Internal challenges One of the urgent problems that require speedy resolution is corruption.

The country's leadership is making continuous efforts to fight against corruption, but the corruption is more intensified and covered almost all aspects of Vietnamese society (The Economist, 2002). In 2008, the Vietnamese economy deteriorated sharply negative trend that was largely due to the falling of dollar and rising global prices of major imported commodities - petroleum products, fertilizers, steel products, as well as semi-finished products and export materials. In the late 1980s, Viet Nam practised hyperinflation. From the table below, in 1986 the inflation rate was 453, and dropped insignificantly in 1987 to 360 (CIA World Factbook, 2011). Inflation over the past 10 years was less than 10% per year and only in 2008, due to the worldwide crisis inflation exploded to 20% (ibid.). In the beginning of 2008, there was an unprecedented surge in inflation, and it was announced that the inflation rate was 23.1% (Asian Development Outlook, 2009). In 2011, Vietnam inflation rose to 23% in August on an annualized basis, and according to BBC it is the highest in Asia (BBC, 2011). Moreover, the cost of food and beverages increased by 34%. At the beginning of the year, inflation in Vietnam was at 14%. Central Bank of the country has repeatedly raised interest rates in 2011. However, this does not helped curb rising prices. In February, Hanoi devalued the national currency (Vietnamese Dong) to 8.5%, which further boosted inflation (ibid.). 3.10.9 Growth and inflation (%) 2005 2006 2007 2008 2009 2010 GDP 8.4 8.2 8.5 6.2 4.7 6.5 Inflation 8.3 7.4 8.3 23.1 6.8 8.5

Source: Asian Development Outlook database

Year 1986 1987 1988 1989

Inflation, average consumer prices 453.538 360.357 374.354 95.77 36.031

1990 Source: International Monetary Fund - 2011 CIA World Factbook

Moreover, one of the major socio-economic problems of the present stage of transition the Vietnamese economy to a market economy is the problem of unemployment. The unemployment rate in Vietnam in 1995 was estimated 25%. From the table below, we can see that in urban areas unemployment rate in 1990s was 12%, and the rate has gradually declined in 1995. According to Worldmark Encyclopedia of the Nations (2007) the factors that were contributed to grow the unemployment rate in Vietnam are: natural increases in the population; monetary and other adjustments for hyperinflation, which intensified the unemployment problem by limiting growth in some sectors of the economy; the return of demobilized troops from Cambodia; repatriation of refugees; workers laid off from state enterprises; and returning guest workers. According to CIA World Factbook (2011), unemployment rate in urban areas is fluctuating over the years. In 2000, unemployment rate in urban areas was stated 6.42%, and it was a decrease in 2006 with a rate of 4.82%, but in 2009 it returned to 6% (ibid.).

Year Unemployment rate Percent Change

1990 1995 2000 2005 2006 2007 2008 2009

12.327 5.82 6.42 5.31 4.82 4.64 4.7 6 -43.50 % -4.75 % -5.18 % -9.23 % -3.73 % 1.29 % 27.66 %

2010 5 -16.67 % Source: International Monetary Fund - 2011 CIA World Factbook

Another challenge that was faced by Vietnamese economy is banking. Vietnamese stateowned banks have issued loans to SOEs, some of which turned out to be insolvent. And these bad debts are a serious potential threat to the stability of the banking system. Furthermore, Fiachra Aodh MacCan (2006) stated in the Banking Sector Report: the financial sector failed to get the confidence of the public mainly because of the massive and nationwide collapse of credit cooperatives in the early 1990s. Vietnamese traditionally prefer to keep their savings in cash or gold, and not to deposit their savings in banks. The volume of loans granted by Vietnamese banks, increased annually by more than 24%.This increase is surprising all the international organizations such as the International Monetary Fund and World Bank. According to economists, 7% annual GDP growth may contribute to an annual pace of credit growth at around 14-20%. However, the rate of growth of loans and deposits is much higher than this norm (Fiachra Aodh MacCan, 2006).

References:
1. BBC, 2011. Vietnams inflation rate rises to 23%. BBC News, [online] (Last updated at

8:27 GMT 24th August 2011) Available at: <http://www.bbc.co.uk/news/business14642479> [Accessed 7th November]
2. CIA World Factbook, 2011. Vietnam inflation rate. [online] Available at:

<http://www.indexmundi.com/vietnam/inflation_rate_(consumer_prices).html> [Accessed 7th November 2011]

3. CIA World Factbook, 2011. Vietnam unemployment rate. [online] Available at:

<http://www.indexmundi.com/vietnam/unemployment_rate.html> [Accessed 7th November 2011]

4. Fiachra Aodh MacCan, 2006. Banking Sector Report. [online] Available at:

<http://x.vinacapital.com/userfiles/data/banking_report.pdf> [Accessed 8th November 2011]

5. The Economist, the print edition, 2002. Corruption abounding: The issue that could

undermine the government. The Economist online, [online] (Last updated 12th September 2002) Available at:<http://www.economist.com/node/1330593> [Accessed on 10th November 2011 ]
6. Worldmark Encyclopedia of the Nations, 2007. Vietnam. Encyclopedia, [online] Available

at: <http://www.encyclopedia.com/topic/Vietnam.aspx> [Accessed 10th November 2011]