Vietnam - News and Regulations

FINANCE - PROFIT HORIZON - Banks report robust fiscal year

In comparison with first three quarters of 2009, the increasing impetus of banks' profit in Q4 tumbled sharply because the gap between lending and deposit rates was nearly flat. But, the full year's profit performance of banks was very impressive, surpassing far 2009 targets.

Especially between Q2 and Q3, the banking profit mainly came from the earnings of credit activities thanks to the government's lending rate subsidisation programme. Also at that time, banking profits nearly fulfilled the full year's plan.

For example, Sacombank's 2009 pre-tax profit was announced at 1.901 trillion dong (excluding the combined profit from member companies) after deducting money for the risk prevention fund. In December alone, the bank reported earning 243 billion dong in profit. In the profit structure, the bank's earnings from credit activities accounted for 25.5 percent and the remainder was from other service and profits.

Ly Xuan Hai, general director of HCM City based Asia Commercial JS Bank (ACB) said in a statement that that lending leapt 81 percent in 2009, more than double the credit growth in the banking sector as a whole of 38 percent. It had forecast 2.7 trillion dong in profit. ACB's total assets reached 171.95 trillion dong, a surge of 63.2 percent from 2008, it said. ACB shares were trading down 600 dong at 37,000 dong at 0311 GMT on Friday. Notably, its combined profit reached 2.818 trillion dong, of which 20 percent from credit operations, 26 percent from service provision, 4 percent from interbank capital business, 24 percent from bond business and 25 percent from other profits. Capital Adequacy Ratio (CAR) of ACB was posted at approximately 40 percent.

Similarly, at Maritime Bank, the turnover from credit activities in 2009 made up 25 percent of its total profit. Till December 31, the profit from business was closed at 1.084 trillion dong, growing by 132 percent year-on-year and exceeding nearly 500 billion dong against the last year's plan.

Talking with Dau Tu Chung Khoan, Tran Anh Tuan-general director of Maritime Bank said, high profit from lending operations was thanks to the surge in revenue of non-credit services (derivative service, bond, debt securities and other services).

On the interbank market, Maritime Bank is considered to be the potential and prestigious partner. Total assets of Maritime Bank till late 2009 hit 60 trillion dong. According to annual report, the 7-day payment capacity of Maritime Bank is always at over 1.75 percent. This is also the firm development basis of Maritime Bank.

As for Bank for Investment and Development of Vietnam (Bidv), total assets reached 300 trillion dong on December 31 while its deposits totalled at 194 trillion dong, total pre-tax profit was estimated at 3.450 trillion dong and the bad debt ratio at 3 percent (lower than 2008's 4 percent).

According to Nguyen Duc Vinh-general director of Techcombank, 2009 pre-tax profit obtained 2.138 trillion dong, bringing the united profit to 2.250 trillion dong after deducting 550 billion dong to the risk standby fund.

Meanwhile, Vietinbank posted total profit of 3.018 trillion dong, total deposits of 221.700 trillion dong, total outstanding loans and investment of 218 trillion dong. Lending and investment operations occupied 91 percent of the bank's total assets. Till late 2009, total outstanding loans for the economy Vietinbank provided reached 162.3 trillion dong. DongA (Eastern Asia) Commercial JS Bank estimated total pre-tax profit at 782 billion dong, average deposit balance at 33.392 trillion dong in 2009.

Although have not revealed 2009 business results, Eximbank said it would early finished the year's profit target of 1.5 trillion dong.

Ending 2009, HCM City Housing Development Commercial JS Bank (HDBank) publicised 2009 business performance with 19.140 trillion dong in total assets, 17.119 trillion dong in deposits, 8.231 trillion dong in total outstanding loans, bad debt ratio of 1.1 percent, and pre-tax profit of 255 billion dong. The figures of ABBank were 26.576 trillion dong, 15 trillion dong, 12.883 trillion dong, and 415.57 billion dong profit. Additionally, ABBAnk's charter capital in 2009 was raised to 3.482 trillion dong.

With the optimistic signals from the economy, ABBAnk strikes to maintain the growth at 30-40 percent in 2010 and earn 550 billion dong in pre-tax profit, total assets of 35 trillion dong and a charter capital of 3.8 trillion dong.

Up to the end of last December, Sacombank posted the bad debt ratio at 0.69 percent. Its total capital surplus and funds attained 2.095 trillion while ACB's ratio was 0.42 percent. Sacombank's 2010 profit is targeted at 2.6 trillion dong.

Thanks to the low bad debt ratio, banks' money deduction for risk standby fund in 2010 is expected to be less than 2009 along with higher profits.DTCHK

SOVERIGN BOND MARKET - Vietnam to sell $1b of 10-yr debt next week

Vietnam will start marketing $1 billion of dollar-denominated 10-year bonds next week amid the busiest start of a year for sovereign emerging-market debt in at least a decade.

The government hired Barclays Capital, Citigroup Inc. and Deutsche Bank AG to manage the sale, said a person familiar with the matter, who declined to be identified before a public announcement. deputy Finance minister Tran Xuan Ha will meet investors in Hong Kong on January 18, London on January 19, Boston on January 20 and New York the following day, the person said.

The sale of Vietnam's second dollar bond will test investor confidence in the nation, shaken by accelerating inflation and a decline in the dong to a record-low. Indonesia this week sold $2 billion of 10-year bonds at a higher yield than last week's sale by the similar-rated Philippines, after scaling back the offering and cancelling plans to sell 30-year debt.

"There are still pockets of money looking to invest but the market is coming off a bit and getting more selective," said Felix Dornaus, an emerging-market bond investor in Vienna at Erste Sparinvest KAG, which owns Vietnam sovereign bonds among 27 billion euros ($39 billion) of assets. "There's some scarcity value to Vietnam bonds and it could do well in that sense."

Demand for developing nations' dollar debt is ebbing after governments sold $10 billion of bonds overseas this year, twice as much as the $4.5 billion in the year-earlier period, according to Bloomberg data. Turkey, Mexico and Poland also sold foreign-currency bonds this year.

Widening Spreads

The spread between yields on emerging-market debt and US Treasuries has widened nine basis points to 2.79 percentage points in the past week, after declining 4.16 percentage points in 2009, according to the JPMorgan Emerging Market Bond Index Plus. A basis point is 0.01 percentage point.

"As the global credit markets are starting to normalise there is demand at this point in time," said Joseph Lau, a Hong Kong-based economist at Credit Suisse Group AG. "It still represents at least an opportunity for them to raise capital offshore."

Vietnam is rated Ba3 by Moody's Investors Service, three levels below investment grade. The government in October 2005 raised $750 million by selling 10-year bonds, then lent the proceeds to Vietnam Shipbuilding Industry Corp., known as Vinashin.

The 6.875 percent securities maturing January 2016 traded at 3.5 percentage points more than similar-maturity Treasuries yesterday, compared with 2.8 percentage points three months ago, according to data compiled by Bloomberg. The bonds were issued in 2005 at 2.56 percentage points more than US government debt.

Financing Needs

Vietnam's government, as part of a two-decade-old reform process known as 'doi moi,' or renovation, needs funds to build roads and power plants as the population expands. deputy prime minister Nguyen Sinh Hung said in November that it will use the money raised from the dollar bond issue for energy projects.

Proceeds may also help ease a shortage of dollars in the country. The dong declined 5.4 percent against the dollar last year. It traded at 18,474 as of 3 p.m. in Hanoi.

"They have virtually unlimited needs for financing," said Jonathan Pincus, an economist with the Vietnam Programme at the Harvard Kennedy School in HCM City. "They have to finance their budget deficit and they have plenty of infrastructure needs. Power is a major issue, there are roads and railroads to build."

Vietnam has about $16 billion in foreign-exchange reserves, central bank deputy Governor Nguyen Van Binh said in Hanoi on December 3. The World Bank estimates the nation's reserves totalled $23 billion at the end of 2008.

Supply

Vietnam said on January 13 that it plans to almost double the amount of its local-currency bond sales this year to meet spending requirements as about half of its existing debt matures.

The Ministry of Finance intends to sell 100 trillion dong ($5.4 billion) of debt, up from 56 trillion dong originally planned. About 70 trillion dong of government debt will mature this year.

An increase in supply may drive up dong-denominated bond yields, which are rising on concern that inflation will quicken, according to a report from Bank for Investment & Development of Vietnam, the country's second-biggest lender. The Vietnamese government sold less than a third of the 100 trillion dong of bonds it planned in 2009 because investors demand higher yields.

"They're not willing to pay the premium that people demand for dong bonds so they have to go overseas and sell dollar bonds," Pincus said. "If they can get a reasonable price, it's the right thing to do."DTCHK

Bond market promises robust growth this year

With more attentions of big investment organisations, the bond market promises stronger development in 2010.

Currently, in the world, some countries use only nine government bond codes, while others have nearly 20 government bond codes. Meanwhile, Vietnam has over 500 government bond codes with different terms.

According to a representative from the finance ministry, the ministry is considering setting standards terms, volumes for each issue time and accordingly the ministry will repurchase retailed government bond codes in the market.

Some experts said that with the recovery of Vietnam and the world's economies, demand for different kinds of government bonds and corporate bonds in Vietnam have continued recovering quickly. Namely, in recent months foreign investors have paid much attention to different kinds of Vietnam's corporate bonds.

In addition to government bonds, corporate bonds are also a kind of potential commodities that attract much attention of big financial organisations. With strong increased demand for capital by businesses, the upcoming time promises more commodities for the corporate bond market.

Many experts said that the land for the corporate bond market in Vietnam remains widely open because it has been nearly untapped.

Hoang Huy Ha, chair of Vietnam Bond Association, said that Vietnam's bond market's scopes is only 17 percent of total GDP while this figure in China is 53 percent, in Thailand 58 percent, in Singapore 74 percent and in Malaysia 82 percent.

Currently, in the structure, corporate bonds account for only 10 percent of total bonds, Vietnam Development Bank's bonds 33 percent and the remaining volume is government bonds and provincial bonds.

In fact, the number of businesses paying attention to raising capital via bond issue is increasing very fast. In 2008, only two or three businesses issued bonds but in 2009, this figure was 15 with total value of 20 trillion dong.

With such a trend, experts said that in 2010 and following years, the number of businesses issuing bonds will continue increase quickly. Additionally, in 2010, there would be some favourable factors for businesses' raising capital via bonds when the credit channel from banks becomes tougher.DT

INSURANCE - Life insurance firms plan to launch competitive plans in 2010

During the year 2009, although the economy in general and banking and finance market in particular witnessed ups and downs, as for life insurance firms, 2009 still was considered a good year.

These life insurers are starting 2010 with many competitive plans to occupy market share. Along an aim of bringing life insurance products closer to inhabitants, the more important point as for life insurance is trade-mark and prestige to customers.

With a satisfactory business result in 2009 of 39 percent growth against 2008, Dai-ichi Life Vietnam said that the year 2009 was the second consecutive year it posted high profit with total insurance premium of 744 billion dong. Hence, Dai-ichi Life Vietnam affirmed that this year will be the company's speed-up year.

"2010 is regarded as an important year as for Dai-ichi Life Vietnam because the company has finalised preparing infrastructure as well as human factor and strategic finance to launch to the market" said Takashi Fujii, Dai-ichi Life Vietnam's general director.

Takashi Fujii added in 2010, his firm plans to open at least 10 business offices and upgrade quality for insurance agent system towards more professionally. The company will also study to launch more new products to market.

Dai-ichi Life Vietnam targets to reach 8 percent market share of life insurance in 2010 and it is expected to be 10 percent by 2012.

At present, there are about 5 percent of Vietnamese people buying life insurance products while there are over 120 million Japanese people buying life insurance products (averaging one Japanese person owns two life insurance products). Thus, Vietnam's life insurance market potential is very big and Vietnam's life insurers need to strive to build a healthy and professional market, according to leader of a life insurer.

Also with satisfactory business results in 2009 of over 200 percent last year's plan, in the marketing plan in 2010, Korea Life will spend some three billion dong on social activities and supporting community.

AIA Vietnam also ended 2009 with good performance such as 75 percent growth of first year insurance premium and 25 percent growth of total premium against 2008. AIA Vietnam said that is prepared to increase chartered capital from 970 billion dong to 1.026 trillion dong and develop stronger in Hanoi market via opening more branches and offices.

"AIA Vietnam will also open more offices and branches in provinces and cities to provide its life insurance products to inhabitants more easily. In addition, AIA Vietnam is mapping out plan to upgrade customer care centres. As planned, till the end of 2010, the company will complete upgrading and putting into operation 10 modern customer care centres including centres in provinces and cities such as Nha Trang and Da Nang" according to representative from AIA Vietnam.

Representative from ACE Life stressed that building a standard operation system along with a strong corporate culture will be core issues of ACE Life in 2010 in order to perfect its image to customers.

In fact, although each life insurer builds its own strategies to develop its image in the market, the common point of life insurance companies is offering the best products to customers. Therefore, in 2010, life insurers will make focuses on perfecting customer service system with the best products. Additionally, this year, life insurers will launch more new products with more value added services.VNS

Foreign Direct Investment - Provincial Competitiveness Index

Da Nang still most competitive in 2009

Da Nang City continued to be the most preferred business destination for entrepreneurs, according to the 2009 Provincial Competitiveness Index (PCI) to be officially released today in Hanoi.

The central coast city is given a score of 75.96 points, slightly ahead of the southern province of Binh Duong with 74.01 points, while Lao Cai, Dong Thap and Vinh Long also emerged as three of the best performers, according to the PCI 2009, which measure governance in the country's 63 cities and provinces.

Rankings of other major cities remain stable, with HCM City taking the 16th position with 63.22 points, Hanoi on the 33rd place with 58.18 points, while Dong Nai ranked the 18th with 63.16 points and Ba Ria¬-Vung Tau on the 8th place with 65.96 points. Cao Bang, Dale Nong, and Bac Kan-at the bottom of the rankings-still require the most improvement in provincial governance.

The PCI 2009 is the result of a major, ongoing collaborative effort between the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development (USAID)-funded Vietnam Competitiveness Initiative (VNCI). The Saigon Times Group serves as the official media organisation for the annual survey since its first launch in 2005.

The organisers have conducted polls among 9,890 Vietnamese enterprises. Respondents are random1y selected from a list of registered private firms that is supplied by the National Tax Authority, stratified by business age, sector, and legal form. The process ensures a highly representative sample.

The PCI research team notes that many localities have exerted tremendous efforts to improve their rankings. They included Ca Mau, Dien Bien, Long An and Thua Thien-Hue.

In particular, Dien Bien slashed informal charges substantially, enhanced the proactively of its leadership and boosted the quality of labour and training. Meanwhile, Ca Mau moved up the ranking table thanks to its lower market entry costs and informal charges. Long An and Thua Thien-Hue fared better in 2009 as both managed to improve transparency, making it easier for locals to gain access to their official documents.

In 2009, the weight assigned to each sub-index was recalculated to reflect the operations of the economy and changes in Vietnam's institutions. Sub-indices that left the greatest influence on growth, investment and returns in the private sector were given the highest weight (20 percent) - namely, transparency as well as labour and training.

2009 was also the fifth consecutive year in which transparency was given the greatest weight although the methods used to calculate PCI were already adjusted to better reflect reality.

Land access and legal institutions, which were given the lowest weight (5 percent), were actually important. However, since the scores of Vietnamese localities in both aspects were mostly dismal and similar, the impacts of both factors on the development of the private sector were not significant. To improve their scores on both sub-indices, local authorities would need not only initiatives of their own but also broader policy reforms on a national level.

Positive trends

According to the latest PCI ranking, the median score continued to rise, showing that local economic governance was remarkably better in 2009. Five of the nine sub-indices posted significant improvement.

Regarding market entry costs, the research showed that the time taken to register business fell from 12.25 days to 10 days. The time cost of regulatory compliance also improved after years of stagnation. The total time taken for business leaders to carry out administrative procedure also dropped from 22 percent to 15 percent while the average tax inspection time decreased from eight hours to five hours. In other words, administrative reforms brought about considerable improvements.

The scores on land access, labour and training, and legal institutions also rose drastically.

Remaining challenges

Transparency, which had the highest weight, already made great strides for several years, but a reverse trend arose last year.

Access to provincial documents and plans was diminished in general. The proportion of enterprises which deemed it necessary to foster rapport with authorities to gain access to provincial documents related to their business returned to the level of2006 (about 61.26 percent). Similarly, the percentage of enterprises which found the implementation of central laws on provincial levels predictable or which had to negotiate with tax officers resembled that in 2007.

Notably, enterprises found it easier to access legal documents such as decrees and documents guiding the implementation of central laws than to obtain provincial documents such as budgets, zoning and land use plans, as well as incentives.

The research team cited a report by experts to observe that the government started to use official letters instead of legal documents. The government issued 9,470 official letters relating to legal issues in 2005-2008, three times as much as it did in 1987-2004. Before 2004, a locality had 19 official letters and 81 legal documents on average. The figures have changed to 55 and 45 respectively. Consequently, legal documents have proliferated, making ties with the authorities especially important.

Business plans

Business plans fleshed out by enterprises for the following two years are an important part of PCI surveys. PCI 2009 is announced when business sentiments are on the wane despite more upbeat macroeconomic forecasts.

According to the surveys, only 65 percent of the private enterprises plan to expand production and business in the next two years, lower than the figures for 2008 and 2007 (78 percent and 77 percent). Small enterprises were more adversely affected by the global economic turmoil, so only 47 percent of them wanted to scale up their operations.

Enterprises hoping for bigger operations mostly choose Hanoi, HCM City and Da Nang as the best locations to increase investment thanks to their attractive markets. However, if this factor was not taken into account, Binh Duong and Vinh Phuc would become the preferable choices by virtue of their high quality of economic governance.sgtd

FOREIGN INVESTMENT - Vietnam an attractive destination for foreign investors

Germany's EMFIS news provider last weekend assessed that Vietnamese economy in 2009 had grown strongly but its inflation remained at dangerous level.

Vietnamese stock market increased sharply when entering the first trading sessions of 2010. Particularly, the VN Index on January 14 surged to 534 pts and has soared by nearly 8 percent so the year early, marking the highest growth in Asia.

The positive development of Vietnamese stock market led to a number of notable things, in which Letindex of Vietnam in recent months was very low. In the forth quarter of 2009, Letindex was below 1.9 percent, the lowest level in Asia.

The recovery of the Vietnamese stock market in the last days had many reasons. First off, Vietnamese government released some interventions to loosen share transactions. In addition, the disordered gold trading will be suspended till late March 2010. Also, initial statistics on the 2009 economic growth of Vietnam (that had been announced already) were at high prospect. In details, total Gross Domestic Product (GDP) of Vietnam last year still grew by 5.32 percent against 2008's 6.18 percent despite the financial crisis. GDP surged again in the last half of 2009 especially that of Q4 2009 rose by 6.9 percent. The economic recovery was been shown clearly by the money supply.

In 2009, the money supply for lending of banks increased by 38 percent year-on-year, mainly in construction field which helped supporting the domestic economy.

EMFIS said that Vietnam, along with China and India still is one of few nations overcoming the financial crisis without any "tattoo".

According to EMFIS, in medium term, Vietnam will continue being one of countries attracting the global attention with the wave of privatisation, modernisation and urbanisation are continued and the prospectus of many social classes keeps growing.

International investors forecasted that in next years, there will be billions of US dollar being pumped into Vietnam's economy.VNS

WORLDBANK ON VIETNAM’S TRADE LOGISTIC - Vietnam stands at 53rd grade in trade logistic index, WB report

World Bank last Friday announced the ranking list of Logistics Performance Indicators - LPI of 155 economies, which was led by Germany, Singapore standing at second position and China at 27th.

The report was based on the overall survey on the international commodity transportation sector. In which, Vietnam ranks 53rd position in terms of WB's trade logistic index report. Vietnam with China, India, Uganda, Thailand, Philippines and South Africa are the developing countries showing special signals on the logistic industry.

Chair of WB, Robert Zoellick said that the economic competition unintentionally made the countries more flexible in improving the trade logistic operations, upgrading the business efficiency, reducing costs and boosting the economic growth.

More suitable connection between producers and international market will result in the bigger development and investment opportunities, that are also the major concerns in the development strategy of developing countries, Robert Zoellick added.

According to Otaviano Canuto-vice chair of WB, the developing countries should invest better in logistic sector to escape from the crisis.DTCHK

CONSTRUCTION - Construction investment for 2010 estimated at 42tr dong

Ministry of Construction estimated total investment for its member companies in 2010 at nearly 42 trillion dong, up 22 percent year-on-year.

In 2009, the entities under Construction Ministry carried out 437 among 563 projects with total value of 30.950 trillion dong, reaching only 92 percent of the year plan.

In the urban technical infrastructure, social infrastructure and housing field, there were 313 projects with the actualised capital of 13.870 trillion dong, accounting for approximately 44.8 percent of the total figure of 2009.

Many enterprises were active in accessing and borrowing soft loans at 4 percent pa from the government's demand stimulus package for developing production and investing in new projects.

According to the Ministry of Construction, the real estate is the investment field with high profitability compared with other sectors but it contains a lot of risks if being short on experience and financial strength. Together with property giants namely HUD, Song Da Corp, Viwaseen and Viglacera started joining the new playing ground. Many entities began research and construction on housing projects for students, and low income earners.

Business - PetroVietnam surpasses 2009 business plan targets

Vietnam National Oil and Gas Group (PetroVietnam – PVN) announced surpassing the 2009 targeted business plan, in which the total drilling output of crude oil exceeded 2.8 percent, gas exploration of 0.1 percent and production output of nitrogenous fertiliser of 2 percent.

The group reported achieving significant financial results of total revenue of 265.02 trillion dong, equal to 125 percent of year plan, contributing to state budget of 91.05 trillion dong, or 148 percent of year plan, export turnover of $7.82 billion, or 134 percent of the year plan.

The year 2009 was the first time in the past four years that PetroVietnam has fulfilled the year plan of oil exploitation with total production output of 16.3 million tonnes, or 440,000 tonnes higher than the year plan. The group's total oil-based exploitation volume was estimated at 24.31 million tonnes, equal to 102 percent of the year plan, up 8 percent against the previous year. The crude oil export was posted at 16.29 million tonnes, or 105 percent of the year plan, up 11.5 percent year-on-year.

PetroVietnam targeted to increase the national reserve of 35-40 million tonnes of oil. The group planned to reach total oil production volume equal to 92 percent compared with that of 2009, gas production of 99.9 percent, nitrogenous fertiliser of 99 percent, power production volume of 117.7 percent, output of petroleum products of 350 percent and crude oil supplies for Dung Quat Oil Refinery of 229.7 percent.cafef

TELECOM - Viettel attains 10tr dong profit in 2009

Military Telecommunications Corp (Viettel) has recently released business results in 2009 with 60 trillion dong of revenue, increasing 80 percent against 2008's figure, 10 trillion dong of profit and over seven trillion dong of tax payment, according to Nguyen Manh Hung, Viettel's deputy general director.

As planned, the company will invest in 10-15 countries by 2015 and the company's revenue from foreign markets will be higher than that from domestic market.

Hung said that during past five years, Viettel's revenue increased 52 times.

Viettel has also invested some $250 million in Laos and Cambodia and is the telecom firm with biggest infrastructure in these markets.

During 2009, Viettel's revenue from foreign markets gained over $70 million and it is expected to be $300 million in 2010.

In February 2009, Hung said that his firm would invest about $60 million in the Republic of Haiti. Viettel is also promoting to invest in Burma, Bangladesh, North Korea, Angola and Cuba.

In 2010, Viettel set a target of 60 percent growth. Also from 2010, Viettel will officially carry out new strategy: studying, designing and providing telecommunications equipments. The telecom provider expected to gain $100 million of revenue in 2010 from this field.CAFEF

VinaPhone signs $70m contract with Motorola for expanding GSM network

Motorola Group announced on January 14 that its member company of Motorola mobile information network has recently signed a contract valued $70 million with VinaPhone.

Accordingly, in the next two years, Motorola will support VinaPhone to set up additional 3,000 BTS stations, expanding 2G coverage area in provinces in northern and southern regions, especially in large, crowded cities of Hanoi and HCM City.

The signed contract between two parties resulted from achievements during the period when Motorola supported VinaPhone in launching 2G and 3G mobile network services.

The GMS network with large coverage area will help VinaPhone in upgrading capacity to meet the increasing demands of telecommunication services in urban areas and high quality services with wide coverage areas in rural and urban services.TBKT

Energy and Democracy: an Economic Perspective

The problem is that the good Lord didn’t see fit to put oil and gas reserves where there are democratic governments.
Dick Cheney, Interview to the "Washington Post", 30th of July, 2000.

17 October 2007, by Paolo Figini | 1 document

Introduction

The relationship between energy reserves and democracy, or in more general terms, between natural resources and political institutions is one of the most debated topics in social sciences. Such issue lies at the junction of two communities of researchers which often use different assumptions, interpretative models and methodologies: the economists and the political scientists. However, neither economists nor political scientists would agree with the US vice-president citation reported above. The supposed incompatibility between energy resources and democratic institutions, if supported by data, can not stem from divine obscure will, nor be a pure coincidence. There must be political and economic reasons.

In this brief survey, we want to summarise the main theoretical and empirical evidence stemming from the literature [1], highlighting the limits and discussing a few paths that could be taken to improve the robustness of the findings. In the next section we will briefly review the so-called natural resource curse argument, with its supporting evidence and the models suggested to explain it. Since one of the main channels through which the resource curse is supposed to work is the quality of institutions, in section three we will finally focus on the relationship between energy resources and democracy.

The Natural Resource Curse

Sachs and Warner (1995 and 2001) inquire into the relationship between a country’s natural resources and its economic performance. Counter to the intuition, in post world-war II, they find evidence of a negative relationship: resource abundant countries have grown on average less than resource poor countries. Resources, they argue, are not a blessing which helps economic development, but rather a curse, limiting growth and socio-economic progress. Since their 1995 seminal paper, those results have been discussing by a flourishing literature. According to Cabrales and Hauk (2007), the empirical evidence, somehow weak and with many caveats, can be summarised in these five stylised facts:

• Fact 1 – Countries rich in natural resources grow slower on average than natural resource poor countries (the natural resource curse argument).
  However there are some resource rich countries that have grown very fast and for which natural resources are indeed a blessing: this leads to:
• Fact 2 – The evidence is inconsistent with a monotonic effect of resources on development/growth (see Robinson et al. 2006).
  The theoretical and empirical analysis has since been focussing on the reasons why natural resources are somewhere a blessing and somewhere else a curse. Policy failures have been identified as the main cause:
• Fact 3 – The quality of institutions is a decisive factor in determining whether natural resources are a blessing or a curse (see Mehlum, Moene and Torvik, 2006).
  Empirical findings also suggest a reverse causality:
• Fact 4 – Natural resources have antidemocratic properties: oil and mineral wealth tends to make countries less democratic (see Ross, 2001) and
• Fact 5 – Many revolutions are linked to rents derived from natural resources (see Collier and Hoeffler, 1998 and 2005).

What explains the curse? As Sachs and Warner (2001, p. 833) clearly state “[m]ost current explanations for the curse have a crowding out logic. Natural resources crowd-out activity x. Activity x drives growth. Therefore natural resources harm growth”. Gylfason (2001) lists four different channels of transmission “x” that have been used to explain the way in which resource abundance leads to the under-performance of the economy. First, a natural resource boom (i.e., the discovery of a new oil-field), with its strong effect on exports leads to an over-evaluation of the national currency. At the same time, the great inflow of income into the country boosts domestic demand and starts inflationary pressures, particularly on non-traded goods. Both phenomena crowd out traded sectors, in which profits shrink because they sell at international given prices, thus hurting the overall development of the country. Such a negative stagflationary spiral is the so-called Dutch disease.

Second, countries which rely on their natural resources may, inadvertently or deliberately, neglect to invest in human resources. Those are, in contemporary economies, the most important fuel of sustained growth, thus natural resource rich countries being caught in a poverty trap. Third, as a generalisation of the previous rationale, natural resource abundance may give citizens and governments a false sense of security, leading to the non-implementation of efficient and growth-enhancing economic policies [2]. As Gylfason (2001, p. 85) puts it “rich parents sometimes spoil their kids. Mother Nature is no exception”.

These three theories highlight the lack or the ineffectiveness of economic policy. However, there is a fourth explanation which considers the interplay between natural resources and the “quality of institutions”. According to Robinson et al. (2006) and to Mehlum et al. (2006) the impact of resources on growth crucially depends on the quality of the political institutions and, in particular, on the degree of corruption in the public sector. Mehlum et al. show that the variance of economic growth among resource rich countries is due to how rents are distributed. Some countries have institutions that favour producers and re-investment of those rents, while others have “grabber friendly” institutions that divert scarce entrepreneurial and human resources into unproductive rent-seeking. Therefore, the quality of institutions is the factor which determines whether abundance in natural resources is a curse or a blessing for a country.

However, in this fourth model an endogeneity problem appears, and the reverse causality has also to be considered: resource wealth can lead governments and producers to implement rent-seeking activities, thereby leading to corruption and “grabber friendly institutions”. In extreme cases, to avoid the redistribution of generated wealth, rent-seeking can take the form of authoritarian governments. This causal link from resources to democracy, which could be called the natural resource political curse, will be tackled in the next section.

As the theory, also the empirical analysis joins the results of two different strands of research. First, the huge literature on endogenous growth of the last twenty years has been identifying the main engines of economic growth. It is well known that the level of human capital (and therefore the extent of investment in education) and the quality of institutions are two of the most important variables at play (on this last point see Persson and Tabellini, 2006, for a survey). There is no reason, hence, to doubt about the “’x’-to-growth” link described above.

The second, more specific, strand of literature attempts to assess the validity of the link between natural resources and the “x” proposed channel of transmission. Among others, Stijns (2003), Hausmann and Rigobon (2003), and Sachs and Warner (2001) find (weak) evidence for the Dutch disease effect [3]. Gylfason (2001) shows that natural capital crowds out human capital, thereby slowing down the pace of economic development. However, Bravo-Ortega and De Gregorio (2006) find the link not to be linear: the negative effect of resources on growth can be offset by high education levels, thereby making natural resource abundance a blessing for countries with high human capital. This last result can explain the performance of countries like Norway.

Recently, more emphasis has been put on the “quality of institutions” effect. The seminal paper by Sachs and Warner (1995) considers the specific mechanism which leads resource abundance to a deterioration of institutional quality, but dismisses it as empirically unimportant. On the contrary, Torvik (2002) finds evidence that natural resources increase rent-seeking activities, thereby lowering growth. This channel of transmission introduces to a more political field of research which relates to the (suggested) causal effect of natural resources abundance on democracy. Is there a natural resources political curse? This is the question to be tackled in the next section.

Does Oil Hinder Democracy?

Does Oil Hinder Democracy? This is the title of an influential paper by Michael Ross (2001). Ross perspective differs from the literature analysed in the previous section for at least two reasons. First, being a political scientist, not an economist, Ross perspective is somehow different: he does not look at the interplay between resources and institutions in determining the economic performance of a country, but focuses on the causal relationship between natural (primarily energy) resources and democracy. He then attempts to find evidence supporting the different theories brought forward to explain this link. According to Ross and coherently with what stated in the previous section, such theories can be sorted into two categories: those suggesting that oil-generated wealth causes governments to do a poorer job in promoting economic development (through ineffective education policies, corruption, etc.) and those suggesting that oil-generated wealth makes countries less democratic; with Ross, our survey now follows this second line of research.

Second, he unfolds the analysis around two different dimensions: the geographic dimension, attempting to test whether any causal link is due to the (non) democratic performance of particular groups of countries with some cultural and historical characteristics (i.e., the Middle East and its own Islamic culture); the sectoral dimension, with the estimate of the effect generated by different types of primary resources.

Ross introduces the three main causal mechanisms that can explain the link between energy rich countries and authoritarian rule: the rentier effect, the repression effect, the modernization effect, which now we briefly explain.

• The rentier effect. Countries rich of gas, oil, or other natural resources gain much of their revenues from stamps, royalties, or export taxes. Such rent-seeking activities can be used to relieve social pressure that might otherwise lead to demand of greater accountability. This may occur in three ways. The first is through a taxation effect. Since governments get sufficient revenues from oil or other resources, they do not have to impose tight budgets and / or heavy tax burdens on citizens, thus relaxing their control over government activity and making fiscal pacification much more effective. Second, through a spending effect, oil revenues can be (at least partially) used for general spending and for patronage, thus dampening latent pressures for democratization. Third, through a group formation effect: governments can use their money to corrupt or prevent the formation of independent social groups that may be inclined to demand political rights.

• The repression effect. This (much more political) story unfolds as follows: oil-generated wealth may induce governments to spend more on internal security, halting the population’s democratic aspirations. Since the government has more money available, it is less costly to be authoritarian in order to avoid the sharing of its rent with the population. This effect is consistent with Collier and Hoeffler (1998) findings that natural resource abundance tends to make civil war more likely, since the expected benefit of winning the war is much higher for the different stakeholders at play (governments, oppositions, political parties, ethnic groups, oligarchies).

• The modernization effect. Democracy stems from a collection of social and cultural changes, including occupational specialisation, urbanisation and high levels of education. None of these changes are likely to occur in a resource abundant country: the labour force is trapped in the energy sector and does not shift to the manufacturing and to the service sector, citizens are not forced to move to the cities and the lack of economic need diminishes the effort of investing in human capital. As a side effect, it is known than democratic pressure is low when there are less educated citizens, thereby reinforcing the effect.

Ross empirical findings are consistent with the theory and can be summoned as follows: first, oil and other mineral fuels (gas, coal) do hurt democracy. Second, energy resources inhibit democracy in poor countries while in rich countries such link is not statistically significant. Third, the link is not specific to the Middle East but valid at the global level. Fourth, all resources, included non-fuel mineral wealth, hinder democracy. Fifth, there is weak evidence to support all three channels presented above, the rentier, the repression and the modernisation effect.

Discussion

To conclude this brief survey, does not only resource wealth reduce economic growth, but also curses through hindering democratic institutions: thus, the trap of natural resources has both an economic and a political dimension.

Still, results provided by this strand of literature are not particularly robust and many roads remain to be explored. With respect to theory, the high number of variables at play and their complex interactions call for deeper analysis. Cabrales and Hauk paper (2007) is a firm move in this direction. Empirically, there are many caveats, both methodological and data related, as Brunnschweiler (2007) argues.

As regards data, it has been claimed that natural resources are not properly measured: most of the papers use the export share of primary exports in GDP as an index of resource abundance. There are several limitations in this measure: first, a measurement error appears, since GDP is modified by a change in the export performance; second, exports measure the flow of resources outside the country. They do not measure neither the stock of available resources (the abundance) nor the present value of such stock (the wealth). Empirical analysis should take care of this discrepancy with the theory; third, many papers identify natural resources with the whole primary sector, others select the mineral sector, others the mineral-fuel sector. Although it is claimed that the results are robust to the selection of any of these measures (Sachs and Warner, 2001), the literature should focus more on the energy sector, since most of the theoretical work is concerned with fuel-related rent-seeking or, more in general, with abundance of those minerals that are important inputs in contemporary production, such as copper and silicon [4].

A second critique is about the econometric methodology used: most of the works on the natural resource curse use cross-country regressions. However, since theoretical models describe mechanisms involving dynamic effects within the country, panel techniques (i.e., fixed effects, random effects, the Arellano-Bond estimator) should be used. The dynamic process is particularly important in the story relating energy and democracy, for which the discovery of natural resources should lead, with a lag, to the detriment of democracy and to the worsening of the quality of institutions. Ross (2001) goes in this direction by using pooled cross-section time-series data; however, more could be done on this aspect.

A final word should be said on democracy, such a blunt concept to be measured. Although this is a general critique to all the empirical research on the quality of institutions, the many indicators used for proxying democracy, corruption or the quality of institutions have many caveats, and do not address properly the multi-dimensional characteristics of such concepts.

These limitations are also the strength of this research field: the link between energy resources, growth and democracy has still so many aspects, peculiarities, and perhaps surprises that have to be discovered and correctly tackled by the scholars.

P.S.

References

• Bravo-Ortega, C., De Gregorio, J., The Relative Richness of the Poor. Natural Resources, Human Capital and Economic Growth, in Lederman, D., Maloney, W. (eds.), Neither Curse Nor Destiny: Natural Resources and Development, Stanford University Press, 2006.
• Brunnschweiler, C.N., Cursing the Blessings? Natural Resource Abundance, Institutions, and Economic Growth, "World Development" (forthcoming).
• Cabrales, A., Hauk, E., Democracy and the Curse of Natural Resources, Mimeo, 2007.
• Collier, P., Hoeffler, A., On the Economic Causes of Civil War, "Oxford Economic Papers", 1998, 50:563-73.
• Collier, P., Hoeffler, A., Resource Rents, Governance, and Conflict, "Journal of Conflict Resolution", 2005, 49:625-33.
• Gylfason, T., Natural Resources, Education, and Economic Development, "European Economic Review", 2001, 45:847-59.
• Hausmann, R., Rigobon, R., An Alternative Interpretation of the Resource Curse: Theory and Policy Implications, "NBER Working Paper", 2003, No. 9424.
• Lal, D., The Poverty of Development Economics, Harvard University Press, Cambridge, MA., 1985.
• Mehlum, H., Moene, K.O., Torvik, R., Institutions and the Resource Curse, "Economic Journal", 2006, 116:1-20.
• Persson, T., Tabellini, G., Development and Democracy. The Devil in the Details, "American Economic Review", 2006, 96:319-24.
• Robinson, J.A., Torvik, R., Verdier, T., The Political Foundations of the Resource Curse, "Journal of Development Economics", 2006, 79:447-68.
• Ross, M., Does Oil Hinder Democracy?, "World Politics", 2001, 53:325-61.
• Sachs, J.D., Warner, A.M., Natural Resource Abundance and Economic Growth, Harvard Institute for International Development Discussion Paper, 1995, n. 517.
• Sachs, J.D., Warner, A.M., Natural Resource and Economic Development: the Curse of Natural Resources, "European Economic Review", 2001, 45:827-38.
• Stijns, J.P., An Empirical Test of the Dutch Disease Hypothesis Using a Gravity Model of Trade, Mimeo, 2003.
• Stijns, J.P., Natural Resource Abundance and Growth Revisited, "Resources Policy", 2005, 30:107-30.
• Torvik, R., Natural Resources, Rent Seeking and Welfare, "Journal of Development Economics", 2002, 67:455-70.

http://www.cartografareilpresente.org/article133.html

Getting A 'REAL' ONE-YEAR 'VISA'PART II

In our April issue, we looked at Thailand's one-year Temporary Extension of Stay for foreign nationals and took you through what is involved in obtaining a Non-Immigrant (Non-IM) visa-without which you can’t apply for the one-year extension.

Readers picking up the story this month should note that we are NOT talking about the so-called one-year multiple-entry visa, which requires you to leave the country every three months. 'Permission to stay in the Kingdom of Thailand on a temporary basis' means you do not have to leave Thailand at all. If you would like to refer to our April feature, please visit www.windowonlifestyle.com and look in the features archive.

The information below is based on documentation provided by the Immigration Bureau (IB) in April 2008. Readers should note that these documents are described by Immigration as 'guidelines for the IB to follow', not fixed rules. In every case, the Immigration Officer authorised to deal with your case has discretion to grant or refuse your application. The over-riding consideration applied to all applications is whether granting the stay is 'in the country's best interests'.

Some general points

• If your passport expiry date is less than one year after the date of your intended application, you may want to consider applying for a new passport. You will not be granted a stay that extends beyond the validity of your passport.
  
  
• If your Non-IM visa expires after your application has been accepted, you may be given an extension stamp several times as necessary. However, according to the IB documentation, the extensions while your application is under review cannot exceed a total of 30 days from the day after your visa expired.
  
  
• If your application is refused, you are entitled to know the reasons for the refusal. You may then resubmit your application for another review, citing the reasons for resubmission to a Competent Official holding the rank of Police Inspector or higher. This procedure will secure a decision in writing, whether the re-application is successful or not. This decision is final.

Do you fit the one-year bill?
The table below lists the categories that are eligible to apply for a Temporary Stay in Thailand, together with brief notes on the 'basis for consideration' of the application and documents required. For the purpose of this feature, some details may have been omitted. For full information, contact the IB or a competent legal practitioner. [NOTE: we have not included any category where less than one year is the maximum stay granted.] In all cases, the requirements include a valid passport, Non-IM Visa, application form and fee.

• Business / commercial employment
  Suitable income (see below), paid up capital 2m THB, audited accounts, proof of '‘sound financial condition', 4 Thai employees, work permit, full company documentation, including tax payment receipts (personal, staff and company)
  
  
• Employment by goverment agency / state enterprise
  Certified written request from relevant agency, work permit
  
  
• Investment of 3m Baht+ (eg buy a condo)
  Proof of money transfer, proof of approved investment [note: if you were granted a temporary stay earlier on the basis of a lesser amount, and have stayed continuously, the 3m Baht sum may be waived]
  
  
• Employment as qualified teacher (state or private)
  [State school] Certified written request, work permit; [private school] as for State school + school licence, qualifications / teacher’s licence
  
  
• Teaching apprentice or researcher at university
  State institution] Certified written request by dean of university; [private institution] as for state + confirmation letter from relevant goverment agency
  
  
• Enrolment in state or private educational institution
  Certified written request with details and length of proposed study [State school];. [private school]
  
  
• Parent, spouse or child of alien at educational institution
  Proof of family relationship. In case of parents, 500,000 THB in local bank account
  
  
• Employment by foreign media as correspondent
  Certified written request from Public Relations Department or Information Department of Ministry of Foreign Affairs, work permit.
  
  
• Studying Buddhism or 'performing religious function'
  Certified written request by National Buddhism Office or Prime Minister's Office or Mahachulalongkorn University, confirmation letter from abbot at relevant temple
  
  
• Working as a missionary
  Certified written request by Religious Affairs Dept or National Buddhism Office and from applicant’s own religious organisation
  
  
• Parent, spouse or child of a Thai national
  Proof of Thai nationality, proof of relationship (marriage must be de jure and de facto); child younger than 20, parent over 50; if alien married to Thai woman, total joint income not less than 40,000 THB per month
  
  
• Parent, spouse or child of a Residence Permit holder
  Same as above but + copy of Residence Permit and Alien Book
  
  
• Working for a charity
  Charity's operation licence, certified written request, list of other aliens employed
  Same as above but + copy of Residence Permit and Alien Book
  
  
• Retirement
  50 or over, income 65,000 THB p/month or bank deposit 800,000 THB or annual income 800,000 THB, relevant documents to prove above. [note: if you entered before 21 Oct 98 and have stayed continuously, the requirements are different/less stringent]
  
  
• Parent, spouse or child of a person permitted Temporary Stay under any of the above
  Proof of relationship, proof of status; child younger than 20; parent over 50

Income requirements-application based on employment

Nationality	Minimum income
Europe, Australia, Canada, Japan, USA	50,000 THB/month
South Korea, Singapore, Taiwan, Hong Kong,Other Asia, Mexico, South America, Central America, Eastern Europe	40,000 THB/month
Turkey, Russia, South Africa	35,000 THB/month
Africa, Cambodia, Myanmar, Laos, Vietnam	25,000 THB/month

Get it right or go home?

• If you don't meet the requirements, you’ll be given a 7-day extension to get ready to leave.
  
  
• Even if you meet all the requirements, but for some other reason the IB officer believes you are unsuitable, your application will be referred to a higher authority for a rejection order.
  
  
• If your application appeared to be OK at the time and were granted permission to stay, but later are found to be lacking in qualifications, your case can be referred to a higher authority for a revocation order.

Check your facts
The information given here is intended only as a guide and should not be used to form the basis of any decision whatsoever regarding your legal status in Thailand or the likelihood of being granted right to stay in the Kingdom. Before taking any action, making any application, or submitting any information to the authorities, you should seek the advice of a competent legal practitioner or other experienced/qualified consultant.

http://www.windowonlifestyle.com/features_useful_info/one_year_visa2.htm

Getting A 'REAL' ONE-YEAR 'VISA'

In love with Thailand? Want to stay here forever? Bored with visa runs?

Obtaining permission to stay in Thailand beyond the duration of your visa can be a fairly lengthy and complicated procedure; there are no shortcuts. The government has begun (quite rightly) to crack down on (a) people working in Thailand without permission - a criminal offence - and (b) people staying for long periods on an indefinite succession of 30 day 'visa-on-arrival' stamps. However, there are legal ways to extend your stay in Thailand. Not surprisingly, they involve more scrutiny of who you are and why you want to be here.

There are all kinds of esoteric and practical reasons that are accepted by the authorities as a reason to stay on longer-anything from being a film star to a missionary and much in between. For the purpose of this brief guide, we will confine ourselves to the circumstances which most commonly arise i.e. you come to Thailand, fall in love with the place and decide to settle here and get a job, start a business or retire. The first step to fulfillment of your dream is to get a visa.

Some definitions
A VISA is permission to enter Thailand for a stated number of days, granted by a Thai embassy or consulate outside the Kingdom. You cannot obtain a visa while in Thailand. Your visa may be single entry or multiple entry, the latter meaning you may leave and re-enter the country a stated number of times without applying for a new visa. This is often referred to, incorrectly, as a one-year visa; in fact, the maximum continuous stay in Thailand most kinds of visa is 90 days (Non-IM 'O-A' Long Stay is an exception).

A TEMPORARY EXTENSION OF STAY is granted by the Immigration Bureau under Section 35 of the Immigration Act B.E. 2522 and allows you to remain in Thailand for one year without leaving; in fact, with yearly renewals (subject to acceptance of your application) the holder of a Temporary Extension need never leave Thailand! Note however that, even if you fulfill all the criteria embodied in the Act and the current rules applicable, granting of permission is at the discretion of the relevant Immigration Officer. So, as always, it pays to be nice. There is no automatic right for a foreign national to be granted 'temporary stay'.

The right visa – get yourself a Non-IM
The most common kinds of visa are (a) Tourist, (b) Non-Immigrant (Non-IM – several classes) and (c) visa-on-arrival; the latter is not really a visa but a permission to enter the Kingdom for 30 days without a visa.

Neither a tourist visa, nor a 30-day 'no-visa' stamp in your passport, will enable you to apply for an extension of stay. You must have a Non-IM visa of some sort. This cannot be obtained within Thailand. Ideally, you should apply in your country of origin, but you can obtain one from most Thai Embassies or Consulates. The nearest to Thailand are: [embassies] Singapore, Kuala Lumpur (Malaysia), Phnom Penh (Cambodia), Vientiane (Laos), [consulates] Savannakhet (Laos), Penang & Kota Bahru (Malaysia).

If you are making a special journey to one of these places to apply for your visa, check that (a) the consular office where you are headed is currently issuing Non-IM visas and (b) you have all the correct documents. If your application is incomplete in any way, you will be turned away and obliged to re-enter Thailand on a 30-day stamp – or go home!

Which Non-IM is the right one?
There are currently 10 different categories of Non-IM visa, the most-commonly held being 'B' (working) and 'O' (loosely referred to as a retirement visa), the most peculiarly named the Non-IM'IM' (government-type investment) and the one least people know about is the Non-IM'IB' (regular investment); this one means you can apply for a Non-IM visa (and therefore the rolling one-year temporary stay) if you buy a condominium worth 3m Baht or more.

However, note that voluntary (unpaid) work also requires a Non-IM visa, as does missionary work, study, journalism, film producing etc. Even superstars need a Non-IM, unless they’re simply here on vacation, although I doubt they find the process as arduous as most of us.

The documents required to get a Non-IM visa vary depending on the visa type, the most onerous being the 'working' visa. These include: [the obvious-applicable to all Non-IM applications] the visa fee, a passport with at least six months validity, 2 photos (hair is allowed but hats are not), adequate finance (around 20,000 Baht per body usually does the trick-but not for the 'retirement' visa ), a perfectly filled-out application form and [the more obscure] a massive stack of documents relating to the company that plans to employ you. The company will do this bit for you, but beware that nobody's perfect and many a 'straightforward' Non-IM visa run to Penang or similar has come to grief because of one missing bit of paper. It pays to make sure (politely) that your prospective employer's harassed clerical officer has double-and triple-checked everything before you head for the airport.

We don't have space here to list all the requirements for each category, but an excellent source of concise information is the Thai Embassy in UK's website: www.thaiembassyuk.org.uk Another source of information is www.thaivisa.com, although take note that the ‘information’ tends to be forum-based and anecdotal; a useful top-up on current practices, but no replacement for sound knowledge of the rules and procedures.

The next step
So, you've got your Non-IM visa and that’s it, right? Not quite. You've completed step one. You now need to start getting ready to apply for your Temporary Extension of Stay, which should be applied for about at least one week before your Non-IM visa expires. The documentation provided by the Immigration Bureau identifies the "Basis for Consideration" for each and every case. The first ‘basis’ in each case is: "The alien has obtained a temporary visa (Non-IM) and…"

More next month…
Check out the next (May) issue of Shop WINDOW on Lifestyle for exhaustive details of who is eligible to apply for a Temporary Extension of Stay, what other bases of consideration are applicable and the documentary support you will need for a successful application.

We have taken every pain to research this article and ensure its accuracy. However, the rules change frequently and different sources do sometimes give different answers. You should verify details independently before making any earth-shattering decisions.

http://www.windowonlifestyle.com/features_useful_info/one_year_visa.htm

Vietnam - News and Regulations

ECONOMIC GROWTH - Citigroup praises outstanding Vietnamese growth figures

HA NOI — In the shadow of the global economic meltdown, Viet Nam’s GDP growth in 2009 outpaced regional economies with the exception of China, Citigroup said this week.

Viet Nam achieved 6.9 per cent growth in the fourth quarter, bringing the overall growth rate to 5.32 per cent for 2009, a stark contrast to Citi’s earlier forecast of 4.7 per cent.

The higher-than-expected 2009 growth rate has been attributed to statistical revision in previous quarters: the third quarter growth was upgraded to 6.04 per cent from a previously reported 5.2 per cent.

The biggest annual rebound was in construction sector, which expanded by 11.4 per cent in 2009 from almost zero growth in 2008. The rebound has been linked to strong monetary and fiscal stimulus, also evident from the acceleration of credit growth to 37.7 per cent in 2009, up from 25.4 per cent last year.

Year-end inflation touched 6.52 per cent (year on year) in December, with a full year average of 6.88 per cent, a touch below the 7 per cent forecast by Citi.

A mismatch between supply and demand is predicted to remain in the foreign exchange market even though the gap between market and official rates narrowed after some corrective measures were announced in November: a depreciation of the dong by 5.4 per cent and a narrowing of the daily trading band to 3 per cent from 5. One US dollar now buys VND18,600. Over the past two weeks, trading has remained above the official ceiling rate of VND18,479 to one US dollar.

The market is now waiting for rise in the dollar supply after the Prime Minister ordered major corporations to sell dollars back to the banks to shore up the dong.

With growth remaining strong, the dong will likely remain under pressure in the shadow of the 2009 trade deficit which burst out to US$12.2billion, Citi economist Johanna Chua wrote in the report.

Over the last decade, Viet Nam with a population of 86 million has recorded an average economic growth of 7.3 per cent, bringing the per capita income to $1,000.

Viet Nam is widely expected to have a high growth rate this year at 7 per cent, and continue to be one of the fastest growing economies in the region.

The country had recovered remarkably fast from the global economic crisis although Bloomberg said Viet Nam’s excessively overheated growth and a return to inflation next year were causes for concern. — VNS

Average GDP growth in 2006-2010 expected at 6.9pct

Ministry of Planning and Investment stated that the average GDP growth rate in the past five years from 2006 to 2010 was expected to achieve about 6.9 percent per year, compared to the proposed target of 7.5-8 percent.

The GDP growth rate calculated on criteria of price in 2010 was expected to increase twice as much as that of 2000, in comparison with the targeted growth rate of 2.1 times higher. The GDP par capita in US dollar to be calculated on the basic of 2008 exchange rate reached over $1 billion, equal to the expected target in 2010.

In the three major sectors, only the industrial and construction sector failed to reach the targeted average economic growth rate, the two remaining sectors of agriculture, forestry, aquaculture and services fulfilled the targeted annual growth rate. The ministry of Planning and Investment predicted that the export turnover in 2009 and 2010 would be lower than the expected annual growth rate in 2006-2010. The ratio of social investment capital over GDP in five years of 2006-2010 was expected to surpass the predicted one by 40 percent. TBKT

BANKING PROFITS - Caution with 2010 profit plan

Banks have started revealing profit targets for 2010 which are quite impressive but in a way cautious too due to predictions about difficulties in 2010.

Although facing with many hardships from the global financial crisis, banks have harvested many successes in 2009. Most banks reported profit exceeding their plans. However, banks are now quite cautious when setting profit targets for 2010.

Tran Phuong Binh, Eastern Asia Commercial Joint Stock Bank (EAB)'s general director said that his bank's pre tax profit target is set at 1.1 trillion dong for 2010, higher 350 billion dong than 2009's plan.

Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank)'s chair, Dang Van Thanh, said that his bank targets to reach 2.6 trillion dong of profit this year, higher one trillion dong against last year's plan and 700 billion dong of last year's actualised figure (in 2009, Sacombank earned 1.9 trillion dong of pre tax profit, higher 300 billion dong than the bank's approved plan).

With higher profit target for 2010, Thanh said there will be pressures, especially the market still remains difficulties, the difference between deposit rate and lending rate is being narrowed and the capital mobilisation sources are more difficult.

Therefore, in order to gain profit target in 2010, Thanh said that Sacombank will restructure capital sources and develop services to increase capital sources.

According to Nguyen Hoa Binh, Vietnam Joint Stock Bank for Foreign Trade (Vietcombank)'s chair of director board, the aim of controlling credit growth at 25 percent in 2010, lower than 2009's figure, does not mean that credit operation would not have opportunity to develop. Binh added, the current difficulty is seeking saving sources when other investment channels are being recovered.

Vietcombank's profit in 2009 was 4.4 trillion dong, higher than last year's target at 3.4 trillion dong. But, Binh said, his bank's profit target this year is not much higher than last year's actualised figure.

Representative from Asia Commercial Joint Stock Bank (ACB) said that the bank's profit in 2009 was not much higher than the approved plan of 2.7 trillion dong. At the same time, ACB set a modest profit target for 2010 because according to ACB, profit must go with stable development. Additionally, both lending and deposit activities this year will face more difficulties.

Banks set modest profit targets in 2010 mainly due to earning from credit activity is predicted not to be high like previous year's figure because the government's short term lending rate subsidisation policy ended.

In fact, earning from credit activities accounts for large part in total earnings of banks' profit (about 65-70 percent in big banks and 80-85 percent in small-scaled banks).

Meanwhile, competition on saving rate is becoming tenser and banks are tending to offer allowable maximum saving rate whereas the lending rate is still being controlled. In addition, earning from other services is predicted to be narrowed this year. DT

MONEY MARKET POLICY - SBV pumps $789m into market to ease inter-bank rate

The State Bank of Vietnam has pumped 15 trillion dong (US$789.47 million) through open market operations to cool down an over-heated interest rate on the inter-bank markets where some banks are struggling to accumulate capital.

Commenting on the move, head of Monetary Policy Department of the central bank Nguyen Ngoc Bao said: "Injecting capital through open market operation is a very normal activity for a central bank to balance supply and demand."

I Some banks report that after the initiative, the inter-bank rate was lowered to below 12 percent for short capital, 11 percent for week capital, and 8.5 percent for overnight loans.

The central bank aims to bring the inter-bank interest rate down to around 9%.

I have been said to illegally rise to 16-17 percent per year for two-week to three-month terms. Normally, inter-bank rates were equal to or slightly higher than the refinance interest rate, which currently stands at 8 percent.

"The pumping of the central bank helps ease off a lack of liquidity in many banks," said Nguyen Thanh Toai, deputy general director of Asia Commercial Bank.

Last month, rumours had it that the central bank had injected about 30 trillion dong ($1.5 billion) to support banking liquidity but the central bank denied the bank bailout.

Associate Professor Tran Hoang Ngan at the HCM City Economics University assumed that the lack of liquidity was because banks used up their financial capacity in 2009, especially on the economic stimulus package, and because the speed capital circulating back to banks remained slow.

The Vietnam Bank Association (VNBA) general secretary Duong Thu Huong noted that capital always became scarcer in the latter part of the year, when many firms borrow to payoff loans and settle contracts. "We call1his capital tension a seasonal capital shortage"

In an attempt to attract capital to balance liquidity, some banks are said to have negotiated deposit interest rates with customers bC10nd the 10.49 percent cap set by the central bank and the VNBA.

"We have measures to rationalise financial sheets for these cases," said a bank official who asked to be unnamed, adding: "However, the lack of liquidity at this time is just temporary. After Lunar New Year, everything will be ok."

While banks and customers under the table push deposit rates beyond recommended levels, lending rates now are officially frozen at 12%. That means banks are being squeezed for profits at the very least, with some even posting losses if they entirely comply with the cap.

Commenting on the issue, Le Xuan Nghia, deputy head of the national financial supervisory commission, said: "The market always acts based on its rules. If the market operates normally, interest rates will reflect true capital costs. If there is something unusual, the market itself will adjust. VNS

POWER - Thermo power JSC estimates gaining pre-tax profit of 830b dong

Southern bourse-listed Pha Lai Thermo Power Joint Stock Co (coded PPC) announced earning 2009 revenue of 4.797 trillion dong, exceeding 14 percent of the year plan, in which the total costs were estimated at 3.976 trillion dong and pre-tax profit of 830 billion dong.

The above-mentioned costs also included the foreign debt in yen to be calculated up to the 31 December forex rate.

The company revealed that the two turbines No 2 and 5 continued being put into operation and delayed their general maintenance services in 2010, resulting in the total electricity output in 2009 of 7.357 billion KWh in 2009 and total electricity output sold to Electricity of Vietnam Group (EVN) of 6.62 billion KWh. VNS

ENERGY EFFICIENT BUILDING - Viglacera Land builds 55 ecological villas in North

Viglacera Land Co today January 8 is to start construction on project of building Hoan Son ecological villa area in Tien Du Dist in the northern province of Bac Ninh, about 20 kilometres from Hanoi on Northeast.

The project covering a site of 20.3 hectares with a total investment of 170 billion dong will include 55 garden house villas with 32 villas Grade A, eight villas Grade B and 15 villas Grade C.

Along with ecological garden houses in Bac Ninh province, Viglacera Land also invested in building many industrial zones and office and housing zones, trade centres in Hanoi.

The company's high-ranking project of apartment, office and trade centre in Tay Mo, Tu Liem, Hanoi has recently been started work. DTK

HIGHWAY/TRANSPORTATION PROJECTS - Ministry of transport prepares for investing in Mai Dich-Noi Bai highway project

Ngo Thinh Duc, deputy minister of transport has lately released final decision about preparing to invest in Mai Dich-Noi Bai highway project.

The project of upgrading Mai Dich-Noi Bai route into the highway one will be conducted by Vietnam Expressway Development Co (VEC) and China Bridge and Road Corp.

The investors plan to build a new bridge in accordance with the research proposed by China Bridge and Road Corp with construction scale of four lanes and two lanes for urgent stopping of vehicles.

As for the project's implementation process, after Chinese party finishes its research works, ministry of transport will take responsibility for making report to ministry of planning and investment and ministry of finance before submitting to the prime minister for final approval.CAFEF

Vietnam - News and Regulations

FINANCING - Vietnam, Indonesia and Philippines plan January global debt sales

Indonesia, the Philippines and Vietnam are competing to be among the first Asian governments to sell foreign-currency bonds in 2010, as a global economic recovery supports investor appetite for emerging-market debt.

Indonesia plans to sell as much as $4 billion of US dollar bonds with 10- and 30-year maturities, a person familiar with the matter said today. The Philippines is preparing to sell as much as $1.5 billion of debt denominated in dollars or euros, while Vietnam plans to raise as much as $1 billion in dollar bonds this month, according to people aware of the plans.

"There's appetite for high-yielders," said Michael Pisler, an emerging-market debt trader at SJS Markets Ltd in Hong Kong. "The biggest determining factor will be fund inflows into the region as the economies improve."

The difference in yield to own bonds in developing countries instead of Treasuries dropped 4.16 percentage points last year to 2.74 percentage points, according to an index compiled by JPMorgan Chase & Co. Global funds bought more than $8 billion of emerging-market debt in 2009, after pulling out $18 billion in 2008, according to data published by EPFR Global.

The government may sell global bonds through a placement "when the time is right," Finance minister Sri Mulyani Indrawati said in Jakarta today, without giving details. Indonesia hired Barclays Capital Plc, Citigroup Inc. and Credit Suisse Group AG for a sale, a ministry official said last month.

Time is Right

Indonesia, Southeast Asia's biggest economy, last sold $3 billion of bonds in overseas markets in February, and raised $650 million from the sale of Islamic dollar bonds in April. The government plans to raise $11 billion from local and overseas bond sales in 2010 to finance a budget deficit forecast at 98 trillion rupiah ($10.4 billion), or 1.6 percent of gross domestic product

Indonesia's budget deficit totalled 87.2 trillion rupiah last year, less than a forecast 129.8 trillion rupiah, the finance ministry said on January 1. The economy probably grew 4.3 percent to 4.4 percent last year, the ministry said.

Moody's Investors Service lifted Indonesia's foreign- currency debt ratings one level to Ba2 on September 16, citing the economy's resilience. The Moody's rating is two levels below investment grade.

Investors demand a 2.08 percentage points yield premium over US Treasuries to buy Indonesian debt, according to the JPMorgan EMBI+ spread. The gap narrowed 70 basis points in 2009, compared with a 167 basis points widening in 2008. The cost to protect the bonds against default also fell in 2009, according to credit-default swap prices compiled by CMA DataVision.

Philippines, Vietnam

Yields on Indonesian 30-year debt and Philippine 25-year dollar debt rose today, ING Groep prices showed.

The Philippines has sold dollar-denominated bonds every January since 2005, according to data compiled by Bloomberg. It plans to raise $2 billion from the sale of overseas debt in 2010 to fund a budget deficit that Finance Secretary Gary Teves said may climb to a record 293 billion pesos ($6.4 billion) this year.

The Philippines is "opportunistic" in its borrowing and will sell overseas bonds when it's the "right time," central bank Governor Amando Tetangco told reporters today in Manila.

The central bank allowed the government "in principle" to sell up to $1.5 billion of global bonds, a person familiar said on December 29. Separate approval was given to a plan to sell about $500 million in yen-denominated bonds, the person said.

"The government would want to put its finances in a solid footing by borrowing abroad early and at good levels," said Roland Avante, treasurer at Manila-based Sterling Bank of Asia. "That, and the huge liquidity in the local market, would help ease pressure on domestic debt."

Vietnam may sell notes with 10-year maturities, according to a person who declined to be identified before a public announcement. Vietnam hired Barclays Capital, Citigroup Inc. and Deutsche Bank AG to manage the sale, the person said.bloomberg

INSURANCE - Number of new insurance contracts up 13pct in first 9mths of 2009

In the first nine months of 2009, the number of new insurance contracts grew by 13 percent year-on-year. In which, that of investment insurance deals (including universal insurance and unit link) posted the highest growth of 78 percent, followed by term assurance about 20 percent, endowment insurance moderately up 2 percent, reported Vietnam Insurance Association.

Endowment insurance products still continue leading market in terms of number of valid contracts, but the volume of new contracts accounted for 61.2 percent only, showing that investment insurance products (especially universal insurance) are attracting the attention of customers and life insurance agents.

Takashi Fujii, general director of Dai-ichi Life Vietnam said that in the upcoming time, the universal insurance products along with traditional insurance products will become key units of insurers. According to Pham Truong Khanh, Marketing director of Korea Life, in US, the individual life insurance and permanent life insurance are taking first with the market share of 40 percent, and then investment insurance with 37.2 percent and endowment insurance 22.8 percent.

In Vietnam, in parallel with the development of life insurance segment, some products such as endowment insurance will be dominated by other products with high protective and flexibility. Thus, life insurers now are paying special attention to the development of new products to bring various options for customers, Khanh said.

The number of new investment insurance contracts in Vietnam only accounts for 16.5 percent of total new deals. Meanwhile, in China, the ratio is 31 percent and in Hong Kong 39 percent. Many specialists assessed that the volume of new investment contracts of local insurers still cannot surpass traditional insurance field. Depending on demand, income and awareness of customers, insurance counsellors will offer suitable products.

Factually, in Vietnam's life insurance market, the products are designed based on term life, endowment and universal insurance. Endowment is a type of life insurance that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary otherwise. But the product has no refund value and leans to the saving value through paying fixed fees in short time (commonly 10-15 years). Universal insurance allows flexible fee payment. Life insurance companies all design products based on these insurance lines and call it by different names.

Vietnam's insurance market is more developed than many countries with the quick update on new insurance products. But, the market has no annuity insurance (that aims to help insurance buyers more secured on old age).

Senior official of a life insurer shared that his firm remains hesitant in fields of annuity insurance because of without particular guidance circular of the finance ministry.DTCHK

Infrastructure - Vietnam sets minimum size for refineries

The chair of National Oil and Gas Group (PetroVietnam) said at a press conference in Hanoi yesterday that it would be inefficient to invest in small oil refineries with a capacity of just 6.5 million tonnes of crude oil per year.

"This is the lesson drawn from Dung Quat. The group has set an annual capacity of 10 million tonnes of oil for the Nghi Son and Long Son refineries," Binh La Thang said.

The investment capital for Dung Quat in central Quang Ngai Province, was around $3 billion. Thang said PetroVietnam planned to raise the capacity of Dung Quat to1 0 million tonnes of oil in the future.

To ensure that Dung Quat had enough oil to refine, Thang said oil would be sourced from a number of fields and imports; not just Bach Ho.

The plant refined nearly 2.3 million tonnes of crude oil from Bach Ho last year and processed 1.49 million tonnes of petroleum products.

The Nghi Son refinery, in central Thanh Hoa Province, has an investment capital of$6.2 billion. Phung Dich Thuc, PetroVietnam CEO, said: "We are preparing to invite tenders who have enough capacity and are suitably qualified to carry out the project. We hope a joint venture can be established in the second or third quarter of this year. "

Long Son refinery will have an expected investment capital of more than $8 billion.

"The group is talking with partners from the Middle East, Malaysia and South Korea. We hope to sign a contract with them to undertake the project this year but negotiations are rather complicated," Thang said.

At the press conference, the group reported that it expected to earn a record revenue of 329 trillion dong (US$18.3 billion) this year, up 24 percent against 2009.

Of that total, about $7 billion is expected from crude oil exports, with the price of a barrel of oil estimated to average $65. The remainder will come from oil and gas services, fertiliser and power generation. The company expects to pay 96 trillion dong ($5.3 billion) to the State budget.

Thang said PetroVietnam expected to pump up about 15 million tonnes of crude oil and 8 billion cubic metres of gas this year.

Thang said the figure was less than last year's because recently discovered oil fields were small. To raise its total output, the group plans to pump up 500,000 tonnes of crude oil abroad this year.

The group now has 60 overseas projects in 14 countries, including Russia, Venezuela and Malaysia.

"Last year, PetroVietnam signed a record 13 oil and gas exploration and exploitation contracts in the country. It also exploited a record 8 billion cubic metre of gas, a year-on-year increase of 7%, "Thuc said.

"The company also churned out a record 755,000 tonnes of fertiliser and generated 8.47 billion kWh of electricity last year," he said.

"Four other records were set in oil and gas output, revenue from services, the number of new projects implemented [14] and social welfare 940 billion dong ($52 million).

However, the group's total turnover fell 8 percent to 265 trillion dong ($14.7 billion), mainly owing to the lower price of crude oil on the world market, said Le Minh H6ng, the group's deputy director general.

"The fall was only slight thanks to great efforts to raise crude-oil output and improve services," Hong said.

PetroVietnam produced 16.3 million tonnes of crude oil last year, up 9 percent from a year earlier. It paid 91 trillion dong to the State budget.vns

PRIVATISATION - Petrolimex to equitise

Prime minister Nguyen Tan Dung has approved the privatisation plan of Vietnam Steel Corp (VNSTEEL) and Petrolimex.

As for the holding company VNSTEEL, the state will keep over 65 percent of chartered capital; appraise the corporate value (excluding corporate value of Thai Nguyen Metal Refining Vocational College.

In the equitisation plan of Petrolimex, the state's minimum holding size will be 75 percent of charter capital to shape multi-ownership group. Members of Petrolimex Group will be organised under the corporation model.

As for the training facilities of both corporations, after being equitised, VNSTEEL will continue managing Thai Nguyen Metal Refining Vocational College. Ministry of Finance ordered State Capital Investment Corp (SCIC) to separate the value of Viettronic Technological College from the corporate value of equitised VNSTEEL and transfer management on Viettronic College to Vietnam Electronic and Informatics Joint Stock Corp.

Petec Trading and Investment Corp under Petrolimex will be taken over by PetroVietnam.gov website

INFRASTRUCTURE/POWER-“BUILD OPERATE TRANSFER NEWS- HIGHLIGHTS OF THE NEW BOT DECREE ON INVESTING IN INFRASTRUCTURE”

The Government of Vietnam issued Decree 108 regulating investment on the basis of BOT, BTO and BT contracts on 27 November 2009. It will take effect on 15 January 2010 and completely replace previous regulations on BOT, BTO and BT investment in Vietnam.

Decree 108 provides regulations on sectors, conditions, order and procedures for investment, investment incentives applicable to, and the rights and obligations of parties to BOT, BTO and BT contracts. Decree 108 shall apply to investors, to State bodies authorized to enter into and implement project contracts, and to other bodies, organizations, individuals and enterprises involved in implementation of projects.

Pursuant to Decree 108, the Government encourages the implementation of projects for building, operating and managing new infrastructure facilities or projects for renovating, expanding, modernizing, operating and managing existing works of the following sectors:

- Roads, bridges, tunnels and road ferry landings;

- Railways, rail bridges and tunnels;

- Airports, seaports and river-ports;

- Water supply systems; drainage systems; and waste and sewage collection and treatment systems;

- Power plans and power transmission lines; and

- Other infrastructure facilities as decided by the Prime Minister.

The selection of investors can be accomplished in two ways:

Where there are two or more investors register the project with the Authorized State Body within 30 working days from the last publication date of the relevant published list of projects, the selection of investor for the project must be through tender process.

There are two cases where direct appointment may be applied, namely: (i) where there is only one investor registers the project with the Authorized State Body within 30 working days from the last publication date of the relevant published list of projects; and (ii) the project is required to be implemented in order to satisfy an urgent need to use infrastructure facilities as permitted by the Prime Minister.

An investor who is selected through tender process or direct appointment must agree with the Authorized State Body on the terms and conditions of the BOT, BTO and BT project contracts and other related contracts (if any). Upon agreement, the investor and the Authorized State Body will sign off the BOT, BTO or BT project contracts and related contracts (if any). Then the investor must apply for issuance of investment certificate to the project company. Regarding foreign invested project company, the investment certificate is also considered as the business registration certificate of the project company. After the project has been issued with an investment certificate, the investor and the State Authorized Body will officially sign the project contracts.

Rights and obligations of project companies must be agreed in one of the following ways, (i) the project company shall sign the project contract and become, jointly with the investor, one party of the project contract, or (ii) the Authorized State Body, the investor and the project company shall sign a document permitting the project company to assume and exercise the rights and obligations of the investor.

Security for the obligation to perform the project contract may be provided in the form of a bank guarantee or other security for obligations as prescribed in the Civil Law.

Under the old Decree 78, the security ratio for the contract obligation must not be lower than 3%, 2% and 1% of the total investment capital of the project, subject to the level of total investment capital of the project. Decree 108 has adjusted the security ratio and the capital level, e.g. for projects with total investment capital up to VND 1,500 billion, the security ratio must not be lower than 2% of total investment capital.

From 15 January 2010 (the effective date of Decree 108), not only the Ministry of Planning and

Investment but also provincial people’s committees shall have power to issue investment certificates for BOT, BTO and BT contract projects in certain cases. Regarding tax incentives, Decree 108 only provides general statement whereby tax incentives applicable to BOT, BTO and BT project contracts shall be in accordance with the applicable tax laws and regulations. BOT and BTO companies shall be exempt from land rent for the whole duration of implementation of the projects and BT companies shall be exempt from land rent and land use fees for the area of land used to construct the BT project works for the duration of construction of the works.

Decree 108 contains the following transitional regulations:

Investors implementing BOT, BTO and BT contract projects for which an investment certificate was issued prior to 15 January 2010 shall continue to implement in accordance with their current project contracts and investment certificates.

BOT, BTO and BT contract projects which already had a decision on selection of investor prior to 15 January 2010 shall not be required to apply the procedures on tendering in Decree 108.

Unless otherwise decided by the Prime Minister, any investor who entered into a BOT, BTO or BT project contract prior to 15 January 2010 and who has not yet been granted an Investment Certificate must amend the current project contract and carry out procedures for issuance of investment certificate as required by Decree 108.