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1)Identify the nature and causes of two major economic problems f...

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1)Identify the nature and causes of two major economic problems facing Vietnam 2)Explain how Vietnam is attempting to solve on of these economic problems.

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  • March 14, 2006
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1) Identify the nature and causes of two major economic problems facing Vietnam.

There are many economic problems that face Vietnam. The two major problems are Foreign Direct Investment (FDI) Shortfall and Agricultural Impasse.

Foreign Direct Investment (FDI) Shortfall

According to World Bank figures, foreign investment inflows fell to an average of six hundred million dollars per year in 1998 - 2000 compared to two billion dollars per year between 1995 - 1997.

Vietnam is still a high transaction-cost economy. This is linked to the large amounts of government red tape that affects both foreign and domestic investors. Obtaining the necessary permit or licence for a business is frequently time-consuming and unavoidably increases costs.

The fact that businesses often see the payment of bribes, as necessary, to speed the payment licensing process, or simply ensure its success, also pushing up overall costs.

Vietnamese banks dominate the capital market. Theses banks are generally weak and are in need of improvement. While there is some progress towards closing and merging joint stock banks, there is insufficient progress in tackling the higher levels of indebtedness among state banks. The undeveloped nature of Vietnam's capital market represents an extra limitation on development.

Despite the recent opening of the stock market, there are currently just three companies listed on the stock market, and there are tight restrictions on the extent to which shares can fluctuate. Therefore it is likely to be some years before the stock market is a significant source of business capital.

Furthermore, in a resent auction of five-year government bonds, there were no bidders. It had been hoped that the bonds would be traded on the stock market as an intermediate step towards its development.

One the Vietnamese side, they are late-comers to the U.S. market. U.S. investors are far from sold on Vietnam being a good place to do business. They see many of...