Vietnam: Ever closer ties to the United States
Thomas Cromwell

Vietnam’s ambassador to Washington, Le Cong Phung, recently responded to questions from DiplomaticTraffic.com, covering a wide range of issues, including recent economic trends, a stimulus plan to counter the impact of the global recession, and every stronger ties with the United States. His answers are reproduced below, with only minor changes for the sake of clarity.    

Vietnam’s renewal process over the past few years 
Vietnam has made many great achievements in national construction and defense during its years of renewal. People's living standards have been much improved and the country has gained a higher position in the world.

The experiences of the renewal process show that it must serve the people's welfare and develop the people's creative and active roles. The process must recognize reality and always adapt to new developments. "The people's legitimate benefits" are the basis for the foundation of policies and "the people's support" of the Party and State is a standard by which the soundness of policies can be affirmed.

The internal strengths must be developed to a high degree, taking advantage of external forces and combining established strengths with new conditions. Vietnam's renewal process has taken place in the context of the booming science and technology revolution and the developing intellectual economy.
Thus, Vietnam needs to actively take advantage of these circumstances for its socio-economic development, and needs to create favorable domestic conditions for developing and applying the world's advanced modern technologies.

Recognizing the trend of the economy's globalization, the Party and State have been active in international economic integration and implemented independent and sovereign foreign policies in concert with the multilateralisation and diversification of international relations.

Vietnam has to date established diplomatic ties with more than 170 nations and trade relations with more than 220 countries and territories worldwide. The country has joined large organizations in the world and in the region such as the Asia Free Trade Area (AFTA), Asia-Europe Meeting (ASEM) and Asia-Pacific Economic Cooperation (APEC), and is now in negotiations for entry to the World Trade Organization (WTO) entry.

Through its foreign relations, Vietnam has been attracting many foreign direct investment (FDI) sources and established credit relations with international monetary organizations like the World Bank (WB), the Asian Development Bank (ADB) and the International Monetary Fund (IMF).

Over the past years, in concert with economic renovation, Vietnam has gradually renewed the organizing and methods of the political system, reorganized the Party, promoted democracy in the Party and improved the Party's leadership of the State and society. The country has built a legitimate state of the people, by the people and for the people; implemented legislative, executive and judicial reforms; renewed local authorities and activities of the Fatherland Front and other socio-political organizations; and promoted democracy in society and the fight against corruption and wastefulness.
 
An economic review of 2008 and outlook for 2009
After two years of WTO membership, Vietnam has been opened to various development opportunities but also faced with different challenges. In 2008, the world economic slump caused by the global financial crisis, volatility in prices of crude oil, food and commodities as well as inherent weaknesses produced a lot of difficulties for Vietnam’s economy, particularly high inflation and large trade deficits. Given the resolute implementation of the 8-point- policy package of inflation curbing, macroeconomic stabilization and social welfare measures since early 2008, Vietnam’s economy has witnessed significantly positive moves. Economic growth was sustained, monetary and financial markets remained stable, inflation and trade deficits gradually declined and FDI inflows increased rapidly.

(A) Vietnam economic review for 2008

a/ Economic growth

The country’s gross domestic product (GDP) grew by 6.23%, of which agriculture, forestry and aqua-culture sectors increased by 3.79%; industrial and construction sectors increased by 6.33%; and services increased by 7.2%. The economic growth in 2008 slowed down and was lower than the average of the past 5 years.

Despite the negative impacts of climate change, natural disasters and floods, agricultural production achieved positive results. Total agriculture output in 2008 increased by 5.6%. Rice output increased significantly, thus ensuring national food security and exports.

Industrial production and construction faced many difficulties due to the world economic downturn caused by the global financial turbulence and surge in prices of fuel and basic commodities. Nevertheless, industrial production output increased by 14.6%, of which the State, non-state and FDI sectors grew by 4%, 18.8% and 18.6% respectively. Production output of extractive industries declined by 3.5%, manufacture and processing industries increased by 16%; and water, gas and electricity industries went up by 13.4%.

Total retail sales and services revenue in 2008 were estimated to grow by 31%. Many tourism attractions were upgraded and improved. By the end of 2008, the number of international arrivals in Vietnam increased by 0.6% compared with 2007.

b/ Foreign trade

Despite unfavorable economic conditions and keen competition, export turnover sustained rapid growth. Total export turnover in 2008 reached $62.9 billion, up by 29.5% year-on-year. Some main export products continue to maintain a high growth rate, such as crude oil (23.1%: $10.5 billion); textiles (17.5%: $9.1 billion); seafood (21.2%: $4.6 billion); shoes (17.6%: $4.7 billion); rice (89.1%: $2.7 billion); electronic products and computers (29.5%: $2.7 billion) and coal (50.5%: $1.4 billion).

Vietnam’s exports suffered from losses caused by sharp drops in prices of its major exports (crude oil, rice, rubber, etc.). Demand from key export markets, such as the United States, Japan and European Union, which accounts for nearly 50% of export volume, contracted. From September, when the financial crisis intensified, Vietnam’s monthly exports slowed significantly. Exports in August were $6.1 billion, in September $5.3 billion, in October $5.1 billion, and in November were just $4.8 billion.

In 2008 the value of imports grew rapidly due to climbing import prices (fertilizer prices rose 94.2%, fuel 53.5%, and steel 45.8%). Monthly trade deficits shrank rapidly from the middle of the year, however the total trade deficit still reached around $17.5 billion, equal to 27.8% of the export turnover and equivalent to the deficit level of the previous year.

Major reasons for the large trade deficit are: (i) The increase cost of most imports, particularly fuel, materials and equipments, which could not be produced domestically; (ii) the share of processed exports remain modest, whereas most imports are processed goods, machinery and equipments; (ii) tariff reduction and regulation streamlining in compliance with the WTO commitments have facilitated operations of trading companies, including importers.

c/ Investment

Total investment capital for development in 2008 reached 637.3 trillion VND (about $38.8 billion), some 43.1% of GDP, up by 22.2% from 2007, of which public investment was 184.4 trillion VND (around $11.3 billion), investment by non-state sectors was 263 trillion VND (about $16 billion) and disbursed foreign direct investment (FDI) was $11.5 billion.

Registered FDI capital climbed to a record level of over $64 billion, triple the previous year’s level. Several projects have a registered capital of $3.5-$7.8 billion. Despite that fact, FDI inflows into Vietnam are forecast to slow in the short term, due to the tightening of global credit. However, given our stability, Vietnam could continue to be an attractive investment destination in the region.

By the end of 2008, the United States ranked 11 among 81 nations with investments in Vietnam, with 421 operational projects and $ 4,1 billion in registered investment capital. US investments are concentrated in the service sector, mainly tourism and hotels. Some 80 percent of these investments are 100% US owned, as opposed to joint ventures.  

d/ Financial issues

Given the resolute implementation of the 8-point- policy package for inflation control and macroeconomic stabilization, the monthly consumer price index (CPI) declined rapidly from the middle of 2008. In the fourth quarter, the CPI plunged, registering: -0.19% in October, -0.76% in November and -0.68% in December. However, the inflation rate for the whole year remained at a high level of 22.97%, although this is lower than forecast. Other macroeconomic indices were stable and foreign debt was kept within a safe range.  

The financial and banking systems have not been directly impacted by the global financial crisis because the level of Vietnam’s integration with the world finance remains modest. However, deposits in foreign banks are exposed to greater risk. As businesses have faced difficulties getting credit, and property markets have remained ‘frozen’, some borrowers have defaulted on payments, and non- performing loans have increased. Vietnam’s stock markets are experiencing a sharp downward trend. The VN Index dropped from over 1.000 points in early 2008, to around 300 points in late 2008.

(B) Economic outlook for 2009

The donor community and many economists share the view that the medium-term outlook of Vietnam remains favorable, despite the current global economic troubles. This outlook is based on several factors: (i) Socio- political stability; (ii) the Government’s consistent and strong commitment to reform and international integration acceleration; (iii) the implementation of WTO commitments to facilitate a more favorable business environment; (iv) an abundance of youthful workers. According to Professor Michael Porter of Harvard Business School, with “appropriate economic strategy,” Vietnam could be well qualified as a “manufacturing base,” a “node in the Asian value chain” and a services hub in Indochina. With these strong fundamentals, Vietnam enjoyed huge capital inflows in 2008 despite its short-term economic challenges.

The overall government objectives for 2009 include: “keeping inflation under control, ensuring macroeconomic stability, sustaining appropriate economic growth, proactively preventing economic slowdown, ensuring social welfare and effectively strengthening international economic integration and cooperation.”

Specific targets for 2009 include economic growth of 6.5% and total investment of 39.5% of GDP. The World Bank has forecast 6.5% GDP growth for 2009, but some institutions, including the International Monetary Fund and the Asian Development Bank have forecast a growth rate of 5% for Vietnam this year. 

With lower commodity prices, the inflation rate is projected to decline to 15% or lower. According to the IMF’s forecast, inflation may drop to single-digits by the end of 2009. 

Export volume is targeted to increase by 13% in 2009. The trade deficit is forecast to continue its downward trend because of declining import prices, particularly prices of oil and basic commodities. After the 6.5 million-ton Dung Quat oil refinery operates at full capacity, expected for March this year, a significant portion of imported fuel and petroleum-based products will be produced in Vietnam, reducing the trade deficit.

In an effort to mitigate the adverse impacts by the global financial crisis, Vietnam is implementing measures to contain economic slowdown and sustain economic growth, supported by a financial stimulus package worth about $6 billion in 2009. The initiative focuses on: (i) promoting production and exports; (ii) leveraging investment and consumption; (iii) introducing flexible and effective monetary and fiscal policies; (iv) accelerating the implementation of poverty reduction programs and ensuring social welfare.

The international community considers the shift from inflation control to growth stimulation in Vietnam appropriate in the context of global economic recession and deflation. However, unlike other regional countries, remnants of high inflation and trade deficits in Vietnam might linger through 2009. Economic stimulus is needed to secure macroeconomic stability and growth.

Beside the above short-term measures, Vietnam is trying its best to strengthen the foundations for sustainable growth in the coming years with the following measures:

(i) To increase international economic integration, making full use of post-WTO accession opportunities;

(ii) To accelerate the improvement of the legal system and market economic institutions;

(iii) To speed up the development of key socio- economic infrastructure, notably vital transport infrastructure in order to eliminate bottlenecks and enhance the competitiveness of businesses and the whole economy;

(iv) To attach more importance to human resource development, particularly a skilled workforce, with a view to attracting high-tech and high-value added investment, and to accelerate improvements in economic and export structures;

(v) To facilitate the development of businesses in different economic sectors; to speed up reform of state owned enterprises;

(vi) To effectively implement the National Program on response to global climate change in an effort to mitigate its adverse impacts on agriculture production and rural living;

(vii) To expand social welfare networks in order to support vulnerable people; to enhance sustainable poverty reduction and make sure the poor can enjoy the fruits of economic growth.

Vietnam-US relations in recent years
It is very evident that Vietnam-US relations have grown remarkably in recent years. Since the Clinton administration, we can see that the two sides have traveled a long way from foes to friends, from past enemies to important partners today.

Under the Clinton administration, a solid foundation for the expansion of bilateral ties was established with the normalization of diplomatic relations in 1995, the signing of the landmark Bilateral Trade Agreement (BTA) in 2000 and the historic visit by President Clinton in 2000 – the first visit by a US president to the Socialist Republic of Vietnam.

Building on that firm foundation, bilateral relations grew rapidly under the Bush administration. I think the two countries are now enjoying the best bilateral relationship politically, economically and in many other fields.

Politically, for example, it’s really unprecedented that we’ve seen four consecutive high-level reciprocal visits in the last four years, starting with Prime Minister Phan Van Khai’s visit - the first ever by a Prime Minister of the SRV - to the US in 2005, followed by President Bush’s visit to Vietnam in 2006, President Nguyen Minh Triet’s tour of the US in 2007 and Prime Minister Nguyen Tan Dung’s trip to the US in 2008. Each visit produced its own results that helped consolidate and strengthen our bonds in different ways but overall they established a framework for long-term and stable development of a new partnership between the two countries. More significantly, I think, they showed how much the two sides care about their relationship, how much importance they attach to each other. And I hope that this spirit will be carried over to the administration of President Obama.

Another hallmark of the Vietnam-US relationship in recent years is the strong expansion of economic, trade and investment ties, which is enabled by a conducive legal framework including the BTA I mentioned above, the PNTR in 2006 and the TIFA in 2007. Bilateral trade, for example, has registered impressive growth over the years. The two-way trade volume soared six times from $1.5 billion in 2001 when the BTA came into effect to more than $9 billion in 2006. It reached $12 in 2007 and an estimated over $13 billion in 2008. The US has become Vietnam’s biggest export market and Vietnam one of the fastest growing markets for US exports. US investment has also increased remarkably in recent years, exceeding $4.1 billion in 2007, making America the 11th biggest foreign investor in Vietnam.

The two countries have also enjoyed cooperation in the areas of science and technology, education, health, humanitarian assistance, counter terrorism, defense and so on. We have also worked with each other at multilateral forums, such as the UNSC, APEC and ASEAN.

With such broad-based cooperation and the momentum created in recent years, I hope and believe that our bilateral relations will continue to grow in the coming years.

Biography of H.E. LE CONG PHUNG
Ambassador Extraordinary and Plenipotentiary
of the Socialist Republic of Viet Nam
to the United States of America

Le Cong Phung is a career diplomat. He was appointed by President Nguyen Minh Triet as Ambassador Extraordinary and Plenipotentiary of the Socialist Republic of Vietnam to the United States of America in October 2007. Prior to his appointment, Mr. Le Cong Phung was the First Deputy Foreign Minister, the Ministry of Foreign Affairs’ second ranking official, assisting Deputy Prime Minister and Foreign Minister in the conduct of Vietnam’s foreign policy. He served as Deputy Foreign Minister between 2001 and 2004 and Assistant Foreign Minister from 1999 until 2000. From 2000 through 2004, he acted as Chairman of the Committee on Border Affairs and as Chairman of the National Commission for UNESCO.

During his 37-year career, Ambassador Le Cong Phung served in various foreign service posts in England (1974-1977), China (1978-1980), Indonesia (1984-1987) and as Ambassador to Thailand (1993-1997).

Ambassador Le Cong Phung was born in on February 20, 1948 in Thanh Hoa Province, Vietnam. He graduated from the Vietnamese Foreign Ministry's School of Diplomacy in Hanoi in 1971. He speaks fluent English and French. He and his wife, Nguyen Thi Nhan, have two sons.