The Vietnamese Economy

Awakening the Dormant Dragon

CHI DO-PHAM, Binh Tran-Nam, CHI DO-PHAM, Binh Tran-Nam

• Publisher: Routledge
• Year: 2002
• eBook ISBN: 9781134435364
• Topic: Business
• Subtopic: Business General
• Index: Business

This book, written by economists of Vietnamese origin, is an extremely comprehensive collection on economic issues facing Vietnam. The spectrum of topics covered includes macroeconomics, microeconomics, international trade, agriculture, education, communication, institutional reforms, income distribution and poverty measurement.Themes include:* the

Part I

Overview

1 Introduction and summary

Binh Tran-Nam and Chi Do Pham

1 Background

The history of Vietnam is one of continuous struggle, whether against its giant northern neighbor, the weaker southern kingdoms, or the colonialists from the West and the East. In modern times, perhaps no other country on earth has paid a higher price than Vietnam in its fight for political independence. After 30 years of full-scale war ending in 1975, Vietnam’s economic performance was seriously hampered by the failures of its foreign policy and command economic management, the collapse of the former Soviet Union and the US-led trade and investment embargo.¹ As a result, Vietnam stood among the poorest countries in the world in terms of standard of living.²

The failure of Vietnam’s first post-war five-year plan (1976–80) forced its leadership to consider alternative approaches to improving Vietnam’s economic performance. Even before the collapse of the communist regimes in Eastern Europe, Vietnam had already begun to make a tentative shift towards a market economy. This process, known as Doi Moi (meaning renovation, renewal or reform), was officially embraced by the Communist Party of Vietnam (CPV) in its sixth congress in 1986. The Vietnamese leadership finally came to accept that prolonged peace and constructive engagement with the outside world is the first step towards rescuing the country from its disabling isolation and economic backwardness.

Economic liberalization has produced impressive results in Vietnam, especially after the US lifted its embargo on trade with Vietnam in February 1994. The economy seems to have made good progress on many fronts, including macroeconomic stabilization, economic growth and poverty alleviation. For example, during the decade 1986–95, Vietnam’s real GDP growth rate was highest among the 40 poorest countries listed in the World Development Report 1996 (see World Bank 1996:172 and 188). In fact, considering its macroeconomic problems and its dependence on the former Soviet Union in the mid 1980s, Vietnam’s economic performance in the early years of Doi Moi was comparable to that of China, one of the fastest growing economies in the world.

The gradual transformation of the Vietnamese economy has also given rise to a rapid growth in the quantity and quality of research papers focusing on Vietnam. This literature growth is clearly demonstrated by the long lists of references in a special focus issue of the ASEAN Economic Bulletin (1996) devoted to Vietnam. More substantial publications on Vietnam include, for example, Than and Tan (1993), Fforde and de Vylder (1996), IMF (1996), Harvie and Tran Van (1997), Griffin (1998) and Beresford and Dang (2000).

However, these books are subject to a number of drawbacks.

• They focus mainly on the process of transition of the Vietnamese economy at the macro level. Many relevant and important sectoral or microeconomic issues are either neglected or inadequately discussed.
• The data used are dated. More seriously, they cover only the initial years of Doi Moi and the resulting analyses tend to be somewhat over-optimistic.
• With the exception of Beresford and Dang (2000), existing books typically describe and examine the Vietnamese economy from the viewpoint of outside (whether Vietnam-born or foreign-born) economists. They do not contain substantial work by nationally resident Vietnamese economists. Thus, the country’s own perspective is often ignored in the literature.

2 Motivation, rationale and objectives

This book represents the collective work of nineteen Vietnam-born economists, seven of whom live in Vietnam and twelve overseas. The idea of editing such a book originated from Professor Pham’s international experience as an economic adviser to developing countries, especially Togo and Laos. Between 1990 and 1994, he was appointed IMF Resident Representative in Laos. In that capacity, he was able to offer his advice to the highest levels in the Laotian government for 4 years. Due to the implementation of his various policy recommendations, the government of Laos was able to stabilize its economy very successfully. These macroeco nomic successes are documented in Pham (1994). From this experience, both editors strongly believe that it is now time to produce a similar, but more comprehensive, book for Vietnam.

The book is also directly motivated by a host of specific factors. Some of them are:

• the remarkable successes of Vietnam’s Doi Moi in the early 1990s;
• the slowdown of economic growth in Vietnam in recent years;
• the growing income inequality in Vietnam;
• the rapidly changing external environment due to globalization and the information communication technology revolution;
• the recently ratified bilateral trade agreement between the US and Vietnam;
• the apparent lack of active policy debate among the academic and professional economists in Vietnam; and
• the unfortunate lack of dialogue between overseas Vietnamese economists on the one hand and domestic Vietnamese economists, administrators and policy makers on the other.

This book seeks to address the above problems. In particular, it aims to:

• promote awareness of Vietnam’s recent economic achievements and problems;
• discuss Vietnam’s current problems, issues and challenges as the economy enters the twenty-first century;
• propose future directions and policy for Vietnam’s sustainable growth; and
• foster an atmosphere of open dialogue between overseas and domestic Vietnamese intellectuals and experts, especially the English-speaking economists at home and abroad, with a view to generate sensible policy recommendations for sustained growth for Vietnam.

Some chapters of this book were presented in a conference entitled The Vietnamese Economy Entering the 21st Century, which was held in Hanoi in May 2001. This conference was organized by the Central Institute for Economic Management (CIEM), the leading economic think tank in Vietnam, and sponsored by the United Nations Development Programme (UNDP) in Hanoi. The conference represented the first attempt to bring overseas and domestic Vietnamese economists together in a single forum to exchange ideas and discuss economic policies of national importance.

The conference was very successful from many different perspectives. It attracted many high-ranking government officials, academics, researchers and professional economists working for various ministries in Vietnam. It has been proposed by various high-level officials that the conference be made into an annual event so that its analyses and recommendations can be incorporated into the annual Economic Report by the Prime Minister to Vietnam’s National Assembly It is important to stress that it is the book that led to the conference in May 2001, and not other way round (like many conference proceedings). The enormous success of the conference offers another reason why the book should be made available to a wider audience.

The present book possesses a number of key features:

1. It is very comprehensive in its scope. The various chapters cover the full spectrum of economic topics, ranging from macroeconomics, microeconomics and international trade to sectoral and structural issues, such as agriculture, education, information technology and communication, institutional and environmental reforms, and to income distribution, social safety net and poverty measurement.
2. The various chapters use up-to-date data and present independent analyses of current issues of critical importance to the Vietnamese economy. Note that the contributors represent a balanced mix of economists working for universities, research institutes, government ministries, international organizations and the private sector. At the same time, the chapters are expressed in a fairly non-technical language that will be comprehensible to a wide readership.
3. All the contributors are Vietnamese economists or experts. Most of them possess considerable experience in teaching or researching at universities, research institutes, government ministries, multilateral institutions or private organizations. Many of them have participated in practical designing and planning of economic development at the national level. They have combined their technical training in the West and their understanding of the Vietnamese culture to analyze issues from a balanced perspective and propose appropriate solutions to Vietnamese economic problems. It should also be reiterated that the book brings together, for the first time, the work of Vietnamese economists both in Vietnam and overseas, in a single volume. Some of the economists residing in Vietnam have had access to unpublished data or internal reports, which are normally unavailable to overseas economists.

It is also important to stress from the outset that different authors use different sources of data, and that these data may exhibit some minor discrepancies. This is a common problem facing all economists working on developing economies in transition such as Vietnam.

3 Summary of the remainder of the book

The book is divided into four main topics:

• a broad evaluation of Doi Moi and related issues (Chapters 2 to 6);
• the Vietnamese economy and international economic integration (Chapters 7 to 11);
• sectoral policies and institutional reforms (Chapters 12 to 16); and
• poverty alleviation (Chapters 17 to 19).

Chapters 2 to 6 are concerned with Vietnam’s past, present and future developmental issues. Before entering the new century and proposing a long-term growth strategy, Vietnam’s economic planners and policy makers need to reflect on the country’s path of development in the twentieth century and to determine its position, at least from a regional perspective. This is an extremely difficult task due to the lack of reliable and comparable statistics, as well as the division of the country during the years of the war. However, Professor Tran Van Tho has attempted to collect data on both North and South Vietnam, and sketched the economic picture for the entire nation in Chapter 3, reflecting on the twentieth century and comparing Vietnam with other countries in the Asia-Pacific region. The most striking feature of his study is the widening gap between Vietnam and its neighboring countries in the second half of the twentieth century. The author poses a question about the relative position of Vietnam as it enters a new century, and proposes some most effective strategies for narrowing Vietnam’s gap with nearby nations.

In Chapter 3, Professor Chi Do Pham and Dr. Duc Viet Le review a decade of Doi Moi 1989–99. This period is an important benchmark of comprehensive and far-reaching reforms after many years of the failure of central economic planning (1975–88). In their analysis, the authors examine distinct phases of the reform process:

1. tentative macroeconomic reform in 1986, particularly with the liberalization of prices in the agricultural sector
2. the macroeconomic deterioration during 1987–98
3. the application of serious reform measures over 1989–90
4. the decisive reform policies during 1989–92
5. macroeconomic successes from 1992 to 1997 and
6. economic slowdown in the years 1998 and 1999.

In Chapter 4, author Van Nhu Dang studies the familiar macroeconomic relationship between investment and economic development during the years of Doi Moi, and forecasts the required rate of accumulation to achieve the growth target of 7 percent per annum set by the Vietnamese authority in its development strategy for the decade 2001–10. This chapter considers the four main sources of investment in Vietnam, including the public sector and state-owned enterprises, private sector, foreign direct investment (FDI) and official development assistance (ODA). A simple macroeconomic model is used to analyze investment demand by industry in the next 10 years. The author evaluates the implications of two alternative strategies: export promotion and import substitution.

Chapter 5, by two public finance economists, Tran Ngoc Anh and Dr. Anh Dinh Vu, focuses on shorter-term macroeconomic stabilization for the period 2001–5. Fiscal policy provides the government with an important macroeconomic tool to intervene in the economy according to its own policy objectives. Since Vietnam is transforming from a centrally planned economy and a market economy with a socialist orientation, it is crucially important for the government to understand and correctly assess the role of fiscal policy in assisting and accelerating growth, while creating a stable macroeconomic environment at the same time. The two authors also examine a number of fiscal actions that could be employed to stimulate the economy’s aggregate supply curve in the long run in order to meet the needs of a society that long suffered from the shortage of many goods and services.

In Chapter 6, Dr. Van-Can Thai, considers fundamental issues relating to economic growth, social consensus and effective coordination in a general and systematic manner. In order to alleviate poverty, raise living standards and catch up with more developed nations, at the same time achieving the aim of human development, the optimal strategy involves a high and sustained economic growth which focuses on social justice and environmental protection. The author then proposes some general policies for achieving these goals and discusses the crucially important role of the government in pursuing these policies.

Chapters 7 to 11 examine Vietnam in an international setting. In Chapter 7, Dr. Binh Tran-Nam and Professor Ngo Van Long explain the benefits of economic openness from a theoretical perspective and discuss the relevance of the theory to developing economies such as Vietnam. Their analysis includes both theoretical qualifications such as strategic trade policy, foreign ownership, foreign bargaining power, volatility of portfolio foreign investment and protection for domestic infant industries, as well as specific trade and FDI problems peculiar to Vietnam. Some qualitative policy proposals are also made.

Dr. Quoc-Phuong Le in Chapter 8 seeks to verify empirically that international economic integration is beneficial to Vietnam by the use of computable general equilibrium (CGE) modelling. The benefits to Vietnam in terms of GDP growth are shown to be increasing as trade liberalization is ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Contributors
• Foreword
• Preface
• Acknowledgments
• Abbreviations
• Part I: Overview
• Part II: Doi Moi: Past, present and future development issues
• Part III: The Vietnamese economy in a global context
• Part IV: Sectoral policies and institutional reforms
• Part V: Poverty alleviation policy
• Part VI: Conclusion