 '117 119408 Note' Ponpulationt by sex and by area Inay in'! add to ithe grand total dticto Inhe pao-b1e r'elostmnno atghe nrned Itrom .t,d rntigrartt sorke,s Inor 169891998. populahmont by ur-ea ishbared ton legal rnstdeoey, attd inay iantIneltude the anneId ni'e, Soul,tr ee Ucstt Ap,il 1999 Gecneral .Scati,sueat 013ev Table 1.3: TOTAL EMPLOYMENT BY SECTOR (000 persons) Rev Rev Rev Prel. 1990 1991 1992 1993 1994 1995 1996 1997 1998 Total Employed Labor Force 30,289 30.974 31,819 32,724 33,664 34,590 35.792 36.994 38,094 State 3,416 3.144 2,975 2.960 2,928 3,053 3,138 3,267 3,339 Cooperatives 20,414 18,071 18,629 - - - 107 148 114 Non-state 6,459 9,759 10,215 29.764 30.736 31,537 32.547 33,579 34.361 State Sector Employment 3,416 3,136 2,975 2,960 2,928 3,053 3.138 3,267 3.339 Central 1,340 1,296 1,242 1,256 1,232 1,281 1.300 1.359 1,385 Local 2,076 1,840 1,733 1.704 1,696 1.772 1.838 1,908 1,955 Employment by Sector Productive Sector 28,710 29,361 29,859 30,614 31,267 32,012 33.137 34,324 Industry 3,094 3,156 3,210 3,322 3,366 3.435 3.501 3,503 Construction 567 579 637 818 960 996 975 977 Agricilttire & Forestry 22,319 22,841 22,867 22,935 23,000 23,521 24.153 24,814 Marine Products 275 281 293 490 565 601 623 630 Transportation 523 533 537 550 556 781 856 856 Hotels&Tourisiii 508 518 484 486 458 507 518 519 Trade and Supply 1,266 1,292 1,640 1.813 2,137 2,040 2.311 2,825 Other 158 161 191 200 225 133 201 202 Non-productive Sector 1,579 1,613 1,960 2,110 2,397 2,577 2,655 2,670 Science 44 45 40 40 37 38 39 41 Educationi & Trainiing 753 769 844 883 947 973 994 999 Culture, Arts, and Sports 55 56 72 77 91 94 96 96 Health & social welfare 234 240 250 260 271 279 293 296 Finance, Insurance, Banking 72 73 95 103 122 126 125 126 State Management 289 295 292 298 297 393 409 411 Others 132 135 367 449 632 674 698 702 Note: Figures are rounded Source: General Statistical Office, Statistical Yearbooks 1996-1998 'TableMZt: GDPBYINI)US'RIAI.AORIGINANDBYECONOMICSECTOR IN CURRENT PRICES (Billiois of Dong) (Old Series) (New Series) Rev Prcl 1990 1991 1992 1993 1994 j 1994 1995 1996 1997 1998 Total 41.955 76,707 110,535 136,571 170,258 170.258 228,892 272.036 313623 361468 State 13.811 26,137 40.012 55.740 70,267 70,267 91,977 10)8,634 126970 144841 Non-State 28.144 50,576 70.523 80,31 99.991 99,991 I13,915 163,402 186653 216627 Agriculture, Forestry 17.107 31,058 37.513 40,796 48,865 48,865 62.219 75.514 X8826 93068 --State 688 1,294 1,423 1,824 2,210 2,210 --Non-State 16,419 29,764 36.090 38,972 46,655 46.655 Indiustr -- Tolal 9,572 18,252 30,135 39,472 50.481 50,481 65,820 80.877 100595 117.803 --State 5.848 11,864 19,833 25,933 33,558 33.558 --Noni-State 3.724 6.388 10,302 13,539 16.923 16,923 Indtistry 7.959 15.193 23,956 29,371 37,535 37.535 50.028 63 111 86072 97042 --State 5,025 10,477 17,053 20.943 27,618 27,618 - -- Noni-State 2.934 4,716 6,903 8,428 9,917 9,917 - - Constructioni 1.613 3.059 6,179 10,101 12,946 12.946 15.792 17,766 20523 20761 --State 823 1,387 2,780 4.990 5,940 5,940 - - - -- Non-State 790 1.672 3,399 5,111 7.006 7.006 - Services--Total 15,276 27.397 42,887 56.303 70,912 70.912 100.853 115,645 132202 150.597 -- State 7,275 12,979 18,756 27.983 34,499 34,499 - -- Non-State 8,001 14,418 24,131 28.320 36.413 36.413 - - Transport & Coittntiunicatioiis 1.449 2,860 4,662 6.036 6.924 6,924 9,177 10.340 12418 14100 --State 869 1,730 3,190 4.123 4.729 4,729 - --Noni-State 580 1.130 1,472 1.913 2,195 2,195 - - 'Ilrnde 5,460 9,742 15,281 17,549 23,072 23,072 37,491 13.125 48914 55990 --State 1.802 2,728 3,973 4,071 5.906 5,906 - - --Non-State 3,658 7,014 11,308 13.478 17,166 17,166 - - Banking& Insurance 490 1,108 1,567 2.318 3.450 3,450 4,604 5,148 5444 6197 --State 482 1,104 1.562 2,311 3,439 3,439 - - --Non-State 8 4 5 7 11 11 - - PublicAdm.. Medical, Educatioti 3.608 6,807 9,718 14,402 18.270 18.276 20,218 22,833 26115 29981 --State 3,586 6,772 9,673 14,333 18.160 18.160 - - --NDn-State 22 35 45 69 110 110 - Renit, NGO.O Torism & Others 4,269 6,880 11,659 15,998 19,196 19,196 29.363 34.149 393 11 44.329 --State 536 645 358 3,145 2,265 2,265 - - -Non-State 3.733 6,235 11,301 12,853 16,931 6,931 Source (;sa Statistical iaearh,k 1999 TaWle 2.2: GDP BY INDUSTRIAL ORIGIN AND BY ECONOMIC SECTOR INCONSTANT PRICES (Billions of Douig) (1989 Prices) (1994 Prices) Rev Prel 1990 1991 1992 1993 1994 1994 1995 1996 1997 1998 Total 29,526 31 286 33.99i 36,736 39.982 170.258 195,567 2 13.833 231264 244676 State 9,598 10,700 11,948 13.373 15,174 70,267 78267 87.208 95638 100879 Non-State 19,928 20586 22,043 23,363 24,808 99.991 117.300 126,625 135626 143,797 Agriculture, Forestry 12,003 12,264 13,132 13,634 4.169 48,865 51,319 53,578 55895 57867 -- State 467 523 581 636 692 2.210 - - - -- Non-State 11.536 11,741 12,551 12,998 13.477 46,655 - - Industry--Total 6,629 7.228 8,242 9,324 10,631 50,481 58.550 67.016 75474 81.989 State 4,286 4.858 5.742 6.578 7,631 33,558 - - -- Non-State 2,343 2.370 2,500 2,746 3,000 16.923 - Industry 5,500 6.042 6,925 7,766 8,771 37,535 43.960 50.078 56619 63315 --State 3,639 4,057 4,832 5,543 6.306 27.618 - - - --Non-State 1,870 1,985 2.093 2,223 2.465 9,917 - - Construction 1,129 1,186 1,317 1,558 1,S60 12,946 14,590 16,938 18855 18674 --State 656 80t 910 1,035 ,325 5,940 - --Non-State 473 385 407 523 535 7,006 - . Services --Total 10,894 11,794 12.617 13,778 15,182 70,912 85.698 93.239 99895 104,820 --State 4,845 5,319 5,625 6,159 6,851 34,499 - - - --Non-State 6.049 6.475 6,992 7.619 8.331 36,413 - - Transport & Communications 744 792 842 897 960 6,924 7.851 8.429 9178 9548 --State 447 483 520 563 605 4,729 - - --Non-State 297 309 322 334 355 2,195 - - Trade 3.486 3,654 3,877 4,109 4,478 23,072 33,595 36 866 39422 41170 --State 1,115 1,167 1.236 1.292 1,358 5,906 - - --Non-State 2,371 2,487 2,641 2.817 3.120 17.166 - - Banking& Insurance 379 448 496 578 710 3.450 3.940 4,388 4578 4777 --State 373 446 493 574 705 3,439 - - --Non-State 6 2 3 4 5 11 - - - Public Adm., Medical, Educatlioi 2,675 2,841 3,040 3.322 3,760 18,270 17,040 18.304 19270 20.310 --State 2,660 2.824 3,021 3,298 3.731 18.160 - - --Non-State 15 17 19 24 29 . 11( - - Rent, NGO, Touaism 3.610 4,059 4.362 4,872 5,274 19,196 23,272 25.252 27.447 29.015 --State 250 399 355 432 452 2,265 - - - --Non-State 3,360 3,660 4,007 4,440 4,822 16,931 Source: GSO. Statlntical Yearbook 1999 Table 2.20: CDP BY INDUSTRIAL ORIGIN -- GROWTH RATE (Billions of Doig in Constant 1989 Prices) (1989 Prices) (1994 Prices) Rev lPro. 1990 I99t 1992 1993 19))94 j 1994 1995 1995 1997 19"S Total 5.1% 6 0% 8 6% 8 1'c 8 8% 8 8% 9 5% 92 ' 29 5 8% State 2.5% 11.5% 11 7% 11.9% 13 5% 13.5% 9 4% 11 .4Nn 9 7% 5 5% Non-Siale 6.4% 33% 71% 60% 62% 6.2% 173% 79 % 7 1% 6084 Agriculture, Forestry 1.5% 2.2% 7 1% 3 8% 3 9% 3.9% 4 4% 4 4%, 4 7'Yu 4% -- State -22.9% 12 0% 11.1% 9 5% 8 8% 8.8% - - - - --Non-State 2.3% 1.8% 69% 3 6% 3 7% 3.7% - - - - Industry -Total 2.9% 9.0% 14.0% 13 1% 140% 14.0% 1366% 14.5% 126% 86%!4, --Steite 5.4% 133% 182% 146% 160% 16.0% - - - - - Non-State -0.8% 1 2% 5 5% 9 8% 9.2% 9.2% - - - biduistry 2.5% 9.9% 14.6% 12 1% 12 9% 12.9% 13 2% 14.2%. 13 8% 12 1% --State 4.7% 11 8% 19.1% 147% 138% 13.8% - - - --Noii-Statc -1.6% 6,1% 5.4% 6 2% 1099% 10 9% - - Cotistritction 4.7% 5.0% 11 0% 18 3% 19 4% 19.4% 12 7% 16. 10 113'n -1 0% --State 10.4% 22 1% 136% 137% 280% 280% - - -- Non-State -2.3% -18 6% 5 7% 28 5% 2 3% 2.3% - - - Services - Total 10.8% 8.3% 70% 9.2% 10.2% 102% 102% 886% 7 1% 4.9% --State 2.1% 9 8% 5 8% 9.5% 11 2% 11 2% - - - -- Nott-Staie 19 4% 7 0% 8 0% 9.0% 9 3% 9 3% - - - Tranisport & Comim7unications 4 8% 6.5% 6 3% 6.5% 7.0% 7 0% 9 7% 7 4°A 8 9% 4 0% --State -1.1% 81% 77% 8.2% 75% 7 5% - - - - --Non-State 15.1% 4.0% 4 2% 3.7% 6.3% 6 3% - - Trade 5 3% 4.8% 61% 6.0% 9 0% 9 0% 11 8% 7°A 6 90/, 4.4% --State -31.3% 47% 59% 4.5% 51% 5.1% - - --Non-State 405% 4.9% 62% 6.7% 10 8% 108% - - - - Banking& Insurance 8.3% 18 2% 10 7%A 16.5% 22 8% 22 8% 14 2% 1I 4% 4 3% 4.3% -State 20 3% 19 6% 10 5% 16 4% 22 8% 22 8% - - - - -- Non-Statc -85.0% -66 7% 50 0%/ 33 3% 25 0% 25 0% - - - - PtblicAdut... Medical. Education. 13 1% 6.2% 70%/. 9.3% 132% 132% 93% 7 4% 53% 5-4% -State 124% 62% 7.0'A 9.2% 131 % 13 1% - - - -- Noni-State 13 3% 11 8% 26.3%A 20 8% 208% - - - Reit. NGO. Tourisos 166% 124% 75% 11 7% 8,3% 83% 84%1o 8 5% R 8 7% 5 7% -State 229 7% 59.6% -I1 0% 21.7% 4 6% 4 6% - - . -Non-State 8 7% 8 9% 9 5% 10 8% 8 6% 8 6% Source: G,O Sidtotical Yearbai,k 1999 Table 2.3A: GDP DEFLATOR (1989= 100) (1989 Prices) 1 (1994 Prices) Rev Rev Prel 1990 1991 1992 1993 1 9941 1994 1995 1996 1997 1998 Total 142.1 2452 3252 371.8 425.8 1000 1170 1272 1356 1477 State 1439 2443 3349 416.8 463 1 1000 1175 1246 1328 1436 Noni-State 141.2 245.7 319.9 3460 403 1 100.0 1167 1290 1376 150.6 Agriculture, Forestry 142.5 2532 2857 2992 344.9 1000 121.2 1409 144.6 1608 --State 1473 2474 2449 286.8 319.4 1000 - - -0 --Non-State 142 3 253 5 287 5 299 8 346 2 100,0 - - - - Industry --Total 144.4 252.5 3656 423.3 4748 100.0 1124 120.7 133 3 143 7 --State 1364 2442 3454 3942 439.8 1000 - - - --Non-State 1589 2695 412 1 4930 5641 1000 - - - - Induistry 144 7 251 5 345 9 378.2 427.9 100 0 113 8 126.0 1414 153 3 --State 138 4 258 2 352 9 377 8 438 0 1000 - - - - --Non-State 156.9 2376 329.8 379 1 4023 1000 - - - - Conistruction 142.9 2579 4692 6483 696 0 1000 108.2 1049 108.8 1I1 2 --State 125 5 173 2 305.5 482.1 448 3 1000 - - - - --Non-State 16710 4343 835 1 977.2 1309.5 100() - - - 100.0 Services --Total 140.2 2323 339.9 408.6 467.1 1000 117.7 124.0 132.3 1437 --State 150 2 244 0 333 4 454 3 503 6 1000 - - - - --Noni-State 1323 222.7 345 1 371.7 437 1 1000 - - Transport& Comnaunications 194.8 361 1 553 7 672 9 721 3 1000 1169 123 3 135 3 147 7 --State 194.4 3582 613.5 732.3 781 7 1000 - - --Non-State 195 3 365.7 457 1 572.8 618.3 1000 - - -0 Trade 156.6 266.6 3941 4271 515.2 1000 111.6 1170 124.1 1360 --State 161 6 233 8 321 4 315 1 434.9 100 0 - - --Noti-State 154 3 282 0 428 2 478 5 550 2 1000 - - -0 Bankiig& Insurance 129.3 2473 3159 401.0 485.9 1000 1169 117.3 1189 129.7 --Slate 129.2 2475 316.8 4026 487.8 100.0 - - - - --Non-State 133.3 2000 1667 175.0 2200 1000 - - - - Public Adtst . Medical, Education 1349 2396 3197 433.5 4859 1000 1187 124.7 1355 1476 --State 134 8 239.8 320.2 434 6 486 7 1000 - - - -- Non-State 146.7 205 9 236.8 287 5 379.3 1000 - - - - Rent. NGO, ToLrisitt 118.3 1695 267.3 3284 364.0 100.0 126.2 135.2 1432 1528 --State 2144 161 7 1008 7280 501.1 1000 - - - - --Non-State III 1 1704 2820 2895 351.1 100.0 Snurce (GSO. Stat,,tns.nl Yc-rbhok 199 Table 2.3B: CHANGE IN GDP DEFLATOR (in percent) (1989 Prices) (1994 Prices) R{ev Prcl 1990 1991 1992 1993 1-9941 1994 1995 1996 1997 199) 'rotal 72 5% 32 6% 14 3% 14 5% 14 5% 17 0% X 7%., 6 6%° 8 9% State 698% 37.1% 24.5% 11.1% 11 1% - - - Non-State 73 9% 30.2% 8 1% 16 5% 16 5% - - Agriculture, Forestry 777% 128% 47% 153% 153% 21 2% 163% 26% 11 2%/, --State 67 9% -1 0% 17 1% 11 4% 11 4% - - -- Non-State 78.1% 13.4% 4.3% 15 5% 15.5% - - - - Industry--Total 749% 44.8% 158% 122% 12.2% 124% 74% 104% 7S% --State 79.0% 414% 14 1% 11 5% 11 5% - - - - -- Non-State 69 6% 52 9% 19 6% 14 4% 14 4% Indaistry 73.8% 37 6% 9.3% 13 2% 13 2% --State 86.6% 36.7% 71% 15 9% 15 9% -- Non-State 51 4% 38 8% 15 0% 6 1% 6 1% Constructioni 80 5% 81 9% 38 2% 7 4% 7 4% -- State 38.0% 76.4% 57 8% -7 0% -7 0% -- Non-Staste 160 0% 92.3% 17 0% 34 0% 34 0% - - - - Services --Total 657% 463% 20.2% 14.3% 143% 17 7% 54% 67% S6% --State 62 5% 36 6% 36 3% 10 8% 108% - - - - -- Noit-State 68.3% 55 0% 7 7% 17 6% 17 6% - - - - T'ransport & Comnmunicatiotis 854% 533% 21.5% 72% 72% 169% 5.5% 98% 9 1% --State 84.2% 713% 194% 67% 67% - - - - -- Non-State 87.3% 25 0% 25 3% 8 0% 8 0% - - - 'I'rade 70.2% 47 8% 8 4% 20 6% 20 6% 11 6% 4 8% 6 1% 9 6% --State 44 6% 37 5% -2 0% 38 0% 38 0% - - - -- Nots-State 82.8% 51.8% 11 7% 15 0% 15 0% - - Banking& Insuranice 91.3% 27 7% 26 9% 21 2% 21 2% 16 9% 0 4% 1 4% 9 1 % --State 916% 280% 271% 21 2% 212% - - - -- Nots-State 50 0% -16 7% 5 0% 25 7% 25.7% - - - Piblic Adm Medical, Edticatiots 776% 334% 35.6% 12 1% 12 1% 187% 5 1% 86%/o Xl9% --State 77 9% 33 5% 35 7% 12 0% 12 0% - - - --Non-State 404% 15.0% 21.4% 31 9% 31 9% - - - Renit, NGO. Tourisni 43 3% 57 7% 22 9% 10.8% 10 8% 26 2% 7 2%° 5.9%B/ 6 7T% --State -24 6% -37 6% 621.9% -31.2% -31 2% - - - --Non-State 53 3% 65 6% 2 6% 21 3% 21.3% Source Gieneral SltaulsIt- Officc. Sllatimcal Yeamhonks 1996-1998 Table 2.4: NATIONAL ACCOUNTS: SOURCES AND USES (at 1994 price) Rev Rev Rev Prel 1995 1996 1997 1998 Sources 213,444 234,016 249,016 261,851 - GDP 195,567 213,833 231,264 244,676 - Trade Balance 17,877 20,183 17,752 17,175 Uses 213,444 234,016 249,016 261,851 - Total Consumption 158,893 173,072 182,975 192,058 - Gross Capital Formation 53,249 60,826 66,529 70,714 - Statistical Discrepancy 1,302 118 -488 -921 Source: General Statistical Officc, Statistical Yearbooks 1996-1998 Table 3.1: BALANCE OF PAYMENTS (US$ ilillioll) Rev Rev Rev Prcl. I990 1991 1992 1993 1994 1995 1996 1997 1998 Exports, Total 1,731 2,042 2,475 2,985 4.054 5,198 7,330 9.145 9.365 Imports, Total (c i f.) -1,775 -2.107 -2,535 -3,532 -5,250 -7.543 -10,483 -10.460 -10,350 Trade Balance -44 -65 -60 -547 -1.196 -2,345 -3.153 -1,358 -986 Services and Transfers -218 -69 49 -220 11 417 704 -327 -87 Interest Payments -238 -248 -284 -335 -221 -360 -5()0 -478 -556 lmputed Interest on Arrears - - 0 0 0 0 0 0 0 Private Remittances 50 36 59 70 170 474 1,046 712 951 Freight and Insuranice - - 0 0 0 0 0 0 0 Official Transfers 88 55 64 194 135 150 150 175 198 Others -118 88 269 -80 97 474 1.046 713 506 Current Account Balance -262 -134 -10 -767 -1,185 -1,928 -2,449 -1,642 -1,073 Capital Account Balance 122 188 656 -78 897 1,762 2,105 1,688 680 Disbursements 233 109 540 54 272 443 772 1.022 1.120 Scheduled Amortizationls -279 -104 -175 -652 -547 -733 -729 -804 -1,050 Amortization of Debt Relief 0 0 0 0 0 0 ShortTermLoans(Net) 48 19 -41 -313 124 -184 224 -534 -190 Direct Foreign Investmcint 120 165 333 832 1,048 2,236 1,838 2.003 800 Errors and Omissionis -2 -4 -378 -210 -121 -32 65 -50 -133 Overall Balance -142 50 268 -1,0156 -409 -199 -278 -4 -527 Financihn 142 50 -268 1,056 409 199 278 4 527 Change in NFA(excl IMF) -159 -276 -463 477 -292 -439 -441 -265 63 IMF Credit (Net) 0 -6 0 -39 175 92 178 -54 -78 Gold Revaluation 0 0 0 0 1) 0 0 0 () Debt Rescheduling 0 0 () 883 0 0 0 0 413 Change in Arrears 301 332 195 -266 526 546 541 323 129 Mcnsorainduni Item. Dong per US$ 5,133 9.274 11,150 10,640 10,978 11,100 11,500 12,938 13,980 Note Figures arc rouinded I/ Figures tor 1996 are prelimiiarv Source Data prou ided by the Vietnamesc authiorities and Bank staffestimates Table 3.2: MERCHANDISE EXPORTS BY COMMODITY (USS million) Rev Rev Rev Pre l990 1991 1992 1993 1994 1995 1996 1997 1998 Total Exports 1 731 2,042 2 475 2,985 4.054 &L28 7,330 9,145 9,365 Convertible Area 1 305 1,999 475 2.985 4.054 5,198 7 330 9 145 9365 Rice 272 225 300 363 429 549 855 870 1,024 Quantity (000 tons) 1,455 989 1,860 1,725 ,950 2,052 3,003 3,553 3,749 Unit Value (USS/ton) 187 228 161 210 220 268 285 245 273 Petroleum 390 581 756 844 866 1.024 1,346 1,413 [,232 Quantity (000 tons) 2.600 3,917 5.400 6,153 6,942 7.652 8,705 9,574 12,145 Unit Value(USS/ton) 150 8 140 137 125 134 155 148 101 Coal 38 48 47 70 75 81 115 III 102 Quantity (000Ions) 1.075 1,173 1.580 1.940 2,19 2,800 3.647 3,449 3.16[ Unit Value (USStton) 35 41 30 36 32 29 32 32 32 Rubber 16 50 54 74 133 181 163 191 127 Quantity(000tons) 20 63 68 97 129 130 122 195 191 Unit Value (US$/ton) 800 789 800 763 1,031 1.392 1.336 981 665 Tea 2 14 16 26 16 33 29 48 51 Quantity (000 tons) 2 10 13 21 17 25 21 32 33 Unit Value(US$S/on) 1,000 1,370 1,231 1,262 905 1.300 L.397 1.506 1.545 Coffee 25 74 86 110 328 495 337 491 594 Quantity (000 tons) 28 94 96 122 177 200 239 389 382 Unit Value (USS/ton) 893 795 900 901 1,853 2,475 1,410 1,261 1.555 Cashew Nut l3 26 41 44 59 130 130 133 117 Quantity (000 tons) 25 30 52 48 57 130 130 33 16 Unit Value (US$/ton) 508 850 799 922 1,030 1,000 1,000 4.100 7,313 Meat 28 45 21 26 45 12 10 29 Quantity (000 tons) 16 25 12 IS 30 - - - Unit Value (USS/ton) 1,728 1,800 1,783 1.733 1,500 - - - Black Pepper 12 18 15 15 17 63 64 Quantity (O0O tons) 9 16 22 20 20 18 25 2:3 15 Unit Value (US$/ton) 1,333 1,080 695 750 850 - - 2,727 4,267 Marine Products 220 285 302 427 551 620 6f1 781 818 Vegetable & Fruats 68 53 Textiles and Garments 20 156 221 336 550 800 1,150 1,349 1,351 Footwear 530 965 I,001 1-andicraft & fine arts 121 II] Non-Convertible Areas 426 43 - - - - - Sourcej Generil Statistical Ollice. Siatistical Yearbooks 1996-1998. General Department ot Customs Table 3.3: MAJOR IMPORTS BY COMMODITY (USS millions) Rev. Rev Rev Pre 1990 1991 1992 1993 1994 1995 1996 1997 1998 Total Imports (c.i.f.) 1,772 2,105 2,53 354 10,483 10,460 10,350 From the Convertible Area 1,208 1,846 2,535 3,532 5.245 7543 11 483 10,460 1{),350 Petroleum 356 485 615 614 696 856 1079 1.094 827 Quantity (000 tons) 2,400 2,572 3,075 4,095 4.550 4,969 5803 5.947 6,830 Unit Value(US$/ton) 148 189 200 150 153 172 I86 184 121 Fertilizers 210 246 320 189 247 339 643 425 477 Quantity (000 torns) 2,233 2,425 1,600 925 1.495 1,471 2919 2.458 3,554 Unit Value(US$/ton) 94 101 200 204 165 230 220 173 134 Steel 23 25 104 233 211 - 651 529 524 Quantity (000 toils) 200 113 260 656 725 - 1548 1,401 1,735 Unit Value(US$/ton) 115 221 400 355 291 - 421 377 302 Machines and Spare Parts - - 100 922 1,815 2,761 - 1,777 2,052 Others * Cotton Textiles 102 32 23 54 55 96 159 175 Quantity (Mid. meters) 23 29 25 24 34 49 - 77 130 • Raw Cotton 38 61 13 20 43 77 - 110 92 Quantity (000 tonls) 62 32 11 16 24 35 - 74 68 * Wheat 32 36 59 51 52 60 48 67 Quantity (000 tons) 116 150 283 250 300 226 - 166 271 • CarsandTrmcks 50 12 39 69 103 134 221.6 136 130 Quantity (number) 5,240 1,320 3,502 6,869 14,350 19,549 25866 13,975 17.202 * Sugar 3 5 4 14 39 61 - - 32 Quantity (000 ions) 60 14 13 44 124 147 - - 123 * MSG 40 45 53 70 44 32 - 27 15 Quantity (000 tons) 24 30 38 56 42 23 - 20 12 * Motorbikes - - 50 286 347 460 434 242 351 Quantity (number) * Pharmiaceuticals - - 60 86 140 114 66 52 Quantity Non-Convertible Area 564 259 Soiirce GCencral Statistical Ollicc. Statistical Yearbooks 1996-1998. General Department nl'Custotms Table 4.1: MONETARY SURVEY ACCOUNT 1996 1997 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 (VND mnilion) Dec Dec Jan Feb Mar Jun Jlul Aug Sept Oct Nov Dec Net Foreign Assets 14,249 20,997 21,836 22,229 22,472 24,745 24,973 27,739 27,699 28,963 29,637 31,403 Foreign assets 31.227 37,916 37.622 39,109 39,711 40.931 40,731 44.370 44,100 45,504 45,483 47.857 Foreign liabilities 16.977 16,919 16,236 16.879 17,239 16.186 15,759 16,631 16.401 16,541 15,846 16.453 Net Domestic Assets 50,429 60,563 60,873 61,002 61,630 62,494 63,926 65.205 65,887 65,882 67,774 69,172 Net claims on govemltient 4,428 4,400 4.429 4,290 3,815 3.526 3,710 4.042 3,993 6,543 6,557 6.677 Claiiis oi state enterprises 26,809 30,980 31,239 31,507 32,168 33.336 34,546 35,106 35,855 36,584 37.722 37,705 Claims on other sectors 24,085 31,429 31,683 31,680 32.259 32,393 32,384 32.855 33,037 36,584 34.030 34,944 Other items net -4,894 -6,245 -6.477 -6,479 -6,613 -6.762 -6,713 -6,798 -6.998 -10,635 -10.534 -9,615 Total Liquidity 64,678 81,560 82,259 83,231 84,102 87,239 88,899 92,944 93,586 94,774 97,411 101,116 Dong liqutdity 51,519 62,869 63,024 63,307 64.392 65,787 66,831 68,438 68,951 70,156 72,927 76,188 Currency outside banks 22,639 25j101 26,509 25,447 25,278 23,926 24,244 24.942 25,031 25,365 25,773 26,965 Deinand deposits 10,800 14.871 13.963 14,223 14,789 14.298 14,524 15,089 15,744 16,454 16.177 18,241 Time/saving deposits 12,445 15.194 15.766 15,328 15,744 19,096 19,661 19,596 19,508 19,993 21,186 20,091 Deposit substitute 5,635 7.703 7,236 8,309 8,580 8,466 8,403 8,811 8,667 8,774 9,791 10,890 Foreign currency deposits 13,159 18,691 19,236 19,924 19,710 21,452 22,068 24,506 24.635 24,258 24,484 24,928 | 0/,, Change from Previous Month ACCOUNT 1996 1997 1998 1998 1998 1998 1998 1998 1998 1998 1998 1998 (%t) Dec Dec Jan Feb Mar Jun Jul Auig Sept Oct Nov Dec Net Foreign Assets - 47.4 4.0 1.8 1.1 10.1 0.9 11.1 (0.1) 4.6 2.3 6.0 Foreign assets 21 4 (O 8) 4 0 1 5 3.1 (0 5) 8.9 (O 6) 3 2 (0 () 5 2 Foreign liabilities (0 3) (4 0) 4 0 2 1 (6 1) (2.6) 5 5 (1.4) 0.9 (4 2) 3 8 Net Domestic Assets 20.1 0.5 0.2 1.0 1.4 2.3 2.0 1.0 (0.0) 2.9 2.1 Net clainis oi goverlnient (0.6) 0.7 (3.1) (11 1) (76) 52 8.9 (1 2) 63.9 0.2 1.8 Claiiis on state enterprises 156 0.8 0,9 2.1 3.6 36 1.6 2 1 2.0 3 1 (00) Claims on other sectors 30 5 0.8 (0.0) 1.8 0 4 (0.0) 1.5 0.6 10.7 (7.0) 2 7 Other itetils net 27.6 3 7 0.0 2.1 2 3 (0 7) 1.3 2.9 52 0 (0 9) (8.7) Total Liquidity 26.1 0.9 1.2 1.0 3.7 1.9 4.6 0.7 1.3 2.8 3.8 Dong liquidity 22 0 0.2 0 4 1.7 2.2 1.6 2 4 0.7 1 7 3 9 4.5 Cuirrency outside banks 10.9 5.6 (4 0) (0.7) (5 3) 1 3 2.9 04 1 3 1.6 46 Demand deposits 37.7 (6.1) 1 9 40 (3.3) 1 6 3.9 4.3 45 (I 7) 12.8 Tinie/saving deposits 22 1 3.8 (2 8) 2 7 21 3 3.0 (0.3) (0.4) 2 5 6 0 (5 2) Deposit substitute 36.7 (6 I) 14 8 3.3 (I 3) (0 7) 4.9 (1.6) 1 2 11 6 11 2 Foreign curreiscy deposits 420 2.9 36 (I I) 88 29 11 0 0.5 (I 5) 0.9 1 8 Source: State Bank of Vietnam Table 5.1: SUMMARY OF BUDGETARY OPERATIONS 1998 1999 1992 1993 1994 1995 1996 1997 PIrel Est Revene iaid Grniits 21.023 30.696 42.125 53.370 62.387 66,252 6860)0 69,5(100 Tax Revenue (non-SOEs) 5.480 11,337 16.846 23.375 28.101 28,074 32 069 33.925 Tax and Translers lrom SOEs 11.913 15.322 2).557 21.938 25.887 27.549 27267 27.285 Other Non-Tax Revenle 2.782 3.020 3.522 6.437 6.856 110)43 7.314 6.390 Gianits 848 1.017 1.200 1.620 1.543 2.586 1,95(0 1.9() Curient 'xpenditi.C (cxc. Intercst) 15,452 25.626 31.121 39.615 44.559 49.351 49.563 48.498 WVagcs and Salaries na 8,921 13.654 14.450 16.798 21.58(0 23.58(0 23 874 Subsidies - 262 19() 265 306 369 270 27(0 Oilier na 16.443 17.277 24.9(0)0 27,455 27.455 25.736 23.346 of which Opcration and Maintenance na 595 1.160) 1.450 1.710 1,98X) 2.20)0) 2.5(0(0 Capital Expendituire 6.450) 9.6(0) 11,715 12.()79 15.630) 19.482 19.76(0 23.0)0)0) Contingency - - 0 1.176 5()0 Overall Balance (before Interest) -879 -4,530 -711 1.676 2.198 -2.581 -1.899 -2.498 Interest (Schcduled) 3,218 3.675 4.415 4.177 4.107 2,166 Interest (Paid) 1,000 1.71() 1.094 2.895 2,70(0 1,916 2.004 2.483 Overall Balancc (Accrual 13asis) -4.097 -8.2(05 -5.126 -2.5(01 -1.9(9) -4.747 -1.899 -2.498 Overall Balance (CLsh Basis) -1.879 -6.24(0 -1.805 -1.219 -50)2 -4.497 -3,90)3 -4.981 Financing 1,879 6.240 1.805 1.219 502 4.497 3.90)3 4.981 Foreigin loans (Net) 2.673 3.726 24(0 -1.490 -5() 2.1(18 3.268 2,0(0 Domestic loans (Net) -794 2,514 1.565 2.71)9 552 2.389 635 2.981 State Bank (Net) -2.208 - - - -( Government SecLritics (Net) 1.414 2.514 1,565 2.709 552 2.389 635 2.981 RevenLie and Grants 19.1) 22 5 24.7 23 9 22.9 21 1 19 ( 17 8 lax Revenuie 5.0 8.3 9 9 10 5 10.3 9 (8 .9 8 7 Transfers from State Eiteiptises a/ 108 11.2 12.1 98 95 88 75 7(1 Olhei Non-Tax Revenile 2.5 2.2 2 1 2 9 2.5 2 6 2 0 1.6 Grants 0 8 11.7 0.7 0 7 ( 6 18 X 5 () 5 Current Expeinditure (exc Interest) 14.0) 18.8 183 17.8 164 157 137 124 Wages and Salaries - 6.5 8 0 6 5 6.2 6 9 6.5 6 1 SLibsildies - 02 0.1 0 1 0 1 (I 01 ( I Othier - 120 10.1 112 10 1 88 71 6(0 of whiich Operaltioi anid Mainteinance - 0 4 0 7 0 7 0 6 () 6 () 6 () 6 Capital Expcnd)ituIc 5.8 7.0 6 9 5.4 5.7 6 2 5 5 5 9 Overall Primary Balance -0 8 -3 3 -0.4 0 8 0 0 0 () () 3 (I Interest (Schicduilcd) 2.9 2 7 2 6 1.9 1 5 ()7 7)() () Interest (Paid) () 9 1 3 11.6 1.3 1 () 6 () 6 () 6 Contingency 0.() 0.() ().0 (1.0 () () ) 1 ( 3 ().I Overall Balance (Accriual 13asis) -3.7 -6.0 -3 0 -I I -0 7 -I 5 -0 5 -( 6 Overall Balance (Cash Basis) -I 7 -4 6 -1.1 -0 5 -0 2 -I 4 -I I - 13 Financing 1 7 4 6 1 1 0 5 0 2 14 1 1 i 3 Forcign Grants and L.oans (Nct) 2.4 2 7 () I -() 7 ( 0 () 7 () 9 ) 5 Domestie Loans (Net) -().7 I 8 ( 9 1.2 () 2 () 8 11.2 () 8 State Bank (Net) -2.0 01() 00 0.0 0 0 0 () 1).() () 0 Government Secirities (Net) 1.3 1 8 0 9 1 2 () 2 () 8 () 2 () 8 Arreais - - - - - Memio temi: GDP 11(0.535 136.571 17(1.258 228,892 272.0)36 313,623 361.468 3901,964 Note a/ I raislfcrs iiicilide all taxcs. operating suirplus. deprcciatioii allowances, amid capital uiser fees h/ GDIi for 1995-1998 are GSO ncw series. 1999 GDP is Bank staffcstimate Sotirce Miiiistry of linanc aiid Gceicral Statistical Officc, aid Baik staffestimilate Table 5.2A: GOVERNMENT REVENUE Actull Est. 1998 PIn Men 1 990 1991 1992 1993 1994 1995 1996 1997 (Billionis of Doiug) 1. State Enterprises: 3.620 6,189 11.913 15.322 20.558 21.938 25.887 27.549 27.267 27.285 A. Taxes - 5.567 9.636 12.780 16.732 20.311 25.0R0 27.549 27.267 27.285 a ProlitTax - 1.103 2.028 4.041 5.585 5.997 7.761 9.218 8.464 9328 b Trurno er Tax a/ - 1.779 2.158 2.967 4.4112 5.832 7.450 7.457 8,199 6267 c Special Consumptioni Tax (Excises) - 739 1.317 1.395 2.120 2.520) 3.200 3.2211 3.40)2 3205 d Natural Resouices 'ax - 797 1.874 1.714 1.934 2.369 3.08 1 3.375 3.2 16 41157 c. Licence'lax - - 6 7 8 9 10 17 17 17 f Capital User Chargc 262 530 678 1.174 1.322 1.505 1.45() 1.397 1303 g Othcr I ixes - 887 1.723 1 978 1.5()9 2.262 2.1173 2.812 2.582 3 118 a Opciating Suipius 3,112 - - - - - b Depreciation Alloiwaacc 508 622 2.277 2.542 3.826 1.627 8117 I. Non-State Sector: 965 1,715 3.286 4.714 5.619 7.971 10.005 10.729 11.086 10,725 A. Agricilturil Tax 298 707 1.294 1.350 1.107 1.552 1.9()2 1.697 1.952 1825 B. Nmii-Agricultural Tax. 667 1,0()8 1.992 3.364 4.512 6.419 8,103 9.1132 9.134 8.900 a. Turnuover Tax a/ 262 250 582 806 1.318 2.017 2,612 3.054 2.955 2800 1) Plrolits Tu,x 118 161 420 560 900 1.443 1,8501 2.136 2.216 25118 c. I'ersooial Iicomie Tlx - 62 153 181 336 520 1.354 1.482 1.779 1510 d. License Tiax 31 - 72 114 142 198 258 3411 341 348 c Cotiinioditmes Tax 75 69 22 0 8 7 0 o 1:. Wholcsal Tax 32 - - - - - g Slaughter]Iax 26 35 45 57 69 92 110 114 123 - h. land lax - 5 18 241 220 313 380 333 303 295 i Otlier 123 426 6811 1.40)5 1,519 1,829 1,539 1.573 1.417 1439 111. E,ternalTrade: 733 1.099 2,194 6398 1().0112 13.273 15.105 13.546 16.535 196001 A. Import and Expotr luties 607 1.099 2.194 6.398 10).()12 13,273 15.105 13.546 14.835 1450() IB VA ofl Import 411011 C Stit taxes on Import 126 - - - 1.700 11M IV. Joi,it Ventures - - - 225 1.2 15 2.131 2.992 3.799 4.448 36011 V. Other Revenue 835 1,080 2.782 3.020 3.522 6.437 6.856 8.0143 7.3 14 6390 Vl. Grants - 270 848 1,017 1.200 1.620 1.543 2.586 1.950 19()() Total Revenue (inc. Grants) 6,153 10,353 21,023 30,696 42,126 53,370 62,387 66,252 68,600 69,500 Source Ministry of inanice. Nole a/ Ironi 1999 VAT Tabic 5.2B: GOVERNMENT REVENUE: PERCENTAGE SIIARE Actual tst It 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (Pcrcenit oI'GD'P) 1. StatcEnterpriscs 86 8 1 I(8 112 12 1 98 9.5 88 75 7() - Taxes - 7.3 87 94 98 9 1 92 X8 75 7() --Profithlax - 14 1 8 30 33 27 2.9 2 9 23 24 --TurnoverTax - 23 2() 22 26 2f6 27 24 23 1 6 --Special ConstimptiOn ITx (Excises) - I ( 2 1 (I 1 2 1 1 1 2 1I 0 ( 8 --NatUral ResotircesTax - I ( 1 7 1 3 1 1 1 1 1 1 1 1 9 II --Lccvncc ''ax - (1 O()( If O 1 )( )( I( --Capital Wsci Ch,rge - 0 3 05 (16 0 7 (16 ()6 ((5 ((4 ((3 --Oihei laxes - 1.2 1 6 14 ( 9 1 0 (I 8 ( 9 (17 (8 - Tralsfers 8.6 0.8 2.1 1 9 2 2 0 7 0 3 If(I ()(I --Operalitg Suiphtis 7 I - - - - -- -- Depceciation Allotwance 1 2 0.8 2 1 1.9 2 2 0 7 0 3 - 11. Non-State Sector: 2 3 2.2 3 0 3 5 3 3 3 6 37 34 35 27 -Agriculiaral T.ax ( 7 0.9 1 2 1 0 (( 7 0.7 ( 7 ((5 ((5 (( 5 - Non-Agrictitlimal1i\ 1 6 1.3 1 8 2 5 2 7 2 9 3 0 2 9 2 5 2 3 111. ExternalTrade: 1 7 1.4 2(0 47 5 9 601 56( 43 46 5I( - Impori andl xport Dtities 1.4 1 4 2 ( 4 7 5 9 6 0 5 6 4 3 4 1 3 7 - VAT ol imports - Surtax ot Ililpori ( 3 0 (I ( ( () (I (1(1 (1 0 (I(1 ((1 53 IV Joint Venttires - - - (2 (7 1 (I I I 2 1 2 ((9 V OtherRIvennic 20 14 25 22 2 1 29 25 2(6 20I (6 VII. Grants - ((4 (IR (07 07 ((7 0(6 n( (15 ((5 Total Rcvente (inc. Grants) 14.7 13.5 19.0 22.5 24.7 23.9 22.9 21 1 191) 17 X Memio ltenm: GDP (Bill(ols olfDorig) b/ 41.955 76.7(07 110.535 136.571 170.258 228.892 272 (36 313.623 361 468 3() 964 (I'ei cent oitIIotal RevncsICe) 1. State Enterprises 588 59.8 56 7 499 48 8 41 I 415 4(2 39 7 31(3 - Tlxes - 538 45.8 416 39.7 38 1 402 416 39.7 393 --I'tolit lax - 11(7 96 (32 133 112 124 (1 3) 123 13 4 -- lumoverlax - 17.2 10(3 9.7 10.4 1()9 119 (13 120 9( --Special C(oiSltiioptotoi Ta\ (Excises) - 7 1 63 4 5 5(0 4 7 5 1 4 9 5 I 46 --Nanttiral ResoUICesTax - 7.7 8 9 5 6 4 6 4 4 4 9 51 4 7 5 8 --LiceneeTax - 00 00 000 0(1 00 00 0(i (I 0() --Other laxes - 86 8.2 6 4 3 6 4 2 3 3 4 2 3 8 4 5 - Irriansfers 588 6.01 I()X 83 91 3(1 1 3 ((II (ill ()(I -- Operatiing Suirplis 5( 6 (1 0 0 ()( () (I 0 (I - - - - -- I)epciaetiot Allowance 8 3 6 0 1().8 8.3 9 1 3 0 13 -3 --Capital IJscr lec - 2.5 2 5 2 6 2.8 (It( (1) (( (( 11. Non-State Sector: 157 166 15.6 154 133 149 16(1 16(2 (62 1 154 -Agliculturall T\x 48 68 62 44 26 2 ) 3(1 26 2X1 2(6 - Non-AgriCL11ku-Ital.i 1( 8 9 7 9 5 I.() I1( 7 12 3(1. 13 I 13 (13 1 * 111. Extcrnal Trade: 11 9 10 6 10 4 20 8 23.8 27 9 24.2 21(4 24 1 28 2 - Impolt aindl Fxpoltt ities 99 106 10.4 20.8 238 249 24.2 2014 216 20(9 - VAl' of Imports 5 X - Snrta\ on hnpoiis 2 It 0 01I () () ((.() 0(0 0( 0I0t 2 5 1 6 IV Joint Ventures - - - 17 29 40 4 5 7 6 5 5 2 V Other Revenue 136 104 132 98 84 12.1 11 0 12 1 (07 92 VI. Grants - 26 40 33 28 30 25 39 28 27 SoLurcc Minisry o tFiannce arid Geieral Statitilcal OM)c b/ GDP tor 1995-1998 are GSO nlewC series, 1999 GD)P s Batik Slalf estimate Table 5.3: FUNCTIONAL CLASSIFICATION OF CURRENT EXPENDITURE Actial 199X 1999 1990 1991 1992 1993 1994 1995 1996 1997 Prel Est. (Bilfions f Dong) General AdminiistratiNc Service 676 1.290 2.404 4.335 4.779 5.6S3 6.354 7 138 5350 4,830 Economic Scivices 523 784 1.490 2.498 3.085 4.004 4.192 4.473 5 620 4,770 Social Service E998 3.343 6.245 9.639 14.042 18.249 201.317 23,708 24.849 24,710 - Education 439 748 1.495 2.321 3.4 14 4,722 5 500 7 150 7.750 7,900 - Ilealth 368 636 1,136 1.754 2.214 2.397 2.761 3.033 2.843 2,910 - PInsions Social Rclicf 695 1.278 2.374 3.752 5.861 7.382 8.191 9 179 9.290 8,920 - Olher 496 681 1.240 1.812 2.553 3.758 3.865 4 346 4.966 4.980 Interest due 1.242 2.333 3.218 3,675 4.415 4.177 - - Interest Paid 310 651 1000 1.710 1,0)94 2,895 2700 1.916 2,004 2.483 Otlhers (ine. Subsidis anid 2.959 3.311 5.313 9.154 9.215 11.679 13.696 14 032 13.744 13,180 excl Contingcncy) Total Cuirrent Expenditure: -Cash Basis, incl. lnterest 6,466 9,379 16,452 27,336 32,215 42,510 47,259 51,267 51,567 49,973 - Cash Basis, excl. Interest 6,156 8,728 15,452 25,626 31,121 39,615 44.559 49,351 49,563 47,491) (IPercent ol GDI') General Administrative Servicc 1 6 1 7 2.2 3 2 2.8 2.5 2 3 2 3 1 5 1.2 Economic Scrviccs 1 2 1.0 1.3 1 8 1 8 1.7 1 5 1 4 1 6 1.2 Social Service 4 8 4 4 5 6 7 1 8 2 8.o 7 5 7 6 6.9 6.3 -Idiucatioin l.t) I 0 14 1.7 2.11 2.1 210 23 2.1 231 - Ilealth 0.9 0.8 10 1 3 1.3 1(1 1.0 I ( (.8 07 Interest (Lie 3.n 3 0 2.0 2 7 2.6 I S Interest Paid 0.7 11.8 0 9 1.3 1.6 1 3 1 0 0 6 0.6 0 6 Othcr (inc. Subsidlies) 71 43 48 67 5.4 51 5.0 45 3.8 34 Total Current Expenditure iel. Interest 15.4 12.2 14.9 20.0 28.9 18.6 17.4 16.3 14.3 12.8 exc. Interest 14.7 11.4 14.0 18.8 18.3 17.3 16.4 15.7 13.7 12.1 Merno ltem: GDP am 41.955 76,707 11(1.535 136.571 170 258 228.892 272.036 3 13.623 361.468 390.964 (Dilliones Donig) Source Mminiry ii fInance amid GenerlC Statistical DUke and 1snL siIlinia:r a! GD6I' Im 1995-199t are G5(1 sew scrice, 1999 GD)'s BR.ink SmaIl estunatc Tnble 5.4: ECONOMIC CLASSIFICATION OF CURRENT EXPENDITURE Actual a/ Prel. Est 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (Bsililions of D)0ng) Wage and Salaries 1,744 2,001 5,369 8,921 13,654 14,450 16,798 21.580 23580 23874 Subsidies - - - 262 190 265 3116 369 270 270 Food Procurement - - - - - Productioni Exports - - - - - - - - Interest duic 1,242 2,333 3,218 3.675 4,275 4,177 4,107 Interest paid 310 651 1,000 1,710 1,094 2,895 2.700 1.916 2004 2483 Other 4,412 6,727 10,083 16.443 17,277 24,900 27,455 26,947 25736 23346 Working Capital for SOEs 68 - 401 667 635 302 Administrative Expeinses 181 241 1,656 2,752 3,180 3,555 5.572 4,555 3756 3746 Medical and Social B3enefits 295 433 1,218 2,024 2,200 3,195 3,876 3.117 2871) 2552 EdLIcation and Scholarship 261 385 1,271 2,111 2.350 2,420 3,086 3.763 3867 3931 Operationl and Maintcnaiice 290 428 358 595 1.160 1,450 1,710 1.981) 2200 2500 Residtial b/ 3,316 5,240 5,179 8,294 7.752 13,978 13,211 14,287 13043 1(0617 Total Current Expenditure (Cash basis. exc Contingency. 6,466 9.379 16.452 27,336 32,215 42.5 10 47,259 51.267 51567 49973 (Inc. Interest) (I'ercent of GDI') Wage anid Salarics 4.2 2 6 4.2 6 5 8 0 6 3 6 2 6 9 6 5 6 1 Subsidies - - usa 02 0.1 ( I (1.1 ().1 ().1 0 1 Food Procuremcent - - 55a Interest duc 3 0 3 0 2.9 2 7 2.5 Iiterest paicl 0.7 0 8 0.9 13 0 6 1 3 1.0 0 6 0 6 0 6 Other 105 88 9.1 12.0 10.1 109 1( I 86 7 1 60 of wlhiclh Working Capital for SOEs 0 2 - 0.4 0 5 04 ()I 1 0 (( 0 () 0 0 Administrative Expenses 0 3 06 1.5 2 0 1.9 1.6 2 0 1 5 1 ( .1) Medical and Social Benefits 0 7 1 0 1.1 1.5 1.3 1.4 1.4 1 0 0 8 0.7 Education and Scholarship 0.6 0.9 1.1 1.5 14 1 1 1 1 1 2 1 1 1 ) Operation and Maintenlance 0.7 0.6 0.3 0 4 0 7 0 6 () 6 () 6 ) 6 0 6 Total Current Expenditure 15.4 12.2 14.9 20.11 18.9 18.6 17.4 16.3 14.3 12.8 (Cash b.asis. ex- Coot . tIic eIrest) Current Expenditures (exc. Iiterest) 14.7 11.4 14.0 18.8 18.3 17.3 16.4 15.7 13.7 12.1 Memo Item: GDP c/ 41,955 76,707 110,535 136,571 170,258 228.892 272.036 313.623 361.46X 3911.964 t Ihons DiJug) Note a/ Ftgures lor 1992 are essinated nsiig the 1993 appropriaie shares h/ Including spending us necnriiy asd national delense and oiliers not elsewhere classilied c/ GD1 o-r 1995-1991 ir GSt)nr ,,eries. 109 GDN,tBanks all esiiaite SourLe Ministir i,t Friaonce and lenerai Siatsstical Oflcc, and flantk stlt estin,ite Table 5.5: GOVERNMENT BUDGET: CAPITAL EXPENDITURE Actial Prel Prel. Est 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 (Billions of Donig) Industry and Construction 746 49 2,284 5,692 2,925 1.408 825 1651 2169 1800 AgricultureandForestry 113 70 345 266 580 830 1100 1968 1811 4180 Irrigationi 244 244 456 623 1,240 1,516 1355 1557 1392 2489 Transportation & Communicationis 323 335 613 1,020 2,999 3,631 3711 4943 5666 5784 Commerce and Services 91 23 17 27 35 152 120 247 678 838 Non-ProduCtive Sector a/ 425 367 790 763 2,323 3.228 3820 4150 4556 3968 Contingency Fund b/ 0 136 0 0 0 0 - Other 6 566 452 1,209 1,613 1,314 4699 3524 3488 3896 Unallocated 176 345 1,494 0 0 0 - - lotal Capital Expenditure 2,124 2,135 6,450 9,600 11,715 12,0179 15,630 19,482 19,760 23,000 (Percenit in GDP) Industry aiid Construction I 8 0.1 2.1 4.2 1.7 06 0.3 0.5 0.6 05 Agricltuire and lForestry 0 3 0 1 0 3 0 2 0 3 0 4 0.4 0 6 0.5 1.1 Irrigation 0 6 0 3 0.4 0.5 0 7 0 7 0.5 0.5 0.4 0.6 Transportation & Communicatiois 0.8 0.4 0.6 0.7 1.8 1 6 1.4 1.6 1 6 1.5 Conimerce and Services 0.2 0.0 0.0 0 0 0.0 0 1 0,0 0.1 0.2 0.2 Non-Productive Sector a/ 1.0 0 5 0.7 0.6 1 4 1 4 1 4 1.3 1.3 1.0 Contingency Find b/ 0.0 0.2 0.0 0.0 0 0 0 0 Other 0.0 0.7 0.4 0.9 0.9 0.6 1.7 1.1 I 0 1 0 Unallocated 0.4 0.4 1.4 - - - Total Capital Expenditire 5.1 2.8 5.8 7.0 6.9 5.4 5.7 6.2 - 5.5 5.9 Mlemo Item: GDP c/ 41,955 76,707 110,535 136,571 170,258 222,840 272.036 313.623 361.468 390.964 Note aS Inclides edilcation, health. c.iltiire, fInsmce mnd government b/ Stockpilinig ot ke) conmtodilies and mnaterials c/GDP for 1991-1997 are GS0 old series, 1998 GDP Bank statfestiniate Sosiree Mijiistry of Fiitance aiid Geseral Statistical Orice, and Banik siatfestiirate Table 6.1A: GROWTH RATE OF RETAIL PRICES, BY MONTH Month/Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 January 2.9% 13.2% 4.4% 1.7% 1.8% 3.8% 0 9% 0 8% 16% 1 7% 1February 3 8% 8.7% 5 5% 1 9% 3 7% 3.4% 2 5% 1 8% 2.2% 1 9% Marchi 1.9% 0.5% 0.5% -0 5% -0.4% 0.2% 0 8% -0 5% -0 8% -0 7% April 2.5% 2.2% 0.9% -0 2% 0.3% 1.0% 0 1% -0 6% 1 6%/,, -) 6% May 2.6% 3.0% I 3% 1.5% 0.6% 1.8% -0 5% -0 5% 1.5% -0 4% Juine 2.1% I 7% 0.2% -0 3% 0 9% 0 8% -) 5% 0 1%M) 0 0% -0 3% July 3 6% 2.5% 0.3% -0.2% 0 2% 0 0% -0 7% () 2% -0 5% -0 4% August 5.8% 3 4% 0.3% 0 5% 0.9% 0 3% -1 4% 0 1% 1.1% -0 4% September 4.7% 3 7% 0.0% -0.1% 1 6% 0 5% 0.3% 0 6% 1.0% -0 6% October 6.4% 28% -0.2% -03% 13% 0 1% 0.1% (13% 0.3% -I 0% November 7.8% 5 6% 2.0% 0.5% 1 7% 01% 0.9% 0 3% 01% December 8.9% 6 1% 1.4% 0.6% 1 1% 0.3% 1 0% 1 0% 0 8% Sotirce (iS(. St.1SIMSLIQ YCeIrbho1 1999 Table 6.lB: RETAIL PRICE INDEX, BY MONTH (Jan 1986=100) Monith/Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 January 15,695.6 28,925.0 44,706 8 51,203 4 53,8926 62.941 2 68.995 8 72,061.6 75,272 2 82,294 2 I ehruaiy 16.2920 31,441.4 47,147.8 52,176 3 55,886.6 65,0623 70,7207 73,358.7 76,9282 83.8578 March 16,601.6 31,598.6 47,402.4 51,915.4 55,663.1 65.179 4 71 .286.4 72.991 9 76.312 8 83.270.8 April 17,016.6 32,293.8 47,829.0 51,811 6 55,846 8 65,831 2 71,357.7 72.553 9 77.533 8 82,771.2 May 17,459.0 33,262.6 48,4269 52,5888 56,181 8 67.003.0 71,0009 72,191 2 78.6968 82,440 1 Julle 17,8257 33,828.1 48,5140 52,431.0 56,6875 67,5323 70,6459 72,2634 78,696.8 82.1928 Jully 18,467 4 34,673.8 48,640.2 52,326.1 56,800.9 67,532 3 70, 151 4 72.407 9 78,303 3 81.864 0 August 19,538 5 35,852.7 48,766.6 52,587.8 57,312.1 67,7282 69,870.8 72.480 3 79,164 7 81,536 5 September 20,456 8 37,179.3 48,766.6 52,535.2 58,229.1 68,060.1 70.080.4 72.915.2 79,956 3 81,047 3 October 21,766.1 38,220.3 48,678.9 52,377 6 58,986.0 68.121 3 70.1505 73,1339 80.1962 81)2369 November 23,463.8 40,360.6 49,662 2 52,639.5 59,988.8 68,182.6 70,781.8 73,353.3 80.276 4 December 25,552 1 42,822.6 50,347.5 52,955.3 60,648.7 68,380.3 71,4897 74,11869 80,9186 Annual Iidex. 19,177.9 35,038.2 48,240 7 52,295 7 57,177.0 66,796.2 70.544 3 72,816 5 78,521.4 (Jan 1986=100) Alinual Index 1364 2492 343.1 3720 4067 475 1 501.7 5179 5585 (1989=100) Anuilial Growth Rate 36 4% 82 7% 37.7% 8.4% 9.3% 16 8% 5.6% 3 2% 7 8% Dec/Dec Growth Rate 67.5% 67.6% 17 6% 5 2% 14 5% 12.7% 4.5% 3.6% 9 21%. Source Gencral Statistical Otticc. Staistical Ycarbooks 1996-1998 and Batik statl estinate i - Or O 0 9 oaO o -o-c-a--- - - -O I n - - 1- - rl -- - - - - irrlO__C x owx D .x E c ,0ooo9 :rC lr 0 002 0 0 0-^s = -c~R ° n*n0n 2nnn rn G 2 nrlO_ _ x.On *0- 0 0 Oo otarO rs I * _ * 0 r 0 -000000e 0 or n000 00 O O _ .2 rl Oe ., 00 0C rlXO^r0 n - ~ ~ ~ . 0 00 000 0 _ _ 0s -n raO-Ot-tX maOOt 0- 0 rlc OneJO ___wr EB rno' 0 00 nOO e o -o _ _o o o o o o o d Oo E c .2 o _ r no o _ oo nooo o 6cc - - ~~~~~~~~~~~- - --0 0 0 - O- - - -0- cc r- onone-incN 00C C-N --c- -c-c-c- n '. n a n- 0 - n- - t ~~~~~~~~~~~ ~ ~ ~ ~ - - - e smI srnr r n_. - rl - - - - - - 1_ O- 9 looo9oo-r n ~ ~ =r 00 90 00 0 3 0 0- : l0 0c ccccn.c.r-ara.a.I 00-COOn -r- -c - -0eca 0-rn- - - -- Cc-c--t _=O c NO C no0C n *n 0A.n1_ __ o rsc x rc-0ra 00O r0c-cc no ..= . . . . . . .- . . . . oor- 00 o, o 9 09909 = ~° oo o -- O O 00 0 - a ran non rlx 0 _ cncc nn noncaO S. ____c.-0- __0__ 0° o-'_ _ r.n n r- 0 0- 0nc 0 n 90 n0ooo 0 0n.t2 --nno ono0 _ _ _ , n.rncr0. - -nn o n n 0s n On___oc xsro Ononq r a-l> oo on -L o-9,o, 9 9 9o-- 9 9 ,9°'° °E2o o 08 o o o o r,_N r , 0 90 - 0 tr s =Oa__ r 0o -no -0 8O g 8 8 0nggg00 8r0 ~i80 0n8.nS n8o- o-08 6 __n- a _ __ __ N _ __ _ - -- - _ _ -_ _ _ _n _ _ _ 0 E E~0 _- r- n o O r-iO=Oo o cc X; I 1'a '*00-0-00.0 cc c . , , 99 n- g> on~000non000 0 00000.000.000 0 c Oo -n n 0. O em0 0 -a on-nn>o O>e Table 7.1: AGRICULTURAL PRODUCTION Rev Rev Rev Prel 1990 1991 1992 1993 1994 1995 1996 1997 1998 (Billions of 1989 Dong) IBlillonls ot' 1994 Ihsrl) Gross Output 14,751 15,179 16,450 17,544 18,399 19,611 86,489 92.530 95.872 Crop Cultivation 11,099 11,512 12,331 13,186 13,801 14,786 69,620 74493 77068 Food Crops 7,396 7,542 8,28 i 8,747 8.999 9,431 44.654 46.953 49,264 Indtistrial Crops 3,703 3,970 4,050 4,439 4,902 5,355 12,806 14,550 14.762 Anitmal I-lusbatndry 3.224 3,227 3,642 3,847 4,055 4.237 14,347 15,465 16,204 of whiichi: Livestock 2,027 2,000 2,261 2,418 2,613 2.712 9,301 9,923 1,067 Poultry 615 618 691 707 713 736 2.507 2,691 2.835 (Thousands of nctric tons) Food grains a/ 21,488 21,989 24,214 25,502 26.199 27.571 29,218 30,618 31,854 Paddy 19,225 19,622 22,590 22,837 23.528 24.964 26,397 27,646 29,141 Other 2,263 2,367 2,624 2,665 2.670 2.607 2.821 2.916 2,712 Memoranidum Items Arca Cultivated 7,111 7,448 7,707 7,797 7,809 7972 8,218 8,330 8.540 (001) ha) hi Food graini Output 323 323 346 364 364 373 387 40)1 408 per Capita (kg) Note Revised datai sC ics a lI'addt cdi4vdlcnI. bl Food gianns Source: Gcienal Statistical Ollicc, Siatistical Yearbooks 1996-1998 Table 7.2: IND)USTRIAL CROP PRODUCTION AND YIELDS Rev Rev Rev Prel 1990 1991 1992 1993 1994 1995 1996 1997 1998 Production (000 metric tonis) Cottoln 3.1 8.3 12.8 5.2 8.7 12.8 11.2 14.1 20.7 Jute 23.8 25.3 25.7 23 4 12 8 14.8 15.0 22.3 18.6 Rush 63.6 54.4 77.2 69.5 69.1 75.1 55.0 52 67 Sugarcane 5,397.6 6.1309 6,437.0 6,083.2 7,750 1 10,711.2 11,371 8 11428.2 13843.5 Peanuts 213.1 234.8 . 226.7 259.3 294.4 334.4 357.7 352.9 386 Soybeans 86.6 80.0 800 105.7 124.5 125.5 113.8 1025 141 Tobacco 21.8 362 27 3 20.3 21.7 25.8 23.5 28.3 31 7 Tea 32.2 33.1 36 2 37.7 42.0 40.2 46.8 52.3 51 Co lee 92.0 100.0 119.0 136.0 1800 218.0 320.1 420.5 4093 Rubbcr 57.9 64 6 67.0 96.9 128 8 122.7 142.5 186.5 1317 6 Cocolutt S94.4 1,052.5 1,139.S 1,184.0 1,100.0 1.0220 1,130.8 1,317.6 1.271.4 Area Culitivated (000 ba) Cottorl 8.3 16.1 19.2 11.5 13 2 17.5 15 0 15.2 20.2 Jute 11.7 10.5 11.6 14.4 6.6 7.4 8.0 12.4 8.7 Rushi 11.4 9.4 11.0 9.9 10 9 10.4 9.1 7.4 11 Sugarcane 130.6 143.7 146.5 143.2 166.6 224.8 237.0 251.1 283 Peanuts 201.4 210.9 217.3 217.2 248.2 260.0 262.7 251.3 269.4 Soybeanis 1100 101 1 97.3 120.1 132.0 121.1 1104 100.1 127.8 Tobacco 26 5 37.7 31.4 23 5 24.5 27.7 23.9 28 3 31.2 Tea 60.0 60.0 62.9 65.6 67.3 66 7 74.7 78.6 79.2 Coffee 119.3 115.0 103.7 101.3 1230 186.4 254.0 340.4 362.2 Rubber 221.7 220.6 212.4 242.5 258.4 278.4 303 0 347.5 379.7 Coconiut 212.3 214.2 204.1 207.6 182.5 172.9 1795 169.9 169.5 Average Yield (Metric ton/Ha: derived from above) Cotto . 0.4 0 5 0.7 0.5 0.7 0.7 0 7 0.9 1.0 Jute 20.3 2.4 2.2 1.6 1 9 2.0 1.9 1.8 2 1 Rushi 5.5 5.8 7.0 7.0 6 3 7.2 6.0 7.0 6 1 Sugarcane 41.3 42 7 43.9 42.5 46.5 47.6 48.0 45.5 48.9 Peanuts 1.1 LI I 1.0 1.2 1.2 1.3 1.4 1.4 1.4 Soybeans 0.8 0.8 0.8 0.9 0.9 1 0 1.0 1.0 1.1 Tobacco 0.8 1.0 0.9 0.9 0 9 0.9 1.0 1.0 1.0 Tea .. 0.6 0 6 0.6 0.6 0.6 0.6 0.7 0.6 Coffee 0.8 0.9 1.1 1.3 1 5 1.2 1.3 1.2 1.1 Rubber 0.3 0.3 0 3 0.4 0.5 0.4 0 5 0.5 3.5 Coconllut 4 2 4.9 5.6 57 6.0 5 9 6.3 7.8 75 Source: Gencial Statislical 011ice. Statislical Yearbooks 1996-1998 Table 8.1: INDUSTRIAL PRODUCTION AND NUMBER OF STATE ENTERPRISES Rcv Rcv Rev Prel Item 1990 1991 1992 1993 1994 1995 1996 i997 1998 ( 1989 Billion Dong) (1994 Billion Dong) Gross Industrial Prodiuction 14,011 15,471 18,117 20.410 23.170 103,375 118.097 134,420 150.685 State sector 9,476 10,600 12,779 14,643 16,797 51,991 58,166 64.474 69,588 Central 6,438 7,435 9,155 10,602 12.128 33,920 38,411 42,216 45,598 Local 3.038 3,165 3,624 4,041 4,669 18,071 19,755 22.258 23.990 Non-state sector 4,535 4,872 5,338 5,767 6,373 25,451 28,369 31,068 33,148 Collectives 1,279 747 515 434 255 650 648 751 834 Private, H-Iousellolds and Mixed 3,256 4,125 4,823 5,333 6,118 24,801 27,721 30.317 32,314 Foreign-invested sector 25,933 31.562 38.878 47,948 Blv Industrial Branches Energy Combustible 2.597 3.242 4,124 4.625 5,277 17,966 20.935 23,871 28.481 Metallurgy 219 319 406 488 461 3.428 4.086 4,000 4.24(1 Machiiery 1.195 1.182 1.295 1.436 1,852 10,412 12,581 13,882 17,004 Chemical Iidustry 921 1.114 1,355 1,592 1,988 7,358 9,073 10,751 11.814 Other ManufactLiring a/ 2,031 2.231 2,577 2.760 3,437 13.116 14,679 17,431 19.348 Food and Foodstuffs 5,040 5.378 6,100 6,982 7.090 30,985 35,082 39,438 41,464 W'eaving, Leathier, 1.555 1.552 1.764 1.856 2,393 12.696 14,243 18,201 20.312 Sewing, and Dyeing Printing aitd CultLral 97 108 128 152 242 1,510 1,515 1,620 1.744 Products Other Industries 356 344 368 409 320 5,904 5.904 5,227 6.278 (Number of Enterprises) Number of Enterprises 2.762 2,599 2,268 2.030 2.002 1958 .880 1.843 Bv Sector Heavy Industry 1.384 1,192 990 Ltlgt lindustry 1,378 1,407 1,278 BY 'rvoe of Manasenient 2,762 2,599 2,268 2,030 2.002 1958 1,880 1.843 Central 589 546 537 522 528 549 553 560 Local 2,173 2,053 1,731 1,508 1.474 1409 1,327 1,283 Nowe aI Iicludinig construclion isairiatl, anthenoare, porcelain, glasnwane, snood, torest products. ccllulow parn, and papcr ortrws Source General Stalistical Oflice. Statistical Yearbotiks 1996-1998 Table 8.2: MAJOR INDUSTRIAL PRODUCTS Rev Rev. Rev Prel Product Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 Energy Electricity Ml, kwh 8,790 9,307 9,818 10,851 12,473 14,665 16.962 19,253 21,847 - State 8,787 9,303 9,813 10,851 12,473 14,665 16.949 19,182 21,771 -Non-State 3 4 5 - - - 13 5 6 Coal Mil Ions 5 5 5 5 6 8 10 11 II -State 5 5 5 5 6 8 10 11 II -Non-State 0 0 0 0 - 0 0 0 0 CrudeOil Niil Tons 3 4 6 6 7 8 9 10 13 -State 3 4 6 6 7 8 9 10 13 - Non-State - - - - - - - - Raw Material Steel 000lt}lis 102 149 196 236 280 470 868 978 453 -State 101 149 196 236 280 398 505 486 478 - Noin-State I - - - - 72 365 492 375 Chromium 000Tons 5 6 4 4 6 25 37 51 54 -State 5 6 4 4 6 21 31 21 23 - Noni-State - - - - - 4 6 30 31 Tin (sticks) lolis 1,602 1,686 4,544 2,050 0 1,862 2,805 2,376 2,425 - State 1,602 1,686 4,544 2.050 0 1,862 2,805 2,800 2,425 - Non-State - - - - - - - - Manufacturing Goods Metalworking.MachineTlools 1'i.ces 894 1,235 844 1,288 1,358 1,358 1.099 1,196 1,124 -State 894 1,235 827 1,268 1,358 1,358 1,099 1,196 1,124 -Non-State - - 17 20 - - - - Diesel Motor Piece, 4,470 5,296 3,264 2.849 3,371 4,217 7,838 6.761 6,500 -State 4,470 5,296 3,264 2,849 3,371 4,217 7,838 8,000 6.500 - Non-State - - - - - - - - - Electric Rotatilg Engines l'ieces 10,596 9,550 13,923 21,363 28,789 29,390 35,575 38.116 42,080 - State 8,413 9,010 13.443 21,000 28.109 28,181 34,148 37,000 40.855 -Non-State 2,183 540 480 363 680 1.209 1.427 1,116 1,225 Tranisforimiers Pieces 2,612 1,964 1,310 3,750 5,881 6,186 6.910 6,549 4,525 Water Pumips for Agri Pieces 430 412 330 360 632 547 435 563 600 -State 430 412 330 360 632 547 435 563 600 - Non-State - - - - - - - - Rice Mill Equipmient l'leces 1,013 657 706 820 2,067 2,043 2,167 12.431 12,000 -State 666 415 424 500 191 105 141 12,394 12,000 -Non-State 347 242 282 320 1.876 1,938 2.026 19 - Ploughs and I larrows 00) Pieces 172 190 188 180 I87 134 - Chenmical Fertilizers 0til0Tons 354 450 530 661 841 931 965 982 974 -State 354 450 530 661 841 931 962 981 972 - Non-State - - - - - - 3 1 2 Insecticides (0(0 Tlois 9 10 I1 14 14 16 20 20 20 Bicycle Tires 000 Pieces 9,238 8,606 8,458 8,144 9,821 6,703 8,656 10,245 13.626 - State 8,3 1S 7.470 6,959 7.144 7.470 8.295 6,823 8,464 1,290 - Non-State 920 1,136 1,499 1.000 2.351 1.408 1.833 1,781 1,536 Bicycle Tubes 0011 Pieces 8,349 8,533 9,177 9.100 10,800 11.917 12.588 14,044 13,500 -State 8,349 8.533 9,177 9.100 10,740 11.781 12.488 14,001 13,500 - Non-State - - - - 60 136 100 43 0 Cement 000 lons 2,534 3,127 3,926 4.413 6,371 5.828 6,585 8,019 9,390 - State 2.534 3.127 3,926 4A413 5,371 5,828 6,529 7,139 7,350 - Non-State - - - - - - 56 44 40 Tablc 8.2: MAJOR INDUSTRIAL PRODUCTS (Contitiiticd) Product Unit 1990 1991 1992 1993 1994 1995 1996 1997 1998 Bricks K Pill lleces 3,476 3,769 4,274 4,370 5,413 6,892 7,119 7,262 7.378 - State R09 808 740 1,000 604 1,121 1.522 1,746 1,842 - Noni-State 2,667 2,961 3,534 3,370 4,809 5,77 1 5,597 5,506 5.525 Consunmer Goods Glass and Glass ProduCts (Ot) Toiss 39 32 37 47 38 77 ' 93 66 67 -State 27 19 26 30 21 24 20) 16 15 - Non-State 12 13 11 17 16 53 73 5() 52 Porcelain Mlil Plieces 140 163 130 168 I52 187 232 172 190 -State 20 17 IS 18 19 18 17 17 17 -Non-State 120 146 115 150 173 169 215 154 170 Sanvii Wood 0)()11 3 896 1.182 1,246 844 1,573 1.606 1.398 1,184 1,160 -State 446 483 514 384 526 511)( 341 242 240 - Non-State 450 699 732 460 1,047 1.106 1,014 942 92(0 Matches Nlil Packets 94 151 184 145 145 143 - - Paper aisd Paper Plroducts 000 lons 79 108 118 128 154 2 16 220 263 297 -State * 71 97 109 116 130 178 176 193 225 -Non-State 8 11 9 12 24 38 44 70 72 Salt 000'Ioais 593 583 594 488 470 689 709 743 717 -State 77 108 131 88 93 174 137 148 150 - Noni-State 516 475 463 400 377 5 1 5 572 595 567 Sea Fisls OO)'l'ons 616 666 685 737 - - - - - State 47 38 42 37 - - Non-State 569 628 643 700 - - - - Sugar (00 Tons 323 372 365 341 364 517 636 649 657 -State 59 68 98 91 99 117 178 221 232 - Non-State 264 304 267 250 265 400 458 428 425 Beer Muil liners 100 - 131 169 217 366 465 533 581 656 -State 99 129 166 215 356 314 581 392 445 - Non-State I 3 3 2 10 151 168 189 211 Cigarettes MNil Packets 1,249 1,298 1,541 1,604 1,948 2,147 2.165 2,123 2,178 -State 1,243 1.295 1,536 1.600 1,645 2.116 2.147 2,102 2,162 -Non-State 6 3 5 4 3 31 13 21 16 Tea 000 Tons 24 23 22 28 31 24 33 45 49 -State 20 18 19 20 23 13 18 24 27 -Non-State 4 5 3 8 10 1 1 15 21 22 FishSauce Mil Liters 131 151 148 131 141 149 167 170 180 -State 62 64 61 31 48 56 55 41 45 -Non-State 70 87 87 1OO 93 93 112 129 135 Textile Fibers 000Tonn s 58 40 44 40 50 59 65 68 71 - State 58 40 44 40 50 51 53 62 5 -Noti-State 0 0 0 0 0 8 4 6 66 Cotton Fabrics NIIl Netcrs 3 18 280 272 225 251 263 285 298 317 -State 256 205 180 188 161 150 152 153 166 -Non-State 62 75 92 37 0 113 133 145 151 Soap 0001)'los 55 68 72 79 97 129 167 213 216 -State S 1 66 70 75 90 93 98 119 120 -Nont-State 3 2 2 4 7 36 69 94 96 Stource Genierial Statistical Ollice, Statistical Yearbooks 1996-1998 Ii' ':' I / i1~ .,. I . } i:4