Vietnam should benefit from global malaise -W.Bank

David Brunnstrom, Reuters, Hanoi

Vietnam has weathered global slowdown much better than most regional rivals but should act to improve its investment environment to capitalize on opportunities presented by the malaise, the World Bank said on Monday.

Homi Kharas, the World Bank's chief economist for East Asia and the Pacific, said the institution's forecast for Vietnam's 2001 gross domestic product (GDP) growth was second only to China among the large economies of the region.

"The global slowdown does present important opportunities for a country like Vietnam, which is relatively new to emerge onto the global scale in its exports and its ability to attract foreign investment," he told a news conference.

Kharas said that in the course of the slowdown, many multinational corporations would halt established connections with suppliers and re-evaluate corporate strategies.

"That provides an opportunity for newcomers like Vietnam to get themselves noticed in these reformulated corporate strategies," he said.

Kharas noted a regional survey by the Hong Kong-based Political & Economic Risk Consultancy had recently named Vietnam the safest country in the region.

"If they can expand that so that it is also rated a very attractive country for private-sector development and export opportunities, then I think when the world recovery starts later in 2002, Vietnam will be very well positioned to be able to forge new links with suppliers and buyers," he said.

Kharas said Vietnam could look forward to fresh impetus from a bilateral trade agreement signed with the United States which was likely to kick in strongly in the second half of 2002 when the U.S. recovery was expected to gather steam.

He said he had been encouraged to hear of progress in banking reform, trade liberalization and private-sector development.

But he said structural reform needed to be maintained and accelerated to compensate for slower external demand and added that he hoped for more progress soon in the slow restructuring of state enterprises.

Andrew Steer, the bank's chief representative in Vietnam, said the government needed also to try to inject more public money into rural areas to help farmers hurt by commodity price downturns.

A separate World Bank report said that with three quarters of the labor force involved in farming there were already signs of a slowdown in domestic private consumption and little prospect that this could haul the economy back onto a high growth track.

In addition, it said, Vietnam was not only vulnerable to falls in the overall availability of foreign investment for emerging markets but to economic weakness in Asian countries that had been major investment providers.

Given such factors, the report said, "the source of stimulus will have to come overwhelmingly from fiscal sources", something that would permit progress in reform by reducing the impact of negative external factors.

"Encouragingly," it said, "there is room for a substantial increase in budgetary spending in the remainder of 2001 and over 2002 without endangering the sustainability of public finances."

Kharas said Vietnam had been less severely affected by the global slowdown in part because it was a small player in the hardest hit high-tech, business investment sector.

However, he said an expected new phase of slower consumption growth could have a more serious impact on its exports of clothing, footwear and other manufactured goods, which had been strong performers so far this year.

Another negative factor was that Vietnam's principle markets in the rest of Asia, like Singapore and Taiwan, had been reducing imports to compensate for export shortfalls, he said.

The bank announced earlier this month it had trimmed its 2001 GDP growth forecast for Vietnam to 4.9 percent from a previous 5.0 percent and its latest report cut the projection further to 4.8 percent for this year and 5.5 percent for next year.

Last month, the government said is was still hoping for 7.1 percent growth.