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A review of 2008’s economy
The year 2008 proved to be a difficult year for Vietnam’s economy. The inflation rate in the year was as high as 23%, while the GDP growth rate was only 6.23%. The economic growth slowdown in the year has pulled back the splendid achievements of the two previous years.
Let’s have a look at what happened in 2008
The efforts to curb inflation
In April 2008, in order to deal with the high inflation, the Government put forward eight groups of solutions 1/ tightening the monetary and fiscal policies; 2/ cutting down unnecessary investments and expenses; 3/ increasing production; 4/ increasing exports and limiting trade deficit; 5/ practicing thrift in production and consumption; 6/ stabilizing the market price and fighting against speculation; 7/ expanding social security programs; and 8/ adjusting credit structure, controlling loaning, ensuring the liquidity of banks and the national economy.
In 2008, the State Bank of Vietnam raised the basic interest rate three times (the rate once was raised to the highest peak at 14% per annum in June), and lowered the basic interest rate five times. The rate is now sitting at 8.5% per annum, after the adjustment in late-December. As such, the maximum lending interest rate in VND has been slashed to 12.75% per annum.
Commercial banks have gone from lacking liquidity to having excessive capital. They now find it difficult to increase lending despite the offered low lending interest rates.
Halting rice exports
The Government decided to halt signing rice export contracts from the end of March to the end of May, when the rice price in the world was very high at over $1,000/ton, after considering inaccurate forecasts by the Ministries of Industry and Trade, and Agriculture and Rural Development.
As the result, millions of tons of paddies from summer-autumn and autumn-winter crops in Cuu Long River Delta could not find outlets. The Government then lifted the rice export halt in July. However, at that time, the rice price dropped dramatically in the world market. Vietnam’s 25% broken rice could be only sold at a little higher than $300/ton.
State-owned enterprises made concerning widespread investments
The widespread investments by state-owned enterprises in their non-forte business fields was alarmed by Deputy Prime Minister Nguyen Sinh Hung at a conference on renovating state-owned enterprises, which took place in April 2008.
According to the Ministry of Finance, by the end of 2007, state-owned economic groups’ and general corporations’ outward investment had reached VND 117 trillion. The ministry also pointed out that 28/70 general corporations had investments in the fields of securities, banking and insurance worth VND 23,300 billion.
VINASAT-1 launched into orbit
Vietnam added its name to the world’s telecommunication map after it successfully brought VINASAT-1 into orbit on April 19.
With its own satellite, Vietnam can save $15 million a year from leasing satellites from Thailand. VINASAT-1 will help upgrade the national communication infrastructure, improve the network capability and the televising and broadcasting quality of the services in remote areas and islands.
The capital city expanded
August 1, 2008 witnessed a historical event with the capital city of Hanoi, as all the former provinces of Ha Tay, Me Linh district in former province of Vinh Phuc and four communes in Luong Son district in former province of Hoa Binh officially belonged to Hanoi. The event created a new Hanoi, with a natural area of over 3,000 sq km, or 3.6 times bigger than the previous Hanoi, and a population of six million people, double the previous figure.
The suspected bribery scandal
Four former officials of Japanese Tokyo-based PCI Company, an international consultancy company, were prosecuted on August 25 for giving briberies of $820,000 to Vietnamese official, Huynh Ngoc Si, Director of the East-West Avenue Project Unit, in order to get consultancy contracts for ODA-used (official development assistance) projects.
The scandal has led the Japanese Government to halt ODA commitments to Vietnam for the time being, waiting for the results of the investigation about the bribery. The Government of Vietnam has committed to seriously deal with the case.
The ‘deluge’ in Hanoi
The heavy rains at the end of October and early November, the heaviest rain of the last 25 years, put many streets in Hanoi under water for weeks, as well as caused traffic jams and much inconvenience to Hanoians.
The ‘deluge’ caused serious consequences to Hanoi and northern localities, with a death toll of 47 people and material toll worth several thousands of billions VND. Over 10,000 households saw their houses deep under water, many welfare works, like schools and medical centers, were flooded, 45,000 ha of winter-crop plants and 9,000 ha of aquaculture were flooded.
Vietnam tried to stimulate demand and investment
Stimulating demand and investment is one of the five urgent measures the Government kicked off at the end of the year in order to stop the economic slowdown and maintain growth. The Government plans to use $6 billion, including $1 billion from the national reserves (now estimated at $22 billion), for the demand and investment stimulus package.
Environment severely polluted
70% of industrial zones have been reportedly causing environment pollution at different levels, which shows that Vietnam’s environment control capability has not caught up with the rapid development. The typical example for this viewpoint is Vedan Vietnam Company’s releasing of toxic waste water to Thi Vai River was only discovered after 14 years.
Hyundai-Vinashin shipyard in Khanh Hoa province was discovered as releasing copper slag to the environment, which has been seriously affecting the health of local residents and water creatures. It was also caught burying 60 tons of toxic waste near a residential quarter.
The stock market and real estate markets fell down
Contrary to the forecast by General Director of the HCM City Stock Exchange, Tran Dac Sinh, given earlier the last year when talking with Thoi bao Kinh te Vietnam’s reporters, that Vietnam’s stock market would grow by two-folds in 2008, Vietnam’s stock market witnessed a very gloomy year. The VN Index had fallen by 68% by mid-December in comparison with the beginning of the year.
The real estate market, after the hot months of the first quarter, has been decreasing since the second quarter of the year.
Tuoi tre, Doanh nhan
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