Financial management ân profitability of small and medium enterprises

g ranges is the best indication of your business total assets (Please circle one that applies)? Less than 5 billion dong .......................................1 5 to 10 billion dong ..............................................2 More than 10 billion dong ....................................3 2.6 Which of the following ranges is the best indication of your business annual sales (Please circle one that applies)? Less than 5 billion dong .......................................1 5 – 30 billion dong ...............................................2 31 – 50 billion dong .............................................3 More than 50 billion dong ...................................4 2.7 What best describes your business’ profitability (Please circles one that applies)? Profitable ..............................................................0 Not profitable .......................................................1 2.8 Which of the following ranges is the best indication of your business annual net profits? Less than 50 million dong ....................................1 50 to 300 million dong .........................................2 301 to 500 million dong .......................................3 More than 500 million dong.................................4 B. FINANCIAL MANAGEMENT 1. Accounting information system 1.1 Who is responsible for the following duties in your business (Please circle the number that applies for each duty)? Duties Owner Manager Chief- accountant Employed accountan t External accountant Recording business transactions 1 2 3 4 5 Preparing accounting reports 1 2 3 4 5 Interpreting and using accounting information 1 2 3 4 5 1.2 What best describes characteristics of the organization of your business accounting system (Please circle number that applies)? Formal .................................................................1 Informal ...............................................................2 1.3 Does your business ever utilize computers in accounting (Please circle number that applies)? Never ...................................................................1 Rarely ..................................................................2 Sometimes ...........................................................3 Often ....................................................................4 Always .................................................................5 3 1.4 If yes, which of the following is the most popular application (Please circle number that applies)? Recording business transactions ..........................1 Preparing accounting reports ...............................2 Managing assets ..................................................3 Controlling payroll ..............................................4 Controlling cash flows .........................................5 Others, please specify ..........................................6, please specify ………………………….. 1.5 Efficiency of accounting information system (Please circle number that applies on each scale) Here are some statements, which describe how owner/manager may feel about the efficiency of accounting information system. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard its accounting information system? 1 2 3 4 5 6 7 8 9 Not frequent at all Very frequent 2. How frequent does your business prepare its accounting reports? 1 2 3 4 5 6 7 8 9 Not updated at all Very updated 3. How does accounting information system in your business update the business transactions? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 4. What is owner/manager involvement in preparing accounting information? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 5. What is owner/manager involvement in interpreting and using accounting information? 1 2 3 4 5 6 7 8 9 Very unacceptable Very acceptable 6. How acceptable is your business’s accounting information system? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 7. How useful is your business’s accounting information useful in making decisions? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 8. How computerized is your business’s accounting information system? 1 2 3 4 5 6 7 8 9 2. Financial reporting and analysis 2.1 What kinds of financial statements are regularly prepared in your business (May circle more than one number)? Balance sheet .......................................................1 Income statement (Profit and loss statement).......2 Statement of cash flows .......................................3 Statement of funds ...............................................4 Other ....................................................................5, please specify …………………………………… 4 2.2 Who is responsible for the following duties in your business (Please circle number that applies for each duty)? Owner Manager Chief- accountant Employed accountant External accountant Never do it Preparing financial statements 1 2 3 4 5 6 Analyzing financial statements 1 2 3 4 5 6 2.3 How often are the financial statements of your business prepared and analyzed (Please circle number that applies for each duties)? Monthly Quarterly Semiannually Annually Never Preparing financial statements 1 2 3 4 5 Analyzing financial statements 1 2 3 4 5 2.4 What kinds of financial analysis are currently used in your business (May circle more than one number)? Ratio analysis ......................................................1 Trend analysis .....................................................2 Both .....................................................................3 Other ....................................................................4, please specify …………………………………….. 2.5 What kinds of financial ratios are currently used for financial analysis in your business (May circle more than one number)? Current ratio ........................................................1 Quick ratio ...........................................................2 Debt ratio .............................................................3 Debt-to-equity ratio .............................................4 Short-term debt ratio ...........................................5 Long-term debt ratio ............................................6 Receivable turnover .............................................7 Inventory turnover ...............................................8 Fixed asset turnover ............................................9 Total asset turnover .............................................10 Return on sales ....................................................11 Return on assets ...................................................12 Return on equity ..................................................13 Never use any ratio ..............................................14 2.6 Does your business ever apply computers in financial reporting and analysis (Please circle number that applies)? Never ...................................................................1 Rarely ..................................................................2 Sometimes ...........................................................3 Often ....................................................................4 Always ................................................................5 2.7 If yes, what area is your computer applied (Please circle number that applies)? Financial reporting ..............................................1 Financial analysis ................................................2 Both .....................................................................3 Other ....................................................................4, please specify …………………………………… 5 2.8 Efficiency of financial reporting and analysis (Circle one number that applies on each scale) Here are some statements which describe how owner/manager might feel about the efficiency of financial reporting and analysis practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard financial reporting and analysis? 1 2 3 4 5 6 7 8 9 Not frequent at all Very frequent 2. How frequent does your business prepare financial statements (balance sheet, income statements, statements of cash flows)? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 3. How involved is the owner/manager in preparing financial statements? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 4. How involved is the owner/manager involve in interpreting and using financial statements? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 5. How useful are the financial statements of your business in providing information for making decisions? 1 2 3 4 5 6 7 8 9 Not frequent at all Very frequent 6. How frequent does your business analyze financial statements (balance sheet, income statements, statements of cash flows)? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 7. How useful are financial ratios applied in financial analysis of your business? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 8. How computerized are the financial reporting and analysis practices in your business? 1 2 3 4 5 6 7 8 9 3. Cash management practices 3.1 Does your business ever conduct or occur the following ones (Circle one number that applies for each described below)? Never Rarely Sometimes Often Always Preparing cash budget 1 2 3 4 5 Determining the target cash balance 1 2 3 4 5 Occurring cash shortage 1 2 3 4 5 Occurring cash surplus 1 2 3 4 5 Utilizing computers in cash management 1 2 3 4 5 3.2 How often is the cash budget prepared and reviewed in your business (Circle one that applies for each)? Never Weekly Monthly Quarterly Semiannually Annually Preparing cash budget 0 1 2 3 4 5 Reviewing cash budget 0 1 2 3 4 5 6 3.3 On what basis does your business determine target cash balances (Circle one that applies)? Based on theories of cash management ...............1 Based on historical data .......................................2 Based on owner/manager’s experience ...............3 Other ....................................................................4, please specify ……………………………….. 3.4 Where does your business often invest the temporary cash surplus (Circle one that applies)? Bank deposit ........................................................1 Treasury bills .......................................................2 Both above ..........................................................3 Other ....................................................................4, please specify ……………………………….. No where .............................................................5 3.5 In cash management, what area is the computer applied (Circle one that applies)? Preparing cash budget .........................................1 Recording cash transactions ................................2 Both above ..........................................................3 Other ....................................................................4, please specify …………………………….. 3.6 Efficiency of cash management (Circle one number that applies for each scale) Here are some statements which describe how owner/manager might feel about the efficiency of cash management practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard cash management practices? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 2. How regularly does your business prepare cash budgets? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 3. How involved is the owner/manager in preparing cash budgets? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 4. How involved is the owner/manager in interpreting and using cash budgets? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 5. How useful are cash budgets of your business in providing information for making decisions? 1 2 3 4 5 6 7 8 9 Very poorly Very well 6. How does your business apply theories of cash management in determining the target cash balance? 1 2 3 4 5 6 7 8 9 Very unacceptable Very acceptable 7. How acceptable is the target cash balance determined in your business? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 8. How computerized are cash management practices in your business? 1 2 3 4 5 6 7 8 9 7 4. Receivable management practices 4.1 Does your business ever carry out the things listed below (Circle one that applies for each)? Never Rarely Often Sometimes Always Sell products or services in credit 1 2 3 4 5 Set up its credit policy to the customers 1 2 3 4 5 Use computers in receivable management 1 2 3 4 5 4.2 How often does your business review its levels of receivables and bad debts (Circle one that applies for each row)? Never Weekly Monthly Quarterly Semiannually Annually Review its levels of receivables 0 1 2 3 4 5 Review its bad debts 0 1 2 3 4 5 4.3 Which of the following ranges is the best indication your business’s percentage of bad debts (Circle one that applies)? Less than 5% of sales ..........................................1 5 – 10% of sales ..................................................2 10 –20 % of sales ................................................3 More than 20% ....................................................4 Don’t know ..........................................................5 4.4 In managing receivables, which areas are computers applied (Circle one that applies)? Managing receivables ..........................................1 Managing bad debts ............................................2 Both .....................................................................3 Others ..................................................................3, please specify …………………………………. 4.5 Efficiency of receivable management (Circle one number applies for each scale) Here are some statements which describe how owner/manager might feel about the efficiency of receivable management practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard to receivables management practices? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 2. How regularly does your business review debtors’ credit period? 1 2 3 4 5 6 7 8 9 Not reasonable at all Very reasonable 3. How reasonable is debtors’ credit period in your business? 1 2 3 4 5 6 7 8 9 Not regular at all Very regular 4. How regular does your business review debtors’ discount policy? 1 2 3 4 5 6 7 8 9 Not reasonable at all Very reasonable 5. How reasonable is debtors’ discount policy in your business 1 2 3 4 5 6 7 8 9 Not regular at all Very regular 6. How regular does your business review percentage of bad 1 2 3 4 5 6 7 8 9 8 debts? Not reasonable at all Very reasonable 7. How reasonable is the percentage of bad debts in your business 1 2 3 4 5 6 7 8 9 Not frequent at all Very frequent 8. How frequent does your business implement theories of receivables management? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 9. How computerized are receivable management practices in your business? 1 2 3 4 5 6 7 8 9 5. Inventory management practices 5.1 Does your business ever do the following ones (Circle one that applies for each row)? Never Rarely Sometimes Often Always Review its inventory levels 1 2 3 4 5 Prepare inventory budget 1 2 3 4 5 Utilize computer in managing inventory 1 2 3 4 5 5.2 On what basis is the inventory level determined (Circle one that applies)? Based on theories of inventory management .......1 Based on historical data........................................2 Based on owner/manager’s experience ................3 Other ....................................................................4, please specify………………………………………. 5.3 Does your business ever use “economic order quantity model” in inventory management? Do not know this model ......................................1 Know but never use .............................................2 Sometimes use .....................................................3 Often use .............................................................4 Always use ..........................................................5 5.4 Efficiency of inventory management (Circle one that applies for each scale) Here are some statements which describe how owner/manager might feel about the efficiency of inventory management practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard inventory management practices? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 2. How regularly does your business review inventory turnover? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 3. How regularly does your business review inventory level? 1 2 3 4 5 6 7 8 9 Very slow Very fast 4. How fast is inventory turnover of your business? 1 2 3 4 5 6 7 8 9 Very unacceptable Very acceptable 9 5. How acceptable is inventory level of your business? 1 2 3 4 5 6 7 8 9 Very useful at all Very useful 6. How are inventory budgets of your business useful in providing information for making decisions? 1 2 3 4 5 6 7 8 9 Very poor Very good 7. How does your business apply theories of inventory management in determining the inventory level? 1 2 3 4 5 6 7 8 9 Low Computerization High computerization 8. How computerized are inventory management practices in your business? 1 2 3 4 5 6 7 8 9 6. Fixed asset management practices 6.1 Related to fixed asset management, does your business ever do the following ones (Circle one that applies for each row)? Never Rarely Sometimes Often Always Evaluate its projects before making capital investment decisions 1 2 3 4 5 Review efficiency of using fixed assets after investing 1 2 3 4 5 Use computer in managing fixed assets 1 2 3 4 5 6.2 Which methods does your business use for assessing capital projects (May circle more than one number)? Payback period ....................................................1 Discounted payback period .................................2 Net present value .................................................3 Internal rate of return ...........................................4 Modified internal rate of return ...........................5 Others ..................................................................6, please specify ………………………………. 6.3 Which area is computer used in managing fixed assets (Circle one that applies)? Assessing capital investment projects .................1 Managing fixed assets .........................................2 Both .....................................................................3 Others ..................................................................4, please specify……………………………………. 6.4 Efficiency of fixed asset management (Circle one that applies for each scale) Here are some statements which describe how owner/manager might feel about the efficiency of fixed asset management practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard fixed asset management practices? 1 2 3 4 5 6 7 8 9 Low regard High regard 2. How does your business regard assessing capital project before making investment decisions? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 10 3. How regularly does your business review capital projects? 1 2 3 4 5 6 7 8 9 Very unacceptable Very acceptable 4. How acceptable is capital budgeting utilized in your business? 1 2 3 4 5 6 7 8 9 Not advanced at all Very advanced 5. How advanced does your business apply techniques of capital budgeting in determining capital investment projects? 1 2 3 4 5 6 7 8 9 Very unreasonable Very reasonable 6. How reasonable are fixed assets of your business utilized? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 7. How useful are fixed assets acquired in your business? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 8. How computerized are fixed asset management practices in your business? 1 2 3 4 5 6 7 8 9 7. Financial planning practices 7.1 Related to financial planning, does your business ever conduct the ones listed below (Circle one that applies for each row)? Never Rarely Sometimes Often Always Preparing financial budgets 1 2 3 4 5 Comparing between budgeted and actual results 1 2 3 4 5 Using computer in financial planning 1 2 3 4 5 7.2 What are objectives of financial planning? (May circle more than one) Sales maximization .............................................1 Cost minimization ...............................................2 Profit maximization .............................................3 Quality product or service ...................................4 Growth .................................................................5 Survival ...............................................................6 No goal or policy .................................................7 7.3 What type of budget does your business regularly prepared? (May circle more than one). Sales budget ........................................................1 Manufacturing budget .........................................2 Purchase budget ...................................................3 Labor budget .......................................................4 Overhead cost budget ..........................................5 Selling and administration expenses budget ........6 Cash budget .........................................................7 Budgeted profit and loss account ........................8 Budgeted balance sheet .......................................9 7.4 Who is responsible for preparing budgets (Circle one that applies)? Owner ..................................................................1 Financial manager ...............................................2 Chief-accountant .................................................3 Employed accountant ..........................................4 External accountant .............................................5 7.5 How often is comparison of between budgeted and actual results conducted (Circle one that applies)? Daily ....................................................................1 Weekly ................................................................2 11 Monthly ...............................................................3 Quarterly .............................................................4 Semiannually .......................................................5 Annually ..............................................................6 7.6 Efficiency of financial planning Here are some statements which describe how owner/manager might feel about the efficiency of financial planning practices. Please indicate the most appropriate number that describes your business position on the scale. 1 – Extremely negative 5 – Neither negative nor positive 9 – Extremely positive There are no right or wrong answers to these questions. Just give your opinion about your business. Low regard High regard 1. How does your business regard financial planning? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 2. How regularly does your business prepare its financial budgets? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 3. How involved is the owner/manager in preparing financial budgets? 1 2 3 4 5 6 7 8 9 Low involvement High involvement 4. How involved is the owner/manager in interpreting and using financial budgets? 1 2 3 4 5 6 7 8 9 Not useful at all Very useful 5. How useful are the financial budgets of your business useful in providing information for making decisions? 1 2 3 4 5 6 7 8 9 Not regularly at all Very regularly 6. How regularly does your business compare between actual and budgeted results? 1 2 3 4 5 6 7 8 9 Very unreasonable Very reasonable 7. How reasonable are financial planning techniques applied in financial analysis of your business? 1 2 3 4 5 6 7 8 9 Low computerization High computerization 8. How computerized are the financial reporting and analysis practices in your business? 1 2 3 4 5 6 7 8 9 C. FINANCIAL CHARACTERISTICS (Based on the current financial statements of your business, please complete the table as described below?) Financial ratio Description Results Current ratio Current assets divided by current liabilities ? Debt-to-equity ratio Total debt/Equity ? Total asset turnover Sales/Total assets ? Return on sales (%) Net income/Sales ? Return on assets (%) Net income/Total assets ? Return on equity (%) Net income/Equity ? Business name: Address: Phone number: Respondent name: Position: Once again thank you very much for your co-operation. 12 Appendix 2: Vietnam Background information General Information The Socialist Republic of Vietnam is a one-party communist state, extending 1 600 km from latitude 23 degrees north to 9 degrees north along the western rim of the South China Sea. Occupying 331 114 sq. km. and bordering China to the north, Laos to the west and Cambodia to the south-west, Vietnam is marked by two delta regions at either end of the country (the Songkoi - or Red River - in the north, the Mekong in the south), which are separated by the narrow region of the Central Highlands. The extensive Annamite Mountains dominate the north-west. Around 16% of Vietnam's land mass is under cultivation, with the remaining areas either mountainous or forested. Vietnam has substantial territorial claims in the South China Sea and occupies a number of reefs and islands. Its capital, Hanoi, lies on the Red River. Eighty percent of Vietnam's population of 78 million (1998 official estimate) are ethnic Vietnamese. Significant ethnic minorities include the Tai and Hmong in the north and west, the Cham in the centre, and the Chinese and Khmer in the south. Vietnam has a Buddhist majority, its religious minorities including the Cao Dai, the Hoa Hao, and most notably the Roman Catholic, Protestant and Muslim religions. Vietnam is a member of the UN, ASEAN, ARF, ASEM, APEC and the Non- Aligned Movement. It is currently seeking accession to the WTO. Historical Overview After a millennium as a Chinese province, the northern region of Vietnam gained independence in 938, following the dissolution of the Tang empire. Under succeeding local dynasties ruling from Hanoi over the next five centuries, Vietnam fought off several attempts to reintegrate it into China and also expanded its reach southward, gradually annexing the central kingdom of Champa. Dynastic struggles led to civil wars during the sixteenth, seventeenth, eighteenth centuries. During this period, Vietnam gained control over the Mekong delta and the first Christian missions arrived. It was not until 1802 that the present Vietnam was united under a single ruler, Nguyen Anh, whose court was located at the central coastal city of Hue. Despite the continuation of the Nguyen dynasty, Vietnam saw increasing French intervention from the 1850s. Spurred by Hue's persecution of French Christian missionaries and their Vietnamese converts and by a desire not to lose eastern markets to the British, France annexed the southern Cochin-China region, their possession of which 1 2 was recognised by Hue in a 1874 treaty. A treaty of protection over Vietnam followed in 1883. By 1901, Vietnam, Cambodia and Laos had fallen collectively under a central French administration, forming the Union Indochinoise. In the decades before the Second World War, a number of groups opposed to colonial rule emerged. Following the suppression in the 1900s of early nationalist movements led by Phan Chau Trinh and Phan Boi Chau and the restriction of constitutionalist movements in the 1910s to the Cochin-China region, Vietnamese nationalism adopted a revolutionary flavour during the 1920s. The Communist Party of Indochina (CPI) was established in 1930. Although suppressed by the French military in 1931, the CPI took advantage of an amnesty for political prisoners in 1936 and enjoyed increasing support from Moscow during the late 1930s. The outbreak of war in 1939 led to a ban on left-wing activity and the development of secret CPI networks which were maintained throughout the war. In 1941, the Revolutionary League for the Independence of Vietnam (Viet Minh) was formed under the leadership of Ho Chi Minh. Despite the Japanese advance into Vietnam in 1941, a Vichy French administration maintained authority until early 1945, when it was deposed by the Japanese and a pro-Japanese government was appointed by Emperor Bao Dai. Following the Japanese surrender, the Viet Minh took effective control of a number of provinces, mostly in the north. After the abdication of Bao Dai, Ho Chi Minh declared independence and the founding of the Democratic Republic of Vietnam on 2 September 1945. But with the division of Vietnam at the 16th parallel between British forces in the south and Chinese forces in the north agreed at the Potsdam Conference, France was able to regain control over the south by the end of 1945 and negotiated the withdrawal of Chinese troops from the north by March 1946. Relations between the French and Viet Minh completely broke down by late 1946, leading to a protracted guerrilla war which ended with the French defeat at Dien Bien Phu in May 1954, the Viet Minh being aided to a large extent by Chinese communists. A cease-fire agreement at Geneva in the same month provided for a single Vietnam divided at the 17th parallel. Vietnam was to be administered in the north from Hanoi by the government of the Democratic Republic of Vietnam and in the south from Saigon by the government of the State of Vietnam, which had been founded by the French under Bao Dai in 1949. The agreement also provided for the possibility in 1956 of national elections which never eventuated. The following decade saw economic and social restructuring in the north under the Vietnam Workers' Party (formerly the CPI) and the dominance of Ngo Dinh Diem in the south. A Roman Catholic, Diem overthrew Bao Dai to become President in 1955. Until his assassination in the 1963 military coup, due in part to increasing Buddhist dissatisfaction with his Catholic-dominated government, Diem took South Vietnam increasingly into the US sphere, his conflict with communists in South Vietnam developing a cold-war dynamic. Accordingly, the Kennedy and Johnson Administrations committed themselves to defending South Vietnam, first with military advisers and then following the Gulf of Tonkin incident in August 1964 with US military force. Australia, New Zealand, Thailand, South Korea and the Philippines also contributed forces. After a series of coups in South Vietnam, the constitutional reforms in 1967 led to the government of General Nguyen Van Thieu, which survived until 1975. 3 Although enjoying military superiority and seriously disrupting economic life in North Vietnam through aerial bombardment from 1965 to 1968, the domestically beleaguered United States entered into informal negotiations with North Vietnam in 1968. With the advent of the Nixon Administration in 1969, the same year as Ho Chi Minh's death, formal negotiations commenced in Paris. Despite Nixon's intention to reduce US involvement and "Vietnamise" the conflict, a campaign to disrupt communist supply lines led to the expansion of the conflict into Cambodia and Laos. The Paris Agreement was concluded in March 1973, which provided for the withdrawal of US but not North Vietnamese troops. Although the agreement notionally provided for South Vietnam's security, this security was not enforced effectively. Following a final swift campaign in early 1975, North Vietnamese forces entered Saigon on 30 April and renamed it Ho Chi Minh City. Formal reunification took place on 2 July 1976 with the foundation of the Socialist Republic of Vietnam and in December with the foundation of the Communist Party of Vietnam. In the late 1970s, relations with China soured over border disputes, the plight of southern Vietnam's Chinese, China's support for the hostile Pol Pot regime in Cambodia, and Vietnam's orientation towards the USSR. Following the Vietnamese-Cambodia conflict in late 1978 and the imposition of a pro-Vietnamese government, tension with China increased leading to full-scale conflict in February and March 1979. Sporadic clashes continued throughout the 1980s. Although the USSR-China rapprochement in the late 1980s and the withdrawal of Vietnamese troops from Cambodia in 1989 helped ease conflict, tensions between Vietnam and China over competing claims in the South China Sea continue to the present. Changing global circumstances and desperate economic conditions within the country during the late 1980s forced Vietnam to make its first tentative steps towards political and economic doi moi (renovation). (See political and economic overviews.) In 1994, the United States lifted its economic embargo against Vietnam, imposed after Vietnam and Cambodia war. In 1995, Vietnam became the seventh member of ASEAN. In the same year, the United States and Vietnam established full diplomatic relations, the two countries signing an agreement to normalise trading relations in July 2000. Political Overview Vietnam is one of the world's five remaining one-party communist states. Decision making in Vietnam is shared by national and provincial government and agencies, slowing the political process and encouraging a cautious approach to major policy issues. Political power lies with the Communist Party of Vietnam. Its peak organ, the eighteen member Politburo, is elected by the Party's Central Committee, of 170 members, and holds authority over the implementation of social, economic, labour, defence, security and foreign policy. The Party is led by the General Secretary, currently Le Kha Phieu. Party Congresses are held every five years to ratify major policy changes. The ninth Congress will take place in early 2001. Between Congresses, Central Committee Plena are convened three or four times per year to decide on important policy issues. Although still conservatively communist, Vietnam has undertaken some reforms in recent years. In 1986, at a time of economic crisis following years of economic stagnation resulting from the effects of the war and unsuccessful collectivisation programs, the Party embarked upon a program of limited market-based economic 4 reforms. These reforms were known as doi moi (renovation) and were aimed at a shift towards "market economy with socialist orientation". Under doi moi, the private sector was permitted to exist in a limited capacity. There was also greater decentralised economic planning and a greater acceptance of market forces as the determinant of prices and production. Foreign investment was encouraged, and agriculture was deregulated to allow individual family farms again. Vietnamese living standards rose appreciably, particularly in urban areas. However, the potential benefits of past reforms are now close to being exhausted and further reform is needed to stimulate the Vietnamese economy. While Vietnam's signing in July 2000 of the Bilateral Trade Agreement with the United States indicates a commitment to continued economic reform, the Party remains equally committed to an economy which is led by the public sector, dominated by state owned enterprises (SOEs) and protected by government regulation. The prospect of inequitable development and social disintegration, which some elements of the Party attribute to market forces, has also been a source of considerable debate within the Party. The Party's collective ambivalence towards reform is reflected in Vietnam's current leadership, representing a reformist and conservative mix. The Party is presently faced with a conjunction of difficult issues such as increasing unemployment, growing income disparities between urban and rural areas, social problems (including drug abuse, prostitution and increasing levels of HIV), occasional pockets of provincial unrest, corruption and declining Party membership. Its overriding concern is to maintain political and economic stability, which will ensure its continued existence in the face of a more open economic environment. Since the end of 1997, there have been a number of instances where members of the Party and the general population have been prepared to express dissent. The Party has responded by introducing measures to address the concerns of the general population (such as seeking to channel more of the benefits of economic reform to the rural areas and pursuing administrative reform within the Party) and by projecting itself as the protector of Vietnamese culture. The August 1999 Central Committee Plenum reflected these themes, acknowledging that ineffective organisation and a cumbersome political structure, particularly in state administrative management, had been "responsible for reducing the efficiency of the [Party] leadership and management". The Party also launched a campaign of criticism and self-criticism in May 1999, designed to "purify" itself and to stem internal corruption and mismanagement. The dismissal of former Deputy Prime Minister Ngo Xuan Loc by the National Assembly in December 1999 represents the most prominent outcome of this campaign. Although political reform has never been articulated as an objective, and the paramount position of the Party has never been under challenge, the National Assembly took some cautious steps in 1998 away from complete dominance by the Party, with unexpectedly heated debate over key provisions of legislation relating to land and citizenship. The release of a number of leading dissidents in successive Presidential amnesties, including many prisoners on the Australian Government's list of cases of concern who are believed imprisoned for the peaceful expression of their political or religious beliefs, was taken as an indication of greater political openness. 5 Head of State and Government President Tran Duc Luong Vice-President Nguyen Thi Binh Prime Minister Phan Van Khai Deputy Prime Minister Nguyen Tan Dung Deputy Prime Minister Nguyen Manh Cam Deputy Prime Minister Nguyen Cong Tan Deputy Prime Minister Pham Gia Khiem Minister of Agriculture and Rural Development Le Huy Ngo Minister of Construction Nguyen Manh Kiem Minister of Culture and Information Nguyen Khoa Diem Minister of Defence Pham Van Tra Minister of Education and Training Nguyen Minh Hien Minister of Finance Nguyen Sinh Hung Ministry of Fisheries Ta Quang Ngoc Minister of Foreign Affairs Nguyen Dy Nien Minister of Health Do Nguyen Phuong Minister of Industry Dang Vu Chu Minister of Justice Nguyen Dinh Loc Minister of Labour, War Invalids and Social Affairs Nguyen Thi Hang Minister of Planning and Investment Tran Xuan Gia Minister of Public Security Le Minh Huong Minister of Science, Technology and Environment Chu Tuan Nha Minister of Trade Vu Khoan Minister of Transport and Communications Le Ngoc Hoan Governor of the State Bank Le Duc Thuy Minister, Committee for Ethnic Minorities and Mountainous Areas Hoang Duc Nghi Minister, Government Committee of Organization and Personnel Do Quang Trung Minister, State Inspectorate Ta Huu Thanh Minister, Office of Government Doan Manh Giao Minister, Committee and Physical Culture and Sport Ha Quang Du Minister, National Committe for Population and Family Planning Tran Thi Trung Chien Minister, National Committee for Protection and Care of Children Tran Thi Thanh Thanh Politburo of the Communist Party of Vietnam Le Kha Phieu* (General Secretary) Tran Duc Luong* (President) Phan Van Khai* (Prime Minister) Nong Duc Manh* (Chairman of the National Assembly) Pham The Duyet* (Former Chairman of the Hanoi Party Committee, President of the Vietnam National Fatherland Front) Nguyen Phu Trong* (special member assisting Mr Duyet) Nguyen Manh Cam (Deputy Prime Minister) Nguyen Duc Binh Nguyen Van An Pham Van Tra (Minister of Defence) Nguyen Thi Xuan My Truong Tan Sang (Head, Economic Commission of the CPV Central Committee) Le Xuan Tung Le Minh Huong (Minister of Public Security) Nguyen Tan Dung (Deputy Prime Minister) Pham Thanh Ngan Nguyen Minh Triet (Party Secretary, Ho Chi Minh City) Phan Dien Economic Overview Key Indicators Population (1998) :78.1 million Exchange rate (15/3/2000) :7636 dong/A$ GDP per capita (1999) :approx. US$360 GDP growth (1999) :4.8% Inflation (1999) :0.1% Total exports (1999) :US$11.523 billion Total imports (1999) :US$11.636 billion Current account deficit (1999) :US$113 million Unemployment (1999 est.) :7.4% (significant variation between urban and rural areas) Macroeconomic Environment and Reform Prospects The Vietnamese economy is currently in transition from a centrally planned to a market- based economy. However, the economy is still largely centrally planned, with state ownership still the predominant form of ownership. The government is committed to state sector dominance as a key feature of the Vietnamese economy. This is effected through measures such as price controls, production planning and access to credit. However, there has been some development of monetary, fiscal and trade policy as tools of economic management within the context of maintaining a "socialist economy with a market orientation". The financial sector is in poor shape, Moody's ratings agency recently giving Vietnam a B1 rating. Vietnam has a controlled exchange rate which is allowed to fluctuate within a very narrow band. While the dong has been gradually depreciating as permitted by this band, it is still generally regarded to be overvalued. 6 The state owned sector is not only protected from international competition, but also from the domestic private sector. However, as part of broader efforts to improve the investment climate for domestic and foreign investors alike, as well as provide employment opportunities for Vietnamese, the government has recognised the legitimacy of the private sector and the inherent disadvantages it faces vis-a-vis the state owned sector. The government is undertaking a privatisation process (equitisation) to improve the overall performance of the state owned sector and allow the private sector to operate in more sectors. The Enterprise Law, passed in 1999, was the first step in providing a legal platform for private sector development. Equitisation has not proceeded as quickly as the government has expected, in part because many state assets are not attractive investment options. Key sectors, such as aviation, power supply, telecommunications and post are among industries which will remain monopolised by large SOEs, and subject to central planning management mechanisms. Vietnam has committed to global economic integration through its participation in AFTA and APEC, its WTO accession negotiations and most recently its signing in July 2000 of the US-Vietnam Bilateral Trade Agreement. However, global integration is a long-term objective and the Government has recently introduced a number of policies which appear to contradict the spirit of trade liberalisation. Although actively encouraging exports, Vietnam is pursuing an import substitution industrialisation policy which affords disproportionate protection to the predominant state owned sector, and restricts imports in an ad hoc manner to protect its currency. Recent Economic Performance The Vietnamese Government's underlying objective is to achieve stable and high economic growth and development. Such growth was achieved in the early to mid 1990s, with real growth averaging 8% annually. However, the combined effects of the stalling reform process, the regional economic crisis, falling demand, including declining foreign and domestic investment, have slowed growth. According to official figures, GDP growth declined from 9.5% and 9.3% in 1995 and 1996 to 4.8% in 1999. The IMF estimated growth at 3.5% and the World Bank at around 4% in 1999. With an official growth rate of 6.2% for the first half of 2000 (partly the result of the recently improved value of its crude oil exports), Vietnam is expected to meet the government's growth target for 2000 of around 6%. The government has attempted to stimulate growth through a combination of fiscal and monetary policy measures. However, these have yet to prove fruitful. In 1999, unemployment was estimated at 7.4% by the World Bank. This is a major preoccupation for the Vietnamese government in its efforts to maintain economic and political stability. The economy does not generate enough jobs to accommodate the 7 8 annual growth in the labour force. According to the Ministry of Planning and Investment, total investment in Vietnam grew by 9% in 1999. But investment, as a proportion of GDP has fallen from 29% in 1997 to 19% in 1999 (World Bank estimate) . Half of this decline can be attributed to the decline in foreign direct investment (FDI) flows from around US$2 billion annually between 1995-7 to the IMF's estimate of US$800 million of realised investment in 1999. On a sectoral basis, industrial output reached around US$12 billion, an increase of 10.4% over 1998. Overall, the industrial sector remained uncompetitive and was frustrated by falling demand, reflected by widespread stockpiling. Sub-sectors most affected were cement, sugar and steel. Of total industrial production, the state sector accounted for 50% (up from 44.5% in 1998), domestic private sector about 20%, achieving a growth rate of 8.8%, and the foreign invested sector about 30%, achieving a growth rate of nearly 20%. The agricultural sector was a bright spot in the economy, with an official growth rate of 5.3%. However, a simultaneous decline in domestic food prices by 7.8% led to the actual lowering of farmers' incomes, driving the decline in domestic demand even further. The consumer price index (CPI) rose by only 0.1% in 1999 and fell consistently from March to October 1999. Measures to stimulate demand have not been successful. Statistical data on the services sector is not readily available, but most commentators agree that economic activity in this sector reflects broader economic trends. As in most developing countries, the informal service sector masks underemployment and unemployment to a significant degree. Vietnam's trade deficit fell to US$113 million from US$2.1345 billion in 1998, a fall of 95%. Export earnings reached US$11.523 billion, an increase of 23.1%. Notable export performances included crude oil (mainly due to increased world prices), textiles and garments, footwear, seafood, electronic appliances and computers, and handicrafts. The coal, coffee, and tea export sectors contracted. Vietnam's total imports in 1999 were valued at US$11.636 billion, a slight increase of 0.9% or US$200 million from 1998. Declining domestic demand and the implementation of import quotas largely limited import growth. Cotton, textile thread, oil and petroleum, steel, plastic and chemicals were among the import sectors experiencing slight increases.