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Commentary After the War: 25 Years of Economic Development in Vietnam by Bui Tat ThangS ince the Vietnam War ended in 1975, the planned economy from 1975 to 1985; and (2) Vietnamese economy has entered a the subsequent years of economic reform when period of peaceful development. The Vietnam shifted toward a market-led economy.current economic conditions are more I will review the most outstanding characte-favorable than at any time since the unification ristics of these two economic periods, and onof the country, but, a quarter of a century later that basis we can try to predict some futurethe Vietnamese economy still faces many developmental trends in the first years of thechallenges. On the one hand, these challenges twenty-first century.include a miserable and backward economicsituation, the result of a prolonged 30-year war THE CENTRALLY PLANNED ECONOMY 1975-1985that requires time and resources to repair. Onthe other, several recent historical upheavals In general, the centrally planned Vietnamesehave taken place, especially the collapse of the economy was not much different from theSoviet Union and the socialist Eastern Soviet Union’s model in terms of its internalEuropean countries, on which Vietnam relied mechanisms, and has been poor in its level ofheavily. These events have had important development. However, the historicallyconsequences for the economic and social life specific characteristics of Vietnam hadof humankind in general and have left a important consequences for the developmentprofound imprint on the process of of the economy after 1975.Vietnamese economic development in The war, which climaxed with theparticular. Within this historical context, the unification of North Vietnam and Southprocess of Vietnamese economic development Vietnam in 1975, left not only a legacy of heavyafter the war can be divided into two main war damage and an extremely impoverishedperiods: (1) the 10-year period of the centrally economy, but also institutional structures that21 NIRA Review
were to have a profound influence on capita (measured in rice) reached only 300 kgeconomic policy. In the first years after the per year. The country suffered from persistentwar, the government should have focused on outbreaks of famine even though theeconomic recovery, the improvement of labor government imported thousands of tons ofskills, and agricultural and consumer goods food annually. Because consumption wasproduction, all of which were seriously greater than national income, there was adeficient. However, economic policy marked dependency on various kinds ofprioritized heavy industry and focused on the foreign aid, and the country ran up significant“revolution of the relations of production” debts that, by the early 1980s, equaled theby extending the model of the annual national income. Further-centrally planned mechanism more, with little potential forin the north to the whole THE WAR, WHICH foreign trade there wascountry. This principally usually a deficit in theentailed the nationali- CLIMAXED WITH THE UNIFICATION trade balance. Fromzation and centraliz- 1976 to 1985, export OF NORTH VIETNAM AND SOUTHation of the entire turnover couldeconomy. People’s VIETNAM IN 1975, LEFT NOT ONLY A compensate forpersonal interests only a third of thewere not pro- LEGACY OF HEAVY WAR DAMAGE AND import turnovertected, and the and gross foreign AN EXTREMELY IMPOVERISHED ECONOMY,momentum of trade turnovereconomic develop- BUT ALSO INSTITUTIONAL STRUCTURES was very low,ment was elimi- averaging onlynated. THAT WERE TO HAVE A PROFOUND US$1.7 billion per As a consequence, year. The quality of INFLUENCE ON ECONOMICalthough some indus- life was poor andtrial facilities were built, POLICY. getting worse. Dailyespecially in electric power, necessities such as food,cement production and other consumer goods, transport, andsectors, the economy stagnated. In the health and education facilities wereperiod from 1976 to 1980, for instance, average seriously deficient. Meanwhile, rampantGNP was half the rate of population growth inflation reduced the value of salaries and realand national income grew at about one-fifth. incomes. Overspending of the state budgetMost economic targets set in the second five- increased sharply and went from 25 percent toyear plan (1976-1980) by the Fourth Congress 45 percent of revenues in the years afterof the Vietnamese Communist Party were not reunification.met, and some economic indicators barely In short, in the 10-year period after the warreached a third of their stated targets. From the centrally planned development of the1981 to 1985, the economic growth rate was Vietnamese economy fell far short ofslightly higher, but because of the serious expectations. Although some achievementsnational recession from 1976 to 1980, the and partial reforms were accomplished,overall economic situation hardly changed. generally the economy failed to develop in any At this stage Vietnam was a backward meaningful way. Basically, the level ofagricultural economy with 80 percent of the industrialization remained the same despitepopulation and 70 percent of the labor force ten years of intense efforts to promote heavyliving, working, and depending on agriculture industrial development. These raw factsor related sectors. Despite the numbers of demonstrate that a comprehensive reform ofagricultural laborers, however, annual the economy, which would enable it to escapeagricultural production was not enough to from stagnation and crisis, was long overduefeed the people and the average food per by the mid-1980s. Spring 2000 22
REFORM (DOI MOI) OF THE VIETNAMESE ECONOMY: direct investment (FDI); to combine 1986-PRESENT administrative reform with the renovation of economic policy; to strengthen state After some initially successful experiments management and macro regulation; and toand following the promotion of reforms in combine economic growth with general socialmany socialist countries, the Sixth Congress of development to stabilize politics andthe Vietnamese Communist Party (December “maintain socialist targets.”1986) marked a significant turning point in the The transformation from a planned to atransformation of the Vietnamese economy to market economy in Vietnam was thereforean open, market-oriented, and globally very different from what took place in theintegrated model. The aims of these reforms Soviet Union and the socialist countries offundamentally were to eliminate the state- Eastern Europe. In Vietnam, an emphasis onsubsidized mechanism; to diversify the social and political stability went hand in handownership of publicly owned assets; to with macro-economic stabilization and controlencourage and stimulate the development of of state resources. These issues became veryprivate organizations, individuals, and important factors in the creation of a favorableeconomic sectors; to make the best use of environment for the transformation andpotential resources for the development of development of the market economy inproduction and commodity exchange; to enact Vietnam.policies for the integration of Vietnam into the The result of 15 years of doi moi reform isworld and regional economies; to speed up that the Vietnamese economy has rapidlyforeign trade activities and encourage foreign grown and overcome its earlier period of23 NIRA Review
stagnation. The outstanding achievements of Singapore) in the take-off period of the 1970sthis transformation include its high growth and 1980s, and China and other dynamic Asianrate and macro-stability, the reduction of economies in the 1980s and 1990s.inflation, and the rapid increase of export Although the average per-capita GDP wasturnover, averaging more than 20 percent still low because of the high economic growthannually. As a mark of this new period of rate, there were nevertheless somegrowth, after 1989, Vietnam became one of the improvements. In 1996, for instance, per-capitabig three global rice exporters, along with GDP increased 1.6 times against the pre-doi moiThailand and the US. If we look at this 1985 figure. The number of poor households,transformation in more detail, it can be divided as measured by Vietnamese poverty standards,into three short periods: has also been sharply reduced, decreasing to From 1986 to 1991, the most 19.3 percent from 28 percent fromdecisive shift to a market 1993 to 1996 (or by 2.8 millioneconomy took place. The households containing moregovernment administered a THE TRANSFORMATION than 13 million people).series of market-oriented FROM A PLANNED TO A Infrastructure has beenshock treatments to the improved and most familieseconomy, liberalizing the MARKET ECONOMY IN have electric power.price of consumer goods, National communicationseliminating the state sub- VIETNAM WAS THEREFORE have developed rapidly; thesidy for goods, formulating VERY DIFFERENT FROM postal system serves moreand implementing the than 75 percent of the ruralpolicy of the positive WHAT TOOK PLACE IN THE population and covers 90effective interest rate, percent of the country. Thefloating the exchange rate, SOVIET UNION AND THE mass media reaches nearlyand selling off state-owned SOCIALIST COUNTRIES OF all rural areas, and about 50enterprises. Nevertheless, the percent of agriculturalgrowth rate during this early EASTERN EUROPE. households have a radio set,period of doi moi was still low with and 20 percent own a television.an average GDP growth rate of 4.5 percent, of A library system has been developed, andwhich sector I (Agriculture, Forestry and education and health care have greatlyFishery) was 2.7 percent; sector II (Industry improved. The traffic system, fresh waterand Construction) 5.7 percent; and sector III supplies, and many other areas have also(Services) 6.4 percent. During the same period significantly improved.the population growth rate was 2.09 percent, From 1997, however, the economy wasor 2.2 times lower than the GDP growth rate, strongly affected by the regional financial andand inflation was still high at 260.2 percent. monetary crisis that hit most of the economies From 1992 to 1996, the economic situation of Southeast Asia that year. As a result,clearly began to show the benefits of the economic growth from 1998 to 1999 decreasedreform of economic policy. GDP increased to half what it was from 1995 to 1996. Theannually by an average of 8.9 percent, of which economy has deflated, markets have stagnated,sector I increased by 4.8 percent, sector II by and products cannot be sold. Even before13.9 percent, and sector III by 9.1 percent. financial and economic crisis hit the region,Meanwhile, the average population growth however, signs of a slowing of the economy’srate was 2.15 percent, or 4.2 times smaller than growth rate had appeared, so it is unlikely thatthe growth of GDP, and inflation averaged 10.9 the Asian crisis was the sole reason forpercent. In short, this was a period of stable Vietnam’s recent problems. Recent studiesgrowth across all sectors of the economy, have suggested that structural and institutionalcomparable with the high growth rate of East factors within the Vietnamese economy are theAsian NIEs (Hong Kong, South Korea, and main reasons for this slowdown, factors Spring 2000 24
related to Vietnam’s under development and markets may become more intense. Theits incomplete transformation process. The weaknesses of the Vietnamese economy, itspoor state of markets, especially the capital, inefficiency, backward production technology,monetary, and labor markets, and the shortage weak competitiveness, low savings rate, andof qualified and experienced business people inadequate domestic investment, have nothave all surely contributed to the current fundamentally been overcome, and growthsituation, as has the dearth of economic rates in recent years have returned to moremanagers with the professional knowledge moderate levels. The present targets for theand skills to manage and control both the year 2000 national plan aim to merely maintainmacro- and the micro-economies and to the growth rate of 1999 and to halt the declinesprocess information and forecast markets of the past few years. In the middle to long-accurately. Therefore the transition to a market term, however, and with more efforts towardeconomy in Vietnam is not fully complete. The economic reform, there is every prospect thateconomy is still at a very low level of the business environment will improve, thatdevelopment and infrastructure and law are domestic resources will be utilized, and thatmuch more backward than those found in foreign investment will return to Vietnam.many other regional and global countries. Vietnamese economic development will make It is necessary to speed up the current great strides and contribute positively to thereforms of Vietnam’s economy so that the dynamic development of East and Southeastcountry can share in the recent rapid recovery Asia in the first years of the twenty-firstof the regional economies. It is estimated that century.the short-term prospects for the economy willcontinue to be affected by the regional Bui Tat Thang is head of the Department offinancial and economic crisis. FDI will be slow Vietnam’s External Economic Relations at thein returning to Vietnam, and international Institute of Economics, NCCHS, Hanoi, Vietnam.competition for investment capital and ReferencesNguyen Minh Tu, “Asian Financial Crisis and the Lesson Le Manh Hung (ed.) (1999). Socio-Economy of Vietnamfor Vietnam on the Threshold of the New Century,” (1996-1998) and Predictions for 2000. Hanoi: StatisticalEconomic Studies Review, No.1 (260). Publishing House.25 NIRA Review