VN business news (Apr 4, 1997)

[Dam Son <son@fermi.phys.washington.edu>]

Vietnam lacks tecnical skills for computer production
Vietnam's March budget revenue equal to Jan-Feb total 
Vietnam's central bank ready to bail out commercial banks 
World Bank says Vietnam must solve its current account deficit
World Bank signs over 195-million-dollar road loan to Vietnam
A Bourse for Vietnam 
Hanoi sees second-quarter trade gap above $1.0 bln
Vietnam's Cocoa Beans Export Rises Sharply 


Vietnam lacks tecnical skills for computer production

Hanoi (VNA) -- Advanced technical knowledge needed to produce
electronics and computer equipment has not been yet transferred to
Vietnam despite the presence of a number of the world's leading
computer and electronics corporations in the country, according to the
Ministry of Planning and Investment (MPI).

The Ministry of Trade (MOT) adds that only around ten per cent of
domestically assembled electronic products were imported in the form
of incomplete knock-down (IKD) parts while most of the remainder were
in the form of completed knock-down (CKD) parts. Vietnamese partners
in electronics joint ventures are only responsible for the production
of plastic covers, antennae, or simple manufactured accessories.

The MOT estimates that 70 per cent of electronics products in the
domestic market were turned out by joint ventures and wholly foreign
invested businesses in recent years.

To date, 51 projects with registered capital of $US618 million in the
sector have been licensed by the MPI. Of them, 21 are joint ventures
with combined investment capital of $US372 million and 28 wholly
foreign invested projects worth $US242 million.

On average, an electronics joint venture or foreign-owned enterprise
has total investment capital ranging from $US17-22.5 million each, 34
to 56 times higher when compared to State-owned or private domestic
businesses in the area.

Among foreign investors in this field, the Republic of Korea has taken
the lead with seven wholly foreign invested projects and six joint
ventures with combined capital of $US341 million, followed by Japan
with five foreign-owned projects and six joint ventures totalling
$US143 million.

The United States, the Netherlands, Hong Kong, Taiwan and the British
Virgin Island, each own from two to six joint ventures or wholly
foreign invested projects.

Most of the world's giant computer and electronics corporations from
Japan, the Netherlands, and the ROK are doing business in Vietnam,
focussing on economic centres like Ho Chi Minh City, Hanoi and Dong
Nai.

The Vietnam Electronics and Information Technology Corporation has
selected prestige electronic corporations like Sony, Toshiba,
Matsushita, JVC, Samsung, Daewoo and Goldstar as its partners in
establishing joint ventures to turn out locally made products to
gradually replace imports.

To date, joint ventures and foreign invested projects have generated
jobs for nearly 4,000 labourers earning a combined turnover of $US194
million last year.
  ___________________________________

Vietnam's March budget revenue equal to Jan-Feb total

Hanoi (VNA) -- Budget revenue in March has made sound progress
collecting taxes equal to the total for both January and February,
according to a report by the General Statistics Department.

The increase has brought the total budget revenue in the first quarter
of this year to more than 10 per cent of the annual plan, an all-time
high for the last four years.

Due to the 1997 lunar new year celebration which fell in mid-February,
budget revenue collection showed a downturn in the first two months.
However, a fast increase in production and business has dropped to a
minimum first quarter level for five consecutive years.

The report also said that all resources should be fully tapped in
addition to proper action taken to reduce any budget revenue losses
caused by loose control of budget revenue resources in order to
achieve the budget revenue target set for this year.
  ___________________________________

Vietnam's central bank ready to bail out commercial banks

by Frederik Balfour

HANOI (AFP) - Vietnam's central bank governor Wednesday said his
institution was prepared to find solutions to bail out troubled banks
after acknowledging problems with processing deferred trade credits.

"To address the problem resulting from deferred letters of credit ...
we shall try to take the appropriate measures and policies to assist
these banks," governor Cao Si Kiem told reporters.

Kiem did not name any specific actions, but when asked he did not rule
out using foreign exchange reserves at the central State Bank of
Vietnam (SBV) to help banks meet their committments.

Foreign bankers have estimated that as much as 1.5 billion dollars
worth of deferred letters of credit will fall due this year, a
situation compounded by an overvalued exchange rate. By comparison,
Vietnam's foreign exchange reserves are about 1.7 billion dollars.

Kiem said central bank assistance would depend "on the actual
circumstances" faced by commercial banks in meeting deferred
transactions.

The central bank governor, speaking at a signing ceremony for a 195.6
million dollar loan for road rehabilitation from the World Bank, added
that another option would be for one of the four state-owned
commercial banks to bail out ailing private joint-stock banks in
exchange for an equity stake.

"Maybe there is a possibility of that," he said.

Many of the 54 non-state, joint-stock banks are severely
undercapitalised and have overextended themselves with loans backed
with flimsy collateral used for speculative purposes, foreign bankers
have said.

While such a move would amount to a deprivatization of the banks and
backtracking on financial liberalisation, multi-lateral institutions,
like the World bank, would accept it in order to avert a crisis of
confidence in the banking system, the foreign bankers said.

"This is essential because Vietnam is trying to build confidence and
mobilize domestic capital," said a Hanoi-based banker.

Kiem, who has come under pressure recently for problems in the banking
sector that have arisen under his stewardship, did not provide details
of the magnitude of the deferred letter of credit (LC) problem.

"First commercial banks involved in such problems will have to clarify
and indentify debts relating to overdue LCs," he said.

Kiem's ability to cope with a potential crisis is hampered by the
absence of legislation defining central bank powers and
responsibilities.

"It's extremely difficult because he has to play it by ear, he is
working without a script," said the banker.

Kiem will be without a script for at least another six months. Two
pieces of key banking legislation scheduled for passage at the
National Assembly session which opened on Tuesday have been postponed
until fall.

At root of the problem is that laws and institutions have failed to
keep pace with the developments in the financial sector, said the
banker.

Standard banking practices such as bad debt provisioning, credit risk
management and compulsory bank audits are non-existent among many
Vietnamese banks.
  ___________________________________

World Bank says Vietnam must solve its current account
deficit 

HANOI (AFP) - Vietnam needs to build up its financial sector and
address its current account deficit problem, a senior World Bank
official said here Thursday.

"There are management difficulties associated with rapid growth,
especially the credit account deficit. Solutions will have to be found
to manage this particular part of the economy," Jean-Michel Severino,
World Bank vice president of East Asia and the Pacific Region, told
reporters.

"I hope Vietnam will avoid the mistakes of its fast-growing neighbours
and manage the difficulties associated with rapid growth."

Severino said Vietnam should look to the failure of Asian tigers to
address issues involving the environment, quality of urban life and
areas of macroeconomic management.

He said Vietnam must pay particular attention to developing "its
financial sector, which is a very weak area of Asian economies."

Vietnam's trade deficit in 1996 was more than four billion dollars,
representing about 17 percent of gross domestic product (GDP), while
rough estimates for its current account deficit range between 11 and
12 percent of GDP, up from 10 percent of GDP in 1995, a foreign
economist said.

Severino, who signed an 195.6 million dollar World Bank loan to
rehabilitate Vietnam's National Highway Number One on Thursday, was
more hard-hitting in his comments than World Bank President James
Wolfensohn during his visit here last May.

Critics of the World Bank, which has committed to lending Vietnam
roughly 1.5 billion dollars over the next three years, said the bank
has not pushed Vietnam enough on financial and state enterprise
reforms.

But recently the World Bank has taken, at least, privately, a firmer
stand. According to a foreign diplomat familiar with talks between the
World Bank team negotiating a second structural adjustment credit to
Vietnam, experts have blasted Hanoi for dragging its feet on a number
of promised reforms.
  ___________________________________

World Bank signs over 195-million-dollar road loan to Vietnam

Hanoi -- The World Bank Thursday signed a credit agreement worth 195.6
million dollars with Vietnam to help rehabilitate a 300-kilometre
section of the country's principal north-south highway, the bank said.

This is the second major low-interest loan the Bank has extended to
Vietnam to rebuild its dilapidated Highway Number One which runs from
the Chinese border to the southern Mekong Delta.

The agreement was signed by Vietnam's central bank governor Cao Sy
Kiem and Jean-Michel Severino, the World Bank's recently appointed
vice-president for East Asia and Pacific, said a bank statement.

In addition to rebuilding the section of Highway One from Vinh to Dong
Ha, the new loan will used to improve other particularly hazardous
sections and for periodic maintenance of other high priority
stretches.

A first loan is currently being used to reconstruct sections from
Hanoi to Vinh and from southern Ho Chi Minh City to Can Tho, the key
city in the Mekong Delta area.

Since it resumed lending to Vietnam the World Bank has committed loans
of almost 1.5 billion dollars for 12 projects but disbursements to
date have reached about just 400 hillion dollars.

Of this amount 855 million dollars has been targeted for
infrastructure projects with the transport sector as a high priority.
-- Deutsche Presse-Agentur (dpa)
  ___________________________________

A Bourse for Vietnam 

By Le Anh Tu Packard
Far Eastern Economic Review

Vietnam's long-awaited stockmarket will become a reality soon.
Finally, officials are putting in place the machinery for serious
stock trading, which could begin as early as next year. It's a risky
move for the government, but one well worth taking considering the
potential benefits. A credible capital market can coax out enough
domestic private savings to make a difference. And Vietnam needs at
least $40 billion invested in infrastructure and basic industries to
achieve its growth targets.

All the same, Vietnamese officials feel uneasy about some things that
come with a stockmarket. One of these is a stockmarket index, which
conveys investor opinion of the companies listed on the exchange. It
also will reveal what investors think of the government's ability to
manage the economy. In times of investor sobriety, this index should
improve accountability and serve as an incentive to encourage good
government.

Thus, the establishment of a bourse sends several positive messages.
It says that government officials are confident they're able to
maintain macroeconomic stability. It also signals their resolve to
create a predictable business environment with transparent rules.
Otherwise, market interest will be tepid.

Prime Minister Vo Van Kiet's decision in November to replace the ad
hoc stock exchange committee with a ministerial-level National
Securities Board is an important step forward. Le Van Chau, a former
deputy governor of Vietnam's central bank, will chair the new board.
Turf fighting between government ministries had earlier stalled the
process.

Other factors delaying its establishment were fears by Vietnam's power
elite that they would not be able to cope with the problems created by
a stock exchange. These fears stem from the difficulties encountered
by other countries with emerging capital markets, especially during
periods of uncontrollable capital flight. Though not assuaged, these
fears have been overcome by the stronger desire to taste the fruits of
an active stock exchange.

That being said, a stockmarket can be made less scary. Building
investor confidence is essential. Investors want their legal rights
spelled out, mandatory disclosure of information and honest audits of
company financial reports. And not least, they want a solid
enforcement structure. Without these protections, they'll shun the
market.

Efforts to create a stock exchange in Vietnam began in 1991 with
technical assistance from the World Bank's International Finance Corp.
Since then, a steady stream of stockmarket experts have travelled to
Hanoi and Ho Chi Minh City to offer advice. These experts fret that
Vietnam is starting at square one with "10 more steps to go" before a
viable stockmarket can be established.

Vietnam needs first to have good accounting and disclosure systems,
goes the mantra. Firms need to have sound business plans, clear
dividend policies, credible rules to protect minority-shareholder
interests. All true, but their sequencing is not critical. Companies
that really want to raise money will follow the advice of the experts
after they discover that nothing less will attract private funds.

This year will see intense "equitization" activity as firms get their
financial houses up to snuff for investor scrutiny. The head of
Vietnam's Committee to Renovate State-Owned Enterprises optimistically
estimates that more than 100 SOEs will be equitized. In Ho Chi Minh
City, the 25 enterprises selected for equitization are preparing to
audit their assets.

Equitization is the Vietnamese way of having it both ways: getting the
money without losing the control. Equitization does not mean
privatization. The authorities do not intend to let go of their SOEs,
but they will sell shares in their SOEs to raise capital.

Much work lies ahead. Firms seeking to be listed must focus on the
preparatory work needed to persuade investors that they are worth
funding. The National Securities Board must decide what trading system
to put in place, define the trading rules and make it all operational.

When the stockmarket finally opens, the initial offerings will be
sparse. Only the bluest of Vietnam's blue chip companies will be
allowed to list. At first, corporate bond trading will dominate. But
growing firms will want to sell equity to maintain a more balanced
debt-to-equity ratio. Because it's easier to sell equity in liquid
markets, they will support the development of secondary markets. Over
time the offerings will become more varied, and the market will
deepen.

And if Vietnam makes the wrong moves? Players and regulators should
learn from them, and error-correcting mechanisms will kick in, as with
the government's ill-conceived scheme last year to impose a 5% tax on
remittances. The overseas Vietnamese community reacted by shifting to
informal channels. Remittances via the banking system dwindled to a
trickle. Chastened, the government scrapped the tax.

Thus, although the preferences of the authorities do matter,
ultimately the evolution of Vietnam's stockmarket must bend to the
requirements of its key players, among whom are the investors.
Otherwise they will pick up their chips and go home.

---

The writer is an associate of the Vietnam Investment Advisory Service,
a private consulting firm, and a fellow at the Foundation for
Indochina Studies, University of Amsterdam.
  ___________________________________

Hanoi sees second-quarter trade gap above $1.0 bln

HANOI (Reuter) - Vietnam expects its trade gap to widen to more than
$1.0 billion in the second quarter from around $850 million in the
first three months of the year, a Trade Ministry official said on
Thursday.

The official, who declined to be named, said the trade gap normally
widened in the second quarter from the first due to a seasonal
increase in demand for capital goods and raw materials.

However, he said the government's target was to keep the deficit for
the whole year under last year's record figure of around $4.0 billion.

The official was confirming a report in the Saigon Times Daily, which
said second-quarter exports were expected to rise by 23-28 percent
from the first quarter to $2.2-2.3 billion while imports were expected
to rise by 38.4 percent to $3.4 billion.
  ___________________________________

Vietnam's Cocoa Beans Export Rises Sharply 

Hanoi (Xinhua News) - Vietnam exported more than 138,000 tons of cocoa
beans in the first three months this year, an increase of 80 percent
above the same period last year.

The country now has over 200,000 hectares of cocoa which yielded some
300,000 tons of cocoa beans in the 1996-97 season, or 40,000 tons
higher than the previous season.

In the 1995-96 crop, the Vietnam Coffee Corporation (VCC) exported
240, 000 tons of cocoa beans, earning over 460 million U.S. dollars.

Last month, Prime Minister Vo Van Kiet approved a VCC plan aimed at
growing 40,000 more hectares of arabica cocoa as part of an effort to
increase the total acreage of cocoa to 260,000 ha, and harvest 350,
000-400,000 tons of cocoa beans by the year 2000.

An additional cocoa area will be allocated to northern highland
provinces with an investment of 78 million U.S. dollars, part of which
will come from a loan provided by the French Development Fund. Enditem