Introduction

The past couple of years marked a memorable experience for Vietnam. After a long period of continuous high growth and macroeconomic stability, Vietnam offered foreign investors one of the most attractive investment destinations. However, after a short period of overly optimistic expectations in the first half of 2007, Vietnam had to start worrying about the overall economic situation. The accumulated inflationary pressures from continuous credit and public investment expansions, in combination with the external shocks such as rising energy and rice prices, and inappropriateness of the policy responses to a surge in capital inflows in 2007, sent the country to macroeconomic turbulence and the perplexity in formulating a proper stabilization policy. A policy package for dealing with macroeconomic instability has been implemented since March 2008. As the macroeconomic situation improved somehow by the end of 2008, the country has suffered from very negative impacts of the global financial crisis and recession.

This chapter discusses the main economic developments in Vietnam in 2009. In doing so, the chapter also makes comparison with the changes in macroeconomic conditions in Vietnam in line with the external shocks after the country became a member of the World Trade Organization (WTO) in 2007. Besides, the chapter describes Vietnam's policy responses during the crisis and summarizes some economic projections for the economy in 2010.

The rest of the chapter is structured as follows. The first section analyses the economic development in 2008–09, focusing on merchandise trade, investment, economic growth, inflation, balance of payments, and the financial system. The next section then reviews the policy response in 2009, before providing a summary of several key economic projections for Vietnam in 2010. The concluding remarks, finally, list several challenges and issues that the country should consider in the years from 2010 onwards.

Vietnam's Economic Development in 2008–09

For many years since Doi Moi (Renovation), particularly since 2000, Vietnam focused its policies on promoting high economic growth and on sustaining macroeconomic stability. However, till 2007 the promotion of high economic growth depended heavily on expanding investment and credit. Total investment grew on average by 15.3 per cent per year in the years 2000–07, while the 2007 rate of growth in investment alone was 27.0 per cent. Similarly, outstanding credit increased by almost 53.9 per cent in 2007.