VIETNAM

COUNTRY OVERVIEW

LOCATION AND SIZE.

Vietnam is bordered on the north by China and to the west by Laos and Cambodia. To the east is the South China Sea (called "Eastern Sea" by the Vietnamese). The country's shape and size is often compared to a bamboo pole with loads at the end (north and south). In the central part of the country Vietnam is only 40 kilometers (25 miles) across. The total land area of Vietnam is 329,569 square kilometers (127,247 square miles), making it slightly larger than New Mexico. It has a long coast of 3,444 kilometers (2,140 miles). Its 2 major cities are the capital Hanoi in the north and Ho Chi Minh City (formerly Saigon) in the south. Other major cities are the ancient capital of Hue in central Vietnam, the coastal cities of Danang and Haiphong, and Dalat in the central highlands.

POPULATION.

Vietnam, in terms of population, is the second largest country in Southeast Asia after Indonesia. Its current population was estimated to be 79,939,014 in July 2001, making it the 13th largest country in the world. This compares with a population of 52,741,766 in 1979, 64,411,713 in 1989, and 75,355,200 in 1996. It has one of the higher population densities in the world, at 242.6 persons per square kilometer (628 per square mile). Vietnam has a little less than one-third of the population of the United States in an area that is only 3.5 percent as large.

The current population growth rate is estimated to be 1.45 percent (2001). If this growth rate were to persist into the future, the Vietnamese population would double to approximately 160 million by the year 2051. The Vietnamese woman on average currently has 2.49 children. In recent years, Vietnam has had considerable success in lowering both its population growth rate and fertility rate. Vietnam has a relatively young population with 32 percent of the population under 15.

The population of Vietnam has considerable diversity, with 54 ethnic nationalities. However, 85 to 90 percent of the population are Vietnamese. The second largest ethnic group is Sino-Vietnamese, concentrated in the Ho Chi Minh City area. Among the most numerous of other ethnic nationalities are the Tay-Thai Group (1,200,000), Khmer (1,000,000), Hmong (558,000), and the Cham (99,000).

OVERVIEW OF ECONOMY

Vietnam is one of the world's poorest countries, having suffered from years of war (1940-89) that damaged its economy and basic infrastructure. Thus, economic development is the nation's highest priority. It is still largely an agricultural economy, with 72 percent of its workforce engaged in that sector. Much of the country is made up of mountains and forests, with only 17 percent of its land arable.

Vietnam has a long history dating back to around 2879 B.C. when the first Viet state called Va-n Lang was founded. Later there was a state called Âuąc (257 B.C.-208 B.C.) and then a subsequent state called Nam Viêt (207 B.C.-39 A.D.). Almost 1,000 years of Chinese domination followed, until 939 A.D. when an independent Ngô Dynasty was established.

In terms of Vietnamese economic history, 5 themes are important. The first is the continual Vietnamese struggle to free itself from foreign domination, starting with roughly 1,000 years of Chinese rule, threats from the Mongols, and then external domination by the French, Japanese, and the United States. The second theme is the struggle against natural disasters such as floods and typhoons. Reflective of this struggle are the huge dikes protecting the capital, Hanoi, from possible flooding by the Red River. A third theme is nam tiên (expansion to the south), the need for additional land and territory, given the high population density of Vietnam. Through this process the Vietnamese moved south over time and took over lands which were once part of the Kingdom of Champa (1471) and the area of what is now southern Vietnam was once part of the Khmer Empire. Thus, the Vietnamese came to control both the rich Red River delta in the north and the Mekong River Delta in the south.

A fourth theme relates to Chinese cultural and intellectual influences, particularly in the cities. Close to 1,000 years of Chinese domination left an indelible influence on Vietnam, its culture, customs, and language. This influence has direct relevance to Vietnamese education and potential for human resource development. Unlike its Southeast Asian neighbors such as Thailand, Cambodia, and Laos, Vietnam is part of the Confucian world, as are Japan, Korea, and Singapore. Part of this cultural heritage is the great importance attached to learning and special respect for teachers, scholars, and mentors. A fifth theme is the importance of village life as the heart of Vietnamese culture and related wet rice cooperative culture. It is impossible to understand Vietnam without understanding its villages and their rich cultural traditions.

Vietnam historically had a royal system with imperial dynasties. The imperial capital of Vietnam was in central Vietnam in Hue. In 1858, France invaded Vietnam, capturing Saigon in 1861. By 1884 France controlled all of Vietnam, occupying 3 areas of the country known as Cochin-China (in the south), Annam (in the central region), and Tonkin (in the north). In 1887, France established the colony of Indochina, which included Vietnam, Cambodia, and Laos. Vietnam was the power center of the colony and the French trained the Vietnamese to help them administer the colony "backwaters" in Laos and Cambodia. The local populations in Laos and Cambodia both resented this practice. As in Cambodia, the French co-opted the imperial leaders and used them in their colonization process.

France's interest in Vietnam was economically motivated and the French thought that the Mekong River could be a gateway to the huge China market. Unfortunately, the Mekong turned out not to be a navigable river. To generate profits to run its Indochinese colony, the French introduced a plantation economy to facilitate rubber extraction and exports. Land alienation (transferring ownership to another) was the cornerstone of economic exploitation under the colonial government. The French also introduced consumer goods such as opium, alcohol, and cigarettes to generate revenues to support the running of their Vietnamese colony. The French film Indo-chine provides dramatic visual images of life (economic and social) during the French colonial period. Various rebellious movements against the French emerged and the French were extremely harsh in punishing those Vietnamese for their disloyalty.

During the Second World War, Vietnamese nationalists and revolutionaries cooperated with the West in fighting against Japanese occupation. On December 2, 1945, nationalist leader Ho Chi Minh declared an independent Democratic Republic of Vietnam and was hoping for U.S. support of the new regime. Instead, the French decided to reassert their colonial authority in Vietnam, resulting in the first Indochina War from 1946 to 1954, which eventually led to the French defeat at Dien Bien Phu in May, 1954. The Geneva Accords of 1954 then resulted in Vietnam being temporarily divided into North and South Vietnam at the 17th parallel. The United States opposed 1956 national elections called for by the Geneva Accords, which could have led to the peaceful unification of Vietnam under the leadership of Ho Chi Minh. Instead the south-north division persisted and eventually the U.S. war in Vietnam ensued (1959-75) with tremendous destruction and loss of life in many areas of Vietnam. Vietnam was eventually unified with the "fall of Saigon" on April 30, 1975.

For its first eleven years after unification, Vietnam became a fully socialist, state-planned economy with agricultural collectivization. Its international economic relations were almost entirely with the Eastern bloc countries such as the USSR, which provided most of its economic assistance. In December 1979, the Vietnamese army invaded Cambodia to remove the hated Khmer Rouge regime, led by Pol Pot. For the next 10 years, the Vietnamese army became bogged down in Cambodia fighting the Khmer Rouge insurgents who retreated to the remote jungles of west and northwestern Cambodia. Viet-nam's Cambodian adventure proved an adverse economic drag on the economy as well. Finally, Vietnam agreed to remove its troops from Cambodia in 1989 as part of a Cambodian peace process. Thus, the modern Vietnamese economy has really known only 12 years of peace, coming since the end of the Cambodian conflict in 1989.

In December 1986, at the Sixth National Party Congress, a new policy of doi moi (economic renovation) was introduced. This was a Vietnamese version of what the Soviets called perestroika. It basically used free-market mechanisms as a strategy to improve the economy and its productivity, and, in particular, to provide greater incentives for economic effort and performance. Prior to the introduction of this new economic policy, the economy was plagued by economic stagnation and excessive, triple-digit inflation. Vietnam's war-torn economy had multiple and extensive economic problems that required a fundamental rethinking of the economic system. Central to the economic renovation was also a commitment to reduce the large size of the state sector and state-owned-enterprises (SEOs). In 1988, the socialist cooperative method of agriculture was abandoned. While under the current economic system all land is still owned by the state, individuals can have long-term leases on land for their and their descendants' use.

With the new doi moi policy, the Vietnamese economy began to demonstrate impressive macroeconomic (economic system as a whole) performance in the 1990s. With the collapse of the USSR in 1991, Vietnam also opened its economy internationally, with dramatic increases in both international investments in Vietnam and international economic assistance. Still, a major stumbling block was the U.S. trade embargo, which was finally lifted in 1994. That was followed by Vietnam's joining the Association of Southeast Asian Nations (ASEAN) in 1995, and later the Asia-Pacific Economic Cooperation forum (APEC).

While the 1997 Asian economic crisis hurt the Vietnamese economy, the Vietnamese economy had much more immunity to this crisis than many neighboring economies, primarily because Vietnam did not have a stock market, nor an internationally traded currency. Also, rather than being part of the "Baht Zone" (areas with close economic interconnections with Thailand), Vietnam was partially a dollarized economy with strong economic links to greater China, an area showing greater currency stability during the Asian economic crisis.

Also, the 2001 global slump in the high technology sector has had minimal impact on Vietnam since it is producing more basic manufacturing/industrial products at the lower end of the technology scale, such as garments and footwear. Thus, Vietnam in 2001 had one of the highest economic growth rates (7.1 percent) in the world. In October 2001, the U.S. Congress finally approved the bilateral trade bill with Vietnam. This provides an important new opening for Vietnam to export to the large U.S. market and eventually to join the World Trade Organization (WTO). Vietnam has suggested the goal of becoming an industrialized country by the year 2020.

POLITICS, GOVERNMENT, AND TAXATION

Vietnam remains a one-party state with complete domination by the Communist Party of Vietnam (CPV). Vietnam has a unicameral National Assembly whose 450 members are elected every 5 years. As in neighboring Laos, non-party members may compete for seats in the National Assembly. In the last election for the National Assembly in 1997, 92 percent of those elected were CPV members. Economic policies are primarily determined by the Party Politburo, Central Committee of the Party, Party Congresses (every 5 years), and the National Assembly. Some argue that debates within these bodies represent a diverse spectrum of views and perspectives that may even be broader than within the United States' own two-party Congress, where both parties are often fairly close in terms of basic ideology. With Vietnam trying to maintain a socialist political system and an increasingly capitalistic economic system, there is considerable space for divergence of policy perspectives, particularly with respect to how fast economic reforms should proceed.

As an example of an area in which government policy has changed in accord with the doi moi policy in the 1990s, the government opened the door for privatization in the higher education sector. The government realized that it did not have the economic resources to meet the growing social demand for higher education. The result was the emergence of a number of private universities. As of 2001, 82,902 students (approximately 8.9 percent of all Vietnamese college students) were studying in private universities or colleges.

Most of the government's tax revenues come from the following: sales tax (60 percent), taxes on profits (20 percent), license fees (10 percent), and property taxes (6.5 percent). Tax collection among non-state enterprises tends to be rather small. In Vietnam, local governments lack the capability to raise revenue through taxes. The customs department collects import-export taxes and the General Taxation Department (GTD) collects other taxes through its branches in the various provinces and districts of the country. Local governments are allowed to keep taxes collected in excess of specified targets. This provides an excellent incentive for local authorities to enforce tax collections.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

As the result of years of war, Vietnam's infrastructure is weak, but steadily improving. In the French colonial period, a 1,730-kilometer (1,075-mile) rail system was developed which connected Saigon to Hanoi, and the port city of Haiphong to Yunnan, China. Later in the 1950s, the Chinese assisted with the development of a rail link between Hanoi and Guangxi Province in China. All of these lines were badly damaged during the wars. Total railway length is 2,652 kilometers (1,650 miles), and many tracks need renovation. In 1999, it took 32 hours to travel by rail from Hanoi to Ho Chi Minh City. Vietnam has 93,300 kilometers (57,977 miles) of highways, 25 percent of which are paved. However, many of the paved roads are in poor condition. Notable improvements have occurred in recent years. For example, there is now an excellent highway from Hanoi to the International Airport and the road from Hanoi to Haiphong and Ha Long Bay is being steadily improved, as is Highway Number One, which links Hanoi and Ho Chi Minh City. A considerable amount of international economic assistance is being used to upgrade Vietnam's weak road infrastructure.

Vietnam's major ports are Haiphong (in the north), Da Nang (central region) and Ho Chi Minh City (in the south). To supplement these, additional ports have been developed at Cua Lo, Quy Nhon, and Nha Trang. Vietnam has 2 international airports (Hanoi and Ho Chi Minh City) and 32 local airports. Travel to distant remote provinces is often done by air.

With Vietnam's rapid economic development in the 1990s, energy demand has been increasing at about 20 percent per year, frequently outstripping supplies of electricity. In 1999, Vietnam generated 22.985 billion kilowatt-hours (kWh) of electricity, of which 47.1 percent was from fossil fuels and 52.3 percent from hydroelectric power. In the future, Vietnam could import electricity from Laos, which has great hydroelectric potential.

While Vietnam's telecommunications system has steadily improved, it remains inadequate. There were only 2.6 million conventional phone lines in 2000 and 730,155 cellular phones for a population of approximately 80 million. Vietnam has 101 radio stations, 7 television stations, and 5 Internet service providers. It is estimated that there

are 8.2 million radios, 3.57 million televisions, and 121,000 Internet users in Vietnam in 2000. Internet service in Vietnam tends to be slow and expensive.

ECONOMIC SECTORS

The economic structure of Vietnam has changed a great deal since the end of warfare in the country in 1989, with agriculture declining in importance from 40.8 percent of GDP in 1989 to 27.1 percent in 1999. Industry has gained proportionally in importance, growing from a percentage contribution of GDP in 1989 of 22.9 percent to 36.7 percent in 1999. During this period, the contribution of the services sector remained virtually unchanged at 36 percent. The annual growth rates of these sectors show similar trends, with agricultural growth rates averaging 3.9 percent since 1995, while industrial sector growth rates averaged 11.4 percent over the same period. These changes reflect the impact of the doi moi economic renovation policy.

Despite these structural changes, Vietnam remains an agricultural economy in terms of employment. Around 72 percent of Vietnam's labor force, or approximately 28 million individuals, is engaged in agriculture.

With its doi moi reform policy and the goal of reducing the size of the public sector, as of the late 1990s the state sector employed only 9 percent of Vietnam's labor force of 39 million. In the industrial sector, about 25 percent of all employees were working in the state sector. In the commercial service sector, state employment consisted of only 13 percent of employment in 1997.

The Vietnamese service sector is comprised primarily of those in government work (including teachers), a growing modern retail trade sector, small-scale retail shops, a growing tourist industry, and an expanding finance/banking sector.

AGRICULTURE

Despite its limited amount of arable land, Vietnam's agricultural economy has demonstrated impressive success, particularly in the 15 years since the introduction of doi moi. The shift to the use of market mechanisms and price incentives contributed significantly to this success. Vietnam has not only achieved self-sufficiency in rice production, but is now a major global food exporter and is the world's third leading exporter of rice, competing actively with Thailand and the United States in this global market. Between 1988 and 1997, total food production in Vietnam increased 50 percent. This extraordinary agricultural success not only contributed positively to Vietnam's foreign exchange earnings, but also contributed to a reduction in the incidence of poverty.

In addition to rice, Vietnam has had success with other agricultural cash crops. In recent years Vietnam has become a major exporter of both groundnuts and cashew nuts. The export of cashew nuts in 1997 brought in US$125 million. Also, Vietnam has become Asia's second largest producer of robusta coffee, and coffee is now Vietnam's second leading agricultural export. Other important export crops are rubber and tea.

FISHING.

With its long coastline, Vietnam has an active fishing sector. Most of its catch is marine fish (94 percent). Many of Vietnam's marine products are being exported to countries such as Japan, and marine products now represent 9.2 percent of Vietnam's total exports (in terms of value).

FORESTRY.

Deforestation remains a major problem in Vietnam. In 1943, 44 percent of Vietnam was forests. By 1995, the forest area of Vietnam had declined to 23 percent. During the U.S. war in Vietnam, 5 percent of the forest was destroyed, and 50 percent was damaged. Deforestation has also been caused by uncontrolled logging, agricultural expansion caused by population growth, slash-and-burn agriculture, and the use of forest wood for firewood. To reverse this pattern of deforestation, the government has introduced 18 forest farming projects and a system of designated national parks.

INDUSTRY

During the colonial period, the French did not promote the development of Vietnamese industry in order to keep it from competing with their own industries. In the period following 1954, socialist northern Vietnam used a Soviet-type economic system emphasizing the development of Vietnamese heavy industry by the state sector. In the capitalist south, the emphasis was on the development of light industry such as the assembly of small-scale consumer goods. By the 1980s, a unified Vietnam was shifting to an emphasis on greater light industry to meet the basic needs of the population.

MANUFACTURING.

The 1990s saw the emergence of Vietnam as a major player in 5 key manufacturing sectors: textiles, footwear and garments, agro-processing, electric and electronic industries, and automobile and motorcycle assembly. For example, Nike is now sourcing significant production of both footwear and apparel in Vietnam, and this has caused controversy related to alleged sweatshop conditions. On the improved road from Hanoi to Haiphong, there is a new Ford Motor Assembly plant; 45 different models of cars are now being assembled in Vietnam. Among the companies investing in car assembly production, in addition to Ford, are Mercedes-Benz, Toyota, Isuzu, Daihatsu, Suzuki, and several Korean auto companies. There are a total of 14 joint ventures in the emerging Vietnamese automobile industry. In Vietnam, there is a huge domestic market for motorcycles, the major mode of transportation for Vietnamese living in urban areas. Twenty percent of this huge demand is now being met by the local assembly. Vietnam's electronics assembly manufacturing sector also grew rapidly in the 1990s. Among the major international investors were Daewoo, Hitachi, and Phillips. The assembly of television sets almost tripled to a level of 364,000 in 1998.

Steel and cement production were also given high priority, primarily as a strategy for reducing or eliminating steel and cement imports. Another important new manufacturing area is plastics. Given its impressive oil and gas resources, this is a natural industry for Vietnam to develop.

ELECTRICITY.

With Vietnam's rapid industrialization and urbanization, there has been a dramatic increase in energy needs. To respond to this need and to avoid frequent power shortages, Vietnam has completed a number of hydroelectric power projects to generate increased electricity. Among the new power stations and plants are Ba Ria-Vung Tau, Da Nhim, Tri An, Hoa Binh, YALY, and Thamco. Many of these are in the south, to serve the growing manufacturing sector in the Ho Chi Minh/Saigon area. The goal of the government is to achieve a generating capacity of 33 billion kWh by 2002. The government also has a goal of providing electricity to 80 percent of rural households by the year 2005.

MINING.

Mineral resources were a major factor attracting the French to Vietnam. Vietnam has commercially viable reserves of coal, iron ore, bauxite, chromite, copper, titanium, zinc, gold, apatite, and gemstones. However, other than coal many are underexploited. In 1996, Vietnamese coal exports were worth US$115 million. Vietnam also mines unrefined salt and phosphate rock.

OIL AND NATURAL GAS.

Vietnam has now become a player in the international petroleum industry. In 1998, its petroleum exports were worth US$2.1 billion. It has potentially huge offshore oil and natural gas deposits in the South China Sea (known in Vietnam as the Eastern Sea), many of which remain unexplored. Though the international Law of the Sea has articulated elaborate rules for determining claims to the natural resources of the oceans, numerous disputed island groups in the South China Sea (such as the Spratlys) have led to considerable controversy. Nations such as Vietnam, China, Brunei, the Philippines, and Taiwan claim rights to these vast reserves of oil and natural gas. Several international oil companies are active in Vietnam, trying to profit from the nation's oil wealth. The Russians are active in this arena as well, in a joint venture with Vietnam, Vietsovpetro. Vietnam also plans to build oil refineries.

CONSTRUCTION.

The 1990s has seen a construction boom in Vietnam in areas such as infrastructure (highway and bridge construction and renovation), hotel construction for the emerging tourist industry, office and apartment buildings for Vietnam's growing modern service sector, factory construction for the emerging manufacturing sector, and improved residential dwellings for occupancy or rent. Ho Chi Minh City now has many impressive, modern new high-rises. Also visible are many renovated and/or new Buddhist pagodas and Catholic churches, especially in the south. Funding for such religious projects has often come from remittances from overseas Vietnamese.

SERVICES

BANKING.

Subsequent to the introduction of the doi moi economic reform in 1986, in 1988 financial reforms began. Spun off from the State Bank of Vietnam (the country's central bank) were 2 new commercial banks: the Agricultural Bank of Vietnam (VBA) and the Industrial and Commercial Bank of Vietnam. Prior to the economic reforms, most bank lending in Vietnam was to state-owned enterprises (SOEs). However, by 1995 38 percent of credit went to the non-state sector. The newly created Agricultural Bank took an active role in expanding credit to farm households, reaching approximately 7 million households in 1995. The government subsidized lending rates. The central bank also continues to subsidize state commercial banks. Technically, the central bank is responsible for monitoring all financial sector organizations, though its implementation of this mandate has been weak.

GOVERNMENT AND STATE ENTERPRISE EMPLOY MENT.

Integral to the doi moi economic reforms was a downsizing of the government sector of the economy. There has been, for example, considerable demobilization of the Vietnamese army, especially after the end of the Cambodian conflict. By 1991, state enterprise employment represented only 6.2 percent of all employment. After initially reducing the size of the state sector in terms of employment, this sector has leveled off, and this part of the economy no longer is an engine to generate new employment.

TOURISM.

Vietnam has considerable tourism potential and in 1998 it had 1,520,100 visitors. The country features multiple attractions, including the historical sites related to the war, majestic Ha Long Bay in the north, the ancient imperial capital of Hue, the former seaport of Hoi-an, attractive beach resorts, adventure tourism in the remote northwest, and the delightful central highlands. A Vietnam-U.S. joint venture in Dalat has produced a world-class golf course and club in the center of Dalat. Viet-nam's tourism infrastructure has improved significantly in recent years, with the building of many new hotels and the remodeling of others, such as the famous Continental Hotel in Saigon. The new roads to the International Airport in Hanoi and to Ha Long Bay also reflect the commitment to improve the tourism infrastructure.

Vietnam's tourism, however, is constrained by cumbersome visa requirements and an emphasis on the building of expensive up-scale hotels in both Hanoi and Ho Chi Minh City. Tourist development in the Vung Tau beach area near Saigon will work well for domestic tourism, but will not attract international tourists, since it is competing with destinations such as Bali and Phuket. An area of considerable potential is Vietnam's possible collaboration with Cambodia, Thailand, Laos, and Burma in promoting joint tourism. Visitors to majestic Angkor Wat in Cambodia, for example, could also include Vietnam in their itinerary, or visitors to the world heritage site at Ha Long Bay, could include Luang Prabang, Laos, in their itinerary.

RETAIL AND INFORMAL ECONOMY.

In Vietnamese urban areas there has been a rapidly growing small-scale retail sector and large informal economy. Much of this sector involves the retail sale of a wide variety of consumer products and services. They range, for example, from the large and formal Saigon Bowl to vendors selling fruits and vegetables on the streets. It is common to even find barbers setting up shop on a sidewalk using a wall to hang their mirrors. Unfortunately, exact data are not available on the exact size and scope of the informal sector, but it is substantial and largely unmeasured.

INTERNATIONAL TRADE

Prior to the collapse of the Soviet Union, most of Vietnam's trade was with the former Soviet Union and Eastern European countries. Since 1991, the country's

trade has diversified significantly. It has also expanded dramatically, reflecting an internationalization of the Vietnamese economy. In 1999, exports plus imports divided by GDP reached the level of 84.5 percent, a useful indicator for the level of internationalization of an economy.

Though Vietnam has consistently had trade deficits, the amount has narrowed with the boom in Vietnamese exports. For example, in 1989 exports were only 73.7 percent of imports. In 1999, exports had risen to be 98.9 percent of imports. With the passage of the bilateral trade law with the United States in October 2001, and the granting of most-favored nation status to Vietnam, there is potential for Vietnam soon to become a net exporter with a positive trade balance.

In terms of value (stated in US$), Vietnam's leading exports from January to September 2000 were: crude oil (2,471.8 million); textiles and garments (1,355.4 million); marine products (1,017.7 million); rice (531.5 million); computers and computer parts (460 million); coffee (384.1 million); handicrafts (185.4 million); fruits and vegetables (149.4 million); pepper (137 million); and diverse other products (2,603.5 million). Leading imports for the same period were: machinery, equipment, and other small parts (1,793.6 million); petroleum products (1,472.4 million); textiles and leather materials (941.3 million); iron and steel (577.1 million); electronic parts (520.3 million); motorcycles and parts (478.3 million); fertilizers of all kinds (373 million); plastic products (359.8 million); fabrics (234.4 million); chemical products (225.1 million); and miscellaneous other imports (4,004.8 million).

In terms of trading partners, based on data for the same period Vietnam's leading export markets were: Japan (18 percent), China (9.7 percent), Australia (8 percent), Singapore (6.5 percent), the United States (5.3 percent), Taiwan (5.2 percent), Germany (5.0 percent), the Philippines (4.0 percent), the United Kingdom (3.4 percent), and the Netherlands (2.8 percent). These data clearly indicate how successful Vietnam has been in diversifying its export markets, which tends to minimize risk. In terms of imports, Vietnam purchased the most from the following countries: Singapore (18.8 percent), Japan (14.5 percent), Taiwan (12.4 percent), South Korea (11.6 percent), China (8.2 percent), Thailand (4.9 percent), Hong Kong (4.8 percent), the United States (2.6 percent), Malaysia (2.5 percent), and Indonesia (2.3 percent). Thus, in terms of trade deficit, Vietnam has the most important trade imbalances with Singapore, South Korea, Taiwan, Thailand, and Hong Kong. In terms of favorable trade balances, Vietnam is doing well with the United States, Germany, and the Philippines. Trade with Japan and China appears fairly balanced.

Despite Vietnam's trade expansion and its membership in ASEAN, the ASEAN Free Trade Area (AFTFA), and APEC, its trade regime remains restrictive by international standards. This policy is obviously a legacy of the system of central planning. With the final conclusion of the bilateral trade law with the United States in October, 2001, Vietnam is obliged to relax various economic restrictions and obstacles which should pave the way for Vietnam's entry to the World Trade Organization.

Related to Vietnam's balance of payments, the country was extremely fortunate to have Russia agree to forgive 85 percent of its US$11 billion debt, accumulated during the Soviet period. It is only necessary for Vietnam to pay Russia US__BODY__.7 billion over the next 23 years with only 10 percent in hard currency, and the rest being commodities or other products. In 1999, Vietnam's total external debt was US$11.142 billion, according to the World Bank. Its debt service payments as a percent of its export earnings was a manageable 13.7 percent.

MONEY

The central bank is responsible for monetary policy. During recent years, its performance in terms of keeping inflation low and the currency relatively stable has been impressively successful. For example, the inflation rate for the year 2001 is estimated to be 0.6 percent. Inflation in Vietnam since 1996 has normally been around 5 percent

or less and has not exceeded 10 percent. While the Vietnamese dong has dropped in value in recent years, the decreases have been much less than in other Southeast Asian countries such as Thailand, Laos, the Philippines, and Indonesia. In the last 7 years, the dong has declined by only a total of 32 percent, from 11,000 dong to the dollar in 1994 to 14,530 dong to the dollar in January 2001.

POVERTY AND WEALTH

In 1999, average GNP per capita in Vietnam was only US$370, giving Vietnam the rank of 170th in the world on this indicator. This statistic, however, is quite misleading, since it does not reflect differential costs of living in different countries and societies. It is much more meaningful to think in terms of GNP per capita being 5,365,000 dong and then to assess what can be purchased locally with that amount of income. The World Bank has made such adjustments and the estimated GDP per capita (in terms of purchasing power parity) is a much higher __BODY__,950. In 1998, it was estimated that 37 percent of the population was living below the poverty line, though this estimate seems too high and may not adequately reflect local purchasing power.

Rapid economic development in Vietnam has not been accompanied by worsening income distribution, as is common in many other countries at this stage of development. One reason for this outcome is the commitment of the government of Vietnam to target basic and key services to alleviate poverty, spread literacy, and improve health for individuals in all provinces in all areas of the country. A significant portion of revenues generated in the richer provinces are redistributed to poorer, more disadvantaged provinces. Such a policy reflects the government's commitment to prevent large regional disparities and social injustices. However, some researchers have found increasing gender inequality.

A major economic problem facing the Vietnamese economy is the large number of individuals who are unemployed or underemployed. This problem is exacerbated (made worse) by several factors: the improvement of agricultural productivity and limited land for expansion has driven farmers off the land; the reduction in the

size of the state sector; and Vietnam's historically rapid population growth rate and young population. Despite the excellent macroeconomic success of the economy in the 1990s, it is insufficient to generate adequate numbers of jobs for new entrants to the labor force. Also, over the next several years state-owned enterprises are expected to reduce employees as part of Vietnam's continuing economic reform process. In July 2001, a freeze on the establishment of new state companies was announced. The unemployment rate in 1995 was estimated to be an extremely high 25 percent. In 1996, an estimated 2 million rural residents migrated to the cities in search of employment (approximately 7 percent of the nation's work-force). The National Assembly has set a strategic target to create 1.4 million new jobs. The major source of new jobs will be from private sector development.

WORKING CONDITIONS

Vietnam has in place an extremely progressive national labor law which is designed to regulate working conditions. The major challenge is to ensure that the labor law is being properly and appropriately implemented. The high visibility of Nike, Inc., which decided to add Vietnam as an important site to source its production of footwear and apparel, generated considerable controversy in the United States, especially among activist labor rights groups such as the Workers' Rights Consortium. Accusations of sweatshop conditions and negligible pay were made by a number of journalists.

Actually, Nike's dynamic and creative marketing strategy has enabled the company to expand its production to a country that desperately needs expanded job opportunities. Unfortunately, the subcontractors (Korean and Taiwanese) producing for Nike in Vietnam were without question guilty in some instances of certain abuses and violated Vietnam's labor law. Managers found guilty of such abuses were deported. Though salaries in the Vietnamese garment, textile, and footwear factories are extremely low by U.S. standards, this additional income is often pooled in an extended family context and contributes importantly to families' economic welfare. With companies such as Nike active in Vietnam, in 1998 Vietnam was able to export US__BODY__.4 billion worth of footwear overseas.

Those unable to find formal employment in the Vietnamese economy must seek income-generating activities in the informal economy. Conditions in the informal economy vary rather dramatically, depending on the activity involved. Some informal sector jobs provide individuals with far more freedom and independence than if they were working in a formal factory setting. In other instances, work in the informal economy can be rather humiliating, such as those involved in "begging" tourists to buy their souvenirs, for example. Unfortunately, an illegal commercial sex industry has emerged in Vietnam, especially in the Ho Chi Minh City area. Undereducated, unemployed women can be vulnerable to such an industry. Primarily as the result of the growth of this industry, it is estimated that approximately 100,000 Vietnamese have HIV/AIDS.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

2879 B.C. Va-n Lang becomes the first emperor of Vietnam, known as the Va-n Lang Kingdom.

111 B.C. TO 939 A.D. Vietnam is under Chinese rule.

939. Vietnam becomes independent of China.

13THa CENTURY. Vietnam repels Mongol forces of Kublai Khan 3 times.

15TH CENTURY. Vietnam repels Ming China's attempt to control the country.

1801. The beginning of the unified reign of Emperor Gia Long, and the beginning of the Nguyen Dynasty.

1858. France begins its invasion of Vietnam, capturing Saigon in 1861. Eventually French control extends beyond Vietnam to all of Indochina.

1924. Vietnamese revolutionary Ho Chi Minh leaves for southern China where he establishes the first Marxist organization to promote revolution in Indochina.

1930. Formation of Indochinese Communist Party in Hong Kong.

1941. Ho, after extensive overseas travel, returns to Vietnam to establish the Viet Minh, a revolutionary organization.

1945. On 2 September, Ho announces the birth of Vietnam as an independent, unified nation.

1946-1954. Vietnam fights a war against the French, while the United States provides military and financial aid to the French. In 1954, the French are defeated at Dien Bien Phu by the Viet Minh. Vietnam is later divided at the 17th parallel into North and South Vietnam, with the United States providing aid to the pro-capitalist South Vietnam and opposing the communist North Vietnam.

1959-73. The American war in Vietnam begins, with the United States siding with South Vietnam against North Vietnam. The United States finally leaves the country in 1973.

1975. Following the fall/liberation of the South Vietnamese city of Saigon, the 2 Vietnams are united as the Socialist Republic of Viet Nam on 30 April.

1977. The Socialist Republic of Vietnam is admitted to the United Nations.

1978. Vietnam invades Cambodia and overthrows the Pol Pot regime, which leads to prolonged civil war in Cambodia between Pol Pot's Khmer Rouge forces and the Vietnamese-installed government in Phnom Penh, the capital of Cambodia.

1986. New doi moi economic policy calls for economic liberalization and the use of market forces and mechanisms.

1989. Vietnam withdraws its troops from Cambodia.

1994. The United States lifts its economic embargo against Vietnam.

1995. Vietnam is accepted as the 7th member of ASEAN.

1995. U.S. president Bill Clinton announces the normalization of relations with Vietnam. Clinton visits Vietnam in 2000.

2001. In October, a Bilateral Trade Agreement between the United States and Vietnam is approved by the U.S. Congress.

FUTURE TRENDS

There is considerable debate about the economic future of Vietnam. Pessimists focus on the country's inadequate physical infrastructure and its powerful state bureaucracy which makes doing business in Vietnam complex and difficult. They also point to persisting ambiguities in Vietnam's evolving legal structure and issues of corruption. These obstacles are normally more of an obstacle for those from the West than those from other Asian countries such as China, Taiwan, and Thailand.

In contrast, there are many reasons to be optimistic about Vietnam and its economic future. First, Vietnam has the good fortune of having access to Pacific ports and being strategically and centrally located near China, India, and Indonesia, all among the world's largest countries. These are potentially huge markets for possible Vietnamese exports.

Second, with its Confucian traditions, Vietnam has demonstrated a strong commitment to education and human resource development. The country's overall literacy rate is an impressively high 93.7 percent. Already, Vietnamese students are performing well in the Scientific Olympics in areas such as math and science. On several key educational indicators, Vietnam has equaled or surpassed Thailand, despite having a much weaker educational infrastructure. Vietnam may have the highest quality labor relative to cost of any country in the world.

Third, Vietnam shares a number of common characteristics with Japan and now seems in a number of ways similar to Japan during its post-war phase of development, though, of course, Vietnam does not have the industrial pre-war base that Japan had. Both countries had their infrastructures destroyed in war, and both were highly motivated to rebuild their societies and economies after suffering from war. The demographics of Japan and Vietnam are similar, with high population density and a relatively small portion of arable land, necessitating the ability to use limited space productively and creatively. Eventually Vietnam's population will be larger than that of Japan. Thus, like Japan it has important economies of scale and related people resources.

Fourth, Vietnam has excellent tourism potential which can be a valuable source of foreign exchange. It also benefits from substantial and increasing international remittances of overseas Vietnamese. Fifth, in fighting the Chinese, the French, and then the United States, the Vietnamese demonstrated impressive courage, determination, flexibility, and creativity. These traits bode well for the entrepreneurial potential of Vietnam.

Finally, the October 2001 approval by the U.S. Congress of a trade agreement between the 2 countries will provide Vietnam with greatly improved export access to the large U.S. market for a wide variety of products. Here there is also a parallel with the earlier economic history of Japan.

DEPENDENCIES

Vietnam has no territories or colonies.

BIBLIOGRAPHY

Boothroyd, Peter, and Pham xuan Nam, editors. Socioeconomic Renovation in Viet Nam: The Origin, Evolution, and Impact of Doi Moi. Ottawa: International Development Research Centre, and Singapore: Institute of Southeast Asian Studies, 2000.

Doling, Tim. Mountains and Ethnic Minorities: North West Vietnam. Hanoi: The Gioi Publishers, 1999.

Do Phuong. Vietnam: Image of the Community of 54 Ethnic Groups. Hanoi: The Ethnic Cultures Publishing House, 1998.

Economist Intelligence Unit. Country Profile: Vietnam. London: Economist Intelligence Unit, 2001.

Export-Import Bank of Thailand. <http://www.exim.go.th>. Accessed October 2001.

Luong, Hy V. Revolution in the Village: Tradition and Transformation in North Vietnam, 1925-1988. Honolulu: University of Hawaii Press, 1992.

McCarty, Adam. "Vietnam." Far East and Australasia 2001. London: Europa, 2001.

Osborne, Milton E. The Mekong, Turbulent Past, Uncertain Future. Washington, D.C.: Atlantic Monthly Press, 2000.

Phan Huy Le, et al. The Traditional Village in Vietnam. Hanoi: The Gioi Publishers, 1993.

Rao, M. Govinda. "Fiscal Decentralization in Vietnam: Emerging Issues." Hitosubashi Journal of Economics. No. 41, 2000.

Romnås, Per, and Bhargavi Ramamurthy, editors. Entrepreneurship in Vietnam: Transformation and Dynamics. Copenhagen: Nordic Institute of Asian Studies Publishing, and Singapore: Institute of Southeast Asian Studies, 2001.

Simon, Julian L . Population Matters: People, Resources, Environment, and Immigration. New Brunswick: Transaction Books, 1990.

Sloper, David, and Le Thac Can, editors. Higher Education in Vietnam: Change and Response. Singapore: Institute of Southeast Asian Studies, 1995.

Templer, Robert. Shadows and Wind: A View of Modern Vietnam. New York: Penguin Books, 1999.

Tran Hong Duc and Ha Anh Thu. A Brief Chronology of Vietnam's History. Hanoi: The Gioi Publishers, 2000.

Tran Thi Van Anh and Le Ngoc Hung. Women and Doi Moi in Vietnam .

Truong Do Xuan. "Vietnam's Economy After the AsianEconomic Crisis." Asia-Pacific Economic Literature. Vol. 14, No. 1, 2000.

Tu Wei-ming. Confucian Traditions in East Asian Modernization: Moral Education and Economic Culture in the Four Mini-Dragons. Cambridge, Ma.: Harvard University Press, 1996.

U.S. Central Intelligence Agency. World Factbook 2001. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed September 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Vietnam. <http://www.state.gov/www/about_state/business/com_guides/2001/eap/index.html>. Accessed October 2001.

Vietnam: Embassy of the Socialist Republic of Vietnam in the United States of America. <http://www.vietnamembassy-usa.org>. Accessed October 2001.

"Vietnam Media Reports." Intellasia. <http://www.intellasia.com>. Accessed October 2001.

Westlake, Michael, editor. "Vietnam." Asia 2001 Yearbook .Hong Kong: Far Eastern Economic Review, 2000.

The World Bank. Vietnam: Education Financing. Washington, D.C.: The World Bank, 1997.

—Gerald Fry

CAPITAL:

Hanoi.

MONETARY UNIT:

Vietnamese dong. One dong equals 10 hao and 100 xu. There are no coins in Vietnam. Only banknotes are used, and there are notes of 5,000, 10,000, 50,000, and 100,000 dong. While U.S. dollars are commonly accepted in Vietnam, the government policy is to foster the use of the local dong currency.

CHIEF EXPORTS:

Crude oil, marine products, rice, coffee, rubber, tea, garments, and shoes.

CHIEF IMPORTS:

Machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, and motorcycles.

GROSS DOMESTIC PRODUCT:

US$154.4 billion (2000 est.).

BALANCE OF TRADE:

Exports: US$14.3 billion (2000 est.). Imports: US$15.2 billion (2000 est.).