Vietnam and the experience of the Asian crisis Pietro Masina University of Naples “L’Orientale” (Italy) A decade after: recovery and adjustment since the.

Vietnam and the experience Vietnam and the experience of the Asian crisisof the Asian crisis

Pietro Masina

University of Naples “L’Orientale” (Italy)

A decade after: A decade after:

recovery and adjustment since the East Asian crisisrecovery and adjustment since the East Asian crisis

Bangkok , 12-14 July 2007Bangkok , 12-14 July 2007

The Vietnamese transition• Reforms started already in the late 1970s,

through ‘fence breaking’ and experiments in agriculture and industry

• In 1986 the CPV launched the doi moi: from central planning to market economy

• The reform process was accelerated in the late 1980s by the collapse of Soviet Union

• By the early 1990s ‘price mattered’ but the government maintained a prudent step-by-step attitude

A new fifth dragon? Lights and shadows

• Growth is sustained and less unbalanced than in China• Poverty reduction has been outstanding• Inequality has increased - so far not dramatically,

but risks are high• The WTO accession presents many opportunities and

many challenges• But the government is still in command of many

economic leverages• Financial liberalization has been resisted – the booming

stock market may become a vehicle of destabilization

GDP growth rates, GDP growth rates, trendlinetrendline

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Households living below the government Households living below the government poverty line, percentagepoverty line, percentage

0%

10%

20%

30%

40%

50%

60%

58% 37% 18%

1993 1998 2004

From hero to villain, to hero again, to undisciplined pupil• Hero: in the early 1990s Vietnam was supported by

the IFIs - it was moving towards the market (and they hoped towards the US)

• Villain: by 1996 it had become a poor performer, too slow in implementing reforms

• In 1997/98, it was told that its problems were locally rooted – without bold reforms, it would miss recovery

• Hero again: in the early 2000s growth and poverty reduction made Vietnam popular

• Undisciplined pupil - it should do better/faster

Resilience during the Asian crisis

• Vietnam was hit already before the crisis by a contraction of Asian FDI

• Its currency remained stable, i.e., appreciated in relation to Asian currencies

• Economic growth slowed down, but the country was insulated by the financial storm (the dong was not convertible)

• Growth of the agricultural sector played a counter-cyclical role

GDP growth by sector,GDP growth by sector,1996–20051996–2005

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Agriculture Industry Service GDP

GDP, annual growth rate(ASEAN 6)

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Indonesia Malaysia Philippines Singapore Thailand Vietnam

Saving and investment (in percent of GDP)

0

5

10

15

20

25

30

35

40

2001 2002 2003 2004 2005

Gross national saving Private saving Public savingGross investment Private inv. Public inv.

FDI inflows, 1986–2005

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

10,000

19861987198819891990199119921993199419951996199719981999200020012002200320042005

US$ millions

Indonesia Malaysia Philippines Thailand Viet Nam

Net FDI inflows 2004Net FDI inflows 2004(% of GDP)(% of GDP)

0 0.5 1 1.5 2 2.5 3 3.5 4

Malaysia

Thailand

China

Philippines

Indonesia

Viet Nam

India

GDP by ownership

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

State Non-State FDI

GDP per capita as % of GDP per capita in Asian countries, PPP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

% China India Indonesia Malaysia Philippines Singapore Thailand

GINI Index, Asian countries

0

20

40

60

49.2 42 44.7 46.1 34.3 37 32.5

Malaysia Thailand China Philippines Indonesia Viet Nam India

Income ratio of richest 10% to poorest 10%

0

5

10

15

20

25

22.1 12.6 18.4 16.5 7.8 9.4 7.3

Malaysia Thailand China Philippines Indonesia Viet Nam India

Privatization of SOEs• Privatization of SOEs regarded so far

small and not strategic companies• The ‘equitization’ process is due to

accelerate and to touch large SOEs• Risk of loss of sovereignty and creation

of foreign monopolists• Risk of higher inequality through

appropriation and sale of SOEs shares

Current challenges• Agricultural diversification played a major role

in poverty reduction - there is little scope to move further in this direction

• Employment generation in the formal industrial sector is insufficient

• Inequality may play a destabilizing role• The alliance between SOEs and FDI may

alter the political nature of the leadership