Outstanding Issues of Vietnam's Economic Situation in Early 2008:

The amount of foreign capital flowing into Vietnam is one of the main reasons for the increase in money supply. The State Bank of Vietnam has had to spend hundreds of thousands of billions of VND to absorb foreign currency, relatively stabilize the exchange rate to support export and investment activities. It is estimated that Vietnam's foreign currency reserves in 2007 reached nearly 20 billion USD, an increase of 9 billion USD compared to 2006.

The growth rate of Vietnam's M2 money supply (including total cash and bank deposits) in 2004, 2005 and 2006 is currently nearly 4 times higher than the GDP growth rate in the corresponding period, far exceeding the rate of 2.5 times or less of other countries in the region. When the money supply is nearly 4 times higher than the GDP growth rate, high inflation is an inevitable consequence, not only in the immediate impact but also in the long term.

In 2007, the State Bank of Vietnam simultaneously implemented monetary tightening measures such as increasing the required reserve (June 2007), controlling lending for securities investment (July 2007), stopping the supply of VND (since August 2007)... However, the above solutions have not been really successful because they were introduced too late. Specifically, tens of thousands of billions of VND were released to buy USD in a rush since the beginning of the year, but the solutions were not introduced until June.

Regarding the VND/USD exchange rate: in 2007, the State Bank of Vietnam widened the exchange rate fluctuation band twice in January 2007 (from +/- 0.25% to +/- 0.5%) and December 2007 (from +/- 0.5% to +/- 0.75%). In 2008, the State Bank of Vietnam once again widened the band by 0.25% to 1% in early March 2008. The widening of the band not only allows commercial banks to set more flexible buying and selling rates but also more closely reflects the supply and demand of foreign currency in the market.

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However, the widening of the exchange rate band at a time when VND was scarce, USD supply was abundant, and dollar interest rates on the world market continuously decreased, pushed the exchange rate down to the floor price.

With more than 80% of trade transactions in USD, this will benefit Vietnamese import enterprises but will negatively impact export enterprises when these enterprises use VND to import goods, then export - collect foreign currency (USD) and sell USD (to commercial banks) for VND - if VND appreciates, export enterprises will lose profits. This situation is clearly not in the State's wishes when export is still the main factor of GDP growth and improving the trade deficit. In the near future, when Vietnam has fully integrated into the world economy, the impact of exchange rates will have a significant impact on enterprises. At the same time, the State Bank has advocated an open mechanism in regulating exchange rates to reflect the actual exchange rate in the market. With the current strong and constantly changing world situation, exchange rate risk is one of the top risks that enterprises need to pay attention to. The use of derivative instruments in hedging exchange rate risks needs to be deployed more widely and popularly.

2.1.2. Outstanding issues of Vietnam's economic situation in early 2008:

a- About the situation

(1) Although the economic growth rate continues to be high, it has shown signs of slowing down. Notably, the growth rate in the industrial and construction sector is lower than planned and the increase in the same period in 2007 is lower month by month. Although exports continue to increase, they have encountered some difficulties and shown signs of slowing down, while the trade deficit has increased too high, the highest ever. Total social investment capital, including FDI capital, is lower than the same period last year. Agricultural production has encountered many difficulties due to natural disasters and epidemics in some localities.

(2) Inflation continues to rise, far exceeding forecasts. The consumer price index in March 2008 increased by 9.19% compared to December 2007, and by 19.39% compared to March 2007. This is the highest inflation rate in recent years and higher than other countries in the region.

Table 2: Basic statistics of Vietnam's economy over the years

(3) The financial and monetary markets have many fluctuations. The banking system has revealed weaknesses in ensuring liquidity, mobilizing and lending; the available capital of commercial banks is lacking, at some points leading to a race for 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 but is slow to be strictly controlled. The stock market has declined despite the State's support measures. The real estate market continues to have complicated developments. 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.

(4) There have been factors causing difficulties for production and business. Prices of raw materials, fuels, and input costs have increased quite high, causing difficulties for many enterprises. Many projects of enterprises have had to adjust their estimates, suspend or reduce progress. The depreciation of the US dollar has sometimes caused banks to limit foreign currency purchases.

For export units, high lending interest rates cause difficulties for production and export units.

b- About the cause

(1) Objective reasons:

Strong external impacts due to rising prices of many commodities in the world, the US economy's decline, the continued depreciation of the USD; natural disasters and epidemics have had a certain impact on production and people's lives.

The US economy currently accounts for about 25% of the world's total GDP and over 15% of the world's total import value of goods, the decline of the US economy has a widespread impact on the world economic situation.

Faced with this situation, many countries have had to adjust their growth targets down from 1 to 2%, such as the US 1.5% (last year was 2.7%); the Eurozone 1.6% (last year was 2.6%); Japan 1.5% (last year was 1.9%); China 8% (last year was 11.4%). Vietnam, with its initial plan of GDP growth at 8.5-9%, is no longer close to reality. Based on the current situation, along with the Government's determination to control inflation, Vietnam's GDP growth rate in 2008 is predicted to be at 7.5%, and CPI will be approximately 15%.

(2) Subjective causes:

- The inherent weaknesses of the economy have accumulated for many years but have been slow to be addressed and overcome. The economic structure has been slow to improve; the resource exploitation and processing industry still accounts for a large proportion, the supporting industry has been slow to develop, most of the intermediate materials and supplies for production must be imported; the added value of industrial production is low. Management of finance, currency, market, price, import and export is not tight.

- Forecasting and planning measures and plans to respond to negative impacts of the world economy in the context of integration have not been timely.

Timely, the lack of experience and initiative in response and handling of some functional sectors led to confusion and lack of coordination.

- Dissemination and explanation of the situation are not timely, especially in cases of issuing new policies and solutions that are sensitive, affecting the interests of the people and investors, causing anxiety in society.

(3) Loose fiscal and monetary policies have been implemented for many years but management is not tight.

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 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 WTO, integrating more and more deeply into the world economy, especially when the consumer price index (CPI) showed signs of gradually increasing.

- Monetary policy:

+ The continuous loosening of monetary policy for many years, especially in 2007, has caused the total means of payment and total outstanding credit in the economy to increase sharply. The inspection and supervision capacity of the State Bank has been slow to be strengthened, unable to keep up with the situation when credit institutions have strongly shifted to operating according to market mechanisms and international integration, and have not effectively controlled the operations of commercial banks, especially joint-stock commercial banks, in lending for securities trading and real estate trading.

+ The currency market has many unusual developments but detection and warning are not timely. The information and data system serving policy making is still weak and not accurate enough.

+ The low exchange rate policy to encourage exports for many years was not adjusted appropriately when the US economy began to decline and the USD depreciated sharply. The VND was kept at a high value compared to the USD.

Along with high domestic interest rates... have encouraged a large inflow of foreign indirect investment capital, but there have been no effective absorption measures.

+ When a situation occurs, the State Bank simultaneously implements strong solutions at the same time: Increase required reserves, adjust the debt ratio for investment loans for securities and real estate, increase the guiding interest rate, issue mandatory credit notes for commercial banks, limit the purchase and sale of USD by organizations and individuals in need... Specifically, in order to control inflation in the first 3 months of 2008, the State Bank has proactively implemented many measures to reduce the amount of money in circulation such as increasing the required reserve ratio by 1% for all types of deposits compared to the current prescribed ratio; limit commercial banks to lend securities up to 20% of charter capital, instead of the previous regulation of lending up to 3% of total outstanding debt; increasing the basic interest rate from 8.25%/year to 8.75%/year, the refinancing interest rate from 6.5%/year to 7.5%/year, the discount rate from 4.5%/year to 6.0%/year; issuing VND 20,300 billion of State Bank of Vietnam bills in VND in a compulsory form for 41 credit institutions on March 17, 2008; widening the exchange rate band by 0.25%. However, these measures are not consistent with other measures,... although they contribute to preventing negative manifestations in the monetary market, they also cause difficulties for commercial banks, create a race to raise capital mobilization interest rates, causing difficulties for production, business and export, affecting social psychology.

- Financial policy: Budget spending is not really economical, budget deficit is still high, investment efficiency from the state sector is still low.

+ Budget deficit has been maintained at 5% of GDP for many consecutive years while the economy's size is growing.

+ The rate of investment expenditure from the state sector (state budget, state credit, state-owned enterprises) is large, but the efficiency is low. The situation of investment being spread out, leaving many projects unfinished, slow to put into operation, use, with many losses and inefficiencies is quite common and has lasted for many years at both central and local levels.

The slow method is being overcome. The ICOR coefficient (capital / incremental output ratio: an indicator reflecting the efficiency of investment capital, the relationship between growth and investment

) of the economy tends to increase.

+ The policy of establishing multi-industry corporations has not been uniformly recognized for good implementation. In addition to the results achieved in many aspects, some corporations have invested widely in many industries, occupations, and fields that are not their specialties and strengths, especially in the fields of finance, banking, real estate, securities, etc. These investment activities have caused difficulties for state management of the operations of corporations, difficulties for the State Bank in managing currency circulation, if not overcome, it will increase speculation in the stock market, real estate market, contributing to increasing inflation in the economy.

In general, although Vietnam is facing difficulties and challenges from domestic and international issues, in reality, most countries with developed economies are facing the global situation: inflation, skyrocketing raw material prices, declining people's lives, natural disasters, etc. Therefore, if we evaluate the general situation, Vietnam is still an economy with strong potential for development in the future in the region as well as in the world.

2.2 Overview of Vietnam's pharmaceutical industry

2.2.1.General introduction

2.2.1.1 History of the Pharmaceutical Industry in Vietnam:

The pharmaceutical industry produces medical products for human health care. This is an essential industry, with high social factors and is necessary regardless of whether the socio-economic situation develops or declines.

Since the country's reunification (1975), the Vietnamese pharmaceutical industry has had "a system" (or more precisely, a set) of pharmaceutical production facilities classified according to administrative levels: central pharmaceutical enterprises (mainly

with factories in Hanoi and Ho Chi Minh City), provincial and municipal enterprises and more than 500 production facilities of district pharmaceutical companies. This entire "production system" exists based on the value of 30 million rubles transferred (equivalent to 30 million USD) of drugs provided by the SEV bloc and traded with Vietnam before the SEV bloc collapsed, including a number of finished drugs (colds, betalactam antibiotics, corticosteroids, vitamins...) and a number of essential pharmaceutical ingredients. The second source of raw materials is created by the pharmaceutical industry based on "self-made" foreign currency from enterprises exporting raw medicinal materials and essential oils to import finished drugs and pharmaceutical ingredients. Thanks to that, during the period when Vietnam was subject to a hostile economic embargo by the US, the pharmaceutical industry was still able to meet the most essential needs for drugs, contributing significantly to the outstanding achievements of the Vietnamese health sector during the subsidy period. Average drug consumption per capita during this period (1975-1990) was about 0.5-1 USD/year.

2.2.1.2 Development situation of the pharmaceutical industry

Policies on economic mechanism innovation along with the implementation of the Party and State's policy of restructuring and innovating enterprise management have created conditions for the development of Vietnam's pharmaceutical industry. In particular, after the Prime Minister issued the National Drug Policy (1996), Vietnam's pharmaceutical industry has made significant progress.

Value of domestically produced drugs in 2006: 475.403 million USD, increased by 20% compared to 2005, in 2007: 600.63 million USD, increased by 26.34% compared to 2006, of which the production revenue of GMP-certified factories was 546.57 million USD (reaching 91%). In 2007: domestically produced drugs met 52.86% of demand; Average drug consumption per capita increased 3.2 times, from 4.2 USD (1995) to 13.4 USD/year, 2.9 times higher than in 2001 and 1.2 times higher than in 2006 and 13 times higher than in 1990.

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