VN business news (June 24)

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

U.S. Airport Group Intl Again Seeks Vietnam Contract 
Enron Devt Chief To Visit Vietnam Thu To Push LPG Venture 
Vietnam State Bank Chief Orders Review Of Overdue Loans 
Vietnam losing allure to foreign visitors 
U.S.-Vietnam Trade Flounders; Deal Requires Policy Revolution

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U.S. Airport Group Intl Again Seeks Vietnam Contract 

By Faith Keenan

Hanoi (Dow Jones)--Airport Group International Inc., an affiliate of
the U.S.' Lockheed Martin Corp. (LMT), is seeking to be reconsidered
for a contract to build a passenger terminal at Ho Chi Minh City's Tan
Son Nhat airport.

Airport Group was apparently knocked out of the bidding after three years
when it wouldn't accept strict terms laid out by Vietnam's Southern Airport
Authority. The SAA wanted companies to provide loans for the estimated
$200 million project, but not to build or operate the terminal as is
typical under many joint-venture schemes.

'They were only willing to give interest; it doesn't make sense,' says
a source from one of the four companies bidding for the project. 'No
one is stupid enough to bring $200 million and just make interest.'

The three other competing companies, down from a total of 12 three years
ago, are: Germany's Dywidag Euromill, Britain's Daral-harasah and a Japanese
consortium led by Maeda Corp. (J.MDA)

The State Evaluation Committee, which reviews bids, apparently backed
away from its tough stance in early May when it sent a request to Prime
Minister Vo Van Kiet to consider Dywidag Euromill and Daral-harasah under
turnkey proposals. Such a deal would allow a foreign company to build
the terminal but not run it.

The Civil Aviation Authority of Vietnam objected, saying all four companies
should be allowed to place new turnkey bids. Airport Group followed up
recently with its own letter to Kiet. It is uncertain when he will issue
a decision.

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Enron Devt Chief To Visit Vietnam Thu To Push LPG Venture 

Hanoi (Dow Jones)-- Enron Development Corp. Chairman Rebecca Mark is
scheduled to arrive in Hanoi Thursday, the company said. The chief of
the U.S.-based energy company is expected to push for Vietnamese-government
approval for a joint venture to build a liquefied petroleum gas plant
with Vietnam Oil & Gas.

The state-owned Vietnamese partner, also known as PetroVietnam, chose
Enron as its joint-venture partner more than a year ago, but the estimated
$161 million project awaits approval from the Ministry of Planning &
Investment.

It's uncertain what has delayed the ministry's approval, but diplomatic
sources say that the deal isn't as clear-cut as it was a year ago, when
PetroVietnam head Ho Si Thoang said Enron would be the only partner.
The contract has since been broken up, they say, and several aspects
remain to be finalized.

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Vietnam State Bank Chief Orders Review Of Overdue Loans 

Hanoi (Dow Jones, AP)--The central bank has ordered all commercial banks
in Vietnam to submit detailed reports on overdue loans to help study
the cause of the problem, state-run media reported Tuesday.

The reports must be submitted by the end of the month, State Bank of
Vietnam Governor Cao Sy Kiem was quoted as saying in the Economic Times.

Between 5% and 10% of all outstanding loans in Vietnam may be overdue,
official media have reported.

Economists have expressed concern over the potential for a crisis in
the banking industry if the problem is not quickly controlled. Vietnamese
banks have an additional $800 million to $1 billion in loans coming due
soon.

The central bank is interested in finding out why so many loans have
not been repaid by studying the purpose of the loan and how it is actually
used, Kiem said.

Kiem said central banking authorities want to determine if any of the
bad loans were the result of banking errors, fraud, misuse of funds or
other wrongdoing, the Economic Times reported.

Several banks have been implicated in a growing loan scandal linked to
troubled textile exporter Ming Phung Co. Authorities believe Ming Phung,
with the help of bank executives, secured a series of loans based on
falsified financial information.

Dozens of Ming Phung officials have been arrested in connection with
the loan scandal.

The body of one Ming Phung executive was discovered recently under mysterious
circumstances on the top floor of a Ho Chi Minh City Industry and Commerce
Bank.

Police suspect the bank executives created fake contracts and falsified
sales receipts to obtain some $357 million worth of loans to cover unprofitable
business operations.

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Vietnam losing allure to foreign visitors 

Hanoi, June 24 (Reuter) - Vietnam, which has been a strong tourist and
business draw since opening its doors to the outside world, appears to
be losing some of its allure.

An official at the National Administration of Tourism said on Tuesday
that 700,000 foreigners had visited the country so far this year, seven
percent fewer than in the same period of 1996.

A record 1.6 million foreigners, including people on business, came to
Vietnam in 1996. Although that was an 18-percent rise from the year before,
it was a slowdown from 1995's explosive growth of 33 percent.

The daily Vietnam News quoted the National Administration of Tourism's
Deputy Director, Bui Xuan Nhat, as saying business executives were delaying
visits to see how changes to the foreign investment law would affect
the business climate.

He also blamed the fall-off in the number of tourists on cruise ships
switching their destinations to the Caribbean from Southeast Asia.

One senior diplomat in Hanoi said the downturn was due to much more fundamental
reasons.

"There was an initial curiosity which brought tourists to Vietnam,"
he said. "But the novelty has worn off. In Ho Chi Minh City it's been
clear for some time that the tourist boom has ended."

Vietnam News said occupancy rates were 75-85 percent at hotels built
with investment from abroad and 60-75 percent at state-owned hotels.

But in Ho Chi Minh City -- where dozens of smart hotels have sprung up
in recent years and dozens more are still under construction -- many
are struggling with occupancy rates of under 50 percent.

Vietnam is a challenging destination for Western tourists because of
poor roads, unreliable and sometimes non-existent public transport, and
a shortage of information and amenities.

The most typical visitor is still the impecunious backpacker. The National
Administration of Tourism's Nhat told Reuters last year that service
quality improvements were needed.

But, confident that Vietnam's wealth of natural attractions would keep
the tourists coming, he predicted that three million people would visit
every year by the turn of the century.

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U.S.-Vietnam Trade Flounders; Deal Requires Policy Revolution

Wall Street Journal

Hanoi, June 24 (WSJ) - U.S. Secretary of State Madeleine Albright is
on her way. U.S. Ambassador Pete Peterson has just arrived. But a U.S.-Vietnam
trade agreement still looks like a long time in coming.

Three months of silence since the U.S. first submitted a draft trade
agreement to the Vietnamese is damping hopes for smooth negotiations.
"It's scary that it's taking so long to hear from either side," says
Fred Burke, head of the Ho Chi Minh City branch of the American Chamber
of Commerce. "Judging by the slow response, some people on the Vietnamese
side are not going to allow more open market measures, and that will
delay an agreement by months or even years."

The talks are aimed at reaching a bilateral trade agreement -- a step
toward eventual most-favored-nation status in the U.S. The trade negotiations
are closed and few have been privy to the terms of the deal, but U.S.
trade officials have said they are seeking a reduction in trade barriers
that limit U.S. business prospects here. In return, Vietnam would get
access to the U.S. market on the same terms accorded to most other countries.

However attractive access to the American market may be, Vietnam would
have to revolutionize its economic policy to get there. Few of the enterprises
that this system protects would survive the ensuing competition, economists
say. Jobs and capital would be lost along with tax revenue, and bankruptcies
will be declared, which could lead to political and social instability
in the transition to free trade, they warn.

'A Big Problem'

But a trade agreement has to be tough to pass through the U.S. Congress,
says Mr. Burke. Vietnam will have to knock down tariff and nontariff
barriers protecting the state-owned heavy industries that dominate the
economy to put U.S. businesses on a level playing field. Indeed, the
proposed U.S. deal is believed to go beyond standard World Trade Organization
demands for lower tariffs to the heart of Vietnam's investment regime.

Meanwhile, many of Vietnam's other international trading partners hope
that the combined pressure from U.S. trade officials and WTO negotiations
will help speed reforms that Vietnam already has pledged, but not yet
implemented, in many of its existing trade agreements. A trade deal with
the U.S. will also take the heat off the European market by giving Vietnam
another market to which it can export. The European Union complains that
Vietnam has been dumping textile exports without reducing its own textile
import tariffs.

"We're trying to fix a big problem," says Le Van Dao, deputy director
of imports and exports for the Ministry of Trade, of Vietnam's textile
trade agreement with Europe. "Step by step we're trying to integrate
into the world market and reduce import tax, but it's not possible to
get it done within one or two years," he says. Mr. Dao says he hopes
any trade agreement will give Vietnam a 10-year grace period to allow
for a gradual opening of its markets.

Harsh Realities

External pressure is building as attention is focused on the trade deal.
Trade relations are on Mrs. Albright's agenda when she visits Vietnam
this week. In theory, the spotlight on U.S.-Vietnam trade relations should
help spur other bilateral and multilateral trade talks, including EU
textile trade discussions, preparations for entry into the WTO, and the
"nitty gritty details of AFTA," or the Asean Free Trade Area, says Jean-Luc
Bernasconi, an economist at the United Nations Development Program.

Instead, negotiations seem to have stalled. Some U.S. investors reason
that is because Vietnam didn't know what it was getting into when it
started the trade talks. "The Vietnamese are complaining about demands
we're making that they didn't realize they'd already agreed to in AFTA,"
says one American banker here. "For the first time we're bringing them
face to face with the realities of free trade."

These realities may be too harsh for Vietnam's fragile economy to stomach.
"American fruits are too strange to digest," one Vietnamese negotiator
protested recently. Nguyen Dinh Binh, vice minister of foreign affairs
went further, complaining that U.S. trade requirements "are too high
for Vietnam." One government official even quipped that a trade deal
is "fairyland."

One demand that may be too high is for "right of establishment," says
Mr. Burke. Setting up a foreign business would be considered a right,
not a "privilege randomly granted by some government agency," he explains.
The Vietnamese would never give up that much control over who does business
here, but the U.S. has deliberately included things in the draft deal
"they know Vietnam can't accept" as part of a negotiating tactic, says
Mr. Burke. "The question is, how far apart are their bottom lines?" Too
far for a speedy trade deal, he predicts.

Growth Called Unsustainable

But the sooner Vietnam opens up to trade the better for Vietnam, economists
say. Lower trade barriers would encourage export sectors and speed up
much-needed reforms in the state sector. An easier trade environment
might also sweeten the recent sour mood of many foreign investors, and
attract more foreign direct investment.

The longer Vietnam waits to knock down protectionist walls, the harder
it will be to compete in the international market, trade experts say.
As long as inefficient state enterprises are coddled at the expense of
more export-oriented private industry, the trade deficit will swell and
economic growth will slow, Ari Kokko, an economist at the Stockholm School
of Economics, warns in a recent report.

Most economists agree that the growth from protected industries that
Vietnam now enjoys isn't sustainable, and will only inflate the trade
deficit as inefficient heavy industries spend millions on capital equipment
to produce commodities that can't compete on the international market.
Indeed, the trade deficit ballooned to $4 billion in 1996 -- an "alarming"
15% of gross domestic product, Mr. Kokko says. The trade gap shows signs
of narrowing for the first five months of this year, however, to $1.13
billion from $1.87 billion, according to a recent report by the State
Statistics office.

To spur efficiency and attract more foreign investors, Mr. Kokko says
Vietnam should scrap nontariff barriers such as quota restrictions, a
complex licensing system, cumbersome customs procedures and reference
pricing. A reference price is an official price to which the import tax
rate is applied, even if the market price is much lower, so that customs
officials can artificially inflate tariffs. One foreign construction
equipment dealer recently had to pay tax on the reference price on a
shipment of filters that was 40% higher than the actual value. Foreign
importers complain they never know what tariff they will have to pay
until the goods come into the port, since prices and product categories
are often applied randomly.

Protecting Fiefdoms

Such nontariff barriers are an even greater obstacle to investment and
trade than tariffs, and "should be reduced as soon as possible," argues
Thierry Apoteker, an associate professor at Rennes University in France.

But these barriers may be the toughest to change, concedes Mr. Apoteker.
Red tape permeates the government here, and change will meet strong resistance;
many bureaucrats have entrenched interests in the industries and fiefdoms
they protect, Mr. Kokko and other economists say. Uncompromising demands
from U.S. negotiators could therefore "raise such conflicts and create
such negative backlash in Vietnam as to harm bilateral relations," warns
Michael A. Samuels, former U.S. ambassador to Vietnam.

With this in mind, some businesspeople fear Washington may water down
its trade demands. But that is unlikely, says Mr. Burke of AmCham. "As
far as U.S. business as a whole is concerned, Vietnam's market is so
small it isn't even on the radar screen," so it's hardly a priority to
rush through a trade deal, he concludes. "It's far more important on
the Vietnamese side to move forward, since they have a huge new export
market to gain," he says.

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