Poverty analysis of a selected developing nation

Poverty

Economic Overview

Since the enactment of Vietnam's "doi moi" policy for economic renovation in 1986, Vietnamese authorities have committed to increased economic liberalization and enacted structural reforms needed to modernize the economy and to produce more competitive, export-driven industries. The "doi moi" policy has proven successful with average GDP growth of 6.8% per year from 1997 70 2004. Growth has recently soared to eight percent in 2005 and 7.8% in 2006. The Vietnamese government has also moved to implement other reforms to make it more competitive. It is a member of the ASEA Free Trade Area (AFTA) and signed the U.S.-Vietnam Bilateral Trade Agreement in 2001. As a result, Vietnam's exports to the U.S. doubled in both 2002 and 2003. Vietnam has just joined the World Trade Organization (WTO) in January 2007 and entry is expected to further accelerate foreign trade..

Vietnam maintains a fairly even balance of trade with exports of $39.92 billion in 2006 and imports of $39.16 billion (the World Factbook). The industrial and construction sectors make up forty percent of Vietnam's economy. The service industry makes up another thirty-eight percent while agriculture makes up the remaining twenty-two percent. The growth rate of agriculture is slowing while the industrial and construction sectors are experiencing increased growth. Vietnam's economic expansion is large due to the exports of apparel to the United States which increase more than three times in 2003 over 2002. (Vietnam's economic growth accelerates, 2006).

By 2006, Vietnam had reduced the percentage of its people living in abject poverty -- less than $1 a day -- to eight percent from fifty-one percent in 1990, fairing even better than Asia's other high economic flyers such as China and India (Bradsher, 2006). Unemployment was only two percent in 2006 (the World Factbook).

Economic Problems

Vietnam faces several labor challenges. Incomes in Vietnam still fall far well below Western levels (Bradsher, 2006). Per capita income in 2005 was $638. The richest twenty percent of the population earned 44.5% of the nation's total income while the poorest twenty percent earned only eight percent (EarthTrends, 2003).

Nearly double-digit growth in Vietnam is starting to cause shortages of skilled labor and salaries of skilled professionals are increasing at rates of thirty to fifty percent a year (Bradsher, 2006). Inflation has soared from 3.1% in 2004 to 9.5% in 2005 and 8.3% in 2006 (Vietnam inflation rate (consumer prices)). Even though Vietnam has problems with income disparity and inflation, it is expected to pass taxes that offer tax breaks for the wealthy and that will eliminate taxes on inheritance and interest on most bank accounts.

Growth has challenged Vietnam's infrastructure (Bradsher, 2006). Transportation congestion for cars and ships is said to now be worse than China's problem. Corruption has slowed construction; the government stopped highway building across northern Vietnam in 2006 after uncovering a graft scandal that led to resignations and detentions at the Transport Ministry. Factories are challenged power shortages that cause frequent interruptions as much as twice a day.

Even though Vietnam's trade is booming and it has formed many types of open trade arrangements, the country is accused of dumping, a practice of selling in another market at a price which is lower than the price or cost in Vietnam's home market (Bradsher, 2006). The United States imposed anti-dumping duties on Vietnam's catfish exports three years ago and the European Union recently imposed them on Vietnamese shoe exports.

Recommendations

At a time of extreme income disparity, skills shortages, and inflation, Vietnam should not be pursuing tax breaks for the wealthy. Instead, it should be focusing on investing in education and transportation and utilities infrastructures. Transition from agriculture to industrialization requires different skills and places greater demand on infrastructure. These activities should be converted into public services rather than state-rant activities to promote greater efficiency and progress.