Vietnam economy overview

The period before Western capitalists' penetration

With the natural features as presented in the part "Nature", cultivation was early developed. Tropical climate, which is perennially hot and wet with high rainfall and plenty of sunlight in many months of a year are favorable conditions for agricultural development. Crops and plants can be grown all the year round. According to archaeological materials, Vietnamese inhabitants were among the first people to grow wet rice.

Cooked rice has been the main and traditional dish of Vietnamese people for thousands of years.

A tropical agriculture has existed and developed since the early days of Việt Nam. Counting from the time when the State was born, Vietnam's history has covered a period of over 20 centuries, including over 10 centuries under the Chinese domination and another nearly 10 centuries under Vietnamese feudalism control (centralization or decentralization). During those centuries, Vietnam's production was feudal and agriculture-based. Lands and rice fields were possessed by the court, mandarins and landlords. They applied over rent and taxes over land contribution. The society sank into dark medieval nights, characterized by the typical stagnation of "the Asian Mode of Production".

Before Western capitalists entered and colonized Vietnam, Vietnam's economy was based on backward self-sufficient agriculture without the existence of goods production based on the capitalist mode of production, or just in its embryo stage. The major labor tools were ploughs with iron share and wooden handle (wagtail plough). The main traction was buffaloes and oxen.

Under the French rule (1884-1945)

In 1884, the French colonialists completely occupied Vietnam and imposed their colonial yoke on the whole of Indochina. From this moment, Vietnam became a semi-feudal colony.

Conventionally, when capitalism expands into a country with a feudal-based production like Việt Nam, a "civilization process" is in order. That was what happened in Vietnam during the French domination. However, different policies adopted by different colonial countries would have different effects on the socio-economic development of their colonies.

In Indochina, in general, and in Vietnam in particular, French policies were mainly focused on the exploitation of natural resources and cheap indigenous labor. The French did not promote manufacturing industries. That is why Vietnam's industry under French colonization was actually a small-scale extractive industry. Perhaps, the only remarkable point, mentioned in the Action Plan Project by Governor-General to Indochina Paul Doumer sent to the French Minister of Colonial Affairs, March 1897, was "the great constructions for Indochina such as systems of railways, roads, rivers and ports which were necessary for the extractive operation".

France carried out two great colonial exploitations in Vietnam, from 1897 to 1914 and from 1919 to 1929, focusing on exploiting resources, minerals and tropical agricultural products to be transported to France. After these two large-scale exploitations, during the period from 1934 and 1943 which was seen as the golden age of the economy of the colony of Vietnam, industry took up only 10% of the total value of industrial and agricultural production and employed about 85,000 workers including 50,000 miners with the primitive techniques. There was no workshop of metallurgy or chemical factory in the whole Indochina. In fact, French capitalists did build some thermoelectricity plants for lighting in cities, a cement factory in Hải Phòng, several fibre and textile facilities, and beer, wine and tobacco factories.

Agriculture, which attracted over 90% of the population, was the dominating sector in the national economy but still existed with backward cultivation measures, low intensive farming level and low productivity. Feudal despoilment, rent land and partly despoilment of surplus capital in some farms controlled by French people still dominated the whole agricultural economy and rural society of Vietnam for one century of French domination.

Although in 50 years (1890-1939) the colony of Vietnam did export some 57.8 million tons of rice, which, as minerals, was not regarded an export product that promoted economic development but rather the result of colonial exploitation policy, a policy of deprivation. That exported rice was the overrent paid by products, which was equal to 50% of the output harvested via the system of feudal regulations still preserved in Vietnamese rural areas. Rice was "exported" while the population suffered starvation and hunger. In 1945, when World War II was coming to an end, more than 2 million Vietnamese peasants died of hunger within 1 month (the third lunar month).

Many researchers believed that before 1945, Vietnam was the least developed region in the French colony system and compared to other countries in Asia.

Việt Nam's economy in the 30-year wars (1945-1975)

The wartime economy (1945-1954)

Just one day after the declaration of independence on September 2, 1945, the Provisional Revolutionary Government had its first session, chaired by President Hồ Chí Minh at the Presidential Palace. On behalf of the Government, he pointed out "the urgent tasks for the State of the Democratic Republic of Vietnam" which was to eradicate starvation and illiteracy.

In his letter to the people nationwide on the issue of anti-starvation, President Ho Chi Minh suggested that people give up "a meal every 10 days and 3 meals every month, giving the rice to the poor". The whole country actively took part in the movements of "production promotion", "a piece of soil is a bar of gold", reclamation and recovery of mines and factories. At the same time, the Provisional Government issued a series of decrees: the Decree on abolition of poll-tax on September 7th 1945, the Decree on Tax Reduction by 20% and Full Tax Exemption for people in flood-stricken zones on October 26, 1945, the Circular on temporary distribution of common fields for poor peasants on November 16, 1945. The starvation was in general addressed by early 1946.

Regarding finance, there were only 1,233,000 Indochinese piasters left in the national budget, over half of which was torn notes. Indochina Bank was still under the control of the French. On January 31, 1946, the Government launched a Decree on printing and issuing Vietnamese currency, which was firstly circulated in the central area and by the end of 1946 all over the country.

The nationwide resistance war broke out. The country was divided into two zones: the free zone and the occupied zone. In the latter, French colonists still maintained their economic policy as before, but it was more focused on serving the war.

In the free zone, the resistance-war government worked out the policy of "waging resistance war along with nation building" in line with the guideline of conducting a long and all-sided war, mobilizing the people, relying mainly on our own forces.

In February 1949, the Government issued a decree to confiscate lands from the colonialists and landlords and redistribute it to peasants. It also decreed that former debts be abolished and taxes reduced. Hydraulic works was promoted, land reclaimation boosted and collective farming encouraged in proper forms. As a result, foods for people and soldiers were ensured and military industries were developed. Towards 1949, 130 arsenals, one engineering plant named after Trần Hưng Đạo and some workshops managed to produce printing, drilling, lathing and sewing devices. A number of coalmines in the free zones of Tân Trào (Tuyên Quang) and Quán Triều (Thái Nguyên) were restored. The productions of paper, textiles, salt, soap, cigarettes, sugar, drugs were developed in various localities. A series of military factories manufacturing and repairing weapons, ammunition and military equipment were built in the free zone and resistance base.

The resistance-war economy had been developed since 1951; The Việt Nam State Bank was set up and the Vietnamese bank note introduced from June 10th, 1951, making an important point in the distribution of goods; trade and commercial activities started to develop.

*The 1954-1975 economy - Both at war and in peace

In the 1954-75 period, the people in North Việt Nam had undertaken two tasks: building socialism in the North and supporting the South in the fight against the U.S aggression for national reunifiction.

With the slogan "All for the front, all for defeating the U.S aggression", this period economy was placed at the war footing.

The period could be divided into several stages:

The 1954-64 period: the overall task was to complete the remaining duties of the national and democratic revolution; and to begin socialist construction.

From 1954 to 1957, a land reform was launched following the slogan "rice fields for tillers" and economic restoration after the war completed.

In agriculture, the food production value was achieved as high as in 1939, the golden year of Vietnamese agriculture at that time.

Industrially, in 1955, the North boasted only 19 workshops with 17,290 workers. Towards 1957, the number reached 78 with 46,430 workers, with a total industrial value making up 10% of the total agricultural-industrial value, and reached the 1939 industrial output. Handicrafts developed rapidly. By 1957 there were 150,000 manufacturing establishments, employing 430,000 workers, taking up 63.7% of industrial production.

Transportation was quickly restored. Railways linking Hanoi to other towns were completely restored. The Hanoi-Beijing-Moscow inter-transporting railway and Hanoi-Lào Cai-Kunming (China) railway were inaugurated on February 28th 1955.

From 1958 to 1960: The task of socialist transformation and economic development was focused. In the industry sector, reforms were carried out towards private capital commercial industry. Agriculture and handicrafts were organized into cooperatives.

In terms of the regime of possession, at the end of this period, only two main forms of possession existed in North Việt Nam, namely State ownership and collective ownership.

From 1961 to 1965: implementation of the first five-year plan on socio-economic development was carried out.

The 1965-1975 period: The war spread nationwide. The task for the North was to timely transform thoughts and organization to develop the economy and strengthen the armed forces to firmly defend the North, provide assistance for the struggle of people in the South.

Factories in urban areas were scattered and evacuated to areas away from the targets of American air strikes. Production was continued to facilitate transportation; agriculture was further developed to ensure the people's lives and to assist the battlefield.

The centrally planned subsidized economy (1975-1986)

April 30, 1975 marked the end of the anti-American war and the complete liberation of South Việt Nam. The country would from now on live in peace and unification but was still faced with difficulties and challenges: 7,850,000 tons of bombs and shells were dropped onto its land (three times as many as those used in World War II, equal to 640 nuclear bombs of the same kind as those dropped by the U.S. on Hiroshima, Japan); leaving more than 20 million craters, millions of unexploded bombs and landmines under the ground; 451,260 tons of toxic chemicals were sprayed on the Southern forests, seriously destroying the Vietnamese ecology (50% of the 10-million-hectare forest was carpet-bombed by B52s) and people (2 million Vietnamese people intoxicated and 50,000 children deformed, the consequences are still felt today and will be so for many years to come); 9,000 out of 15,000 villages in South Việt Nam were ruined. In the North, almost all cities and towns were raided, in which 12 towns and 51 townships were completely ruined; 4,000 out of 5,788 communes were stricken, many areas were suffered exterminated. All power plants and 5 million square meters of housing (excluding those in the countryside) were seriously destroyed. All the railway network, 100% of the bridges, the whole system of ports, sea-routes, river-ways and warehouses were raided. American planes dropped bombs and fired rockets, causing damage to 1,600 irrigation constructions (including dykes), most of the farms and hundreds of thousands of hectares of fields and gardens, killing 40,000 buffaloes and oxen (the main traction in agriculture), destroying 3,000 schools, 350 hospitals. Then, from May 1975 to 1989, Việt Nam had to fight two border wars in the Southwest and the North of the country.

At that time, Việt Nam was still a poor, backward agricultural country, with 80% of the population and 70% of the labor force living in rural areas and subsiding on agriculture. In the North, after 21 years of socialist construction, the economy was still based on small-scale production, poor technical infrastructure, weak management, and inefficient models of administrative subsidies. The South, having just escaped from the yoke of neo-colonialism, was in the same situation, depending on foreign capital, technology, material, and merchandise (70% of the economy was dominated by foreign capitalists), though it had reached a certain level of development.

Towards 1979, Việt Nam's population rose by 5 million in comparison with 1975 but the increase of food was very slow (1976: 13,493,000 tons; 1979: 13,984,000 tons) with the amount per capita of less than 300kg (in paddy); inflation reached 3-digit numbers (1976: 128%, 1981: 313%). During the war, Việt Nam had imported 1 million tons of food each year, and at this time she had to import even more (1978: 1.9 million; 1979: 2.2 million). People's lives became extremely hard. There was a critical shortage of food and basic necessities for the people, civil servants and armed forces; unemployment and social evils became burning problems.

The ailing of the economy was expressed in the very low production target per capita. We can see a great distance between the main industrial produce per capita of Việt Nam and those of some former Eastern European socialist countries several dozens of years before. (Table 1)

Table 1. Comparison of Việt Nam's economic targets and those of former East European countries

	Bulgaria (1960)	Hungary (1960)	Poland (1960)	Romania (1960)	Vietnam (1984)
1. Per capital national income (ruble)	466.8	669.8	581.8	507.4	About 50-57
2. Main produc per capita
* Electricity (kWh)	592	763	987	416	83
* Coal (g)	-	1,266	3,047	200	88
* Steel (kg)	32.2	189	225	98.1	0.9
* Cement (kg)	202	157	222	166	22.1
* Chemical fertilizer (kg)	15.8	10.2	16.1	3.9	7.2
* Cloth (m2)	23.6	24.7	20.4	13.5	6.2
* Paper (kg)	6.9	10.6	16.7	7.6	1.1
3. National income structure (%)
* Industry	45.6	57.6	47.0	42.1	32.8
* Agriculture	31.5	21.8	23.3	34.8	42.5

 

Source: Building Economic Structure in the Transitional Period in Việt Nam, Vietnamese version, Social Science Publishing House, Hà Nội, 1986, p. 65.

The economy's production was not enough to meet the demand for food, thus no accumulation could be made for expansive reproduction. The consumption fund was much larger than the domestic national income, so the foreign national income had to be exploited to cover the consumption fund. (Table 2)

Table 2. Use of national income (current price, %)

	1976	1980	1985
1. Sources	100.0	100.0	100.0
- Domestic production	78.5	87.7	89.8
- Foreign national income	21.5	17.3	10.2
2. Distribution for accumulation and consumption	100.0	100.0	100.0
- Accumulation fund	15.8	10.3	11.6
+ Fixed asset	10.1	3.5	3.1
+ Liquid asset	5.7	6.8	8.5
- Consumption fund	84.2	87.7	88.4
+ Individual consumption	76.7	81.0	85.2
+ Social consumption	7.5	8.7	3.2
3. Domestic national income/Consumption fund	92.6	96.2	98.0

Source: Building Economic Structure in the Transitional Period in Việt Nam, Vietnamese version, Social Science Publishing House, Hà Nội, 1986, p. 65.

Obviously, the whole accumulation fund, if available, had to completely rely on foreign aids in various forms, mainly loans and non-refundable aids.

Underdeveloped production and insufficiency of food surely led to weak commerce and constant deficit in trade balance. International trade relations were mainly established with socialist countries and fully run by the State through trade agreements, protocols on commodity exchanges and payments, and agreements on loans and aids. Commodity and services prices were fixed on the basis of agreements between governments. During 1976-1985, export turnover, though increasing faster than import turnover, could compensate only one-third of the latter and the total trade turnover remained very low. (Table 3)

Table 3. Export-import during the pre-đổi mới period ³

Unit: million rubles-dollars

Year	Export-import turnover	Export turnover	Import turnover	Export-import balance	Export-import rate (%)
1976	1,246.4	222.7	1,024.1	-801.4	21.75
1977	1,540.9	322.5	1,218.4	-895.9	26.47
1978	1,630.1	326.9	1,301.2	-976.0	25.08
1979	1,546.6	320.5	1,526.1	-1,205.6	21.00
1980	1,648.0	336.0	1,312.0	-976.0	25.61
1981	1,667.9	353.0	1,314.0	-961.0	26.87
1982	1,786.8	435.0	1,351.0	-916.0	28.44
1983	1,916.0	513.0	1,387.0	-856.0	38.28
1984	2,120.0	555.0	1,565.0	-1.010.0	35.46
1985	2,350.0	705.0	1,645.0	-940.0	42.86

Source: Việt Nam's Economy in 45 Years, Vietnamese version, Social Science Publishing House, Hà Nội, 1990, p. 218.

The mechanism of economic management

It can be said that the mechanism based on a highly central planned regime dominated the economy from 1954 till late 1990s. This mechanism has three features:

+ Based on the system of public ownership of means of production;

+ The State, instead of the market, decides the whole production process (What to produce? How to produce? And who to produce for?);

+ Distribution based on work.

This was the common economic model of the former socialist countries before reforms and renovation.

In Việt Nam, those three features were expressed as followed:

Major means of production were nationalized. The State made efforts in prompting the nationalization process through "The revolution of production relationship." The basic contents of the revolution were firstly to nationalize all private enterprises (agriculture, handicraft and small business), bringing private economy into cooperatives in order to build a large-scale socialist economy with two forms of ownership: State economy and collective economy. Accordingly, mass nationalization and collectivization campaigns were quickly carried out in different business and production fields in North Việt Nam during the years between 1958 and 1960 and continued nationwide in the years following the liberation of South Việt Nam and national reunification (1975-1979).

As a result, by 1974 state-owned industry accounted for 72.2%, private and individual enterprises possessed 2.3%; 25.5% belonged to the collective sector.

In South Việt Nam, after four years (1975-1979), the "socialist transformation in industry and commerce and agriculture cooperatives" was basically achieved.

As a result, by 1984 socialist economic sectors and state-owned business accounted for an absolute percentage in the total social production. The mechanism based on public property dominated the whole production of society.

The management mechanism

The State controlled the economy through legal norms and commands.

The State set production norms for production and business units, concerning:

- Total production outputs

- Turnover value in reality

- Total salary fund

- Interests and amounts of money contributed to the national budget

- Fund for capital construction pumped by the State

- Some norms in science-technological advances

- Labor productivity increase

- Major materials and equipment provided by the State, and the worn-out volume of materials, fuels and means for some products

- Production cost and retail price.

The relationship between the State and economic units was of allocation-delivery, on the basis of which products were delivered to people.

Therefore, the market was not recognized and the State, instead of the market, decided the whole production process.

The State held monopoly of foreign trade; of doing business with foreigners and of properties gained from foreign trade.

The distribution of income was based on the principle of egalitarianism. In state-owned and administrative sectors, salary was the most popular distribution way. The rate of pay was mainly defined on the following principles:

- Qualification (expertise)

- The difficulty of the work

- Function

- Service seniority.

Above are the main features of Việt Nam's economic model during the pre-renovation and open-door period, which was based on a central planned subsidized economy.

Here are some major targets of the period. (Table 4)

Table 4. Average growth rate of some economic targets in the pre-renovation period ⁴

Indicators	1976-1980	1981-1985
- Population	2.24	2.19
- General social production	1.4	7.3
- National income	0.4	6.4
- Total industrial production value	0.6	9.5
- Total agricultural production value	1.9	5.1
- State’s fund on capital construction	5.6	9.5
- Total export value	11.0	15.5
- Total import value	6.4	7.2

 

Source: Department of Statistic, Việt Nam – Facts and Figures 1945-1980, Vietnamese version, Sự Thật Publishing House, Hà Nội, 1990, p. 135.

Besides the salary, workers also enjoyed other allowances, most importantly the coupon-based system of distribution of basic necessities (grains, foodstuffs, fuels, materials) and of houses, health services and sanatorium services, all of which were carried out through the mode of "planning" that is, products were directly delivered to the people.

Salaries were not paid according to job efficiency but rather to working results which were measured by quantity and quality. This procedure, therefore, could not encourage talented laborers who worked most efficiently.

Searches and experiments for renovation

Faced with this situation, the Communist Party of Việt Nam (4^th tenure) held the sixth plenum of the Central Committee, which arrived at two decisions: Resolution 20–NQ/TW on the situation and urgent tasks and Resolution 21–NQ/TW on orientation and tasks for development of industrial consumption commodities and local industry.

The main content of these two resolutions was to promote the agriculture, forestry and fishery sectors to fulfill "the key task of food production in order to meet people's demand of consumption". The government immediately issued the policy on agriculture encouragement. This stabilized the food procurement for 5 years (formerly, every year, at a price determined by the State.) Surplus was sold to the State at an agreed price or freely circulated (this practice had been forbidden previously). Cooperatives and their members were encouraged to reclaim wasteland, increase the number of crops and work towards intensive cultivation. Again, surplus could be sold on the free market.

In December 1979, the 6th session of the 6^th National Assembly pointed out that the economic management system was strongly characterized by administrative bureaucracy.

In some localities such as Vĩnh Phú, Hải Phòng, and Nghệ An, a new agricultural management method, in which production was based on a contractual system with a certain amount of work and products for cooperative members and groups of members, was "clandestinely" tested (at the time it was called the illicit contractual system). The system really made peasants connect themselves closely with their rice fields and be devoted to their job, thus positively promoting agricultural production.

Against that background, on January 13, 1981, the Secretariat of the Central Committee of the Communist Party of Việt Nam issued Instruction 100 CT-TW on reforming and extending the contractual system to replace the work-point regime in agricultural cooperatives (shortly called Instruction 100, or contractual system 100).

Instruction 100 had a great impact on agricultural development. The annual average growth of agricultural production in the 1981-1985 period was 4.9% (1.9% in the previous 5-year period 1976-1980), food production increased from 15 million tons in 1981 to 18.2 million tons in 1985; rice productivity rose by 23.8%, industrial crops by 51.1%, food mobilized by the State went up two times.

In the industrial sector, on February 21, 1981, the Government issued Decision 25-CP, indicating some policies and measures to further promote the initiative in production and business as well as financial self-control of State-owned factories. The State also allowed factories to make their own production and business plans including three parts: the State's assignments, usually called State-governed plans; the enterprise's self-devised plans and auxiliary plans (usually called the third plan). On the same day, the Government released Decision 26-CP on expanding the mode of contractual payment, product-based payment and introducing a salary payment into practice in state-owned economic units.

The two decisions made great contributions toward improving the sluggish production of State-owned enterprises. In 1981, for the first time in the post-war period, the industrial sector reached the set production target, especially the local industry scored 7.5% of productivity higher than planned.

In the delivery and circulation aspects, many complicated problems emerged. On June 23, 1980, the Politburo of the Communist Party of Việt Nam issued Resolution 26 NQ-TW on the improvement of delivery and circulation work with three targets: production promotion, financial stability, increase of strategic products controlled by the State (food). As a result, the coupon system (supply system) was abolished and instead a one-price system was implemented. At the same time, the government conducted a price reform that produced no positive results.

In sum, the "low level" adjustments served as the basis for the step-by-step adjustments through "high level" decisions such as Instruction 100 on agricultural production based on a contractual system, released by the Secretariat of the Party Central Committee; Decisions 25CP and 26CP by the Government and Resolution 26 on industrial production, delivery and circulation practice, issued by the Politburo.

Following the 5^th Congress of the Communist Party of Việt Nam (March 1982), for five years (1981-1985), the industry sector had a positive increase averaging 9.5%. However, accumulated difficulties still remained in the delivery and circulation front. The inflation rate went from 125% in 1980 up to 774% in 1986. In December 1984, the 7th Plenum of the 5th Party Central Committee set up a sub-committee to assist the Politburo in research of the issues of price, salary and money. From June 1 to 7, 1985, the 5th Party Central Committee held its 8^th Plenum on the issues of price-salary-money. The Plenum concluded that it was impossible to stabilize the economy and society, to balance the budget and cash while still maintaining the price and salary subsidies. The Plenum decided to utterly abandon the model based on central planning, follow democratic centralism, economic accounting and socialist business.

The 8^th Plenum of the 5th Party Central Committee marked a renewal of thinking in terms of delivery and circulation with the recognition of commodity production and its rules. This also served as the preparatory meeting for the 6th National Party Congress to renovate and open the country.

From September 14, 1985 onwards, with the price-salary-money adjustment (second time) kicked off by the practices of exchanging money, a new price was set up and a new payment system was adopted. A one-price system was implemented, the price subsidy and the coupon system completely abolished. Only the rice allocation regime for the salaried people was maintained.

It is therefore obvious that at the 8^th Plenum of the 5th Party Central Committee, the basic line was determined, which was "to make production burst out", utterly abolish subsidies and to turn to an economic accounting system and socialist business. By the 6th Congress, Việt Nam had not, however, completely abandoned the model based on a centrally planned economy since own knowledge of socialism and its transitional period was still very superficial.

Despite the fact that many solutions had been put forward from the 6^th Plenum (4^th Tenure) to the 8^th Plenum (5^th Tenure), and that the socio-economic situation had showed some progress, Việt Nam's economy was still in a serious crisis due to the poor, incomprehensive and half-hearted measures.

 The annual average growth of industrial productivity⁵

	1976-1980	1980-1985
The whole industry:	0.6	9.1
* State-owned:	-2.7	7.8
- Central level	-4.2	7.5
- Local level	3.8	9.9
* Small scale industry and handicraft	6.5	10.8
* Production of means of production (Group A)	6.4	6.2
* Production of means of consumption (Group B)	-2.4	10.7

 

Source: Statistics of the Socialist Republic of Việt Nam, 1976-1989, Hà Nội, 1990.

To sum up, at the decisive moment for the economic renovation policy, Việt Nam's economy was recovering thanks to the innovation policies characterized by exploration and experimentation.

Việt Nam's economy in the renovation and open-door period from 1986 – an oriented market economy

The beginning period of renovation cause (1986-1991):

The meetings of the Politburo and of the 5th Party Central Committee from July to December 1986 all concentrated on compiling and approving the Political Report to submit to the 6th National Congress.

The Congress pointed out the mistakes and shortcomings in the socio-economic guidelines. These included subjectivism in approaches, voluntarism, simple and mean actions.

The 6th National Congress set forth the renovation guidelines. First, the economic thinking was renovated: recognizing a multi-sector economy; abolishing the economic management regime based on central plans and subsidy, constructing a new mechanism compatible with the objective rules and the development level of the economy; fully and correctly applying the commodity-currency relationship; production must be connected with the market and must protect the legitimate interests of laborers.

The Congress put a special emphasis on improving and enhancing the effectiveness of external economics.

In building a new management system, a big reform in the State apparatus was carried out (to clearly differentiate the State's administrative-economic function from the function of production and business control).

On April 5, 1988, the Politburo launched Resolution 10-NQ/TW on the reform of agricultural management (called Contractual system 10). Families of the cooperative members became economic entities. They had absolute right to their land and the yield they produced. Apart from the contract-based land and other contracts signed with the cooperatives, they were then allowed to actively produce and do business under various forms that used to be impossible. The Resolution signaled a turning point in agricultural development in Việt Nam.

In March 1989, the 6^th Plenum of the 6th Party Central Committee released a resolution on 12 major policies designed to strengthen the renovation process with an emphasis on the most important issues of adjusting economic management, concentrating on the key targets of three economic programs (agricultural production, consumer goods, and exports), consistently conducting the policy of a multi-sector economy, developing all production capacities, strongly shifting to business accounting and focusing on the market, considering it the basis and the object of the planning.

The break out of a serious crisis

When the two resolutions were adopted, the socio-economic situation of the country improved. In 1990, the inflation rate slumped to 67.4%; agriculture production underwent a sudden mutation: the food yield reached 17.5 million tons (1987), 19.5 million (1988) and 20.5 million (1989). From 1989, for the first time, Việt Nam exported food in her foreign trade, unlike the colonial period when over 1 million tons of rice were transported overseas annually. Việt Nam exported 1.5 million tons every year. Until 1988, Việt Nam still had to import 450,000 tons of rice. By 1999, Việt Nam had exported over 4 million tons of rice, becoming the second biggest exporter, after Thailand that exported 7.4 million tons in 2002. In 2005, Việt Nam exported over 5 million tons of rice.

After five years of implementing the renovation launched by the 6th Party Congress, some first important success was achieved. In June 1991, the 7th Party Congress was held, approving the Political program for national construction in the transitional period to socialism and the Strategy for socio-economic stability and development to 2000.

The Strategy for socio-economic stability and development to 2000 was to "get over the crisis, stabilize the socio-economic situation, try to get out of the status of a poor, under-developed country, improve people's lives, strengthen national defense and security, create favorable conditions for the country to develop at a faster pace in the early 21^st century, make a double increase in GDP compared with 1990."

In realizing this strategy, within five years (1991-1995), Việt Nam gained increases of 8.2% in GDP, of 13.3% in industry, of 4.5% in agriculture, and of 20% in export turnover with a reduction in inflation from 67.1% in 1991 to 12.7% in 1995, creating over 1 million jobs every year.

The period of industrialization and modernization

In July 1996, the 8th National Party Congress was held, summing up 10 years of implementing the renovation policy and discussing solutions to bring the country into the period of industrialization and modernization. The Congress pointed out that: "Our country has overcome the socio-economic crisis, but there still exist many shortcomings. The task set for the first stage of the transitional period, which is to prepare fundamental premises for industrialization, has basically been fulfilled, enabling us to move on to a new stage that is, to promote the cause of national industrialization and modernization. The target of the industrialization and modernization cause is to build our country into an industrial nation with a modern technical foundation, a proper economic structure, a progressive production relation compatible with the development level of the production force, a decent spiritual and material life, a firm national defense and security, wealthy people, a powerful country, and an equal and civilized society. From now to 2020, we must make every effort to turn our country into an industrial nation."⁷

In the 1996-2000 period, GDP increased by an average of 6.94%, agriculture saw an annual increase of 1 million tons, industry rose by an average of 13.5%, gross domestic product increased two times in comparison with 1990.

In addition, despite the devastating natural disasters in the years 2000 and 2001, the socio-economic development tempo still increased by 7% and 6.8% respectively.

In April 2001, the 9th National Party Congress was held, in which the Resolution on strategic targets in socio-economic development to the year 2010 was passed. The targets included: "To bring our country out of the underdeveloped situation, considerably improve the people's material, cultural, spiritual lives, lay the foundation for our country to become a modern industrial one by the year 2020. Human resource, scientific-technological capability, infrastructure, economic, military, and security potentials are reinforced; the socialist-oriented market economy is basically formed; Việt Nam's status in the international arena is hightened."⁸

For five years (2001-2005), the targets of the socio-economic development set by the 9^th Party Congress were achieved: GDP growth rate increased by years (approximately 7.5%); macro economy stabilized; major relations and balances in the economy (accumulation-consumption, budget receipts and expenses) significantly improved; GDP mobilized for State budget over-fulfilled; total investment capital rapidly increased; many important projects put into operation.

Economic structure continued to be shifted to modernization and industrialization. By 2005, proportion of industry and construction was 41%, agro-forestry-fishery: 20.5%, and services: 38.5%. External economy was improved: total export turnover accounted for 50% of GDP.

Việt Nam's renovation cause has been carried out for nearly 20 years. During this period, the country has obtained many considerable achievements in different aspects, improving the country's situation and people's life.

* Việt Nam has got out of its crisis, the economic growth rate constantly increases by years:

- Agro-forestry-fishery sector has risen up by 5.5% per year on average; food production increased fast from 19.5 million tons in 1988 to 21.7 million in 1991, 32.1 million in 2001 and 39.2 million in 2005. After 19 years, the country produced 20 million tons of food to feed nearly 84 million people and 5 million tons of rice for national reserve. Việt Nam ranks second in exporting rice, cashew nut and coffee, fourth in rubber and first in cashew nuts;

- Industry and construction have continuously gained a high growth rate. The production structure, product quality and competitiveness have been improved; industrial production value has gone up by 15% per year and the surplus value by 10%. Some products can compete on domestic and foreign markets;

- Services have been developed in scope, branches and market. Their efficiency has been raised, attracting the participation of different economic sectors. The sector's production value has increased by over 7.5% per year. In 2005, the surplus value reached 8.5%, higher than GDP (8.4%);

* Economic structure has been actively shifted to industrialization and modernization; production compatible to market;

- Agro-forestry-fishery's proportion was reduced from 46.3% in 1988 to 20.9% in 2005;

- Proportion of industry and construction rose rapidly and constantly from 21.6% in 1988 to 41% in 2005. For the first time, in 2005, 20 million tons of crude oil were exploited. Processing industry accounts for 80% of the industrial yield;

- Proportion of the service sector went up from 33.1% in 1988 to 38.1% in 2005. Tourism, post and telecommunication, banking, finance and currency, legal consultancy have developed fast;

- Labor structure has been changed. Labor force in agro-forestry-fishery decreased from 73% in 1990 to 56.8% in 2000 but increased from 12.1% to 17.9% and from 19.7% to 25.3% in the same duration in industry-construction and services respectively. The number of trained laborers also rose from 20% in 2000 to 25% in 2005;

* The guideline to develop a multi-sector economy has been carried out effectively; potential of different economic sectors have been brought into play:

- State-run economy has been restructured; the management method renewed to improve business quality and efficiency; key branches and fields of the economy focused. In 1990, the number of State-run enterprises was 12,084. After ten years of restructuring (1995-2005), there remained 2,980 enterprises with 100% of State capital and 670 joint-stock companies in which the State holds 51% of the charter capital. In 2005, State-run enterprises contributed 38.5% GDP and about 50% of the total State budget;

- Non-State economy has developed quick. By the early 2006, Việt Nam had 170,000 non-State enterprises. In 2005, this sector accounted for 46% GDP, in which cooperative economy contributed 87% and private economy 38%;

- FDI economy, with a high growth rate, has become an important component of the national economy. Per capita FDI in Việt Nam is higher than in China and India (according to the Sun Times in Hong Kong, 28-29 April 2006). FDI is the important bridge to the world in the fields of technological transfer and international exchange. In 2005 only, this sector contributed 15.5% GDP, over 7.5% of the total State budget, over 17.1% of the total social investment capital, over 23% of export turnover (excluding oil and gas), achieving over 35% of the industrial production value and attracting over 900,00 direct laborers and millions of indirect employees;

* Socialist-oriented market economy has been formed and macro economy stabilized:

- Over the past 20 years, the system of laws, policies and regime of a socialist-oriented market economy have been set up. Operations of different kinds of enterprises in the multi-sector economy and the State management apparatus have been renovated. The State has gradually separated the State management function over economy from the business function of enterprises, shifting from direct intervention into the economy and enterprises' activities to indirect intervention through laws, plans, regimes, policies and other macro regulating instruments;

- Fundamental kinds of markets have been developed and controlled properly under a new mechanism. The commodity market has developed in a large scale and at high rate. The markets of services, labor, science and technology, and fixed asset have been formed;

- The economy's macro balances have been stabilized, creating a favorable environment and conditions for economic development;

- Financial potential has been strengthened, budget collection increased by 18% per year and the average expense for development investment reached about 30% of the total budget expenditure. The commodity-currency is proper, ensuring primary goods for production and life. The average increase of consumption prices increases is lower than the growth of GDP.

* International and regional integration and external economy have achieved considerable results:

- Việt Nam has joined the ASEAN, fulfilling her commitments on AFTA;

- In 1990, bilateral trade agreements were signed with many countries;

- The Việt Nam-EU Trade Agreement was signed in 1995;

- In 1998, Việt Nam was one of the initiators and first members of APEC;

- In 2001, the Việt Nam-US Trade Agreement made;

- By 2005, Việt Nam established commercial relations with 221 countries and territories;

- In November 2006, Việt Nam became a full member of WTO;

- Export and import have increased rapidly in scope and rate. The total export turnover reached US$ 25 billion in 2005 against US$ 1 billion per year before 1986;

- In the period 2000-2005, import increased by 19% annually; excess of imports over exports is now US$ 4 billion per year.

* Soundly developing economy and dealing with social issues, so the life of the majority of people has been improved:

- The relationship between economic growth and cultural development has been effectively dealt with; social progress and equality realized; opportunities for development broadened to different economic sectors and social strata; citizen's creativity and initiative raised;

- Job generation and poverty reduction has achieved promising results, surpassing the millennium development targets set by the UN. During 2000-2005, 7.5 million jobs were created. By 2005, unemployment in urban areas remained 5.3%. The proportion of time spent by peasants on farm work in rural areas reached 80%. Poverty rate was reduced from 50% in 1990 to 7% in 2005 (the criteria for poverty has been raised from US$ 1/person/day to US$ 2/person/day).

Economic structure and growth after 20 years of renovation (1986-2006)

GDP growth rate and structure (%)

 

Year	Growth rate				Structure
	Total	Sectors			Total	Sectors
		Agro-forestry-aquaculture	Industry-construction	Service		Agro-forestry-aquaculture	Industry-construction	Service
1986	2.84	2.99	10.94	-2.27	100.00	38.06	28.88	33.06
1987	6.36	-1.14	8.46	4.57	100.00	40.56	28.36	31.08
1988	6.01	3.65	5.00	8.77	100.00	46.30	23.96	29.74
1989	4.68	7.00	-2.54	7.86	100.00	42.07	22.94	34.99
1990	5.09	1.00	2.27	10.19	100.00	38.74	22.67	38.59
1991	5.81	2.18	7.71	7.38	100.00	40.49	23.79	35.72
1992	8.70	6.88	12.79	7.58	100.00	33.94	27.26	38.80
1993	8.08	3.28	12.62	8.64	100.00	29.87	28.90	41.23
1994	8.83	3.37	13.39	9.56	100.00	27.43	28.87	43.70
1995	9.54	4.80	13.60	9.83	100.00	27.18	28.76	44.06
1996	9.34	4.40	14.46	8.80	100.00	27.76	29.73	42.51
1997	8.15	4.33	12.62	7.14	100.00	25.77	32.08	42.15
1998	5.76	3.53	8.33	5.08	100.00	25.78	32.49	41.73
1999	4.77	5.23	7.68	2.25	100.00	25.43	34.49	40.08
2000	6.75	4.04	10.07	5.57	100.00	24.30	36.61	39.09
2001	6.84	2.75	10.36	6.13	100.00	23.30	37.75	38.95
2002	7.04	5.40	14.50	7.00	100.00	22.99	38.55	40.08
2003	7.24	5.20	14.94	7.00	100.00	23.20	39.00	37.80
2004	7.60	3.30	10.20	7.30	100.00	21.81	40.21	37.98
2005	8.40	4.00	10.60	8.50	100.00	20.90	41.00	38.10

 

Per capita GDP (in US$)

1990	1995	2000	2001	2002	2003	2004	2005
200.00	289.00	402.10	412.90	440.00	491.90	556.30	637.30

 

Human development index increased from 0.498 in 1990 to 0.688 in 2002. In 2005, Viet Nam ranked 112 among 177 surveyed countries.

Some basic targets of socio-economic development (2006-2010):

GDP growth doubles that of 2000; domestic economic accumulation reaches over 30% of the GDP; annual growth rate stays at least at 7.5-8%; per capita income should be from US$ 1,050 to US$ 1,100; proportion of agriculture-forestry-fishery in GDP should be 15-16%; of industry: 42-43%; of service: 41-42%; social investment capital reaches about 37-38%; GDP mobilization to the budget: 21-22%; agricultural workers should account for only 50% of the work force; population growth rate goes down to 1.1%; the rate of unemployment in urban areas reduces to less than 5%; about 80-85% of working time in rural areas is used; 40% of the population are vocationally trained; junior secondary education is universalized; the rate of malnourished children below 5 years old reduces to 20%; life expectancy attains 72.

Programs and solutions for socio-economic development by 2010

Việt Nam's overall target in the current stage is to maintain a high and sustainable economic growth rate, making the GDP of 2010 double that of 2000 as set in the plans and guidelines.

To that end, Việt Nam advocates bringing all of its potential internal strengths (capital, labor, natural resources) into full play, at the same time making use of the external resources. To achieve these targets, Việt Nam is concentrating on the following tasks:

- Creating a favorable environment, a stable and comprehensive legal framework so that domestic and foreign investors are ensured to stay and do long-term business. The Law on Competition and Monopoly Control, Law on Enterprises, Law on Investment Encouragement and Protection applied to enterprises in all economic sectors, inside and outside the country, have been approved by the National Assembly;

- Further promoting the arrangement, reform, development and efficiency of State-owned enterprises, encouraging the strong development of the non-State economic sectors, enhancing the competitiveness of products, enterprises and the whole economy;

In fact, Việt Nam has been accelerating the equitization of State-owned enterprises, including those working in the fields of electricity, metallurgy, mechanism, chemicals, fertilizers, cement, construction, transportation, aviation, telecommunication, banking and insurance. The State will control business monopoly and prerogatives of state-owned enterprises, abolishing improper protectionism incompatible with the roadmap of integration into the world's economy;

Regarding foreign direct investment, in the coming time, the Government will issue some specific policies and solutions designed to make big changes in attracting foreign investment, especially from the transnationals; steering for important sectors of the national economy, especially high–technologies and resource technologies; diversifying forms of investment, expanding fields that attract investment in compliance with the set international commitment and roadmap;

- Further promoting the building of a synchronous market economy system and the development of market types;

The capital market, especially the stock market, has been actively expanding so that it can quickly become an effective channel for capital mobilization;

The currency market will continue to be upgraded to increase the competitiveness, creating conditions for all economic sectors to have access to capital sources;

The real estate market will also be expanded and stimulated, facilitating chances for domestic and foreign investors to join.

- Continuing to actively integrate and effectively carry out the commitments and roadmaps for international economic integration, carefully prepare internal conditions for Việt Nam's accession to the WTO;

To successfully fulfill this task, on the one hand, legal documents should be amended and built in conformity with the integration requirements. On the other, a comprehensive strategy for international economic integration should be mapped out, promoting bilateral and multi-lateral cooperation with important and strategic partners;

- Concentrating on upgrading the socio-economic infrastructure, especially the telecommunication and IT sectors; completing the 10-year program of administrative reform (2001-2010) towards a clean, solid, efficient and competent administrative apparatus for the benefits of the people and enterprises – a law-managed administrative apparatus of transparency, openness, with the chief purpose of serving. In other words, a fully law-ruled State should be built in Việt Nam.

 Việt Nam has been and is performing the above-said duties. Let us take three following examples:

Firstly, restructuring the State-owned enterprises: To revitalize state-owned enterprises and enhance their effectiveness of production and business, thus promoting their competitiveness and the regional and international integration, preparing to deal with challenges brought about when Việt Nam achieves membership of WTO in 2006 and satisfactorily fulfilling the tasks of an AFTA (Asian Free Trade Area) member in 2006, at the same time, maintaining the key role of state-owned enterprises in the national economy, the Government, in realization of the Resolution of the 9th Plenum of the 9th Party Central Committee, has launched a three-year program of State-run enterprise rearrangement (2002-2005) as follows:

At present, there are 4,722 state-owned enterprises (which used to be 12,000 before 1996), by 2005 the number will have been 1,931 (accounting for 41%), the remaining 2,791 enterprises (59%) will be shared among different owners; 2,053 of which will be equitized with 1,042 enterprises where the State holds most shares (over 50%). The remainder of the 738 enterprises will be integrated, disbanded, merged together, sold, rented and bankrupted.

At present, there are eighteen State-owned corporations "91" (being arranged and organized under Decree 91 of the Government) and 79 corporations "90" (arranged and organized under Decree 90 of the Government). The 18 state-owned corporations will still be run, whereas, the corporations "90" will be reorganized to become 73 corporations; among 1,476 member companies of big corporations with 100% state fund, only 554 will be kept, the rest will be equitized.

After three years of implementation of this program, the number of 100%-State funded enterprises is now 2,980 and there are 670 joint-stock companies where the State holds over 51% of the charter capital. From the corporations 91, in the fourth quarter of 2005 and the first quarter of 2006, four State-owned economic groups were founded: Post and Telecommunication, Vinashin, Garments, and Coal and Minerals. In fact, the three-year rearrangement program of State enterprises has not met requirements. This program will be further carried out in the years to come in order to release production forces and fully exploit the internal potential of the economy. The main orientation will be to enhance the equitization of State-run enterprises.

Secondly, the issuance of the Law on Corporate bankruptcy, the Law on Monopoly Control and the Law on Anti-dumping will pose great challenges for enterprises, but at the same time create opportunities for all economic sectors to make progress and meet the development demand of the country, thus strengthening their competitiveness in domestic and international markets.

Thirdly, promoting the private sector: In realizing the guidelines of a multi-sector economy, the State has adopted many encouraging policies for the development of the private sector. For the past 10 years, from 1991 to 2003, this sector has made great advances.

According to the statistics by 2000, there were 9,793,878 individual business households throughout the country; 7,656,166 of which were agriculture-based ones outside the cooperatives, and 2,137,713 were non-agricultural. Among the non-agricultural households, 51.89% were engaging in trade and services, 30.28% in industry, 11.63% in transportation, 0.8% in construction, and 5.46% in other activities.

In the private sector, by 1991, there were 132 enterprises. This figure reached 66,780 non-state enterprises by October 31, 2001, in which private enterprises accounted for 58.75%, limited companies 38.68%, stock companies 2.55%, joint ventures 0.01%. In just several years of implementation of the Law on Enterprises, the number of private enterprises went up from 10,000 (1999) to 80,000 (October 2003) and 170,000 in June 2006, with the total registered capital of US$ 10 billion, making up 27% of the social production and utilizing 2 million laborers. The private economic sector (including private enterprises, cooperatives and individual producers) employs nearly 22 million laborers and accounts for 42.5% the GDP.

The 2010 aims and 2020 vision

On 17 August 2004, Việt Nam's Prime Minister promulgated Decision 153/2004/QD-TTg on the issuance of Strategic Orientation for Việt Nam's Sustainable Development (called Agenda 21 of Việt Nam's Government).

This is a strategic framework, outlining big orientations that serve as the legal base for the relevant Ministries, sectors, localities, organizations and individuals. It also shows Việt Nam's commitments to the international community.

Under the Decision, priorities are given to the following economic aspects to ensure sustainable development: maintaining rapid and sustainable economic growth; changing the production-consumption model towards an environment-friendly direction; carrying out "clean industrialization"; aiming at sustainable agriculture and rural development.

Priorities are also given to some social development aspects: focusing on poverty reduction and hunger elimination; promoting social equality and progress; further reducing population growth and generating jobs for laborers; clearly planning the urbanization and relocation; raising education-training quality; increasing health care services; improving working conditions and environment hygiene.

Regarding the issues of natural resource exploitation and environment protection, such aspects are prioritized as: anti-soil degradation; water environment protection; proper minerals exploitation and utilization; ocean, coastal and island environment conservation; sea resources development; air pollution reduction in urban areas and industrial zones; solid and toxic waste management; preservation of bio-diversification.

Concerning this program, on August 13, 2004, the Prime Minister launched three Decisions 145, 146 and 148/2004/QD-TTg on development in Việt Nam's three main economic zones.

- Orientations for socio-economic development in the Northern Economic Zone by 2010 and the 2020 Vision implemented in eight centrally-administered cities/provinces (Hà Nội, Hải Phòng, Quảng Ninh, Hải Dương, Hưng Yên, Hà Tây, Vĩnh Phúc, and Bắc Ninh) in order to make full use of the potential and advantages brought about by their geological conditions and infrastructures:

The key development targets are: increasing national GDP contributions from 21% in 2005 to 23-24% in 2010 and 28-29% in 2020; raising the export value per capita from US$ 447 per year in 2005 to US$ 1,200 in 2010 and US$ 9,200 in 2020; making an increase in the zone's budget share from 23% in 2005 to 26.5% in 2010 and 29.5% in 2020; boosting up the rate of technology innovation to reach the average of 20-25% per year; reducing the proportion of poor households to 1.5% in 2010 and less than 0.5% in 2020; lessening the rate of unemployment to 6.5% in 2010; decreasing the natural population growth rate to 1% in 2010 and to less than 0.8% in 2020.

Some development orientations of key sectors and aspects in the Northern Economic Zone: making hi-tech industries, high-quality services (software industry, informatics, automatics) and other key industries; manufacturing automatic equipment, robots, high-quality new materials; developing shipping and mechanic industries. Also, it is high time to build and develop supplementary industries in which the Zone has comparative advantages to raise its products' added value; spare parts and equipment manufacture for car, motorbike, electric and electronic components, dynamic and electric engines. At the same time, it is necessary to build economic zones, researching and training centers, and other facilities to serve the socio-economic development of the zone.

- Orientations for socio-economic development in the Central Economic Zone consisting of five provinces and cities (Đà Nẵng, Thừa Thiên-Huế, Quảng Nam, Quảng Ngãi and Bình Định) with a view to make full use of the potential, geological location and other comparative advantages of the zone, gradually making the Central Economic Zone one of the most dynamic development zones of the country, thus ensuring the motivation role and promoting the development of Central Việt Nam and the Central Highlands:

The construction of the open economic zones in Chu Lai (Quảng Nam), Dung Quất (Quảng Ngãi), Chân Mây (Thừa Thiên–Huế), and Nhơn Hội (Bùnh Định) will be planned and promoted so that after 2010 they will have become the economic development centers of the zone. At the same time, the role of international commercial, service and trading centers of such cities as Đà Nẵng, Huế, Quy Nhơn will be enhanced to function as the commerce, service, trade and tourism hubs of the whole Central Việt Nam and the Central Highlands. Several tourism centers will be formed like Huế, Đà Nẵng, Quy Nhơn and other surrounding areas.

- The Southern Economic Zone (Hồ Chí Minh City, Bình Dương, Bà Rịa-Vũng Tàu, Đồng Nai, Tây Ninh, Bình Phước, Long An and Tiền Giang) is oriented to becoming a dynamic economic zone with a high and sustainable growth rate, heading the national industrialization and modernization, in some important aspects of the economy and in the international economic integration, creating a momentum for the development of the eastern part of South Việt Nam.

The key development targets include: increasing the zone's contribution to the national GDP from 36% currently to 40-41% in 2010 and 43-44% in 2020; building high-quality service, production and social centers to reach international standards and that of the Southeast Asia, meeting the demands of the whole Southern region and of international customers.

In that line, a complex urban area to the northwest of Hồ Chí Minh City (including Long An, Tây Ninh and Hồ Chí Minh City) will be built; a high-quality training center in Bình Dương, health care, and vocational training centers in Bà Rịa-Vũng Tàu will be developed; highway systems linking Hồ Chí Minh City and Vũng Tàu, Trung Lương, Tây Ninh will be constructed and Long Thành Airport built.

(Sources: https://www.asean2020.vn)