VN business news (May 29)

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

May 29: Vietnam leaves investors at a loss 
May 29: Vietnam: Time for a reality check 
May 29: Vietnam's Trade Deficit Hits Over $1 billion 
May 29: Vietnam's export rice prices steady after climb 
May 29: EMI eyes Asian market with Vietnam tie-up
May 29: Asian Cash Rice Flat-Up; Vietnamese Up On Exporter Buying 
May 29: Executives arrested in Vietnam Ming Phung scandal
May 29: Vietnam Industrial Output Rises; Capital Development Lags 
May 29: New Vietnam Investment Rule Unfavorable To Foreign-Owned Firms
May 29: Vietnam trade deficit drops but economists question causes


Thursday - May 29, 1997

Vietnam leaves investors at a loss 

By Andy Soloman, Asia Times

Hanoi - In the latest of several baffling legislative moves, Vietnam
is to ban wholly foreign-owned companies from carrying for- ward
losses to subsequent years to offset against tax.

A financial advisor said business costs for some foreign-invested
projects could rise by as much as 25 percent as a result.

A foreign fund manager said an inability to carry forward losses
coupled with other recent policy shifts was making Vietnam a less
attractive place for foreign capital.

"It will just make the cost of investing even higher than it already
is, and it's getting higher as time goes on. It will certainly make
returns longer to come," he said.

While some investors and advisers remain unsure about how to interpret
the new regulation, an internal government letter obtained by Asia
Times and signed on behalf of the prime minister clarifies the law but
not the rationale behind it.

"In respect of 100 percent foreign-owned enterprises which have gone
into operation and had losses arising in financial years prior to
1997, [they] may continue to carry forward losses to subsequent
financial years, not to exceed five years, as from the point in time
at which the losses arose," said the letter dated April 17 and signed
by Deputy Prime Minister Phan Van Khai.

Accountants said the fact that the letter made no reference to losses
from 1997 onward indicated the government had decided that in future
wholly foreign-owned companies would have to swallow all losses
incurred rather than being able to offset them against tax, as is the
case in other countries.

"It is true to say that Vietnam is a long-term investment with large
start-up losses. It takes a long time to get up and running and it's
extremely important for companies to be able to deduct losses," said
the tax manager at one of the "Big Six" international auditing
companies.

He added that in most countries there was no discrimination between
local and foreign companies.

The ruling comes under the newly-amended foreign investment law. It
was approved last November but the impact is only now beginning to be
understood.

The final draft of the law specified that all forms of
foreign-invested enterprises - joint ventures, 100 percent
foreign-owned companies and foreign partners in business cooperation
contracts - would be allowed to carry losses forward to be offset
against profits tax. But the final version approved by the National
Assembly narrowed the concession to joint ventures only.

"I don't know what the reason is. I was very shocked when I read
this," said a Vietnamese accountant. "The question is whether foreign
investors are still encouraged to invest in Vietnam or not. With these
provisions foreign investors may not trust government policy because
you cannot expect what will come in two or three years time."

Total pledged foreign investment in Vietnam now stands at about
US$27.7 billion in 1,861 projects, of which about US$9 billion has
been disbursed. Of the total, 100 percent foreign-owned companies
account for 645 projects worth US$4.9 billion.

As Vietnam began to open to foreign investment eight years ago the
idea of wholly foreign-owned companies was frowned on by the Communist
Party and government but by 1994 it started to become more accepted.

"There is definitely a trend. The number of 100 percent foreign-owned
enterprises is growing significantly faster than joint ventures,
there's no doubt about that," said an economic statistician.

But now some analysts wondered whether the communist ideologues were
having second thoughts about allowing foreign ownership in Vietnam.
"They can't ban 100 percent [foreign-owned] projects, but maybe by
making them less attractive they are hoping to funnel investments
through Vietnamese partners in joint ventures," said the project
manager of a large wholly foreign-owned factory.

"It doesn't help me. I'm already way over budget, and where we hoped
to start receiving serious revenues within four years it now looks
like we're going to have to wait longer."

The fund manager said longer lead times to profitability would make
his job harder as shareholders and investors scrutinized the reasons
behind slower returns. "From the government point of view it's a
peculiar thing to do. I can't see how they're going to get much
advantage by doing it. It's crazy. The government knows it has to do
anything to attract foreign investment," he said. "The way things are
going at the moment, to attract the level of investment [they want] I
think some changes are going to be needed."

Foreign-invested companies in Vietnam pay 25 percent profits tax, plus
up to an extra 10 percent on profits remitted overseas. By comparison
Vietnamese companies pay 25 percent, 35 percent or 45 percent profits
tax, plus a surcharge on high profits that can take the tax burden as
high as 60 percent. All Vietnamese companies are allowed to carry
forward losses for a maximum of two years.

Many foreign projects enjoy tax holidays from the first year of profit
and a following period of reduced taxation. This should be taken into
consideration, said the Vietnamese accountant. "It will be a balancing
act. Will it be worth it to cause more trouble [by protesting]? The
question is that if a company uses up all its tax exemption and tax
reduction will it still lose? A company cannot be sure it will always
have a profit," she said.

"This will affect a lot of companies from a lot of countries. Some may
reconsider their projects."

Vietnam has said it needs US$42 billion by the year 2000 to meet its
development goals. About half is expected to come from external
sources including overseas development assistance, foreign direct
investment and commercial loans.

The general investment environment is more favorable for foreign
investors than for their domestic counterparts. But with few
foreign-invested projects yet to show a profit and the vast majority
still in their start-up phases, constant and often contradictory
regulatory moves are trying the patience of all but the hardiest
investors.

The last year has seen a number of large investors pack their bags. US
car giant Chrysler pulled out of a US$192 million deal, Australia's
Broken Hill Propriety wrote off a major oil exploitation project and
last month Indonesia's Salim Group announced it would probably pull
out of a US$133 million food processing project.

"The companies that were irritated have already left the country, the
ones that remain are the ones with a sense of humor," said the tax
manager wryly.
  _________________________________________________________________

Thursday - May 29, 1997

Vietnam: Time for a reality check 

By Andy Soloman, Asia Times

With the lifting of the United States veto on international lending to
Vietnam in late 1993, the World Bank and the Asian Development Bank
pledged hundreds of millions of dollars in concessional loans, foreign
direct investment flowed in on a significant scale and bilateral
donors added the country to their lists.

And the race was on. The few international flights to Hanoi at the
time were full of Western and Asian potential investors, carrying
briefcases stuffed with masterplans and dollars.

The country was touted as having one of the most liberal foreign
investment laws in the region. Reforms had gathered speed and were
yielding results. Inflation fell from nearly 700 percent in the
mid-1980s to less than five percent last year and GDP growth averaged
over eight percent a year.

Vietnam says it needs US$42 billion in investment by the year 2000,
and it hopes that 40 to 50 percent of this will come from abroad. But
as indicated in Andy Soloman's story today and in previous stories on
what is described as a crisis in the banking sector, in a shifting
regulatory environment, foreign in ves tors are running into
roadblocks.

Investment inflows have slowed, with just over US$1 billion in new
projects licensed so far this year against US$8.81 billion for all of
1996. This, together with the number of large investors who have given
up and left, points to emerging real problems.

The overall economy still looks good: Exports rose 31.8 percent in the
first five months of the year; industrial output year-on-year is up
13.7 percent. But Vietnam's 1996 trade deficit stood at US$4 billion,
equal to an unsustainable 17 percent of GDP and pressing revenue woes
added to the problems.

Crunch time is coming and Hanoi, while making all the right noises
about administrative reform, developing a legal system and
streamlining the bureaucracy, may find itself lacking.

Investors complain about constantly shifting goalposts, the local
private sector is still far from encouraged and the state sector
remains loss-making and heavily indebted. Vietnam has given a mandate
to its developing market system to create socialism, and this
contradiction adds to the confusion.

To meet economic targets, the political leadership must cut through
the ideological and bureaucratic jungles left over from the failed,
Soviet-style command economy, but there are serious doubts if the
political will exists to push ahead at the speed required.

Hanoi said some years ago it wanted to set up a stock market, but few
analysts expect this to be accomplished until after the year 2000.
Vietnam lacks companies that could be listed. Thailand allows state
enterprises to be partially listed, but in Vietnam that is not an
option, as the government wants to keep core money-making corporations
firmly in state hands.

But perhaps the greatest obstacle in Vietnam today is uncertainty. The
party and the government appear hesitant about how to manage fast
economic and social reform; and investors are uncertain about the
leadership's commitment to continued reform.

Vietnam's leadership must learn to balance political objectives with
the reality of hard market economics. Not only must it act, but it
must be seen to act decisively. The country has already climbed a
mountain economically, but the danger of sliding back down, with
possible further souring of its international reputation as a choice
new investment target, is becoming very real.
  _________________________________________________________________

Thursday - May 29, 1997

Vietnam's Trade Deficit Hits Over $1 billion 

HANOI (Xinhua News) - Vietnam's trade deficit reached 1.14 billion
U.S. dollars in the first five months of this year, an official report
said here today.

The export in Vietnam was worth 3.36 billion dollars in the first five
months, or 31.8 percent increase over the same period last year.

Foreign-invested enterprises contributed 304 million dollars to the
figure.

Key exports like crude oil, rubber, coffee, tea, rice, seafood,
textiles and garment products and footwear posted high growth rates.

Meanwhile, the import reached 4.5 billion dollars, which is only a 1.5
percent increase over last year's corresponding period.

The imports of fertilizer, oil and gas showed slight increases while
others were sharply down, which included vehicles and spare parts,
steel and iron, and black cement.
  _________________________________________________________________

Thursday - May 29, 1997

Vietnam's export rice prices steady after climb 

Hanoi (Reuter) - Vietnamese export rice prices were steady on Thursday
following a succession of rises over the past week amid active trading
in mostly lower grades, dealers said.

Five percent broken grade was quoted at $238-$245 per tonne FOB Saigon
Port, up by around $10 per tonne from last week's levels. Ten percent
broken was quoted at around the $230 per tonne mark.

``On Monday and Tuesday, the market was going up by $5 a day. It's
steady now, but it's still got a lot of room to move up before people
start switching to Thailand for rice,'' one trader said.

Around 20 vessels were reported in Saigon Port at present, most bound
for African destinations and Cuba. Some dealers said prolonged loading
times were a factor behind the price increase.

Vietnam is estimated to have exported between 350,000 and 400,000
tonnes of rice during May.

According to figures released on Wednesday by the General Statistics
Office, a total of 1.33 million tonnes has been exported so far this
year, up by 47.5 percent from the same period in 1996.
  _________________________________________________________________

Thursday - May 29, 1997

EMI eyes Asian market with Vietnam tie-up 

By AFP-Extel News Ltd

LONDON (AFX) - EMI Group PLC, one of the world's largest music groups,
plans to diversify into Vietnam as part of its strategy of
strengthening its presence in the fast-growing Asian market, the
Financial Times reported citing group chairman Sir Colin Southgate.

He said that the group, which includes George Michael, the Beatles,
Radiohead and the Spice Girls among its artists, was "in talks" with
local partners to distribute its recordings in Vietnam, according to
the article.
  _________________________________________________________________

Thursday - May 29, 1997

Asian Cash Rice Flat-Up; Vietnamese Up On Exporter Buying 

SINGAPORE (Dow Jones)--Asian cash rice offers are steady to higher
late Thursday, with exporter buying buoying Vietnamese prices, market
sources said.

Offers for Vietnamese 25% brokens are offered at $210-$215/ton
Thursday, compared with Wednesday's $210/ton while the 5% brokens are
heard quoted at $240-$243/ton, compared with $240/ton.

'Local prices have increased the last few days because many contracts
have been signed and many vessels have arrived here,' said a trade
source in Ho Chi Minh City.

An official report has put Vietnam's winter-spring crop from the
Mekong River Delta at 7.O million tons, said another trade source in
Ho Chi Minh City, adding that the previous year's crop was estimated
at 6.3-6.5 million tons.

In Thailand, the market is quiet with almost non-existent demand for
Thai 25% brokens priced steady at $255/ton, said a trade source in
Bangkok.

Offers for the 100%B rice are steady at $330-$335/ton, though slightly
lower offers may be heard.

'There are not many enquiries now,' said the Bangkok trade source.
'After the Iranian deals, we don't see any big prospects so some
people try to squeeze the market. It depends on how aggressive they
are.'

In Pakistan, the IRRI-6 25% broken non-basmati rice is offered steady
at $215/ton, FOB Karachi.

-By Joyce Teo +65-421-4825
  _________________________________________________________________

Thursday - May 29, 1997

Executives arrested in Vietnam Ming Phung scandal 

Hanoi Vietnam (AP) -- Four more executives linked to a troubled
textile company were arrested Tuesday in southern Vietnam in
connection with a growing business scandal, local media reported
Thursday.

Police in Ho Chi Minh City charged the four businessmen with fraud and
embezzlement in the latest of a series of arrests concerning textile
exporter Ming Phung, the Communist Party newspaper, The People, said.

The four executives worked for private subsidiaries owned by Ming
Phung which is embroiled in a fraud scandal involving bad loans and
forged documents.

Ming Phung's chief executive, Tang Minh Phung, was arrested in March
and has been accused of illegally using loans to make bad property
deals. Earlier this month, 19 other company directors and executives
were arrested in connection with the scandal, The People said.

Debts from the loans have topped dlrs 26 million in recent months.
Minh Phung is under investigation to determine if company directors
falsified documents to take out additional loans to pay off debts.

Police suspect the latest arrested executives created fake contracts
and falsified sales receipts to obtain bank loans, which were then
funnelled into Minh Phung's coffers, The People reported.
  _________________________________________________________________

Thursday - May 29, 1997

Vietnam Industrial Output Rises; Capital Development Lags 

HANOI (AP)--Vietnam's industrial production is on the rise while
capital construction projects lag behind, the state-run media reported
Thursday.

Production in the industrial sector totaled roughly $4.48 billion in
the first five months of the year, reflecting a 14% increase over the
same period last year, the official Vietnam News Agency reported.

Output in state-run industries amounted to $2.27 billion, while
production in non-state sectors totaled more than $1 billion.
Industries in which foreign companies are invested produced an
additional $1.1 billion, a 23% increase over the first five months of
last year.

Production in electricity, crude oil, cement, diesel and electric
engines, tin, cooking oil, detergent, and beer brewing rose in the
first five months of the year, the agency reported.

Exports and domestic sales of food produce, beverages, textiles and
garments, plastic products, cosmetics and construction materials
helped to boost growth.

Other sectors, including machinery, electrical transformers, electric
fans, sodium hydroxide, canned condensed milk, knitwear and sugar
production declined. Steel production also dropped in May because of
goods stockpiled the previous month.

Capital construction projects stalled after a slowdown in funding,
curbing the growth rate and delaying completion of some projects.
Capital construction projects have received roughly $365 million in
the first five months of the year, or 28% of planned annual state
funding, the report said.
  _________________________________________________________________

Thursday - May 29, 1997

New Vietnam Investment Rule Unfavorable To Foreign-Owned Firms 

Knight-Ridder/Tribune Business News

Singapore--May 29--Vietnam's recent legislation, which has banned
wholly foreign-owned companies from carrying forward losses to
subsequent years to offset against tax, has left foreign investors at
a loss, the Asia Times newspaper reported today.

* * *

"In respect of 100% foreign-owned enterprises which have gone into
operation and had losses arising in financial years prior to 1997,
(they) may continue to carry forward losses arising in financial
years, not to exceed 5 years, as from the point in time at which the
losses arose," the paper quoted a letter dated Apr 17 signed by Deputy
Prime Minister Phan Van Khai.

The letter was interpreted by accountants as meaning that in future,
wholly foreign-owned companies would have to bear all losses incurred
and not be able to offset them against tax, the paper said.

This inability to carry forward losses could increase business costs
for some foreign-invested projects by as much as 25%, making Vietnam a
less attractive place for foreign investment, the paper added.
  _________________________________________________________________

Thursday - May 29, 1997

Vietnam trade deficit drops but economists question causes 

HANOI (AFP) - Vietnam's trade deficit fell 39.6 percent during the
first five months of the year, but economists on Thursday questioned
the prudence of import bans.

Vietnam managed to hold import growth during the five months to May 25
to just 1.5 percent over the same period last year, thanks mainly to
stiff quotas and outright import bans during this year.

Several key commodity imports including fertilizers, steel and cement
fell dramatically over last year after the government slapped bans and
other non-tariff restrictions.

Pointing out that the trade barriers are the cornerstone of an import
substitution policy, UN Development Program economist Jean-Luc
Bernasconi strongly questioned the wisdom of policy makers.

"From a macroeconomic point of view one cannot blame them for bans on
a temporary basis. But if this leads to an import substition by
inefficient sectors, that isn't so good.

"This kind of policy cannot be successful in the long run. It will
make inefficient sectors look profitable, and this encourages
misallocation of resources," he said.

For example, cement and steel, which have both been subject to import
bans this year, saw dramatic falls in import volume.

Steel imports dropped 40.1 percent to 360,000 tonnes due both to
quantity restrictions announced last month and softening demand that
has left the country with a 30,000 tonne stockpile of unsold steel.

Cement imports fell 31.9 percent to 596,000 tonnes during the first
five months, thanks to an increase in domestic cement production which
increased 31.6 percent over the period.

"This is clearly an import substitution response of cement," he said.

Bernasconi said Vietnam's response to an alarming increase in the
trade deficit -- more than four billion dollars last year accounting
for about 15 percent of gross domestic product -- was a stop gap
measure that was not sustainable in the long run.

"The fall in Vietnam's trade deficit is not structural. What will
happen when they remove the barriers," he asked.

Vietnam has committed itself to liberalising its trade regime in
keeping with Association of Southeast Asian Nations (ASEAN) Free Trade
Area requirements calling for a dismantling of most trade barriers by
2006.

Bernasconi cautioned against reading too much into the data, which in
Vietnam are spurious at best.

"This is a real shock that imports only rose 1.5 percent. I find it
hard to believe there isn't some measurement problem," he said.

There was however, anecdotal evidence of a softening in demand. A
Korean trading company in Ho Chi Minh City said a central bank clamp
down on letters of credit had crimped sales.

Last year foreign suppliers gave Vietnamese buyers generous credit
terms, often 360 days for products like fertilizer with 90-day cycles,
allowing speculation by local borrowers which led to a liquidity
crunch this year. On the brighter side, exports grew 31.8 percent to
3.364 billion dollars in the five months, of which nearly 10 percent
was accounted for by foreign invested enterprises, according to the
General Statistics Office.

The export boom was led by textiles and garments, the country's top
manufacturing export earner, which grew 39 percent to 389.1 million
dollars. Footwear, fast becoming one of the country's most important
manufacturing exports, surged 63.3 percent during the five months to
359.2 million dollars. Shoes and garments combined accounted for more
nearly 22 percent of Vietnam's export earnings.

Export earnings were also boosted by strong growth from agricultural
products. Rice, the country's number one agricultural export grew 47.5
percent to 1.33 million tonnes while coffee exports shot up 99.6
percent in quantity terms to 237,500 tonnes.

Vietnam provides preliminary estimates for trade on the 25th day of
each month and the figures are often subject to dramatic revision.
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