Vietnam: Mobilize the People to Sustain Boom

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Vietnam Mobilize the People to Sustain Boom

• SPP 556 Macroeconomics
• Country Analysis Paper
• Ayako Ariga Chih Chia Lin

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Socialist Republic of Vietnam

• GDP (2004) US45.2 billions
• (about 1/250 that of the US)
• Currency Vietnamese Dong (VD)
• Doi Moi Policy and Its Outcome

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Vietnams Growth Pattern
period Policy environment Per annum per capita GDP growth ()
1976-81 War communism -0.67
1981-86 Some relaxations of control 5.86
1986-88 Launching of Doi Moi policy 1.97
1988-97 Doi Moi policy starts to take effect 5.85
1997-99 Spillover effects of Asia crisis 3.40
1999- Steady growth 6.60
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GDP Growth

• Graph (1991-2004)

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Quality of Growth Not Linked

• GDP per capita US 2,490
• In the world ranking,
• GDP is the 40th vs. GDP per capita the 160th
• Poverty rate28.9 (2002)
• Income disparity
• E.g. ratio of income of the richest 10 to
  that of the poorest 10 is 9.4

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Saving Investment

• Consumption, investment and saving growth

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Lack of Sound Financial System

• Presence of crony capitalism/favortism
• Bank mismanagement
• Fledgling securities market
• Corruption
• Which leads to
• gtLarge component of savings goes to
  cross-generational investment within families
• gtOpportunity for individual decisions between
  money and interest-bearing assets is not there

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Explanation by Keynesian Cross
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Explanation by IS-LM Model
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Vietnam Tax System
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Capital Inflows

• FDI
• average 15.6 per annum growth since 1999
• ODA Remittances
• average 18.4 per annum growth since 1999
• 2004 Foreign Reserves
• US5.6 billion10 weeks worth of imports

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Explanation by Solow Model

• graph

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Recommendations

• 1. Strengthen the banking sector
• Restructure the inefficient state-owned banks
• Eliminate incentives for banks to prefer lendings
  to Party-related companies
• Build bank management capacity
• 2. Further improve friendly environment for
  foreign investments, trade, and new businesses
• 3. Tax system reform
• Broad-base income tax system-increase tax revenue
• Moderately progressive tax rate-encourage
  consumption

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Potential Weakness in Recommendation (2)
Further attract foreign investments and new
businesses

• Linkage between the FDI and indigenous
  manufacturing becomes more crucial
• Assure this by improving management capability
  to absorb technology, effective government
  policies to support innovative, domestic firms

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Thank You