1. Commentary
After the War:
25 Years of Economic Development
in Vietnam
by Bui Tat Thang
S
ince the Vietnam War ended in 1975, the planned economy from 1975 to 1985; and (2)
Vietnamese economy has entered a the subsequent years of economic reform when
period of peaceful development. The Vietnam shifted toward a market-led economy.
current economic conditions are more I will review the most outstanding characte-
favorable than at any time since the unification ristics of these two economic periods, and on
of the country, but, a quarter of a century later that basis we can try to predict some future
the Vietnamese economy still faces many developmental trends in the first years of the
challenges. On the one hand, these challenges twenty-first century.
include a miserable and backward economic
situation, the result of a prolonged 30-year war THE CENTRALLY PLANNED ECONOMY 1975-1985
that requires time and resources to repair. On
the other, several recent historical upheavals In general, the centrally planned Vietnamese
have taken place, especially the collapse of the economy was not much different from the
Soviet Union and the socialist Eastern Soviet Union’s model in terms of its internal
European countries, on which Vietnam relied mechanisms, and has been poor in its level of
heavily. These events have had important development. However, the historically
consequences for the economic and social life specific characteristics of Vietnam had
of humankind in general and have left a important consequences for the development
profound imprint on the process of of the economy after 1975.
Vietnamese economic development in The war, which climaxed with the
particular. Within this historical context, the unification of North Vietnam and South
process of Vietnamese economic development Vietnam in 1975, left not only a legacy of heavy
after the war can be divided into two main war damage and an extremely impoverished
periods: (1) the 10-year period of the centrally economy, but also institutional structures that
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2. were to have a profound influence on capita (measured in rice) reached only 300 kg
economic policy. In the first years after the per year. The country suffered from persistent
war, the government should have focused on outbreaks of famine even though the
economic recovery, the improvement of labor government imported thousands of tons of
skills, and agricultural and consumer goods food annually. Because consumption was
production, all of which were seriously greater than national income, there was a
deficient. However, economic policy marked dependency on various kinds of
prioritized heavy industry and focused on the foreign aid, and the country ran up significant
“revolution of the relations of production” debts that, by the early 1980s, equaled the
by extending the model of the annual national income. Further-
centrally planned mechanism more, with little potential for
in the north to the whole THE WAR, WHICH foreign trade there was
country. This principally usually a deficit in the
entailed the nationali- CLIMAXED WITH THE UNIFICATION trade balance. From
zation and centraliz- 1976 to 1985, export
OF NORTH VIETNAM AND SOUTH
ation of the entire turnover could
economy. People’s VIETNAM IN 1975, LEFT NOT ONLY A compensate for
personal interests only a third of the
were not pro- LEGACY OF HEAVY WAR DAMAGE AND import turnover
tected, and the and gross foreign
AN EXTREMELY IMPOVERISHED ECONOMY,
momentum of trade turnover
economic develop- BUT ALSO INSTITUTIONAL STRUCTURES was very low,
ment was elimi- averaging only
nated. THAT WERE TO HAVE A PROFOUND US$1.7 billion per
As a consequence, year. The quality of
INFLUENCE ON ECONOMIC
although some indus- life was poor and
trial facilities were built, POLICY. getting worse. Daily
especially in electric power, necessities such as food,
cement production and other consumer goods, transport, and
sectors, the economy stagnated. In the health and education facilities were
period from 1976 to 1980, for instance, average seriously deficient. Meanwhile, rampant
GNP was half the rate of population growth inflation reduced the value of salaries and real
and national income grew at about one-fifth. incomes. Overspending of the state budget
Most economic targets set in the second five- increased sharply and went from 25 percent to
year plan (1976-1980) by the Fourth Congress 45 percent of revenues in the years after
of the Vietnamese Communist Party were not reunification.
met, and some economic indicators barely In short, in the 10-year period after the war
reached a third of their stated targets. From the centrally planned development of the
1981 to 1985, the economic growth rate was Vietnamese economy fell far short of
slightly higher, but because of the serious expectations. Although some achievements
national recession from 1976 to 1980, the and partial reforms were accomplished,
overall economic situation hardly changed. generally the economy failed to develop in any
At this stage Vietnam was a backward meaningful way. Basically, the level of
agricultural economy with 80 percent of the industrialization remained the same despite
population and 70 percent of the labor force ten years of intense efforts to promote heavy
living, working, and depending on agriculture industrial development. These raw facts
or related sectors. Despite the numbers of demonstrate that a comprehensive reform of
agricultural laborers, however, annual the economy, which would enable it to escape
agricultural production was not enough to from stagnation and crisis, was long overdue
feed the people and the average food per by the mid-1980s.
Spring 2000 22

3. REFORM (DOI MOI) OF THE VIETNAMESE ECONOMY: direct investment (FDI); to combine
1986-PRESENT administrative reform with the renovation of
economic policy; to strengthen state
After some initially successful experiments management and macro regulation; and to
and following the promotion of reforms in combine economic growth with general social
many socialist countries, the Sixth Congress of development to stabilize politics and
the Vietnamese Communist Party (December “maintain socialist targets.”
1986) marked a significant turning point in the The transformation from a planned to a
transformation of the Vietnamese economy to market economy in Vietnam was therefore
an open, market-oriented, and globally very different from what took place in the
integrated model. The aims of these reforms Soviet Union and the socialist countries of
fundamentally were to eliminate the state- Eastern Europe. In Vietnam, an emphasis on
subsidized mechanism; to diversify the social and political stability went hand in hand
ownership of publicly owned assets; to with macro-economic stabilization and control
encourage and stimulate the development of of state resources. These issues became very
private organizations, individuals, and important factors in the creation of a favorable
economic sectors; to make the best use of environment for the transformation and
potential resources for the development of development of the market economy in
production and commodity exchange; to enact Vietnam.
policies for the integration of Vietnam into the The result of 15 years of doi moi reform is
world and regional economies; to speed up that the Vietnamese economy has rapidly
foreign trade activities and encourage foreign grown and overcome its earlier period of
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4. stagnation. The outstanding achievements of Singapore) in the take-off period of the 1970s
this transformation include its high growth and 1980s, and China and other dynamic Asian
rate and macro-stability, the reduction of economies in the 1980s and 1990s.
inflation, and the rapid increase of export Although the average per-capita GDP was
turnover, averaging more than 20 percent still low because of the high economic growth
annually. As a mark of this new period of rate, there were nevertheless some
growth, after 1989, Vietnam became one of the improvements. In 1996, for instance, per-capita
big three global rice exporters, along with GDP increased 1.6 times against the pre-doi moi
Thailand and the US. If we look at this 1985 figure. The number of poor households,
transformation in more detail, it can be divided as measured by Vietnamese poverty standards,
into three short periods: has also been sharply reduced, decreasing to
From 1986 to 1991, the most 19.3 percent from 28 percent from
decisive shift to a market 1993 to 1996 (or by 2.8 million
economy took place. The households containing more
government administered a THE TRANSFORMATION than 13 million people).
series of market-oriented FROM A PLANNED TO A Infrastructure has been
shock treatments to the improved and most families
economy, liberalizing the MARKET ECONOMY IN have electric power.
price of consumer goods, National communications
eliminating the state sub-
VIETNAM WAS THEREFORE have developed rapidly; the
sidy for goods, formulating VERY DIFFERENT FROM postal system serves more
and implementing the than 75 percent of the rural
policy of the positive WHAT TOOK PLACE IN THE population and covers 90
effective interest rate, percent of the country. The
floating the exchange rate,
SOVIET UNION AND THE mass media reaches nearly
and selling off state-owned SOCIALIST COUNTRIES OF all rural areas, and about 50
enterprises. Nevertheless, the percent of agricultural
growth rate during this early EASTERN EUROPE. households have a radio set,
period of doi moi was still low with and 20 percent own a television.
an average GDP growth rate of 4.5 percent, of A library system has been developed, and
which sector I (Agriculture, Forestry and education and health care have greatly
Fishery) was 2.7 percent; sector II (Industry improved. The traffic system, fresh water
and Construction) 5.7 percent; and sector III supplies, and many other areas have also
(Services) 6.4 percent. During the same period significantly improved.
the population growth rate was 2.09 percent, From 1997, however, the economy was
or 2.2 times lower than the GDP growth rate, strongly affected by the regional financial and
and inflation was still high at 260.2 percent. monetary crisis that hit most of the economies
From 1992 to 1996, the economic situation of Southeast Asia that year. As a result,
clearly began to show the benefits of the economic growth from 1998 to 1999 decreased
reform of economic policy. GDP increased to half what it was from 1995 to 1996. The
annually by an average of 8.9 percent, of which economy has deflated, markets have stagnated,
sector I increased by 4.8 percent, sector II by and products cannot be sold. Even before
13.9 percent, and sector III by 9.1 percent. financial and economic crisis hit the region,
Meanwhile, the average population growth however, signs of a slowing of the economy’s
rate was 2.15 percent, or 4.2 times smaller than growth rate had appeared, so it is unlikely that
the growth of GDP, and inflation averaged 10.9 the Asian crisis was the sole reason for
percent. In short, this was a period of stable Vietnam’s recent problems. Recent studies
growth across all sectors of the economy, have suggested that structural and institutional
comparable with the high growth rate of East factors within the Vietnamese economy are the
Asian NIEs (Hong Kong, South Korea, and main reasons for this slowdown, factors
Spring 2000 24

5. related to Vietnam’s under development and markets may become more intense. The
its incomplete transformation process. The weaknesses of the Vietnamese economy, its
poor state of markets, especially the capital, inefficiency, backward production technology,
monetary, and labor markets, and the shortage weak competitiveness, low savings rate, and
of qualified and experienced business people inadequate domestic investment, have not
have all surely contributed to the current fundamentally been overcome, and growth
situation, as has the dearth of economic rates in recent years have returned to more
managers with the professional knowledge moderate levels. The present targets for the
and skills to manage and control both the year 2000 national plan aim to merely maintain
macro- and the micro-economies and to the growth rate of 1999 and to halt the declines
process information and forecast markets of the past few years. In the middle to long-
accurately. Therefore the transition to a market term, however, and with more efforts toward
economy in Vietnam is not fully complete. The economic reform, there is every prospect that
economy is still at a very low level of the business environment will improve, that
development and infrastructure and law are domestic resources will be utilized, and that
much more backward than those found in foreign investment will return to Vietnam.
many other regional and global countries. Vietnamese economic development will make
It is necessary to speed up the current great strides and contribute positively to the
reforms of Vietnam’s economy so that the dynamic development of East and Southeast
country can share in the recent rapid recovery Asia in the first years of the twenty-first
of the regional economies. It is estimated that century.
the short-term prospects for the economy will
continue to be affected by the regional Bui Tat Thang is head of the Department of
financial and economic crisis. FDI will be slow Vietnam’s External Economic Relations at the
in returning to Vietnam, and international Institute of Economics, NCCHS, Hanoi, Vietnam.
competition for investment capital and
References
Nguyen Minh Tu, “Asian Financial Crisis and the Lesson Le Manh Hung (ed.) (1999). Socio-Economy of Vietnam
for Vietnam on the Threshold of the New Century,” (1996-1998) and Predictions for 2000. Hanoi: Statistical
Economic Studies Review, No.1 (260). Publishing House.
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