EAST ASIAN CRISIS PROJECT - TRADE SECTOR PERFORMANCE

by Dang Nhu Van - Cam Ly

Abstract

Vietnam's trade performance in general during the 1990s experienced adverse terms of trade for its key exports, e.g. rice, coffee, and sometimes crude oil. This makes it more vulnerable to external shocks, one of which is the East Asian crisis. During and after the East Asian crisis, there is a switch in export destination, as exports to the crisis hit countries in the region stagnate during the crisis. Though imports of most countries in the region collapse during the crisis, not all of the crisis hit countries reduce their imports from Vietnam, some even increase. The rise and fall in imports by those countries can be analyzed by commodity breakdown to see the reasons for their changes. Four countries are picked up for analysis include Korea, Singapore, Indonesia, and the Philippines. Korea's imports from Vietnam drop as the crisis in Korea involves the increase in interest rate (under the IMF rescue package), which results in falling demand. Singapore's imports from Vietnam also drop sharply because this country mainly imports crude oil for its refinery industry and then re-export refined products. As the world demand for energy collapse during the crisis years, so does the import of Singapore. In addition, due to the weaker world demand, oil prices also fell in those years, thus further worsen the import value by Singapore. Indonesia's imports from Vietnam increase because of the increase in rice imports, as Indonesia suffered from bad harvest (totally unrelated to crisis). In addition, world price for rice increases in the crisis year (also unrelated to the crisis in the region), thus pulling up the import value. Philippines' imports from Vietnam increase for the similar reason to that of Indonesia: higher world price for rice pulls up the import value, given the inelastic demand. In addition, Philippines starts imports a number of new products from Vietnam, like coal, electronics, footwear, which can be attributed to a more developed trade relation.

Despite some diversification and rising share of manufacturing exports during the 1990s, Vietnam still heavily relies on primary exports like crude oil and agricultural products, both of which are extremely vulnerable to world price and external shocks. The East Asia crisis is a good example of this vulnerability.

Regarding imports, the import performance is strongly influence by the performance of the FDI sector. The collapse in imports by this sector during the crisis years affect the overall import performance. The world recession during the crisis years, which resulted in weaker demand, thus lower import price for Vietnam also contributed to the fall in imports.

Openness is necessary for the country's economic grow, but it also exposes the country to more risk of volatile world demand and prices for its exports. The East Asian crisis is a good example of this exposure to risk. By examining Vietnam's trade composition by trading partners, by commodities and their price fluctuation, this paper has tried to trace both the direct and indirect effects of the economic downturn in the region and in the world on Vietnam trade performance during the East Asian crisis.