The problem in context

This paper focuses on showing how Vietnam will meet its trading partners' expectations that it will liberalize its economy through commercial legislation and regulatory changes and, more specifically, will liberalize its financial institutions and markets by the time of the country's planned accession to the WTO in 2005.

Since 1975 until recently, Vietnam has maintained an almost isolationist economic policy. It has not, as a result, had much success in improving the efficiency of its commercial sector in a way that contributes to significant or consistent economic growth. Vietnam is now a country clearly wanting closer connections with the rest of the world, but policies to promote and finance international trade or to attract adequate foreign investment have lacked direction. As the country progresses towards joining the WTO, economists are debating how to improve the country's investment efficiency, especially through financial market reform.

In this context, the BTA (US–Vietnam Bilateral Trade Agreement) exposed the lack of competitiveness of the Vietnamese banking sector. Vietnamese enterprises that have tried to improve their competitiveness in world markets (such as the fishing industry) have found that the lack of banking competitiveness and competence has held them back. They fear that this will continue to happen when the Vietnamese market is opened up as a result of WTO membership.

The Vietnamese banks themselves realize (partly as a result of the BTA) that they have to reform or lose even more business to foreign banks and financial institutions.