Financial Sector Reform In Vietnam

The Financial sector reform in Vietnam is regarded as the most dynamic in all of Asia. Vietnam had to face many obstacles on its path, which comprised disunity in the national economy, the colonial war and the civil war. As such technological up gradation, formalization of the financial sector was ruled out.
This has adversely given birth to a banking sector, which is ineffective. Another problem faced by the financial sector is that the officials handling financial services are not well versed in their respective subjects. As Vietnam has a socialist form of government, and decisions are mostly taken by the center, there are instances when disputes arise between the center and at the state levels.

During the 1990s, the country suffered due to lack of enough capital in the nation. The same period was also a witness to the downfall of many credit providing establishments.

Moreover, State Bank of Vietnam lost the confidence of the common people because it’s regulatory policies were not up to the mark.

Dual economy:
Uncertainties in the financial sector in Vietnam had given rise to dual economy where both the formal and the informal sector coexisted. The currency also shows a split- the dong, which is the official currency of the country and the United States dollar. Since both the currencies existed simultaneously (formerly and informally), it also gave rise to a black market economy. By viewing all these, the government in Vietnam propounded financial sector reform in Vietnam in the year 1986.

Even though financial sector reforms in Vietnam led to a transition, the structural reforms were somehow inconsistent thereby slowing down the economy ( occurred in 1996) to a considerable extent.

During the period 2001 to 2002, it was a landmark in the history of Vietnam. The Vietnam -United States Bilateral Trade Agreement or the BTA rejuvenated the economy, the financial sector reform in Vietnam to be specific.

Although, there was remarkable growth in the economy, yet there were few macroeconomic indicators, which manifested sluggish growth. For instance, the real income recorded during that period was fairly good. But the per capita GDP or the gross domestic product remained at a low USD$390.00. FDI or foreign direct investment was also low. Foreign direct investment in the year 1996, was USD 2 billion. It nosedived to USD600 million in the year 2000. However, there was a minor improvement in the FDI, which was recorded as USD2.2 billion in the year 2002.
Financial sector reform in Vietnam- Aims:
Financial sector reform in Vietnam centers around two main objectives. Firstly, developing healthy financial services as well as strengthening the banking sector for capital allocation and curbing the high rates of inflation. Secondly, bringing about equal development in the economy of the country by maintaining state control.

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Last Updated on : 26th June 2013

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