A whole new ball game

After being only an observer at the last two gatherings of the Asia-Pacific Economic Commission (APEC), Vietnam was granted full membership at APEC’s tenth meeting of foreign and trade ministers in mid-November in Kuala Lumpur. Vietnam told APEC it will change to the APEC tax system, and will aim for an average tax rate of 11.9%. Twenty-five percent of commodities will be tax-free and another 25% will have tax rates of no more than 5%. The goal is free trade by 2020, the deadline for APEC developing country members.

Also, Hanoi will simplify licensing procedures for foreign companies, and by 2000, legal and insurance companies from APEC countries will be allowed to operate in Vietnam. Member countries’ airlines will also be permitted to market and sell their services. Immigration and custom procedures will be simplified for APEC business people.

Plenum goes back to the land

The Communist Party praised the country’s farmers for their staunch efforts in sticking to their task in the face of disruptive upheavals in the region. Leaders meeting for the VIth plenum of the party’s Central Committee in October pledged to place renewed emphasis on agriculture and rural development as one positive way of stemming the decline in the country’s growth rate and maintaining social stability. After several years of basking in the glow of a gross domestic product (GDP) growth rate of 9%, Vietnam will have to learn to live with an economy slowed down to the snail’s pace at which it was inching along seven years ago. The plenum forecast a GDP growth rate of 6.1-6.3% for this year and 5-6% for 1999. This, however, may still be too optimistic: multinational organisations believe it will be more like 4%. The party leaders pledged to plough cash into the rural and agricultural sectors despite savage cuts in investment in a wide range of other industries. They also called for effective measures to expand export markets, stabilise national finances, sort out knotty social problems and, in general, encourage the population to develop thriftier habits.

Oil refinery saga flows on

Ground was broken on January 8 for the construction of the high-profile Dung Quat oil refinery, a ground-breaking step in a historical sense because Vietnam intended to complete the whole project without outside assistance. However, during the year, Vietnam and Russia moved a few steps closer to jointly developing the $1.3bn project. Although there are reservations about Russia’s ability to fulfill its commitment, PetroVietnam and the Russian Foreign Trade Association’s Zarubezheft signed a 50/50 joint venture contract for the development. The November 10 signing followed a visit to Moscow in August by President Tran Duc Luong to seek reassurance from Vietnam’s old comrade that it was committed to the project.

Last year also saw the introduction of a new form of investment for joint ventures in the oil and gas sector, with a licence given to an international consortium led by the US-based Conoco Inc for the exploration of block 15-1 off the country’s southern coast. Foreign oil and gas firms have been carrying out exploratory drilling mostly under production sharing contracts, but the new form of joint venture will apply to the blocks that remain.

The dong in turmoil

Although the country has so far been relatively unscathed by the Asian crisis, mounting pressures from the sharp decline of neighbouring currencies forced the dong on to the same downward path. Vietnam twice devalued its currency, by 5.29% in February and 6.55% in August.

Overall, the dong has slipped by 19 per cent since the regional crisis broke in July 1997, and by 26 per cent since December 1996.

Even so, other regional currencies have maintained their competitiveness against the dong despite all the corrections of recent months. Given a decline in growth of foreign investment and exports, and the significant trade deficit that experts have forecast, there will be renewed pressure on the dong as the new year dawns.

Mass amnesty

A move to free thousands of prisoners, including the country’s four highest profile dissidents and a Buddhist monk, was widely seen as a significant step towards improving the country’s international human rights image. The enormous amnesty, the biggest for half a century, was spread over two dates, the first on the country’s 53rd National Day (September 2), the other in late October. In all, 7,849 prisoners were released, 34 of whom hold foreign citizenship.

The government said the release was justified by a stable political situation and a more law-abiding spirit abroad in the land.

The Ministry of Police is now said to be considering a reduction in the sentences of another 10,000 prisoners.

Investing in the future

In the first 10 months of the year, 204 foreign investment projects worth $1,815m were licensed, a fall of about 50% from 1997. Expectations for disbursement do not look too bright either. Investors in a number of city centre developments, worth some $3bn, are in the process of bailing out, according to a source in the Ministry of Planning and Investment.

In an attempt to limit the damage, the country’s top leaders, including Party Secretary General Le Kha Phieu and Prime Minister Phan Van Khai, held a series of meetings in Hanoi and Ho Chi Minh City with foreign investors and diplomats to reassure them of a more promising investment environment.

The first encouraging sign of a better climate was the release of up to 93% of Procter and Gamble shares, a move that was followed by both Coca-Cola and Colgate Palmolive changing from joint ventures to foreign fully owned projects. Ho Chi Minh City authorities also said that they would phase out joint ventures in favour of 100% foreign ownership. Concessions were even made on such crucial issues as land rent and decentralisation. Ten provinces now have the right to license projects worth up to $10m; land rents have been reduced by 30% to 50%.

Although the government has compromised on many issues, some foreign observers believe that foreign investment will not show much improvement next year because investors will hold out for further deregulation. Huge sums will also go elsewhere, towards the rehabilitation of other Asian economies.

View from the summit

Regional leaders, including the prime ministers of Japan, China and South Korea, descended on Hanoi for the Asean summit earlier this month. The summit was expected to sign an agreement on facilitating goods in transit, in addition to releasing the Hanoi Declaration and Asean’s 20/20 Vision.

Asean members still play a vital role as a regional forum, even though they have declined in importance as key investors and and major export markets, impartial observers believe. This is a crucial time for members to consolidate their relationships and present a united front to handle both the crisis and the pressure from other regional groups. The summit was dedicated to a peaceful, prosperous and equally developed Asean.

Tiger Cup runneth over

Vietnam hosted the sports event of the year, the South East Asian Nations’ biannual football competition, in late August and early September. The national team, which emerged as a strong contender as its main rivals were weakened by the effects of the regional crisis, bagged the silver medal after a 0-1 defeat by Singapore in the final. But the sweetest victory for Vietnam was the 3-0 win over Thailand, hitherto seen as the unbeatable football giant of the region. Foreigners were reportedly amazed by the fervour displayed by the local fans. After every win, the streets were taken over by thousands of people waving the national flag and pictures of Uncle Ho, a spirit not seen since the 1975 victory. The cup, sponsored by Tiger Beer and contested by eight national teams, was unfortunately stained by unsportsmanlike play in the game between Thailand and Indonesia. An Indonesian player deliberately scored a goal to ensure that his side was defeated, thereby avoiding the strong Vietnamese team in the next round. The incident shamed the image of Asian football on the world stage, where it already has a bad name for game fixing and unsportsmanlike behaviour.

Misfortunes never come alone

Still reeling from the devastation wrought by Typhoon Linda, Vietnam was heavily hit by drought as a result of the El Nino effect. Said to be the country’s most severe for 100 years, the shortage of water shrivelled rice production by an estimated 8 per cent and coffee output by 15 per cent, and burned out 11,000ha of forest, mostly in central provinces and the Mekong Delta. Water was rationed in some regions; people in the worst hit areas had to travel 7km to buy drinking water. The unusual weather patterns caused plagues of insects, which did even more damage to agriculture. The government was forced to scale down rice export targets to 3.6m tonnes from 4m. Water levels in the country’s rice bowl, the Mekong Delta, are now at their lowest for nearly a century, posing a dire threat to production. The government spent $37m on anti-drought measures and international donors contributed nearly $1m. Then, on November 18, another typhoon hit; two days of heavy rain caused severe floods in eight central provinces. The damage, including the loss of 1,700 homes, was estimated at $23m; 115 people were confirmed dead and another 30 were injured or missing.

Smuggling ring exposed

In the wake of the high-profile Tamexco and Minh Phung-Epco cases, the country was horrified by the exposure of a major smuggling ring in which state officials were deeply involved. The director of the private Ho Chi Minh City-based Tan Truong Sanh company took advantage of government contacts to smuggle in $23m worth of goods. The ring operated with the assistance of corrupt officials, from police and customs officials to the executives of state-owned companies in several provinces. Between January 1996 and August 1997 the firm illegally imported 756 containers full of cars, motorbikes, and electronic goods including televisions, video recorders and washing machines. For every container they passed the officials were given VND1-5m ($70,000-$350,000). Although the smuggling ring was exposed in late 1997 its full extent only came to light when the involvement of the government officials was discovered early this year. Prosecutions are under way against 72 people, over half of them government officials. It’s estimated the gang cost the country $7.7m in lost tax revenues.