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From Wall Street to Main Street, Vietnam:
The Far Reach of the Economic Crisis

By Adam R. Sitkoff, Executive Director, American Chamber of Commerce - Hanoi

For months, America's front pages have told the story of falling home prices, frozen credit, job losses, plunging retail sales, and corporate bailouts. The current worldwide economic slowdown is a concern to everybody, regardless of nationality, and there is considerable uncertainty as to how deep and long this downturn will last.

As Americans keep their credit cards hidden away, people are feeling the direct effects in far-flung corners of the globe. Vietnam, a fast-developing country that has just experienced two decades of rapid growth, is now falling on hard times. Economic growth slowed to the lowest rate in almost a decade in 2008 as the country struggled with an annual inflation rate of over 20 percent. The Vietnamese stock market, which topped the world's charts in 2006 by rising 144 percent, fell 66 percent in 2008.

Exports are critical for Vietnam's economy, accounting for well over one-half of the country's gross domestic product (GDP). Vietnam's main export markets—the United States, the European Union, and Japan—are all experiencing a rapid decline in consumer spending. The more severe and protracted the worldwide recession becomes, the more Vietnam will suffer negative effects including further weakened export markets and employment, reduced foreign direct investment, as well as financial effects such as reduced indirect investment capital.

However, despite the current economic challenges, investors remain confident in Vietnam's long-term prospects, and American companies consider Vietnam one of the most attractive emerging markets in the world.

The country has made a long transition from a centrally planned agrarian economy to a diversified mostly-market economy with growing industrial and services sectors. World Trade Organization (WTO) accession in 2007 completed Vietnam's process of international economic integration and enables the country to compete globally on an equal footing with its neighbors. WTO membership also binds Vietnam to a comprehensive set of commitments including reductions on tariffs, elimination of non-tariff barriers, market access for services, and acceptance of important international trade rules and disciplines.

There is no question that doing business in Vietnam is gradually becoming easier. The government continues to streamline administrative procedures, and numerous reform initiatives are making good headway, though much remains to be done. The U.S. business community encourages Vietnam to continue reforms, strengthen intellectual property rights enforcement, and make further efforts to improve business governance and transparency. Other big challenges include continued efforts to push major infrastructure projects forward such as energy and transportation, and also the urgent need to reform the education and training systems.

The American Chamber of Commerce will continue to help foster an attractive, transparent, and stable business environment. Vietnam has already shown the world that it is "open for business." The country can cushion the blow of the global economic situation by maintaining cost competitiveness, appropriate economic stimulus, and competent policy-making.