Vietnam economy 2003 - 2009
A. INTERNATIONAL ECONOMIC
The global economic had been worse in the last few year. With the beginning of American’s crisis in loan market due to under-standard interest rate policy, the whole of financial system has been affected negatively and it led to the most serious economic slump all over the world. It affected both developed countries and developing countries. Vietnam was one of the countries influenced most.
B. VIETNAM ECONOMIC
By the new political and economic campaign named Doi Moi in 1986, Vietnam switched from centralized economy to socialist-oriented market economy. It allowed farmers to sell goods at free market, appealed foreigners for investing in Vietnam and encouraged private-business. This was the reason of growth in economy of Vietnam by the late 1990s. (Library of Congress – Federal Research Division, pp.8)
In 2001, the government launched 10-year economic plan. This led to the dramatic increase in economic growth from 2002. (Library of Congress – Federal Research Division, pp.8)
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Since 2003, the economy continued to grow. However, due to the economic crisis on the world, Vietnam’s economy performed badly at many aspects.
Vietnam took part in the WTO in January 2007. Since then, the economy of Vietnam gains many achievements.
However, there was a global economic crisis and Vietnam was one of the countries influenced heavily. The economy of Vietnam performed so badly in last two years. In this report, we will understand more clearly what and how the crisis impacts on Vietnam’s economic growth.
By the crisis in global economy, the inflation rate in the countries all over the world shot up. In Vietnam, the rate of inflation grew to an alarming level and led to other problems.
(Source: Asian Development Bank)
It had been mentioned above that there was a speedy rise in inflation of Vietnam in 2008 (1). This was the highest rate in history of Vietnam’s economy. However, there used to be inflation in 2004. Although it dropped slightly in the next few years, the inflation surged up in 2008 again and created many problems to Vietnam’s economy and its civilians also. After Doi Moi campaign has launched, the economy of Vietnam developed enormously. The standard of living was higher and the GDP growth increased dramatically. These led to the higher consumer spending, more foreign and domestic investment and more outputs due to both import demands from other countries and domestic demands. This resulted the prices of product and fuel were higher. Therefore, inflation rose speedily. At that time, I still remember that the price of rice increased sharply by approximately 108 per cent (Citation: www.eiu.com, 9th July 2009). This led to a growth in transportation costs also.
Of course the government could not just stand and look without doing anything. They tried to lower the inflation rate as much as possible. Their solutions related to fiscal policy that was effective. The evidence is to look in the graph above (1), after a dramatically rise in inflation rate in 2008, the rate dropped considerably in the next year. However, it still arises some issues.
Gross Domestic Product (GDP)
(Source: CIA World FactBook)
One of the issues is about Vietnamese GDP. It is easy to see that the Vietnamese GDP growth was above 8% from 2005 to 2007. The pace of GDP growth is the highest in 2007 that inflation shoots up at the same time. We know people will want to spend much more when inflation happens, so the demand for goods and the oil increase. Consequently, the prices of products and fuel rise and the GDP will grow and consumer expenditure increases. That is why GDP growth is higher in 2007. According to the World Bank (2009), the government launched “stabilization packed” policies in order to decrease inflation. More clearly, the monetary and fiscal policies were tightened, the investments and expenditure were restricted, encouraged consumers to practice thrift and adjusted the banking system. The central bank not only had to use interest-free loan to do payments for workers but also lowered the interest rate. Therefore, the central bank of Vietnam had to cut a lot of costs. On the other hand, this new policies also impact on living standards such as it is encouraged that there were not increase in prices of electricity, oil, gas, cement, fertilizers, clean water, medicines, air, train and bus ticket, tuition fees and hospital charges until June 2009. (Citation: www.dantri.com.vn, 3rd July 2009). Furthermore, the new policies also reduced the investments so a lot of projects were cancelled or delayed. That is why enterprises met some difficulties with those policies. However, because of decrease in investments and expenditure, GDP growth fell in the early 2009 (2.1) and inflation fall significantly. In the first quarter of 2009, inflation rate dropped by just over 3 per cent. (1)
(Source: General Statistics Office of Vietnam)
It is easy to understand inflation situation by GDP growth. On the other hand, GDP per capita of a country can also show the health of that country’s economy. The GDP/capita shows us the standard of living in Vietnam years by years. The time inflation rose is the time when GDP/capita was quite high. It means that in 2007 and 2008, standard of living was improved well so consumers’ demand for goods and fuel grew. Therefore, the price increased and so did the inflation.
How the crisis impacts on import – export performance
(Source: Asian Development Bank)
Exchange rate is another problems that financial crisis created.
Although the dong has been keeping depreciating against the US dollar since 2003 with just a low pace (3), from 2007 to Feb 2009, there was a downward pressure on the dong by 3 percent against US dollar. This was caused by both high inflation and widening account deficit which was the result of government solutions (World Bank 2008). They impacted on import and export performance. To understand more clearly, when inflation happened, high import demand of Vietnamese from other countries happened, especially from countries such as China and USA, so import rate increased speedily in the early 2008 (4). Therefore, the dong depreciated against US dollar. That is why inflation, import-export and exchange rate have strong relationship with each other.
(Source: Asian Development Bank)
Therefore, the economic crisis made inflation increase dramatically and impacted on trading of Vietnam also, especially import-export performance. However, due to the participation in WTO, Vietnamese export grew a lot in the last two years but it can not be said that the economic crisis did not affect export in Vietnam. Although the exports of goods and services still rose slightly, the growth in exports did fall in the late 2008 and early 2009. An illustration of this is about Mr. Le Quoc An - Chairman of the Garment and Textile Association, he estimated that exports of garment products will fall in 2009 because the exporters lose their traditional customers in the US and UK. (Citation: www.eiu.com, 9th July 2009).
In my opinion, the export growth that decreased in the end 2007 caused the drop in prices of many products, especially of agricultural industry in Vietnam and the phenomenon that almost of the products sold in the supermarkets was “Made in China” or from other countries. Otherwise, the import of goods and services of Vietnam increased speedily. It is easy to recognize when looking at the graph above (4). The pace of export growth dropped gradually and the Vietnamese imports developed quickly.
Another impact of economic crisis related to labor market. Looking at the graph (5), we see that the unemployment rate in 2007 decrease slightly. This was the consequence of high inflation that made the prices of products and oil rise due to high demand from consumers, so suppliers wanted to supply more goods. Therefore, they need more workers to work harder and make more outputs (with higher wage rate) and thus, the unemployment rate dropped slightly.
However, there were still some negative impacts on the labors. I think that when the government put new policies into practice to decrease the inflation. There was a part about practicing thrift that encouraged Vietnamese to limit their consumption expenditure as much as possible. Therefore, the demand for goods would drop, so suppliers provided products less. That means they had to reduce the outputs. As a result, many workers lost their jobs because of cutting costs or their wage rate would fall. That is why when we look in the graph (5), after inflation in 2007, the unemployment rate surged up. Another problem was that a lot of people after graduation could not find a job at that time. Some example about this issue is the Canon Co., cut down 2,000 workers or Hanoimilk, had 250 workers who lost the job. (Citation: www.bbc.co.uk/vietnamese/vietnam, 11th August 2009) To solve the problem for labor market, some firms reduce working time to avoid job losses or the policies mentioned in the last part. (Citation: www.bbc.co.uk/vietnamese/vietnam, 11th August 2009).
Library of Congress – Federal Research Division. Country profile: Vietnam, December 2005. Vietnam.
Asian Development Bank (2008). Key Indicators for Asia and the Pacific. Available from: http://www.adb.org/Documents/Translations/Vietnamese/default.asp. Cited 7th July 2009.
The Economic Intelligence Unit (2008). Countries Report: Vietnam. Available from: www.eiu.com. Cited 9th July 2009.
CIA World Fact Book (2008) Vietnam. Available from: https://www.cia.gov/library/publications/the-world-factbook/geos/vm.html. Cited 7th July 2009.
Thanh, P. and Quynh, N (2009). Assist dismissed workers caused by economic downturn. Available from: www.dantri.com.vn. Cited 3rd July 2009.
General Statistics Office of Vietnam (2009). Monthly Statistic Report. Available from: www.gso.gov.vn. Cited 7th July 2009.
World Bank (2008) East Asia and Pacific Update: Navigating the Perfect Storm.
BBC (2008) “Vietnamese firms are cutting down their employment size”. Available from www.bbc.co.uk/vietnamese/vietnam. Cited 11th August 2009.