Endnotes

¹ There has been extensive literature on the nature of the BOP and financial crises. Though being different in terms of strengths, current account (CA) deficit and its financing, and the degree of capital account (KA) openings and their composition, these crises share some common causes such as inefficient investments, weaknesses in their corporate governance and the financial sectors, and inconsistencies in macroeconomic policies.

² State investment includes investment from budget, state credit, and SOEs’ retained profit investment. Note also that about 28% and 38% of the GDP are accounted for by the SOE and state sectors, respectively.

³ The regression is stp = 12.292 – 0.054*gt2 + 0.629*spt-2 with the sample of 1990-2005 (0.00) (0.04) (0.00)(R-bar)2 = 0.916; D-W = 1.597; Cusum-square test is stable at 5% significance level. Where stp is other than budget saving ratio and gt is economic growth rate (see Vo ed. 2007).

⁴ For instance, AgriBank is assigned to primarily provide credit to the agricultural and rural sector.

⁵ There are, however, some problems with the officially announced NPLs. Some suggest that the figures for NPLs would be 3 times higher if the estimates are based on rigorous international accounting standards.

⁶ The HOSTC was transformed into Ho Chi Minh City Stock Exchange (HOSE) in May 2007.

⁷ The Personal Income Tax Law approved in 2007 states that investors should pay income tax on capital gains (20%) or 0.1% of each transaction from the stock investment. The enforcement will be effective from the beginning of 2009. Due to a sharp decrease in stock price indexes, in December 2007, the Ministry of Finance (MOF) requested that the Government delay the application of the law.

⁸ Municipal Bonds: Ho Chi Minh City and Hanoi are permitted to issue bonds equivalent to 100% of their annual investment budget (for other cities, the applicable limit is 30%) subject to the Ministry of Finance’s approval. DAF Bonds: The DAF (now VDB) has become one of the largest financial institutes in Viet Nam, and has outstanding loans equivalent to about of 20% of the GDP, half of which are financed through ODA. Education and Infrastructure Bonds: The National Assembly has authorized issuance of total VND110 trillion (about USD 7 bil.) of the education and infrastructure bonds for the period 2005–2040. SOCB recapitalization bonds: In 2001, as a part of the government’s restructuring program for SOCBs, NPLs worth VND10.9 trillion (2.5% of the 2000 GDP) were provided in the form of recapitalization bonds (9.7 trillion) and cash.

⁹ The methods and channels are (i) treasury bill auctions to designated banks through the SBV as the fiscal agent for the State Treasury and as the registrar, (ii) bond auctions to designated banks, insurance companies, finance companies and securities firms through the STCs with the SCC as the registrar, (iii) underwriting by a syndication of designated banks and securities firms with each underwriter as a registrar, and (vi) direct placement of bonds with the public through a national network of about 600 State Treasury offices with each Treasury office as a registrar. At present, the Treasury stopped retail issuance of bonds to individual investors to reduce transaction costs.

¹⁰ The issue has widely been regarded as successful and the spread over US treasuries has declined from 256 basis points at issuance to about 110 basis points as of April 2007.

¹¹ The figure for implemented/realized FDI is different from that of FDI in BOP.

¹² Intel has decided to establish a USD 1 billion semiconductor assembly and test facility in Viet Nam that is not only a landmark for Viet Nam, but also a clear indication of a growing trend. In the same sector, Hong Hai–Foxcom (Taipei,China) has plans to invest up to USD 5 billion over the next five years at several sites in Viet Nam to manufacture electronic goods and computer products, from digital cameras to music players, motherboards and other computer components.

¹³ Note that in recent years ASEAN -5 has had a large surplus in trade with PRC.

¹⁴ See Institute of Vietnam Economy (2007).

¹⁵ For example, remittances are not subject to tax and can be withdrawn in foreign currencies.

¹⁶ See Appendix B for more detailed information on Viet Nam’s BOPs.

¹⁷ Measured as ratio of foreign currency deposits to M2, dollarization in Viet Nam remained stable between 20–23% in the mid-1990s. It started to increase in 1997 to reach a peak of 31.7% in 2001, before dropping to 24.4% in 2005 and less than 20% in 2007.

¹⁸18The CIP equation is: it,k = i*t,k + fd ; where, it,k and i*t,k are rates of return on domestic and foreign assets of the same maturity and are otherwise identical, except that they are denominated in different currencies, and fd is the forward discount on the domestic currency for that maturity. The UIP holds if investors are assumed to be risk neutral, expectations are formed rationally, and the expected future depreciation of the home currency (Δset,t+k ) equals the forward discount: it,k = i*t,k + Δset,t+k

¹⁹ See, for example, APF and ADBI (2001), and Jeffrey and Pomerleano (2002).

²⁰ Decree 22/1999/ND-CP is the 1st legal document on the FDI outflows. Since then there has been some relaxation on foreign exchange transactions and borrowings for overseas direct investment purposes.

²¹ The realized FDI as a share of the total FDI commitment in 2006 and 2007 was only 41.0% and 37.8%, respectively. These figures are much lower than that in 2005 (84.7%) and the average during 1988-2007 (52.7%).

²² If a country attempts to achieve ER stability and monetary independence, it needs to introduce capital controls. If a country attempts to have full financial integration and monetary independence, it needs to adopt the floating ER regime. If a country attempts to achieve ER stability and full financial integration, the very rigid fixed ER such as a currency board system or a currency union should be considered.

²³ During 2007, the price of petroleum increased four times––in January, March, May and November, and decreased one time, in August. As a result, the price/liter increased from VND 10,500 to VND 13,000 (or 23.8%).

²⁴ During 2007, the price of petroleum increased four times––in January, March, May and November, and decreased one time, in August. As a result, the price/liter increased from VND 10,500 to VND 13,000 (or 23.8%).

²⁵ Inflation is often high during the months before and after the Lunar New Year. But inflation at 6% is still high by normal standards. The impact of the most recent monetary measures can be seen later. Note that in January the Government increased again public salaries by 20% and also the petroleum price from VND 13,000/liter to VND 14,500 (or 11.5%).

²⁶ Some ideas are taken from Vo et al (2007).

²⁷ Two laws, the SBV Law and Credit Institutions Law, have been substantially revised and amended.

²⁸ Basically, REER is an overall index of international price competitiveness with weights reflecting the importance of each trading partner. The REER may be not a good indicator of price competitiveness of Vietnamese commodities due to the vertical structure of exports. Viet Nam has to import a lot of materials and input from outside to produce exports (e.g. garments and footwear). In addition, the main competitors of Viet Nam are not the US, Japan and the EU but Asian countries such as PRC, Thailand and Indonesia. Therefore, it is necessary to be concerned about bilateral REER between Viet Nam and these countries.

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