Implications of the Crisis for Transition Economies: Vietnam Prepared for International Conference on the Challenges of Globalization, organized by the Faculty of Economics, Thammasat University at the Royal Orchid Sheraton Hotel , Bangkok,Thailand on October 21-22, 1999. By Tran Thi Ben, Faculty of Economics, University of Economics-HCM City, Vietnam. Vietnamese economy is in transition from a centrally planned economy to a market-oriented one. Since Doi Moi (Economic Reform) Vietnam becomes more and more open to regional and world market and it has been gotten impacts from the Asian economic crisis. In the path of transition and integration Vietnamese economy has gained both achievements and challenges. How does Vietnam keep its sustainable growth and deal with challenges? The paper is aimed at the mentioned issues. Some Main Features of the Economic Development in Vietnam Economic Development in Vietnam can be divided into two periods: before Doi Moi (1976-1985) and after Doi Moi(1986 to now). - Before ‘Doi Moi’ : After the reunification of the country in 1975 the economies of the North and South Vietnam were integrated into one. The model socialist Development was implemented 1
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Implications of the Crisis for Transition Economies: Vietnam
Prepared for International Conference on the Challenges of Globalization, organized by
the Faculty of Economics, Thammasat University at the Royal Orchid Sheraton Hotel ,
Bangkok,Thailand on October 21-22, 1999.
By Tran Thi Ben, Faculty of Economics, University of Economics-HCM City, Vietnam.
Vietnamese economy is in transition from a centrally planned economy to a market-
oriented one. Since Doi Moi (Economic Reform) Vietnam becomes more and more open
to regional and world market and it has been gotten impacts from the Asian economic
crisis. In the path of transition and integration Vietnamese economy has gained both
achievements and challenges. How does Vietnam keep its sustainable growth and deal
with challenges? The paper is aimed at the mentioned issues.
Some Main Features of the Economic Development in Vietnam
Economic Development in Vietnam can be divided into two periods: before Doi Moi
(1976-1985) and after Doi Moi(1986 to now).
- Before ‘Doi Moi’:
After the reunification of the country in 1975 the economies of the North and South
Vietnam were integrated into one. The model socialist Development was implemented
throughout the country: collectivization in agriculture, emphasis was placed on heavy
industries, strong central control of the entire economy and state sector considered as
engine of growth. It led to sectoral imbalance and inefficiency. Vietnamese economy
faced a great deal of difficulties such as low growth rate at 2,3% in 86, budget deficit,
foreign debt increase at 8,5 million rubles & 1,9 million USD. Vietnam had to import
some basic goods such as rice, cloth, 1,5 million tons of rice and 60 million meters of
cloth per year and the end of 1986 the hyperinflation reached 775 %.
- After ‘Doi moi’:
Encountering enormous difficulties in 1986 Vietnam carried out economic reforms. In
the five- year plan (1986-1990) period, the state carried out three large economic
programs, namely food production program, consumer goods production program and
export commodities program. The main purpose of the reform was to build a new
economic mechanism, a market-based economy in which all economic sectors have been
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encouraged to work and develop effectively and fairly in attempting to exploit all the
available resources more efficiently compared to that in the previous centrally planned
economy.
In agriculture, with Decision 10 (1988) of the Party Central Committee ‘khoan san
pham’ (product contract system) was implemented to households instead of to collective
productive teams. Prices of agricultural products were adjusted to enable farmers to make
profit. The law on land gave the land-use right to farmers up to 15 years( and up to 20
years now). These incentives were given to farmers to encourage them to invest all their
resources in agricultural activities.
In Industry, Regulation 217 of the ministers Committee gave the self-management in
production to state-owned enterprises and no more subsidies from the state for the loss of
state-owned ones. From 1988, the state-owned enterprises did not get the capital for their
activities from the budget but they have to borrow capital from the bank for their
production. Private sector was encouraged to participate in production and business
activities
At the end of 1987, Law on foreign investment was passed to attract inflows of foreign
capital. In 1988, Banking system was rearranged to adapt to new economic situation. The
state bank was separated from commercial operations. It only took the role of supervisor.
Commercial banks were established. Since 1989 the state has gradually liberalized
control on the price mechanism. About foreign trade, export management based on
export quotas were reduced and export activities were given to local authorities, branches
and even some associations of private sector.
The period after ‘Doi moi’ can be divided into two periods: period 1986-1990 and the
1991-1998 one. Under the economic reform, Vietnam has gained impressive
achievements such as high economic growth rate.
Table 1: Annual growth rates of GDP, Agriculture, Industry and Service Sector during
1986-1998 ( percentage)
Year 86 87 88 89 90
GDP Growth 2.3 3.6 6.0 4.7 5.1
Agriculture 2.4 -0.5 3.9 6.8 1.6
Industry & 10.3 9.2 5.3 -2.8 2.9
2
Construction
Service -2.8 5.3 9.1 7.6 10.8
Year 91 92 93 94 95 96 97 98
GDP Growth 6.0 8.6 8.1 8.8 9.5 9.3 8.1 5.8
Agriculture 2.2 7.1 3.8 3.9 4.8 4.4 4.3 2.7
Industry &
Construction
9.1 14.0 13.1 14.0 13.6 14.5 12.6 10 .3
Service 8.3 7.0 9.2 10.2 10.0 9.3 8.3
Source: GSO 1997,1998.
From a low economic growth rate of 2,3 % in 86, the annual growth rate of Vietnam has
increased to over 9% in both 95 and 96. The average GDP growth rate in 86-90 was
around 4.3%, and in 91-96 period increased dramatically of almost 8% (table 1). It
resulted in increasing per capita income, in US dollar terms, per capita income grew from
barely $100 in 1987 to over $300 in 1996. In 1997 from the effect of Asian crisis the
GDP growth rate declined and fell to 5.8% in 98, it is the lowest growth rate from 90.
The agricultural sector increased at a good rate, from an average growth rate 2.8 % in
86-90 to 4.3 % in 91-98 (Table 1). Food crop share was slightly declining but still
contributed more than 63% in structure of crop's output during 90-98. Industrial crop
share, vegetable and bean one contributed around 20% and 7% and were increasing while
share of fruit crop was around 8% and almost unchanged during that time. Gross output
of paddy in 1988 was 17 million tonnes then over 30 million tonnes in 1998. Coffee
grain in 91 was 102,000 tonnes, reached 218,000 tonnes in 95 then 420,000 tonnes in 97.
About structure of output of livestock, share of domestic animals contributed more than
64% and was increasing. Share of poultry and that of other were 17% and 15%. Pig was
12,2 million heads in 90 and 16,3 million heads in 95 then 18,1 million heads and
buffaloes and cattle were around 7 million heads in 98. Area of water surface for
cultivating aquatic and sea products from 95 to 98 was increasing. In 98 it passed
500,000 hecta (GSO 98).
The industry and construction sector have grown remarkably. In the first period,
industry sector under new mechanism the state stopped all subsidies. Facing difficulties
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industrial and construction sector grew at an average modest growth rate of 5%, then
decreased to 2.8 % in 1989. In the second period, industrial production expanded quickly
and became the main source of economic growth for the entire economy. The high
growth rate in industry, 14% for the period 90-96 (Table 1) has been contributed by
many factors. The first contribution is from crude oil extraction activities in the offshore
oil fields, then construction boom associated with huge inflows of foreign capital and a
boost in tourism since the early 1990s. It also resulted from a large previous investment
into important industries such as mining, electricity, cement, paper, steel. Utilizing fully
capacity of factories and the most important is thanks to mechanism reform. Factories
have their own self management right in their production and business activities.
Gross output of some industrial products such as electricity, steel, cement increased.
Crude oil from 40,000 tonnes in 1986 increased to 7,6 million tonnes in 1990 and 12,5
million tonnes in 98. Service sector also grew with a high growth rate.
Table 2: Structure of Industrial Gross Output by Economic Sector
(at constant 1994 prices)
Unit: percentage
1995 1996 1997 1998
Total 100 100 100 100
1- Domestic sector 74.9 73.3 71 68.2
State owned enterprises 50.3 49.3 48 46.2
Non state enterprises 24.6 24 23.1 22
2- Foreign invested
sector
25 26.7 28.9 31.8
Source: GSO 1998
In industrial sector state owned enterprises have played an important role. It shared over
50% in the structure of industrial gross output (95) but its share is declining (46.2% in
1998). The role of private sector has improved remarkably after economic renovation but
for it contribution there is no more improvement in recent years. Foreign invested sector
has taken part in the industrial sector and it plays an increasingly important role in
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industrial sector. Its contribution is increasing from one fourth (95) to one third (98) in
industrial gross output (Table 2).
Service sector Growth has originated from the liberalization in the economy (late
1980s). Shops, restaurants, traders mushroomed. Tourism development opened the way
for the establishment of hotels and tourist agencies. Vietnam has received more than 1,6
million foreign visitors in 1996 and hopeful to lure 2 million international tourists in the
year 2000. The openness of the economy, the economic improvement in industry,
agriculture, construction and the improvement of banking activities from financial
reforms has backed up the service sector.
Economic structural change: the share of primary sector (Agriculture) has decreased
from 35.5% in 90 to 26.2% in 97, while that of secondary(Industry) and terteary
(services) has increased from 23.9 % to 31.2 % and 38.6% to 42.6% relatively in that
period of time. It is a good tendency for the long-term economic growth of Vietnam.
(See table 3)
Table 3: Share in GDP of main sectors (Percentage)