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Vietnam has unveiled new changes earlier this month that could affect the future of the Vietnamese economy. Deregulation of the country?s electricity industry, discussions over labor reforms and a pledge to boost infrastructural spending will all play a role in the country?s future. Dong investors will need to play close attention to these changes, because rate changes are expected at some point in the middle the coming year.
Iraq News: Release of Blogger Seen as Victory for Humanitarianism
Vietnam has recently taken several steps that indicate a transition to a less authoritarian state, which will be key to boosting economic performance and stabilizing the country. While the communist party still maintains a high level of control over the country and continues to impose policies of censorship, they have recently shown a little more tolerance for dissenting views.
They have also made more progress towards a free market economy. State control is still limiting economic development, but GDP and job creation are expected to improve as the state has curtailed some of its control.
Release of Anti-State Blogger is a Step towards Progressive Policies
In 2012, former law enforcement officerTa Phong Tan was sentenced to ten years in prison for posting sentiments that didn?t align with the interest of the Communist Party of Vietnam. He was released on September 20, which is seen by many as a major step for social reform in Vietnam.
The United States and other countries are advocating Vietnamese officials to release other prisoners for speaking against the state?s practices and improve its commitment to human rights. Nevertheless, many policy analysts are still optimistic that Vietnam has at least taken another step towards more humanitarian policies.
President Sang Proposes New Measures to End Court Corruption
President Truong Tan Sang has reiterated his intent to reform the judicial system. He has argued that corruption among sitting justices has become a cause for concern and is introducing new ideas to address it. Sang is the head of the Central Steering Committee for Judicial Reform, so he will be highly involved in the process.
Sang is speaking with a number of members of the judiciary to discuss possible reforms for the months to come. He believes the process will take some time, but is confident that the committee and higher ranking justices will be able to reach solutions to corruption and financial waste in the court system. The discussion will center around providing more oversight and more effective training of new court employees.
Oil and Energy: New Deregulation Efforts Proposed for 2016
The economy and value of the Buy Vietnamese Dong are dependent on the state of the Vietnamese energy industry. The government is rolling out new ideas to modernize the sector.
The government is taking new steps to reduce onerous regulations in the energy industry. The new reforms will primarily benefit oil producers, but the electric industry will benefit as well. Improving energy production and delivery will be a boon for businesses and make the country more competitive in the global market.
Falling Oil Prices Could Affect Industry Reforms
The Vietnamese government had played a heavy hand in directing the oil industry in the 20th century. Over the last few years, they have been heading towards a more market based system. Economists have said that higher competition is likely to drive prices lower.
Vietnam has been under higher pressure to deregulate its oil industry after joining the World Trade Organization (WTO). The WTO agreement stipulated that the country needed to improve competition, which is a sentiment the Ministry of Industry has concurred with. In 2006, the Minister of Industry stated that Vietnam and all of its trade partners would benefit from a more deregulated approach.
Policymakers Proceed With Efforts to Deregulate Electricity
The Vietnamese government introduced new proposals to deregulate the electric industry earlier this year. The Vietnam Economic Timesreports that industry will be market based as of 2016. They are confident that introducing competition into the market will bring rates down and minimize wasteful energy use.
Over the long term, they believe the new strategy will ensure the supply of energy will be more sustainable for consumers and businesses. Some critics raised concerns about the availability of electricity for low income citizens under a market based system. Industry and Trade Minister Vu Huy Hoang has stated that the Vietnamese government will provide electricity for low income citizens and will ensure no citizen faces undue hardships due to regulation.
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Business and Foreign Investment: Infrastructural Improvements Will Boost Vietnamese Exports
A September report from The Economist has stated that the Vietnamese government will continue to privatize more businesses in the coming year. Analysts said that the government has taken steps to privatize more sectors of the government, but cautioned that progress will be slower than promised.
While privatization is moving slower than desired, the country is making a number of other encouraging changes. The government recently began working on a few infrastructural projects that will improve productivity and the standard of living.
Improvements to Rail System
Only 23% of citizens own a vehicle, so they are heavily dependent on the public transportation system. Numerous transport companies also depend on the transit system. Since the rail system is outdated and in serious need of maintenance, many people have limited access to reliable transportation.
The Viet Nam Railway Authority (VNRA) has stated that improving the rail system needs to be one of the country?s top priorities. VNRA officials have pledged to roll out a number of improvements over the next 15 years, which should provide better access to rail transport. The new efforts include moving the main railway out of Ha Noi to a more accessible location for many citizens and businesses. They will also make nearly 100 upgrades to improve safety and dependability.
Improving the infrastructure of the railways will lift trade between different regions of Vietnam. The improvements should also enable more companies in the central part of the country to deliver goods to the borders so they can be exported. Therefore, trade should increase as the improvements are carried out, which will influence the value of the Dong.
Debates Over Labor Reform Options
The Vietnamese government has recently discussed the need to reform the labor market. Officials have stated that the low cost of labor is a double edged sword for the country in light of the Trans-Pacific Partnership (TPP).
On the one hand, the low cost of labor will improve demand for Vietnamese workers relative to other countries with higher operating costs. However, low wages could also curtail economic development in Vietnam, which will make it more difficult for Vietnam over the long term.
The government recognizes that labor standards are outdated, but is still discussing the best ways to overhaul them. The Communist Party of Vietnam has maintained strong control over all labor groups. The country has been especially strict since many groups started protesting some of the practices that were carried out in China, which government officials feared could have threatened relations with its ally.
The new reforms will focus on moving labor discussions to the provincial level. Officials believe this will ensure that adequate measures will be set in place that account for the nuanced challenges that are present in each locality, rather than relying on national policies that don?t account for regional differences. Handling problems at the local level also limits the negative exposure that labor groups generate when holding protests that get coverage by international media outlets.
Improved Liquidity of the Banking Sector
The most recent risk analysis report the The Economist Intelligence Unit shows that the outlook for Vietnamese banks has improved drastically since the economic recovery. The banks have more liquidity due to fewer delinquent loans and higher deposits as citizens have more money to spend. They are also encouraged by the consolidation of banks, since many smaller banks may have been unable to absorb some of the risks of the current economy.
However, there are still concerns about the stability of the banking sector. The State Bank of Vietnam (SBV) feels additional controls need to be put into place to minimize delinquent loans. Some analysts report that the current rate of non-performing loans (NPLs) is between 3 and 4%, but the SBV estimates that the real figure is closer to 10%.
Higher Levels of Foreign Direct Investment Will Lift Exports
The EIU reports that the Vietnamese economy grew by 6% last year and expects that figure to rise faster in 2016 and beyond. They said that rising levels of foreign direct investment have played a key role in economic development. A growing number of foreign companies establishing a presence in Vietnam will also increase exports, which will gradually attract more businesses to the country.
Rising foreign direct investments and exports will improve economic stability and lift the trade surplus. The trade surplus for 2014 was $1.5 billion, but the figure could rise exponentially with more support from foreign based businesses.
The Communist Party of Vietnam will continue to reach out to foreign businesses to lure them to their country. The Diplomat recently reported that the TPP will bring in more industrial and financial reforms that will benefit Vietnamese companies.
Closer Ties with Bangladesh
Vietnam has significantly strengthened ties with the U.S. and other developed countries by signing the TPP. However, the country is also trying to improve ties with other South Asian countries, which requires more personal discussions. President Sang recently held a meeting with Bangladesh President Abdul Hamid. The discussions went smoothly and the two leaders are confident that they will form a trade deal that will be beneficial for both countries.
Dong Value & Exchange Rate ? Rate Increases May Occur in 2016
A number of factors are likely to affect the value of the Dong in the final months of 2015 and the first half of the coming year. The final outlook for the Dong is encouraging due to economic progress, but still uncertain due to a variety of changes on the horizon. Future economic reports should shed more light on the future of the currency.
SBV Unlikely to Further Devalue Dong
The value of the Dong is still trading at 10% below its value relative to the U.S. Dollar in 2011. The SBV had reduced the value of the Dong in response to fears of a contraction in the trade deficit. The Dong was devalued 1% in mid-August.
Many analysts expected that the SBV would devalue the currency even further in the coming months over concerns that the trade gap would continue to shrink. However, recent reports have illustrated that those fears were unwarranted, so the central bank has stated that it will not devalue the currency any further in the coming year.
The central bank indicated that it may raise the value of the Dong at some point in 2016. However, it will need to carefully monitor economic activity before making any decisions.
?The central bank, therefore, won?t devalue the dong further, but will use all measures available to keep the exchange rate stable through the year-end and during the first months of 2016,? said SBV governor Nguyen Thi Hong.
Decision by the United States Federal Reserve
The United States Federal Reserve has indicated that it intends to change rates sometime in the near future. The SBV will need to respond to this decision, because the Fed policy decisions will affect the value of the Dong.
Federal Reserve officials were initially expected to raise rates in September, but officials decided to wait for more clear information before making a decision. ?I supported the [Federal Open Market Committee?s] decision last week to hold off? said Federal Reserve Bank of Atlanta President Dennis Lockhart. ?The altered risk picture relative to the economic outlook was decisive in my thinking. I thought it prudent to wait to evaluate whether recent developments change the outlook.?
The SBV won?t be able to finalize its own long-term rate decisions until the U.S. and other trade partners reach their own.
Article Sources:-
http://vietnamnews.vn/economy/276047/billions-to-modernise-vns-railway.html
http://vietnamnews.vn/economy/276045/can-gio-company-eyes-235m-bridge.html
http://vietnamnews.vn/economy/276041/no-dumped-chicken-imported-to-vn-from-us-customs-says.html
http://www.reuters.com/article/2015/09/20/us-vietnam-dissident-idUSKCN0RK0D320150920
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