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Vietnam to Scrap Subsidies in Return for WTO Membership


Vietnam has announced that subsidies on petroleum, concrete, and other products will end sometime next year. The cuts are required under the terms of Vietnam's agreement to join the World Trade Organization.

Prime Minister Nguyen Tan Dung announced the subsidy cuts in a speech at the opening of Vietnam's National Assembly on Tuesday.

Mr. Dung says that starting in 2007, cement, steel and fertilizer will be sold at market prices. He says subsidies for gasoline will also be eliminated.

The cuts in subsidies are among the economic reforms Vietnam is undertaking in anticipation of joining the World Trade Organization. The final terms of Vietnam's accession to the WTO were agreed upon Friday in Geneva.

The move that will hit the average Vietnamese the hardest will be the elimination of gasoline subsidies. Currently, the government sets the price of gasoline, and compensates the state-owned gasoline company, PetroVietnam, if it has to sell at a loss. In the future, that compensation will be dropped - and prices will likely rise.

Minister of Finance Vu Van Ninh told reporters the gasoline subsidies are being eliminated in part to make the economy healthier.

Ninh says the fuel subsidies distort the economy, and lead business managers to make bad decisions.

But Vietnam is also cutting the subsidies because the government simply cannot afford to pay them any longer.

"Particularly with WTO accession coming up, Vietnam will have to find ways to really save on expenditures, and find new tax handles to replace the tax handles that are being lost from trade taxes," said Jonathan Pincus, head economist for the United Nations Development Program in Hanoi.

But Pincus says the changes, however painful, are crucial for the Vietnamese economy.

"The other factors actually outweigh whatever benefit the poor derive from the subsidy," he explained. "Maintaining a low-inflation, stable macroeconomic situation is much, much, much more important, and it's really necessary."

News of the changes is no surprise on the streets of Hanoi, where gasoline prices have already been rising for the past year.

The other day, a group of motorbike taxi drivers talked about how their livelihoods are being affected.

This driver says he used to earn over $3 a day. Now, he earns just a $1 or $2.

Another driver says if the price goes any higher, he will be furious.