Libmonster ID: VN-1218
Author(s) of the publication: Dang Thi Hieu La

DANG THI HIEU LA, Doctor of Economics (Vietnam)

VIETNAM'S EXPERIENCE OF ECONOMIC RESTRUCTURING

In 1986, after the Sixth Congress of the Communist Party of Vietnam (CPV), Vietnam adopted a policy of eliminating the bureaucratically centralized subsidy mechanism, making extensive use of commodity-money relations and economic levers, and lifting bans on market development. The renewal process has been particularly intense in Vietnam since the early 1990s. Now market mechanisms have a decisive impact on the development of the economy.

The development of a market economy in Vietnam has a socialist orientation. However, the understanding of socialism itself and its relationship to the market has changed significantly.

It seems that experience has shown that the market should not be opposed, but included in the content of socialism. Socialism, in our opinion, should create conditions for the effective economic and social development of the market; in turn, the market should contribute to the achievement of the goals of socialism. According to this concept, Vietnam is consistently expanding market relations inside and outside the country. Vietnam does not limit itself to traditional ties with former socialist states, but develops them with all countries, following the motto: "Vietnam wants to be a friend of all countries in the world community, fighting for peace, independence and development" 1 .

As a result, the country began to create conditions for revolutionary changes in the field of science, technology and technology. Information technologies are particularly rapidly developing. This became the basis for the integration of the Vietnamese economy into the global economy. Vietnam is actively involved in this process.

BEGINNING TO OVERCOME THE CRISIS

In the past, there were only two main centralized economic structures in Vietnam - the State and the cooperative. This constrained the economy, production developed slowly, supply did not keep up with demand, and the standard of living was extremely low. Completely failed reforms of prices, wages, and money in 1981-1982 and 1985 led to galloping inflation. In 1985-1986, Vietnam experienced a deep economic crisis. The current situation required a rapid and at the same time well - thought-out step-by-step transition from a planned centralized to a market economy.

Faced with serious difficulties, the Government has adopted a number of decisions that create favorable conditions for the freer development of industrial and commercial enterprises, cooperatives, etc. In agriculture, the family contract that was not yet legalized at that time, which made life easier for the poorest peasants, spread to many parts of the country. This undermined the system of central planning, but the socialist orientation of development was preserved on the basis of a gradual movement towards a new model of socialism, which is being worked out and refined in the process of accumulating and generalizing practical experience. This helped Vietnam to avoid a general systemic crisis, aggravation of social and political problems.

The starting point of the transformation process in Vietnam was economic reforms, first of all, the elimination of subsidized bureaucratic centralism, the creation of a modern regulated market economy, but not a market element. At the IX Congress of the CPV, it was emphasized: "The Party and the state adhere to the course of a steady and long-term policy of developing a commodity-based multi-structured economy, operating as a market mechanism with state management and having a socialist orientation, which is a market-oriented socialist economy. This is the general model of our economy during the transition to socialism. " 2

In the process of changes, there was a sharp struggle between the forces that demanded a return to the old traditional system, and the supporters of reforms and a market economy. Gradually, reformist ideas and forces won out, a rapid process of renewal began, and more radical and comprehensive measures were taken to establish a market economy.

The renovation period in Vietnam from 1991 to 2005 is divided into a number of stages. The first stage-1991-1995 - was an initial period of profound changes, during which high rates of economic growth were achieved, but the crisis was not yet overcome. The management reform process was not complex, and serious economic and social difficulties persisted. At the same time, the process of Vietnam's integration into the world economy began: in 1995, the country joined the ASEAN Regional Economic Association. The central task of this period was to achieve economic stabilization.

ACCELERATING REFORMS

Economic renewal accelerated markedly in the second stage, in 1996-2000. The reforms affected the structure of business entities, macroeconomic policy, the status of state-owned enterprises, and the banking system. The country's economy has become more open. At this stage, Vietnam achieved great economic success: gross domestic product (GDP) grew, inflation was brought under control, which led to its decline, exports increased, and the attraction of foreign investment intensified. The country joined the APEC Forum. In July 2000, it was signed

page 38


a bilateral trade agreement with the United States.

Vietnam also faced serious difficulties during these years. Its economy was negatively affected by the deep financial crisis of 1997-1998 in the Asia-Pacific region. Major damage to agricultural production was caused by severe flooding. However, in general, in 1996-2000 Vietnam's economy developed rapidly, exports grew, the foreign trade balance was positive, the share of external debt in relation to GDP decreased, and foreign exchange reserves increased.

The third stage of reforms-in 2001-2002-took place in conditions when the strengthening of trends in the globalization of the world economy became decisive. Vietnam considers this trend to be objective and actively participates in the processes of international economic integration. But during this period, the global economy also showed trends of stagnation and declining growth rates. Global economic development was negatively affected by the shocks caused by the terrorist attacks of September 11, 2001 in the United States, the anti-terrorist war in Afghanistan, the crisis in the Middle East, the aggravation of relations between India and Pakistan, etc. All of these developments have affected Vietnam to varying degrees, especially its exports. At the same time, the signing of the Vietnam-US trade agreement, which officially entered into force on December 10, 2001, and China's accession to the WTO in December 2001 marked the beginning of the expansion of the market for Vietnamese exports.

The gradual renewal of the country on a market-socialist basis helped to clearly identify the main aspects and directions of socio-economic transformation.

COURSE - MULTI-LAYERED ECONOMY

Purposefully formed multi-structure and the achievement of interaction, competitiveness and dynamism of ways of life is the socio-economic basis of the created social structure of Vietnam. Only multiculturalism can ensure the maximum use of various components of the country's economic and social potential in the interests of its people, and mobilize resources for the implementation of industrialization and modernization of the economy.

Due to the predominantly agricultural nature of the Vietnamese economy and the low standard of living of the people, the leading role in determining the economic, political and social development of the country is played by the public sector, which, together with the cooperative sector, is gradually becoming a solid foundation of the national economy. However, the task of transformation in the country is to create conditions that would make the public sector equal with other sectors.

The leading role of the public sector is manifested primarily in those sectors in which other sectors do not have sufficient prerequisites for effective development. We are talking about socio-economic infrastructure, the financial system, banking, insurance, national defense, etc. The public sector includes enterprises with 100% State capital and some joint-stock companies whose activities are based on market principles and mechanisms. State-owned enterprises in Vietnam must pay off their own debts, compete, and liquidate if their economic activities are not effective. Currently, the number of state-owned enterprises and their share in total output is decreasing due to corporatization and privatization, while the share of the private sector and the sector of enterprises with foreign capital is growing. However, privatization and corporatization in Vietnam are rather slow.

The cooperative sector of the economy has also found new directions of development associated with the expansion of the use of family contracts, with the liberalization of prices for agricultural products, the growth of their exports, etc. The Government adopted a decision that significantly expanded the opportunities for free cooperation of cooperatives among themselves and with state-owned enterprises, contracting family farms, etc. This cooperation takes many forms. For example, State-owned enterprises often help cooperatives buy agricultural machinery so that they can provide assistance to contract farms.

page 39


Enterprises of all forms of ownership have the right to directly conclude purchase and sale agreements with cooperatives and peasant farms on the basis of market prices. These innovations affect the interests of millions of people, because in Vietnam, the peasantry makes up about 80 percent of the population, and agriculture employs 72 percent of the labor force, 3 with about 90 percent of poor families concentrated in the village .4

The development of the private sector of the economy, which includes small entrepreneurs and private capital of peasant farms, artisans, farmers, owners of industrial enterprises, private trading capital, etc., was identified in Vietnam as a strategic long-term task. This sector is an important component of the national economy, which, along with the state and cooperative sectors, makes a great contribution to the successful solution of the tasks of industrialization and modernization of the country in the process of its integration into the world economy. In recent years, the private sector has assumed a dominant role in Vietnam, including a leading role in the export of goods produced by it. The government not only supports them in finding sales markets, but also creates favorable conditions in other areas, for example, in the scientific and technical field, as well as in terms of providing favorable loans.

The state - capitalist sector of the economy is also developing in Vietnam. State-owned enterprises and private capital often combine in an effort to update technologies faster and improve the organization of production management. However, there are virtually no capitalists in Vietnam in the true sense of the word. State capitalism in Vietnam is a way of orienting private capital towards development in the interests of the whole society.

In the future, the country should increase the role of the economy sector with the participation of foreign capital, which emerged as a result of the policy of openness and integration into the world economy. In recent years, the share of the sector with foreign capital participation in the Vietnamese economy has been constantly growing. Over the 10 years from 1991 to 2000, the average annual total value of this sector's output increased by 22 percent and now accounts for 34 percent of the country's total industrial output, more than 22 percent of the country's exports and imports, and more than 10 percent of the country's GDP. 5 It is allowed to develop enterprises and firms with 100% foreign capital, with mixed capital, including with the participation of public or private Vietnamese capital.

The policy of encouraging intensive development of a multi-layered economy has helped Vietnam to mobilize various sources of socio-economic development and promote macroeconomic stabilization.

Since the 1990s, the CPV and the Government of Vietnam have created a legislative framework that promotes the formation of a complex set of markets: the market for goods and services, the labor market, the capital market, the market for science and information services, the real estate market, and others.

The goods market is developing the fastest. As for the stock market, it began to form in 1996, but even now it is not developed either in breadth or depth, since privatization and corporatization in Vietnam are developing very slowly.

But in general, the foundations of the market system in Vietnam are formed. The development of the national economy is based not on centralized planning, but on market relations-on the basis of regulation of macroeconomic proportions and processes by the state. In the process of macroeconomic regulation, the Government constantly takes into account the ratio of supply and demand in the domestic and foreign markets.

However, the system of macroeconomic regulation instruments in Vietnam still has features of division by economic structure. The state economy, as a rule, has more advantages than enterprises of other economic structures. This is clearly evident in such areas as real estate management, export-import operations, lending, banking, etc. Laws on private entrepreneurship, companies, cooperatives, foreign investment in Vietnam and some others are often inconsistent and do not yet create a sufficient field for healthy competition, favorable conditions for investors, etc., which to a greater or lesser extent hinders the development of multiculturalism, hinders the process of changing the structure of the national economy in a progressive direction.

CHANGES IN THE STRUCTURE OF THE NATIONAL ECONOMY

Taking into account the special role of agricultural production6 in the country, the Government is pursuing a policy of accelerating the development of agriculture and forming its multi-industry commodity structure. The development of agriculture is closely linked to the development of the processing industry and non-agrarian sectors in the countryside, which contributes to increasing rural employment.

Agricultural production in Vietnam is gradually changing both in the structure of agriculture and animal husbandry, and in the structure of products produced. A significant part of the latter is of high quality, competitive, and in demand in the domestic and foreign markets. Farmers, members of cooperatives, and farmers themselves determine the optimal structure of their farms in accordance with natural conditions and the state of ecology. This makes it possible to increase the efficiency and profitability of farms. Currently, the average value added per hectare of agricultural land reaches one thousand dollars, but it is planned to bring it to the level of two to three thousand dollars by 2005.7 .

Further development of agriculture implies a faster growth of animal husbandry and seafood production in comparison with agriculture, as well as ensuring the development of agricultural products.-

page 40


increasing the diversity of exported products.

The structure of industrial production is changing in the direction of increasing the share of manufacturing and processing industries, especially the production of export goods, high-tech products, processing of agricultural and forest products, and seafood in order to improve the export structure by reducing the share of unprocessed raw materials.

Great efforts are being made to develop the electric power industry, especially hydroelectric power, coal industry, oil and gas production and processing, that is, industries that ensure a balanced and reliable development of the country's energy base. The potential of mechanical engineering is rapidly growing, especially the creation of machines for agriculture, forestry, fisheries and transport. Separate enterprises of the mining industry, metallurgy, chemical industry, fertilizer production, and construction materials are being developed.

In general, the structure of industrial production in Vietnam is formed on the basis of market requirements and competitiveness with the regulatory role of the state.

The hegemony of state-owned enterprises in trade has been eliminated. Now economic structures in the sphere of trade are equal.

State control is carried out over the foreign trade of enterprises licensed for export-import activities. Licenses for export-import activities are restricted only for certain industries, mainly in the defense sector, and ordinary goods are exported and imported without special permission. The number of enterprises involved in export-import activities increased from 2,400 in early 1988 to 10,000 in November 2000. Among them, there are 4,500 state - owned enterprises, and 5,500 non - state ones .8 Both State-owned and private enterprises, including those with foreign capital, are encouraged to conduct export operations, including the export of goods that they do not produce themselves. However, every year the Government forms a list of goods whose export and import are prohibited or restricted for reasons of national security, health and environmental protection.

Vietnam is developing the infrastructure needed to support both manufacturing and trade - transportation, warehouses, berths, postal services, science and technology, banking, legal services, labor training, etc. However, telecommunications and Internet use in Vietnam are still too expensive compared to other countries in Southeast Asia and the world, and therefore have not become widespread enough.

In terms of tourism, Vietnam is considered the safest country in the world, but due to the weakness of the material base of this industry, revenues from it still make up a small part of GDP.

Since the beginning of the 1990s, Vietnam has been paying great attention to investing in the construction of the country's most important facilities in order to maximize the benefits of each region. Vietnam now has six major economic regions, and the natural and economic conditions of each of them are significantly different. The Government of Vietnam provides significant financial support to areas experiencing the greatest economic difficulties, especially the mountainous regions of the north, the Tainguyen Plateau, and the Mekong River Valley.

In most rural areas, not only agricultural production is developing, but also the associated small business in the field of industry and services, and so-called craft centers are emerging. The standard of living of the peasants is gradually increasing. Gone are the days when most of them felt a shortage of food and clothing.

Many villages grew noticeably and became cities.

THROUGH OPENNESS AND INTEGRATION

In 1991, at the Seventh Congress of the Communist Party of the Soviet Union, it declared a course of openness of the economy and its integration into the world economy, seeing this as a prerequisite for overcoming the country's crisis. One of the directions of this course was to attract foreign investment to the country, primarily in the manufacturing sector. If before 1991 the very concepts of economic openness and foreign direct investment were deeply alien to the mentality of Vietnamese society, then in the period from 1992 to 1997 they became familiar, and foreign investment itself became a widespread phenomenon in Vietnam. Every year, 400-500 representative offices of foreign companies were opened in the country, and joint ventures with foreign firms were established. The openness of the market contributed to the growth of capital attracted to Vietnam (see Table 1).

Economic openness is closely linked to globalization.

Globalization has a dual character, but the positive aspect prevails over the negative, since it is thanks to this process that the market expands and the exchange of goods increases. Countries participating in the process of globalization conclude various mutually beneficial economic agreements, for example, on the reduction of duties, on the gradual removal of customs barriers, on the application of the most-favored-nation regime, on the guarantee of rights to produce all types of goods and services, including investments for their own and foreign companies, on benefits and benefits.

page 41


Table 1

Foreign direct investment

from 1991 to 2001 (9)

Year

Foreign direct investment (billions of US dollars)

Interest compared to the previous year

1991

1,322

57,0

1992

2,165

63,8

1998

2,900

34,0

1994

3,786

29,9

1995

6,531

73,4

1996

8,497

30,1

1997

4,649

-45,29

1998

3,897

-16,3

1999

1,568

-59,76

2000

2,000

27,5

2001

2,200

10,0

Table 2

GDP growth rate from 1991 to 2002

(as a percentage of the previous year)

Year

GDP growth rate

Agricultural industry

Industry

Services

Including

Export

Import

1991

5,8

22

7,7

7,4

-13,2

-15,1

1992

8,7

6,9

12,8

7,6

23,7

8,7

1993

8,1

3,3

12,6

8,6

15,7

54,4

1994

8,8

3,4

13,4

9,6

35,8

48,5

1995

9,5

4,8

13,6

9,8

34,4

40

1996

9,3

4,4

14,5

8,8

33,2

36,6

1997

8,1

4,3

12,6

7,1

26,6

4,0

1998

5.8

3,5

8,3

5,1

1,9

-0,8

1999

4,8

5,2

7,7-

2,3

23,3

1,1

2000

6,7

4,0

10,1

5,6

24,0

30,8

2001

7,3

4,1

14,5

8,7

8,0

2,3

2002 (plan)

4,2

14

7

10

 

 

 

 

-------

technical and advisory assistance for developing countries and others.

Globalization has a strong impact on the implementation of open-door policies and economic integration in almost all countries of the world, including Vietnam. Vietnam considers skilful use of the nation's potential in combination with the opportunities created by the international community to be one of the main principles of the country's foreign policy and economic development strategy.

Pursuing a policy of openness and integration into the global economy, Vietnam has established trade and economic relations with almost all countries of the world, as well as with many international and regional economic organizations, such as the International Monetary Fund and the World Bank. The Asian Development Bank, ASEAN, the ASEAN Free Trade Area (AFTA), the AFTA Customs Benefits Program, the European-Asian Cooperation Forum, the Asia-Pacific Economic Cooperation Forum (APEC), and others. Vietnam is currently negotiating to join the WTO by 2004.

Although the policy of openness and integration into the world economy has been implemented for a short time, it has already allowed Vietnam to eliminate the policy of blockade and sanctions imposed on it by some countries, helped to overcome the crisis caused by the collapse of the COMECON, the Soviet Union and the socialist system in Eastern Europe, and helped attract foreign direct investment.

This policy made it possible to effectively use foreign loans and assistance. In 2001, when the economies of almost all donor countries were struggling and international organizations were running out of funds, donor States still provided Vietnam with official development assistance of $ 2.356 billion, roughly equal to the level of 2000. Commitments for 2002 amount to $ 2.4 billion 10 .

The World Bank helped write off 70 percent of the funds Vietnam received from other countries before 1993 as debt .13 This made it possible to improve the ratio of budget revenues and expenditures. Thanks to the help of international financial institutions, the country has created more favorable conditions for the development of science and the growth of entrepreneurship. We have accumulated experience in competitive trading.

SIGNIFICANT RESULTS

All these changes have created the basis for sustainable development of the Vietnamese economy (see Table 2).

The data provided indicate that the Vietnamese economy developed at a fairly high rate between 1992 and 1997. Experts in almost all countries of the world recognize that since 1991, the policy of renewal has allowed the Vietnamese economy to move to market rails, to end the bureaucratic-subsidized economy and to lead the country out of the crisis. The inflation rate has become consistently low, and exports are growing rapidly. Inflation fell from 600 percent in 1988 to 14.5 percent in 1994, 4.6 percent in 1996, and 3.6 percent in 1997.11 Due to the impact of the Asian financial crisis, as well as the devastating effects of natural disasters - droughts, floods, and others - Vietnam's GDP growth rate declined, but only slightly, in 1998 and 1999. Already in 2000, growth was again recorded, with inflation falling to -0.6 percent. In 2001, Vietnam ranked second in Asia in terms of GDP growth after China. Projected growth in 2002-2005 is 7.5 percent per year12 .


1 Communist Party of Vietnam. Materials of the VIII Congress. Politizdat, Hanoi, 1996, p. 120.

2 Materials of the IX Congress of the CPV. Politizdat, p. 23.

3 Data from the General Statistical Office of Vietnam.

4 Ibid.

5 Ibid.

6 In Viet Nam, agricultural income accounted for 24.3 per cent of GDP in 2000 and will account for 20-21 per cent in 2005. Data from the General Statistical Office and the Nyan Zan newspaper, November 21, 2001.

7 "Nyan Zan", November 21, 2001.

8 "Trade liberalization and free competition". Institute of Economics.

9 Data for 1991-2000-no "Trade Liberalization and Free Competition Project". Institute of Economics. Data for 2001 - according to "Nyan Zan" dated November 17, 2001. Data in percentages are given according to the author's calculations.

10 "Nyan Zan", December 13, 2001.

11 "Nyan Zan", December 9, 2001.

12 Data from the Main Statistical Office of the Socialist Republic of Vietnam.


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