Situated in Southeast Asia, with a tropical monsoon climate, Vietnam is covered by tropical rain forests over one-quarter of its surface. Forests have been extremely important in the country's economy and they will be essential in its future development. Forests contribute directly to the economy through the provision of building materials and energy and indirectly through foreign exchange earnings, which amount to about US$200 million annually. Forests play a key role in the conservation of biodiversity. They protect watersheds and thus contribute to flood control and water management in the highly productive delta regions. In order for the forests to contribute to the national economy, strong forest management institutions and proper policies are necessary. Forest land use and exploitation should be strictly controlled, and effective programs must be developed. The potential of the forests can only be realized on a sustainable basis through significant changes in current practices.