Analysis of the activities of the Petroleum Finance Company under the Vietnam Oil and Gas Group - 17

economy, manifested in the decline of credit, housing, labor and consumer markets.

3.1.2. Domestic situation

The unusual developments of the world economy and economic studies in Vietnam all agree that the global economic crisis and economic recession in many developed industrial countries have adverse effects on the Vietnamese economy.

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In fact, in the context of economic globalization and increasingly deep integration into the international economic life, any global economic change, especially fluctuations in major economies, will certainly have important impacts on the Vietnamese economy. The level of such adverse impacts, on the one hand, depends on the depth and duration of the global financial crisis, the economic recession in major economies, and on the other hand, depends on the proactive response of the Vietnamese State and enterprises. The impact of the global financial crisis on the Vietnamese economy is manifested in the following main points:

- Import and export will be affected in three aspects: decrease in orders due to foreign countries reducing imports due to financial and economic difficulties in importing countries, consumers having to cut spending, decrease in prices of Vietnam's key export products such as crude oil, rice, rubber, seafood, garments and footwear... Export manufacturing enterprises, including foreign-invested enterprises, will be forced to reduce production due to financial difficulties and difficulties in consuming goods. Meanwhile, factors causing difficulties for production and business have appeared. Prices of raw materials, fuels, and input costs have increased quite high, causing difficulties for many enterprises. Many projects of enterprises have to adjust estimates, suspend or reduce progress. The decline of the US dollar

prices, sometimes banks restrict foreign currency purchases from export units, high lending interest rates cause difficulties for production and export units.

- Regarding imports, two opposing trends can be considered: on the one hand, there is a possibility of a reduction in the trade deficit due to the decrease in prices of many raw materials and fuels and the decrease in domestic demand, on the other hand, the import volume may increase due to businesses taking advantage of the opportunity of price reductions in the international market to buy. Of the two trends, the first trend is more likely because businesses are currently and in the future facing financial difficulties.

- Foreign direct investment will certainly be greatly affected. This is reflected in three aspects: Foreign-invested enterprises must cut production, some even go bankrupt due to their inability to maintain production and pay debts. Financial resources of the government and investors are prioritized to deal with the financial crisis and economic recession, foreign investment will decrease. Enterprises reduce their registered investment capital due to financial difficulties and market stagnation.

- Regarding monetary finance, the ability to mobilize credit sources from abroad will face many difficulties and contain many risks, exchange rates fluctuate unpredictably... That negatively affects investment and international trade. Domestically, the financial and monetary markets have many fluctuations. The banking system has revealed weaknesses in ensuring liquidity, mobilization and lending, the available capital of commercial banks is lacking, at some points there has been a race for mobilization interest rates in the market. The capital structure of banks is still not suitable, the ratio of using short-term loans for long-term loans is too large, quite common in joint-stock commercial banks that have not been strictly controlled. The stock market is declining.

serious despite the State's many support measures. The real estate market continues to have complex developments and is continuously declining. Market intervention tools to reduce trade deficit pressure are implemented slowly and inconsistently. The practice of saving in public spending and investment is still ineffective. In recent times, to achieve the growth target, since the years after the economic crisis in Asia (1997 - 1998), we have implemented a stimulus policy by loosening credit, increasing budget spending for investment... This policy has had a positive effect during the "deflationary" period, but has not been adjusted in time when the domestic and international situation has changed, our country joined the World Trade Organization, and increasingly integrated into the world economy, especially when the consumer price index (CPI) increased.

In general, the above negative economic impacts give rise to many complex social problems. Enterprises facing difficulties in business not only cannot attract more workers, but can also reduce their workforce. In addition, inflation continues to rise, far exceeding forecasts, which is the highest inflation rate in recent years and higher than other countries in the region. High inflation has greatly affected the production of enterprises and the lives of people, wage earners, workers in industrial zones and low-income residents.

Faced with the fluctuations in the domestic and international situation due to the impact of the economic crisis, the Party and the State have taken a number of positive measures to curb inflation, stabilize the macro-economy, and maintain economic growth. The solutions include:

- Financial policy : Along with measures to increase revenue for the State budget, it is necessary to implement strict financial policies, save spending, and regularly improve the efficiency of investment capital from the State budget.

Concentrate capital sources to ensure the completion of key national projects, projects completed on schedule, not delayed. Timely adjust input prices of projects invested from the budget to ensure progress.

- Monetary policy: Implement tight, proactive, flexible, and coordinated monetary policy. The State Bank of Vietnam has a firm grasp of information, strictly controls total means of payment, outstanding credit in the entire economy, and strictly controls real estate and securities lending by commercial banks and credit institutions. Flexibly adjust monetary policy, ensure reasonable credit growth, create good liquidity for credit institutions, and control inflation. Strengthen supervision of credit institutions, supplement supervision tools according to market mechanisms, and international practices to proactively warn and better handle fluctuations in the credit and currency markets.

Strictly manage the establishment, issuance of shares, and increase of charter capital of banks, financial, monetary, securities, and real estate organizations, especially large state-owned corporations and groups, and commercial banks in line with the trend of establishing sufficient requirements and criteria according to market economy practices so that financial and monetary business entities must comply with them in order to build truly healthy enterprises, ensuring their own interests and those of the entire economy.

Control foreign investment capital and exchange rates, manage the exchange rate between VND and US dollar and other foreign currencies in general within a reasonable range. Quickly apply measures to manage indirect investment capital (abbreviated as FII) as many countries have successfully applied. Continue to have positive and effective solutions to combat dollarization of the economy.

- Managing the stock market and real estate market: Strictly manage the bank loans of companies to invest in the stock market and real estate market, gradually improve the health of these two markets, overcome the situation of speculation, pushing up prices, and being difficult to control as in the past.

Direct and review to ensure that units with sufficient conditions and capacity to conduct securities business operate healthily, resolutely not allowing the establishment of units that do not meet the conditions to conduct business. Continue to implement and promote the equitization program of State-owned enterprises.

- Focus on removing difficulties for businesses, promoting production development along with strengthening social security policies, ensuring people's lives.

The Government and ministries and branches have regularly held meetings and contacts with businesses to grasp the actual situation, difficulties, problems, and recommendations, thereby proposing management policies that are close to reality, partly resolving the concerns of businesses. Specifically, measures on flexible interest rate management, interest rate support, and export support for businesses in the context of fluctuations in the global economy have contributed to helping the economy operate safely and effectively. In addition, the State has also paid special attention to the issue of job creation for workers, had policies to support those who lost their jobs, and built housing areas for workers to rent in industrial parks and export processing zones, thereby ensuring social security.

In general, the State has actively impacted the macroeconomic environment, but the GDP growth rate in 2008 only reached 6.23%. In 2008, the budget deficit was still quite large (at

4.95% of GDP), large and prolonged budget deficit is one of the specific manifestations of macroeconomic instability. This situation has a direct impact on the stable and sustainable growth of the economy.

3.1.3. Opportunities and challenges for the operations of the Petroleum Finance Company under the Vietnam Oil and Gas Group

3.1.3.1. Opportunity

- In recent years, with appropriate investment attraction policies and an increasingly improved business environment, Vietnam has attracted a huge amount of foreign direct investment and is considered attractive by many foreign investors. Attracting large foreign investments creates many opportunities for Vietnamese enterprises to participate in cooperation to develop production and business. Together with Vietnamese enterprises, Vietnamese credit institutions have more customers both domestically and internationally. Opportunities to expand the field of operation, provide more diverse products and services, and expand the customer base of all Vietnamese credit institutions. In addition, implementing the roadmap for market opening commitments when Vietnam joined the World Trade Organization, Vietnam gradually opened the banking and finance sector. Opening the banking and finance sector helps Vietnamese credit institutions have the opportunity to access modern corporate governance technology, modern financial banking technology, especially the opportunity to innovate and improve the quality of products and services to compete with foreign credit institutions operating in Vietnam. Cooperating with foreign credit institutions with extensive experience, modern banking technology, and professional working style, in addition to cooperating to survive, in order not to lose at home, forcing Vietnamese credit institutions to comprehensively innovate their operations is both a pressure and an opportunity for Vietnamese credit institutions to develop sustainably.

- When integrating into the World Trade Organization, Vietnamese enterprises and credit institutions enjoy the advantage of being latecomers, which is a good opportunity to learn from the successful experiences as well as failures and causes of failure of enterprises and credit institutions in the world, especially in countries in the region. The process of international economic integration contributes significantly to the development of the domestic economy, relations with international financial institutions open up new opportunities to attract large capital sources. The process of international integration has a great impact on units operating in the banking and finance sector in general and financial companies in particular. International integration, on the one hand, opens up new opportunities in accessing modern banking and finance technology, attracting large capital sources, on the other hand, increases competition. Domestic credit institutions will face competition from foreign credit institutions with a long history, experience in operations with advanced corporate governance, modern banking technology and strong financial capacity. The State Bank of Vietnam has actively directed the review to amend and promulgate legal documents in the banking sector to ensure compliance with commitments when joining the World Trade Organization.

3.1.3.2. Challenges

- In the cooperation with international financial and monetary organizations, the State Bank of Vietnam has performed well its role as the representative of the Government at international financial and monetary organizations such as the International Monetary Fund, the World Bank, the Asian Development Bank, and continued to maintain and expand foreign relations with international financial and monetary organizations, multilateral and bilateral organizations in the field of finance and banking. Some major commitments in the field of finance and banking when Vietnam joined the World Trade Organization have had a great impact on the operations of Vietnamese credit institutions, including the following contents:

+ Since April 1, 2007, 100% foreign-owned banks are allowed to be established in Vietnam.

+ Foreign credit institutions operating in Vietnam are allowed to provide most types of banking services as described in the appendix on banking and financial services attached to the GATS Agreement such as lending, receiving deposits, financial leasing, foreign exchange trading, money market instruments, derivative instruments, currency brokerage, asset management, providing payment services, consulting and financial information.

- Foreign bank branches are allowed to receive unlimited deposits in VND from legal entities. Mobilizing deposits in VND from Vietnamese individuals will be relaxed within 5 years according to the following roadmap:

January 1, 2007: 650% of statutory capital granted.

January 1, 2008: 800% of legal capital granted.

January 1, 2009: 900% of legal capital granted.

January 1, 2010: 1000% statutory capital granted. January 1, 2011: Full national treatment.

+ Foreign bank branches are granted full national and most-favored-nation treatment in the establishment and operation of automated teller machines.

+ Foreign credit institutions are allowed to issue credit cards on a national treatment basis since Vietnam joined the World Trade Organization.

+ A foreign commercial bank can simultaneously open a subsidiary bank and branches operating in Vietnam.