DOI MOI (VIETNAM'S ECONOMIC REFORMS) AND VIETNAM’S ECONOMY DURING THE 1980s AND 1990s

DOI MOI

In 1986 Vietnam launched free-market economic reforms similar to those launched in China under Deng Xiaoping in the late 1970s. The reforms were called doi moi (economic rejuvenation) and seemed to have been enacted out of desperation. Some scholars described the reforms as an abrupt transition from Stalinism to capitalism. Some historians refer to this period as "southernization." Others have called it "Cowboy capitalism" One Harvard economist described it as a "twilight zone" between Stalinism and Capitalism.

In 1986 Nguyen Van Linh, who was elevated to VCP general secretary the following year, launched Doi Moi campaign for political and economic renewal. His policies were characterized by political and economic experimentation. Reflecting the spirit of political compromise, Vietnam phased out its reeducation effort. The government also stopped promoting agricultural and industrial cooperatives. Farmers were permitted to till private plots alongside state-owned land, and in 1990 the government passed a law encouraging the establishment of private businesses.

Doi moi (literally translated as ‘to make a change’) was introduced by the Communist Party of Vietnam (CPV) at its Sixth National Party Congress in December 1986, about the same time as the Soviet Union began perestroika. The party leadership regarded it as a new policy, essential not only for the nation’s economic survival, but also for the necessary political and social renewal in order to meet the country’s development needs in the future. Leadership changes undertaken at the Sixth Party Congress marked the beginning of the end of an era dominated by revolutionaries who emphasized security at the expense of social welfare and modernization.

One official told Smithsonian, "the inspiration for this came from China. Our leaders saw that what was happening there was good for China and decided it would be good for us."When asked by Stanley Karnow in 1995 what happened to Marxism, Giap replied, "Marx was a great analyst, but he never gave us a formula for running a country...socialism is whatever bring happiness to the people."

William Pesek of Bloomberg wrote: “The Doi Moi reforms allowed privately owned companies to participate in the economy and opened key sectors, such as agriculture. The rapid growth that followed propelled Vietnam towards the realm of middle-income nations, transforming the one time war zone into a case study for development and poverty reduction. When they launched their reforms, leaders in Hanoi believed they were following a Chinese model that had already worked wonders. The Vietnamese approach was more gradualist and cautious than Deng Xiaoping’s. [Source: William Pesek, Bloomberg, May 10, 2013]

Policies of Doi Moi

Beginning in the 1980s, the Vietnamese government relaxed restrictions on private enterprise and released many labor camp prisoners, many of them entrepreneurs. In 1986 Vietnam launched a political and economic renewal campaign (Doi Moi) that introduced reforms intended to facilitate the transition from a centralized economy to a "socialist-oriented market economy." Doi Moi combined government planning with free-market incentives. The program abolished agricultural collectives, removed price controls on agricultural goods, and enabled farmers to sell their goods in the marketplace. It encouraged the establishment of private businesses and foreign investment, including foreign-owned enterprises.

Reforms included the decentralizing the government, devaluing the dong, ending price controls, encouraging the establishment of private businesses, freeing markets, disbanding collective farms, giving land titles to farmers, relaxing regulations for foreign investors, streamlining the bureaucracy, closing down inefficient government monopolies and opening up farming and small service industries to individuals and families.

The cornerstone of doi moi was to transform the centrally planned economy into a market-oriented system capable of competing effectively in the international arena. In other words, doi moi is the attempt to create a market economy in Vietnam by pursuing openness in economic relations in order to provide the necessary conditions to achieve modernisation. [Source: “Moral education or political education in the Vietnamese educational system” by Dung Hue Doan, Nong Lam University, Linh Trung, Thu Duc, Ho Chi Minh City, Vietnam. Email: doanhuedung@hcm.vnn.vn, Journal of Moral Education |^|]

In 1987 Vietnam took practical steps to resolve chronic economic problems such as rapid inflation, slow and erratic economic growth, deteriorating living conditions, and severe trade imbalances. The new economic policy laid out at the Sixth National Party Congress addressed these issues while avoiding others such as high unemployment and substantial arrearage on foreign debt payments. At the party's Second Plenum in April 1987, a new, reform-oriented leadership proposed measures that would give greater scope to the private sector, reduce the budget deficit, and boost the output of agricultural and consumer goods in order to raise market supplies and exports. Specifically, the government sought to make prices more responsive to market forces and to allow farmers and industrial producers to make profits. Barriers to trade were lowered; the checkpoint inspection system that required goods in transit to be frequently inspected was abolished; and regulations on private inflow of money, goods, and tourists from overseas were relaxed. In the state-controlled industrial sector, wage raises were scheduled, and overstaffing in state administrative and service organizations was slated for reduction. Government leaders also planned to restructure the tax system to boost revenue and improve incentives. [Source: Library of Congress *]

Earlier efforts to reform the economy had employed methods similar to those proposed in 1987. These previous recovery policies, while achieving short-term gains toward economic recovery, eventually faltered because of poor implementation, lack of commitment, and decisions to industrialize and socialize the country regardless of cost. The 1987 effort to cure Vietnam's economic ills held more promise of being sustained, however. The power of the new reform-minded general secretary of the party, Nguyen Van Linh, appeared to strengthen as other reformers assumed key party Political Bureau positions. Moreover, Soviet pressure to improve economic performance increased markedly during 1987. A high Soviet official attending Vietnam's Sixth National Party Congress pointed out Vietnam`s urgent need to reform and offered the Soviet Union's own reform efforts as a model for Vietnamese programs. *

Vietnam’s Harvard-Educated Doi Moi Economic Reformer

Nguyen Xuan Oanh (1921-2003), a Harvard-educated economist and former deputy prime minister in the American-backed Southern Vietnam government helped draft Vietnam's landmark doi moi economic reform package in the mid-1980s. His foreign friends often referred to him as Jack Owen. [Source: Judy Stowe, BBC News, September , 2003 +/+]

Judy Stowe of BBC News wrote: “During World War II, he was sent from Vietnam to study in Japan. The purpose was that he should understand the economic ideas underlying the development of the Greater East Asian Co-Prosperity Sphere which was intended to incorporate the whole of Indo-China. The project collapsed with the Japanese surrender in 1945, but he quickly grasped that the new economic power in the region was to be the United States and instead of being repatriated to Vietnam, managed to wangle a scholarship to go and continue his economic studies at Harvard. As such he was one of the first Vietnamese to graduate and obtain a doctorate at this prestigious American university. It earned him a position within the International Monetary Fund. +/+

“But during the 1960s he decided to return to Saigon to help his own country's economic development. It was a time of political turmoil when, in 1964, following the assassination of Ngo Dinh Diem and all the argumentation amongst the generals, Oanh suddenly found himself projected into the position of acting prime minister of the Republic of Vietnam. His period of office was short and he soon returned to becoming an economic adviser to the government and then a private businessman. Therefore, despite his many American connections, he saw no reason to flee Saigon in April 1975 like so many other former South Vietnamese politicians.” +/+

“His forbearance was rewarded. Whilst hundreds of thousands of other former Saigon officials and soldiers were sent off to so called re-education camps, Oanh was not. It was rumoured at the time that this was due to his wife, a famous film star who had influence in Hanoi. Oanh himself used to say jokingly that it was all due to chocolate. People in the South had enjoyed it, but nobody in the North had seen it for years. Just give them a taste of it and they will want more. In other words the economic system previously pursued in Saigon was more popular than that in Hanoi.” +/+

“During the late 1970s Oanh managed to persuade Vo Van Kiet then Chairman of Ho Chi Minh City People's Committee that economic pragmatism was more likely to produce results than communist dogmatism. But such ideas fell foul of political rivalries. Even so, when the policy of Doi Moi was introduced in 1986, Oanh was seen as somebody who might be able to open up channels for foreign investment in Vietnam and he was allowed to travel abroad again particularly to the United States. Yet the trade embargo persisted and his efforts came to little so he retreated once more into private business mainly with South Korea. He was, after all, internationally well known and got along easily with foreigners. Yet in the long term despite all his contacts Nguyen Xuan Oanh had little impact on the economic fortunes of Vietnam, no matter which regime he was working for.” +/+

Impact of the Economic Reforms

When doi moi was launched in 1986, inflation was running at 700 percent, farmers were starving, store shelves were empty and the economy was kept afloat of $4 million a day aid from the Soviet Union. The reforms kicked in at a time when Vietnam’s main benefactor, the Soviet Union, was reforming and breaking up.

Between 1990 and 1993, when the reforms really picked up steam, 5,000 state enterprises were liquidated or merged and 0ver a million jobs—or a quarter of all state jobs—had been eliminated. Growth was 8 percent to 9 percent between 1991 and 1996. After a decade or so, inflation was brought down to the single digits, food production soared, the standard of living rose and the poverty level fell. The irony of the capitalist changes in socialist Vietnam was perhaps best reflected in central Hanoi where a portrait of Ho Chi Minh with slogan "The glorious victory of communism will last 1,000 years" faced a sexy billboard for a watch company with Cindy Crawford.

David Lamb wrote in the Los Angeles Times, “The so-called Dark Years of the postwar period ended in 1986. That's when Hanoi's aging leadership, facing famine, international isolation and national disillusionment, followed China's lead and adopted, without great enthusiasm, a policy known as doi mo, or "renovation," to move toward a more open economy. Some experts believe that nothing less than the survival of the Communist Party -- perhaps of Vietnam itself -- was at stake. The results were dazzling. "It was as though the people knew just what to do without missing a step," said Virginia Foote, president of the Washington-based U.S.-Vietnam Trade Council. Thousands of shops and small businesses sprung up. Within a decade, Vietnam had become the world's second-largest rice exporter, cut inflation from 700 percent a year to single digits, made plans for a stock exchange in Ho Chi Minh City and attracted investors from the United States, Australia and Taiwan. [Source: David Lamb, Los Angeles Times, April 30, 2005]

Lamb wrote in in Smithsonian magazine: “Since the early 1990s, when the government decided profit was no longer a dirty word and, like China, opened its economy to private investment, Vietnam's poverty rate has dropped from nearly 60 percent to less than 20 percent. Tourism has boomed, foreign investment has poured in and the United States has become Vietnam's largest export market. A stock market is flourishing. Vietnam still wears the cloak of communism, but today the blood of free-market reform fills its capitalistic heart. [Source: David Lamb, Smithsonian magazine, March 2008]

Tan Thuan, an area southeast of Ho Chi Minh City, was turned export-processing zone modeled after the free trades zones in China such as Shenzhan.

Doi Moi and Cooperatives

Reforms introduced in the early 1980s, gave local people more say in their own affairs and allowed them to sell surpluses once their quotas had been met. In 1988, collective farms were broken up and the land was distributed among small farmers given 20 year leases. Rice production boomed. In 1990, farmers were allowed to sell their crops in the open market. This immediately boosted productivity. Labeled as strategic commodity, crops could can only exported through state-approved companies, which made a profit by paying farmers significantly less than the world price.

In 1981, Vietnam departed from the collective agricultural production system by introducing the group-oriented contract system of production. That was changed to individual contracts in 1986 when the Sixth Party Congress approved a broad economic reform package called "Doi Moi" policy. Since then, Vietnam became one of the fastest growing economies in the world. [Source: International Rice Research Institute ]

The institutional reform encouraged farmers to produce more rice. Moreover, trade liberalization under the Doi Moi created favorable conditions for the rice industry. Within less than two decades, after being a chronic rice importer, the country re-emerged in the world rice market as a sustainable rice supplier and it became one of the world’s largest rice exporters, with exports averaging 3–4 million tons in recent years. Rice production in Vietnam increased as a result of yield improvement and, in particular, the expansion of planted area induced by the improvement of the heavily subsidized irrigation system.

Despite destruction caused by natural disasters, rice production keeps increasing in Vietnam over the last 14 years, with bumper harvests recorded year-on-year. Vietnam's major breakthrough in agriculture came in 1989 when the country had a record output of 18.9 million tonnes of food in term of paddy while annual production could not exceed 17 million tonnes in the 1981-1985period. The country's agriculture, especially rice production, saw a strong and fast growth in the 1990-1999 period. From a country facing chronical food shortage, Vietnam has over the past 11 years become the world's second largest rice exporter after ensuring adequate supply for domestic consumption. Rural people's life has constantly improved. The fragrance of Vietnamese rice has actually spread across kitchens of many homes in foreign countries.

Rural earnings jumped 60 percent between 1992 and 2000 but increases in agricultural productivity have been offset by population increases. Some cooperatives continued to exist. They had difficulty competing with private companies and were transformed into private companies in all but name. Other cooperatives were divided up among families, who were required to meet certain quotas set by the government. Anything extra they raised could sell on the open market.

Productivity was increased as Vietnam processed a significant amount of unused land with agricultural potential. According to Vietnamese statistics of the mid 1980s, agricultural land then in use theoretically could be expanded by more than 50 percent to occupy nearly one-third of the nation. Funds and equipment for expensive land-reclamation projects were scarce, however, and foreign economists believed that a projected increase in agricultural land use of about 20 to 25 percent was more realistic. Even if the reclaimed land were only minimally productive, an increase in land use would increase agricultural output substantially. *

See Agriculture

Doi Moi and Ordinary People

The mentality of people about money and capitalism changed. A previously unheard of but often repeated slogan by Ho Chi Minh was "The poor should get rich and the rich should get richer." An owner of a scissor factory told U.S. News and World Report, "We will be rich, unless God decides it is not for us. We have the idea that our children will be very rich." One diplomat told Stanley Karnow in Smithsonian magazine: "ideology is irrelevant. Only two things matter—how to make money and how to spend it.”

Ceramics shop-owner Do The Phu, who opened his business in 1989 when the street where his shop is was not even paved, told Reuters. "The change in the past 20 years is like the difference between heaven and earth. In the old times, everything was distributed by the state, now there is so much choice." [Source: By Grant McCool , Ho Binh Minh, Nguyen Van Vinh, Reuters, May 10, 2006]

People raised pigs and sold them on the market. The money was used to buy bicycles and sewing machines, and motorbikes. The thatch-roof huts in many villages were replaced with brick and stucco houses. Television antennas and later satellite dishes sprouted from both huts and houses. Moonlighting which had been illegal in the Communist era was encouraged.

Vietnamese Economy in the 1990s

In the early 1990s, when foreign investors were first welcomed then later run out on a regulatory rail when politicians perceived that foreign penetration into the local economy was too much, too fast. In the early and mid 1990s there was a flood of foreign investment into Vietnam —at a rate of around $4 billion a year. Most of investors were from Asia, not Europe and the U.S. There was so much money coming in the Vietnamese had difficulty absorbing it all. See Trade.

Growth was around 9 percent in 1995, 1996 and 1997. Vietnam was anxious to catch up economically with neighbor like Singapore, Hong Kong and Thailand. A Harvard-educated Vietnamese economist told National Geographic, there is an "obsession of catching up with the Jones. The people of Saigon think of nothing but how to move the city ahead."

By the late 1990s, the success of the business and agricultural reforms ushered in under Doi Moi was evident. More than 30,000 private businesses had been created, and the economy was growing at an annual rate of more than 7 percent. From the early 1990s to 2005, poverty declined from about 50 percent to 29 percent of the population. However, progress varied geographically, with most prosperity concentrated in urban areas, particularly in and around Ho Chi Minh City. In general, rural areas also made progress, as rural households living in poverty declined from 66 percent of the total in 1993 to 36 percent in 2002. By contrast, concentrations of poverty remained in certain rural areas, particularly the northwest, north-central coast, and central highlands. [Source: Library of Congress]

Real household income per head rose by 5 percent in 1995 and 4.2 percent in 1996. The percentage of people living in poverty (as defined by the World Bank) fell from almost 55 percent in 1992 to less than 30 percent by 1998. But the poorest quintile of the population did not fare so well. Between 1994 and 1996, its income per head rose by just 0.5 percent annually, far less than the annual growth of 6.8 percent experienced by the top quintile.

Vietnam at that time was still one of the world’s poorest countries. Its average per capita gross domestic product was estimated to be about US$150 per year; the statutory minimum wage was US$35 per month in Ho Chi Minh City and Hanoi and US$30 elsewhere for local employees employed by foreign invested enterprises. The economic reforms permitted some people to fare better in the private sector, but overall living standards remained low. The cost of inflation fighting seemed to be growth. The inflation rate decreased from almost 400 percent in 1988 to 17 percent in 1995 but the growth rate for 1999 dwindled to 3 percent from an official estimate of 5.8 percent in 1998. [Source: Encyclopedia of Sexuality, 2.hu-berlin.de/sexology ^]

Overseas Vietnamese Help Spark Vietnam’s Growth

David Lamb wrote in the Los Angeles Times, “Henry Nguyen, 31, whose family fled South Vietnam in 1975 along with hundreds of thousands of others, is among the newcomers with a stake in Vietnam's future. Nguyen grew up in Virginia -- "American through and through -- Big Macs, MTV, the NFL, that was me." But his parents never let him forget his roots. They had a traditional altar at home for worshiping ancestors and spoke Vietnamese to Nguyen (who would usually answer in English). "Friends would come over and I was kind of embarrassed, wondering why my parents were so weird," he said. [Source: David Lamb, Los Angeles Times, April 30, 2005 |=|]

Nguyen's father returned to Vietnam in the early 2000s to start a telecommunications company, and Nguyen, who has degrees in Greek and Latin from Harvard and a medical degree from Northwestern, followed in 2002. Today, from his 11th-floor office overlooking the Saigon River, he runs a venture capital fund with $150 million to invest in Vietnam. "If you exclude China," he said, "I think Vietnam is one of the three top emerging markets in the world." Among its strengths, he listed political stability, a 94 percent literacy rate, a young, industrious population and a reliable, efficient workforce. "If you're the World Bank or [a nongovernmental organization], this is a place you can really see results." |=|

See Vietnamese Americans Find Success in Vietnam

Doi Moi in Saigon

In 2003, reporting from Ho Chi Minh City, Pepe Escobar wrote in the Asia Times, “Wheeling and dealing is the name of the game in go-go Saigon. The city of Uncle Ho remains a motorbike hell, although Vietnam may be on its way to becoming a country where the middle class buys cheap sedans to replace them. In the lovely characterization of a communist party cadre, the Saigon middle class are "intellectuals, those who are well-educated and have a big monthly income. They may be a company director, trader, hotel owner or entertainer. They have property, know at least one foreign language and can use the Internet. They may have a house or villa in the suburbs or neighboring provinces. As they have a car, their house must have a garage." [Source: Pepe Escobar, Asia Times, August 15, 2003 <|>]

“So are all these garage-equipped masses armed with their Toyota Zaces, Mitsubishi Jolies, Daewoo Matiz and Kia Prides marching to a future of socialist glory? It's not that simple. Ho Chi Minh City currently has 3.6 million people of working age, roughly 66 percent of its population. But more than 30 percent of these don't have a steady job, and more than 20 percent are unemployed - officially because of "company restructuring" or "production restrictions". They can hardly afford a bicycle. <|>

“Duc, 30, a highly-skilled worker, was a state employee earning little more than US$30 a month until he was offered a job as a department head in a foreign company, earning $200 a month. The equivalent - 3 million Vietnamese dong - is considered a fortune by local standards. This also means Duc doesn't need a second job to help pay his bills. Duc's case is typical of the "brain drain" from state to private companies in Vietnam. And there's another brain drain concerning the currently more than 20,000 Vietnamese studying abroad. Most don't return home. The only solution for Vietnam in this case would be to adopt the Chinese model. Chinese companies offer very attractive packages for skilled returnees, including accommodation, car and driver and stock options. <|>

“Following the money in Vietnam is quite a puzzling undertaking. It is, in fact, under mattresses. According to an official report published in early July, average household income is a paltry $32 a month. Virtually nobody in Vietnam ears a salary of more than $200 a month. But each household saves an average of $6 a month. In a population of 80 million, that makes for a considerable sum. Only half is reinjected in the economy. The other half remains under the mattress. The government is now obsessed on how to "mobilize" these assets, especially in the urban zones, in the Mekong and Red River Deltas. According to the same report, average income per head is more than $40 in urban areas, compared to less than $20 in rural areas. The state solution: let's create private companies, let's encourage people to invest in the countryside. Up to now, investment in the stock exchange has been slow - only 1.6percent of GDP (gross domestic product) estimated at $32 billion. <|>

“Property prices in Ho Chi Minh City are around a whopping $9,000 per square meter. Most families own their houses, or in fact quite a few - and all this with no mortgages or bank loans. Vietnamese parents usually reject marrying their daughters to someone without his own house. It's a mystery how young prospective suitors can put up with the necessary billions of dong. The answer is that the money usually comes from the Viet Kieu - the diaspora in the US, Canada, France or Australia. The inward influx of dollars is around $2.5 billion a year. The inflow to the property market inevitably leads to a series of abuses. The People's Committees periodically crack down on the widespread boom in illegal construction, demolishing illegal houses, banning engineering firms from competing for city-funded projects and punishing corrupt state officials. <|>

State-Control Hangs on in Doi Moi Vietnam

In 2003, reporting from Ho Chi Minh City, Pepe Escobar wrote in the Asia Times, “Whatever we watch in Vietnam, the still-large, inefficient and unprofitable state sector is not the way to go. Vietnamese movies are an example - usually very well-received in Europe - and when they manage to get distribution - in America. But making movies in Vietnam is very hard. Popular actor Ly Huynh had to wait for more than 10 years to own his own film company. [Source: Pepe Escobar, Asia Times, August 15, 2003 <|>]

“Recently, the end of state monopoly was finally approved by the Ministry of Culture and Information. Before that, Ly had to distribute his films through the state company, and after taxes he was usually in the red. Now the Ministry believes that private film companies will be able to "reinvigorate" the Vietnamese film industry. Foreign investors now also have the right to make and distribute their own films and build their own studios and multiplexes - always, of course, "under the control of the Ministry". Ly starts production next month on two action movies, Super Female Bodyguard and Speed Bullet. <|>

In January 1999, Reuters reported: Analysts have said that its communist party is increasingly divided as groups representing different vested interests fail to agree on key policy when full consensus is required. The end result, the analysts say, has been paralysed decision making and a tendency to focus inwards to search for perceived threats to the party's continued legitimacy. "We don't have liberal forces or conservative forces in the party or within the state. Outsiders often think we have big problems with this, but we don't,'' Vietnamese Prime Minister Phan Van Khai said. “We have a very high degree of unanimity in our policy of reform. We are carrying out reform with good results and that allows us to accelerate the reform process which we do for the benefit of our people and our country “[Source: Reuters, January 2, 1999]

“Vietnam's political life was also being reformed in attempts to cut red tape, bureaucracy and corruption through implementing what the party has termed "grassroots democracy'' which is supposed to increase transparency in decision making. "We are carrying out a gradual approach with steady improvement. The most important thing today is how to implement the democratic rights of the people,'' Khai said. But Khai warned that the Vietnam Communist Party would continue to exercise caution. "We are not going to attempt the political reforms that some countries have adopted because such reforms could lead to the collapse of the whole system, or lead to instability and disorder,'' he said.

End of the U.S Embargo in Vietnam

Passed under the Trading with the Enemy Act, the 19-year embargo against Vietnam was lifted by U.S. President Bill Clinton on February 3, 1994. President Bush eased the embargo in 1992 by permitting sales for humanitarian projects and allowing U.S. companies to set up offices in Vietnam.

In 1993, the Vietnamese returned the remains of 67 individuals believed to have been American personnel. In response to Vietnamese cooperation on the MIA issue, Clinton into allowed International Monetary Fund to give loans to Vietnam on July 2, 1993. Republican Senator John McCain, a former POW, said: "The United States gave its word that we would lift the embargo if the Vietnamese substantially cooperated with us to determine the fate of the missing. They have done so. It would be unfair, and beneath the dignity of the Untied States, to go back on our word now.”

American investment in Vietnam rose dramatically after the embargo was lifted. Companies that rushed in included Pepsico, American Express and Caterpillar (which sold parts for machinery left behind in the war). United, Northwest, Delta and Continental all lined up to open up air routes.

After the lifting of the embargo, an average of 10,000 Vietnamese a month returned to their homeland. Harvard opened an education center in Ho Chi Minh City, where former cadres are taught capitalist principals.

Asian Economic Crisis and Sputtering Growth in Vietnam in the Late 1990s

During the 1997-1998 Asian Financial Crisis, the value of Vietnam’s currency, the dong, declined by 20 percent. Vietnam was hurt less by the Asian financial crisis than other countries because it was so poor to begin with and it was less integrated into the economies of Asia and the world. Reuters reported: Economic growth has slowed, but the country's closed financial markets have been partly responsible for keeping it from diving into recession, as many of its neighbours have.

William Pesek Jr. wrote in Bloomberg News, “Vietnam's economy was too closed in 1997, which shielded it from the worst of Asia's meltdown. The crisis was caused by overcapacity; manufacturers produced more goods and created more office space than the world could use. [Source: William Pesek Jr., Bloomberg News, June 2, 2003]

Even before the Asian economic crisis foreign investment had sharply declined. Foreign investors were turned off by widespread corruption, red tape, high taxes, and a banking system in trouble due to bad loans, Currency devaluations in other Asian countries made Vietnam seem less attractive than it was. Newsweek called Vietnam "the one-time flavor of the month has become the bitter fruit of Southeast Asian emerging markets."

Growth was 5.8 percent in 1998 and 4.8 percent in 1999. Foreign investment sharply fell off in the late 1990s (See Trade), causing growth to decline and exports to drop off. Between 1995 and 2000, the inflow of foreign capital dwindled from US$3 billion to little more than US$500 million since Vietnam lost its privileged position as favorite of Western investors because of the multiple domestic and external trading restrictions and widespread corruption. Many foreign investors left the country in frustration. Things improved somewhat after normalization of trade relations between the U.S. and Vietnam in 2000, which opened the Vietnamese market for American investors in such important key sectors as telecommunications and financial services.

While Vietnam was doing well in absolute terms it wasn’t doing well in relative term with its neighbors which were advancing much faster. Most advances were in the south. The large Nomura-Haiphong Industrial Zome, launched with great fanfare by the Japanese in 1997, was mostly still rice fields.

Michael Mathes wrote in the South China Morning Post in 2000, “Vietnam continues to prop up its lumbering state-owned enterprises, to the detriment of a fledgling private sector chomping at the bit. Promised economic reforms have slowed, and foreign direct investment has taken a nose dive in recent years, amounting to only US$600 million (HK$4.64 billion) last year. The all-powerful Politburo has balked at signing a landmark trade agreement with Washington just as China has inked its own deal with the US for WTO accession. [Source: Michael Mathes, South China Morning Post, February 3, 2000 ***]

In January 1999, Reuters reported: Vietnamese Prime Minister Phan Van Khai said his country had recovered from the worst effects of Asia's economic crisis and that the ruling communist party remained committed to reform. He added that the impact of regional economic difficulties had been less severe than the political and economic crisis that hit communist-led Vietnam in the wake of the collapse of the former Soviet Union in 1990-91. "We have been able to overcome the difficulties and have been able to maintain a high economic growth rate of six percent...and macro-economic and political stability,'' Khai told a news conference. [Source: Reuters, January 02, 1999]

Vietnam has been spared some of the worst excesses of the regional meltdown because its economy remains relatively isolated due to the lack of a stock market and its non-tradeable dong currency. Khai stressed that the worst crisis to be faced by Vietnam in recent years was the collapse of the former Soviet Bloc. "In 1990 and 1991 all assistance from the former Soviet Union was no longer available and Vietnam's economy was very vulnerable,'' Khai said. "Also at that time the whole socialist camp collapsed and was disbanded. Vietnam was able to overcome that crisis,'' he added. Vietnam is one of very few communist-ruled countries.

See Asia

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Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Vietnamtourism. com, Vietnam National Administration of Tourism, CIA World Factbook, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, Fox News and various websites, books and other publications identified in the text.

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© 2008 Jeffrey Hays

Last updated May 2014

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