Economic Deceleration and Financial Management
Agricultural production, telecommunications, and transport experienced strong growth, but other key sectors slowed significantly (for example, 13 per cent for industry, 9.5 per cent for services) compared with their performance in 1995- 96. This slowdown may prevent the government from achieving its ambitious annual growth rate of over 9 per cent for the current five-year plan.13 Foreign investment for the year also shrank considerably, though according to the Ministry of Planning and Investment, total realized foreign direct investment (FDI) rose to US$2.7 billion. If the figure is reliable, it indicates that Vietnam had managed to meet its external financing requirement of US$4 billion in FDI inflows and official development assistance (ODA) disbursements for the year.
Of Vietnam's three growth centres (Hanoi, Da Nang, Ho Chi Minh City), Ho Chi Minh City's growth decelerated earliest in 1997, raising questions about its viability as one of the country's continued engines of growth. As the economy's main growth hub of the doi moi years, the city had become more vulnerable to regional developments due to its size and better integrated infrastructure. The city's economic growth in the past two years had also been compounded by its weak administrative and co-ordination capacity, and irrational and unco-ordinated financial policies,14 which resulted in a string of unending corruption scandals from late 1996. Ho Chi Minh City's overall industrial growth for the year was led by production from foreign investment ventures, followed by that of local and private industrial firms. Production by national state enterprises had dropped sharply, emphasizing anew the urgency of state enterprise restructuring for the country's future performance.
Vietnam was, nonetheless, able to make progress in reducing its debt servicing. Agreement with London Club creditors concerning all of its uninsured commercial debt of US$852 million --- a 50 per cent debt reduction and four Brady-bond schemes --- is currently implemented with the support of the World Bank. Vietnam's long-term liabilities amounted to about US$12 billion at the end of 1996, which included the 10.6 billion Russian rouble owed to the former USSR and now assumed by Russia. Negotiations are continuing with Russia on the terms and exchange rate of repayment. An outcome based on highly concessional terms and a favourable exchange rate would help to raise Vietnam's creditworthiness. Of the US$6.3 billion (about 31 per cent of GDP) in convertible currency debt, about half is owed to official bilateral Paris Club creditors. …