21 NIRA Review

Since the Vietnam War ended in 1975, theVietnamese economy has entered aperiod of peaceful development. The

current economic conditions are morefavorable than at any time since the unificationof the country, but, a quarter of a century laterthe Vietnamese economy still faces manychallenges. On the one hand, these challengesinclude a miserable and backward economicsituation, the result of a prolonged 30-year warthat requires time and resources to repair. Onthe other, several recent historical upheavalshave taken place, especially the collapse of theSoviet Union and the socialist EasternEuropean countries, on which Vietnam reliedheavily. These events have had importantconsequences for the economic and social lifeof humankind in general and have left aprofound imprint on the process ofVietnamese economic development inparticular. Within this historical context, theprocess of Vietnamese economic developmentafter the war can be divided into two mainperiods: (1) the 10-year period of the centrally

planned economy from 1975 to 1985; and (2)the subsequent years of economic reform whenVietnam shifted toward a market-led economy.I will review the most outstanding characte-ristics of these two economic periods, and onthat basis we can try to predict some futuredevelopmental trends in the first years of thetwenty-first century.

THE CENTRALLY PLANNED ECONOMY 1975-1985

In general, the centrally planned Vietnameseeconomy was not much different from theSoviet Union’s model in terms of its internalmechanisms, and has been poor in its level ofdevelopment. However, the historicallyspecific characteristics of Vietnam hadimportant consequences for the developmentof the economy after 1975.

The war, which climaxed with theunification of North Vietnam and SouthVietnam in 1975, left not only a legacy of heavywar damage and an extremely impoverishedeconomy, but also institutional structures that

Commentary

After the War:25 Years of Economic Development

in Vietnam

by Bui Tat Thang

Spring 2000 22

were to have a profound influence oneconomic policy. In the first years after thewar, the government should have focused oneconomic recovery, the improvement of laborskills, and agricultural and consumer goodsproduction, all of which were seriouslydeficient. However, economic policyprioritized heavy industry and focused on the“revolution of the relations of production”by extending the model of thecentrally planned mechanismin the north to the wholecountry. This principallyentailed the nationali-zation and centraliz-ation of the entireeconomy. People’spersonal interestswere not pro-tected, and themomentum ofeconomic develop-ment was elimi-nated.

As a consequence,although some indus-trial facilities were built,especially in electric power,cement production and othersectors, the economy stagnated. In theperiod from 1976 to 1980, for instance, averageGNP was half the rate of population growthand national income grew at about one-fifth.Most economic targets set in the second five-year plan (1976-1980) by the Fourth Congressof the Vietnamese Communist Party were notmet, and some economic indicators barelyreached a third of their stated targets. From1981 to 1985, the economic growth rate wasslightly higher, but because of the seriousnational recession from 1976 to 1980, theoverall economic situation hardly changed.

At this stage Vietnam was a backwardagricultural economy with 80 percent of thepopulation and 70 percent of the labor forceliving, working, and depending on agricultureor related sectors. Despite the numbers ofagricultural laborers, however, annualagricultural production was not enough tofeed the people and the average food per

capita (measured in rice) reached only 300 kgper year. The country suffered from persistentoutbreaks of famine even though thegovernment imported thousands of tons offood annually. Because consumption wasgreater than national income, there was amarked dependency on various kinds offoreign aid, and the country ran up significant

debts that, by the early 1980s, equaled theannual national income. Further-

more, with little potential forforeign trade there was

usually a deficit in thetrade balance. From

1976 to 1985, exportturnover couldcompensate foronly a third of theimport turnoverand gross foreigntrade turnoverwas very low,

averaging onlyUS$1.7 billion per

year. The quality oflife was poor and

getting worse. Dailynecessities such as food,

consumer goods, transport, andhealth and education facilities were

seriously deficient. Meanwhile, rampantinflation reduced the value of salaries and realincomes. Overspending of the state budgetincreased sharply and went from 25 percent to45 percent of revenues in the years afterreunification.

In short, in the 10-year period after the warthe centrally planned development of theVietnamese economy fell far short ofexpectations. Although some achievementsand partial reforms were accomplished,generally the economy failed to develop in anymeaningful way. Basically, the level ofindustrialization remained the same despiteten years of intense efforts to promote heavyindustrial development. These raw factsdemonstrate that a comprehensive reform ofthe economy, which would enable it to escapefrom stagnation and crisis, was long overdueby the mid-1980s.

THE WAR, WHICH

CLIMAXED WITH THE UNIFICATION

OF NORTH VIETNAM AND SOUTH

VIETNAM IN 1975, LEFT NOT ONLY A

LEGACY OF HEAVY WAR DAMAGE AND

AN EXTREMELY IMPOVERISHED ECONOMY,BUT ALSO INSTITUTIONAL STRUCTURES

THAT WERE TO HAVE A PROFOUND

INFLUENCE ON ECONOMIC

POLICY.

23 NIRA Review

RE F O R M (DO I MO I) O F T H E VI E T N A M E S E EC O N O M Y:1 9 8 6 - PR E S E N T

After some initially successful experimentsand following the promotion of reforms inmany socialist countries, the Sixth Congress ofthe Vietnamese Communist Party (December1986) marked a significant turning point in thetransformation of the Vietnamese economy toan open, market-oriented, and globallyintegrated model. The aims of these reformsfundamentally were to eliminate the state-subsidized mechanism; to diversify theownership of publicly owned assets; toencourage and stimulate the development ofprivate organizations, individuals, andeconomic sectors; to make the best use ofpotential resources for the development ofproduction and commodity exchange; to enactpolicies for the integration of Vietnam into theworld and regional economies; to speed upforeign trade activities and encourage foreign

direct investment (FDI); to combineadministrative reform with the renovation ofeconomic policy; to strengthen statemanagement and macro regulation; and tocombine economic growth with general socialdevelopment to stabilize politics and“maintain socialist targets.”

The transformation from a planned to amarket economy in Vietnam was thereforevery different from what took place in theSoviet Union and the socialist countries ofEastern Europe. In Vietnam, an emphasis onsocial and political stability went hand in handwith macro-economic stabilization and controlof state resources. These issues became veryimportant factors in the creation of a favorableenvironment for the transformation anddevelopment of the market economy inVietnam.

The result of 15 years of doi moi reform isthat the Vietnamese economy has rapidlygrown and overcome its earlier period of

Spring 2000 24

stagnation. The outstanding achievements ofthis transformation include its high growthrate and macro-stability, the reduction ofinflation, and the rapid increase of exportturnover, averaging more than 20 percentannually. As a mark of this new period ofgrowth, after 1989, Vietnam became one of thebig three global rice exporters, along withThailand and the US. If we look at thistransformation in more detail, it can be dividedinto three short periods:

From 1986 to 1991, the mostdecisive shift to a marketeconomy took place. Thegovernment administered aseries of market-orientedshock treatments to theeconomy, liberalizing theprice of consumer goods,eliminating the state sub-sidy for goods, formulatingand implementing thepolicy of the positiveeffective interest rate,floating the exchange rate,and selling off state-ownedenterprises. Nevertheless, thegrowth rate during this earlyperiod of doi moi was still low withan average GDP growth rate of 4.5 percent, ofwhich sector I (Agriculture, Forestry andFishery) was 2.7 percent; sector II (Industryand Construction) 5.7 percent; and sector III(Services) 6.4 percent. During the same periodthe population growth rate was 2.09 percent,or 2.2 times lower than the GDP growth rate,and inflation was still high at 260.2 percent.

From 1992 to 1996, the economic situationclearly began to show the benefits of thereform of economic policy. GDP increasedannually by an average of 8.9 percent, of whichsector I increased by 4.8 percent, sector II by13.9 percent, and sector III by 9.1 percent.Meanwhile, the average population growthrate was 2.15 percent, or 4.2 times smaller thanthe growth of GDP, and inflation averaged 10.9percent. In short, this was a period of stablegrowth across all sectors of the economy,comparable with the high growth rate of EastAsian NIEs (Hong Kong, South Korea, and

Singapore) in the take-off period of the 1970sand 1980s, and China and other dynamic Asianeconomies in the 1980s and 1990s.

Although the average per-capita GDP wasstill low because of the high economic growthrate, there were nevertheless someimprovements. In 1996, for instance, per-capitaGDP increased 1.6 times against the pre-doi moi1985 figure. The number of poor households,as measured by Vietnamese poverty standards,has also been sharply reduced, decreasing to

19.3 percent from 28 percent from1993 to 1996 (or by 2.8 million

households containing morethan 13 million people).Infrastructure has beenimproved and most familieshave electric power.National communicationshave developed rapidly; thepostal system serves morethan 75 percent of the ruralpopulation and covers 90percent of the country. Themass media reaches nearlyall rural areas, and about 50

percent of agriculturalhouseholds have a radio set,

and 20 percent own a television.A library system has been developed, andeducation and health care have greatlyimproved. The traffic system, fresh watersupplies, and many other areas have alsosignificantly improved.

From 1997, however, the economy wasstrongly affected by the regional financial andmonetary crisis that hit most of the economiesof Southeast Asia that year. As a result,economic growth from 1998 to 1999 decreasedto half what it was from 1995 to 1996. Theeconomy has deflated, markets have stagnated,and products cannot be sold. Even beforefinancial and economic crisis hit the region,however, signs of a slowing of the economy’sgrowth rate had appeared, so it is unlikely thatthe Asian crisis was the sole reason forVietnam’s recent problems. Recent studieshave suggested that structural and institutionalfactors within the Vietnamese economy are themain reasons for this slowdown, factors

THE TRANSFORMATION

FROM A PLANNED TO A

MARKET ECONOMY IN

VIETNAM WAS THEREFORE

VERY DIFFERENT FROM

WHAT TOOK PLACE IN THE

SOVIET UNION AND THE

SOCIALIST COUNTRIES OF

EASTERN EUROPE.

25 NIRA Review

related to Vietnam’s under development andits incomplete transformation process. Thepoor state of markets, especially the capital,monetary, and labor markets, and the shortageof qualified and experienced business peoplehave all surely contributed to the currentsituation, as has the dearth of economicmanagers with the professional knowledgeand skills to manage and control both themacro- and the micro-economies and toprocess information and forecast marketsaccurately. Therefore the transition to a marketeconomy in Vietnam is not fully complete. Theeconomy is still at a very low level ofdevelopment and infrastructure and law aremuch more backward than those found inmany other regional and global countries.

It is necessary to speed up the currentreforms of Vietnam’s economy so that thecountry can share in the recent rapid recoveryof the regional economies. It is estimated thatthe short-term prospects for the economy willcontinue to be affected by the regionalfinancial and economic crisis. FDI will be slowin returning to Vietnam, and internationalcompetition for investment capital and

markets may become more intense. Theweaknesses of the Vietnamese economy, itsinefficiency, backward production technology,weak competitiveness, low savings rate, andinadequate domestic investment, have notfundamentally been overcome, and growthrates in recent years have returned to moremoderate levels. The present targets for theyear 2000 national plan aim to merely maintainthe growth rate of 1999 and to halt the declinesof the past few years. In the middle to long-term, however, and with more efforts towardeconomic reform, there is every prospect thatthe business environment will improve, thatdomestic resources will be utilized, and thatforeign investment will return to Vietnam.Vietnamese economic development will makegreat strides and contribute positively to thedynamic development of East and SoutheastAsia in the first years of the twenty-firstcentury.

Bui Tat Thang is head of the Department ofVietnam’s External Economic Relations at theInstitute of Economics, NCCHS, Hanoi, Vietnam.

Nguyen Minh Tu, “Asian Financial Crisis and the Lessonfor Vietnam on the Threshold of the New Century,”Economic Studies Review, No.1 (260).

Le Manh Hung (ed.) (1999). Socio-Economy of Vietnam(1996-1998) and Predictions for 2000. Hanoi: StatisticalPublishing House.

References