Vietnam

Literature Review Paper

Timothy Tan Xin Zhong M10505

GE5101 Reshaping the Global Economic Map

Literature Review Paper

Vietnam

Vietnam

GE5101 Literature Review Paper


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Table of Contents

Introduction ................................................................................................................................ 2

A History of Invasions, Wars & Colonial Rule (August 31, 1858 – April 30, 1975) ............................ 3

French Annexation of Vietnam (1858 – 1945) ................................................................................... 4

World War II, the First Indochina War& the Geneva Accords (1945 - 1954) ................................ 5

War against Communism (September 26, 1959 – April 30, 1975) ........................................... 6

Reunification (July 2, 1976) .......................................................................................................... 7

Five Year Plans (December 1976 – 1990) ...................................................................................... 9

2nd Five Year Plan (December 1976 – 1981) ....................................................................................... 9

3rd Five Year Plan (1981 – 1985) .................................................................................................. 10

4th Five Year Plan (December 1986– 1990) ............................................................................ 12

Towards a Free Market System – Policies & Laws Implemented (1989 – 2001) ........................... 16

Law on Foreign Investments (1989) ................................................................................................ 16

Law on Enterprise (April 15, 1991) ............................................................................................. 17

Investment Law & Enterprise Law (July 1, 2006) ................................................................... 17

Towards a Free Market System – Foreign Influences (1989 – 2006) ............................................ 19

Foreign Aid (1990 - 1993) ................................................................................................................ 19

ASEAN Membership & CEPT (July 28, 1995 – January 1, 1996) .................................................. 20

Asian Financial Crisis (1997) ................................................................................................... 20

Bilateral Trade Agreement (July 13, 2000) ......................................................................... 22

United Nations Development Program (2000 – 2001) ................................................... 23

World Trade Organization (November 7, 2006) ......................................................... 23

Vietnam Today ......................................................................................................................... 24

Bibliography ............................................................................................................................ 26

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Introduction

The Socialist Republic of Vietnam is the 13th

most populous country in the world, with a population

of approximately 88.8 million. With a rich and turbulent

modern history of wars and invasions, Vietnam is still

in its early stages of economic development, and is

considered an Economically Less Developed Country

(ELDC). Thus, her main exports are mostly

commodities, while her main imports are mostly

manufactured goods. Examples of exports include raw

materials and crops such as paddy rice, cashew nuts

and black pepper, while examples of imports include

consumer goods and manufactured products such as

electronic goods, machinery and equipment.

The end of the Vietnam War on the 30thof April, 1975 led to the unification of

North and South Vietnam, and the adoption of North Vietnam’s communist

ideologies. The country is currently led by the Communist Party of Vietnam and

Nguyễn Minh Triết, the country’s president. Strict restrictions are imposed on the

freedom of speech, freedom of assembly and the freedom of the press. Today,

Vietnam is increasingly proactive in engaging in international economic integration.

Figure 1 – Map of Vietnam

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A History of Invasions, Wars & Colonial Rule (August 31, 1858 –

April 30, 1975)

Vietnam has a very long and intense history of invasions, wars and colonial

rule. Vietnam was annexed by the French in a campaign that began in 1858 and

concluded in 1887. This was Vietnam’s first encounter with Westerners. France

firmly governed French Indochina, comprising of Vietnam, Cambodia and Laos until

the outbreak of World War II, where Vietnam was lost to Japan in 1945. France

attempted to re-establish colonial rule in the First Indochina War but failed, leading to

the Geneva Accords, which partitioned Vietnam into two separate entities – North

Vietnam and South Vietnam. Finally, the war against communism, the Vietnam War,

caused 16 years of pain and suffering. Physical and social infrastructure and much

of the economy was destroyed.

It can be observed that for much of the last century or so, the Vietnamese

were either under colonial rule or defending themselves against invasions to prevent

themselves from entering colonial rule. Colonialism describes the control of a less

‘advanced’ people by a more ‘advanced’ one. Indeed, when the French first set foot

on Vietnam, Vietnam was still a mainly agricultural and agrarian society. Countries

can drastically change under colonial rule and foreign influence, and the policies,

legislation and regulations implemented by these new foreign powers are often

motivated by personal agendas and goals. Vietnam, a country that once used to

belong to France, Japan and even China, is an excellent example.

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French Annexation of Vietnam (1858 - 1945)

Upon the annexation of Vietnam in 1887,

France started exploiting Vietnam’s natural

resources. Plantations and certain mining

industries were developed and harnessed. The

French began investing in Vietnam in order to

increase the yield of raw materials, and

introduced French agricultural methods, which

increased grain and food production. Vietnam gradually became integrated into the

world market on the basis of exports of rice. By the 1920s, Vietnam became one of

the world’s leading rice exporters. Vietnam’s transport infrastructure was also

improved to make transporting materials easier and more efficient. This was the

beginning of the transformation of Vietnam’s basic, village-oriented economy into a

modern market economy. Industrialization had come to Vietnam.

The French realized that North Vietnam was wealthy in mineral resources,

while South Vietnam was poor in such resources and thus more suited for agriculture.

Intent on maximizing economic profits, France designated North Vietnam mainly for

manufacturing and South Vietnam for agricultural production. This caused the

markets of North and South Vietnam to diverge, and led to overly stressed regional

economic differences. This divergence can be argued to have played a major role in

causing the numerous North-South conflicts in history, such as the Vietnam War.

New untapped markets were another incentive for the colonization of Vietnam.

France, like most of Europe and the rest of the developed world, were in the midst of

Figure 2 – Vietnamese farmer in a field of rice

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the Industrial Revolution, and manufactured products like textiles and machines were

being produced at a rate never seen before. France needed more markets to sell

these products. The import of French manufactured goods and the development of

exportable goods – coal from the North and rice from the South stimulated internal

commerce and boosted market growth.

French colonial rule can be said to both benefit and harm Vietnam. Although

the French exploited Vietnam’s natural resources, they also helped to construct and

improve Vietnam’s infrastructure and boost market growth by investing resources,

funds, knowledge and expertise. Colonial rule was to be the first of many steps in

Vietnam’s transformation away from a subsistence and agrarian economy.

World War II, the First Indochina War & the Geneva

Accords (1945 – 1954)

In World War II, Japan conquered Vietnam in 1945. After

the War, France attempted to re-establish colonial rule,

sparking off the First Indochina War. The French forces lost,

and the war ended on August 1, 1954. The resulting 1954

Geneva Accords divided Vietnam into two – the Democratic

Republic of Vietnam in the North, and the Republic of Vietnam

in the South. The Communist Bloc, comprising of China and the

Soviet Union supported the North, while the capitalists, most

notably, the United States, supported the South.

Figure 3 – Map of North and South Vietnam

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Karl Marx, the founding father of Communism, once summarized Communism

in this maxim, “From each according to his ability, to each according to his need.”

Communism revolves around equality and fairness. Educated and hardworking

people are treated in the same manner as uneducated and lazy people. The

incentive of profit that rational humans require in order to succeed and do well in life

is effectively eliminated. This is the reason why the United States is such a strong

opponent of communism, even playing a significant role in the war against

communism.

War against Communism (September 26, 1959 – April 30, 1975)

The Vietnam War started on

September 26, 1959, and ended with

North Vietnam winning the War on April

30, 1975. This war, like most wars, had

many negative repercussions on the

economy and people of Vietnam. Much

of the economy was destroyed, and

there were 1.5 million military and civilian

deaths, which meant that the workforce was drastically reduced in size, resulting in

labor shortages after the war. War bombings disrupted transportation routes,

interrupted the supply of electricity, and destroyed a large amount of physical

infrastructure.

When the War finally ended, Vietnam was reunified and came under

communist rule. From the time French sailors first set foot on the village-oriented

Figure 4 – Dead Viet Cong Militants after an attack on the perimeter of Tan Son Nhut Air Base

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Vietnam in 1858 until the time American troops left Vietnam in defeat in 1975,

Vietnam has been subjected to French colonial rule, Japanese invasions, a war

against communism, and countless battles. These have served to stunt the growth of

Vietnam’s economy, and help explain the lack of foreign investment, infrastructure

development, and economic growth until recent years. There are no winners in war,

only losers.

Reunification (July 2, 1976)

On July 2, 1976, Vietnam was reunified under the Vietnamese Communist

Party (VCP). The new government started mapping strategies for economic growth

and development, setting growth targets and launching reforms. However,

communist Vietnam was already riddled with social and economic problems and

issues from the beginning.

In the wake of the Vietnam War, there was internal strife between the North

and South Vietnamese. Vietnam became politically isolated from the rest of the world,

with many capitalist countries setting up trade embargoes as a result of the

communist ideals adopted by the state. As North Vietnam won the war, her Stalinist

economic system was adopted. Such an economy is extensively controlled by the

government and heavily subjected to governmental intervention, central planning

and restrictions, which greatly hindered post war reconstruction. The state

nationalized farms, factories and economic capital, banned the private transportation

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of foods and goods between provinces and forced the population to work in

government programs, which were often corrupt and inefficient. Due to these

government measures, Vietnam experienced low labor productivity (a common

observation in communist countries), unemployment (due to the nationalization of

private farms and factories) and a lack of raw materials and technology (due to the

trade embargoes set up). These economic problems also caused the stagnation and

devastation of the Vietnamese economy, which remained dominated by small-scale

production in the primary and secondary industry.

Vietnam was not growing sufficient rice to feed itself due to the lack of

incentives for the Vietnamese to work hard under collectivized agriculture and the

communist mindset adopted by the state. Hunger was prevalent, and in 1986,

Vietnam had to import 1.5 million tons of rice. Vietnam also required US$3 billion

annually in economic and military aid from the USSR, which was also communist.

Due to the trade embargoes set up, Vietnam could only trade with communist

countries such as Bulgaria, Poland and the Soviets. It is clear that compared to her

days under colonial rule, Vietnam was even less connected to the global economy in

terms of trade and communications.

These serious social and economic problems led to the exodus of over a

million Vietnamese, including tens of thousands of professionals, intellectuals,

technicians and skilled workers, who secretly escaped the country either by sea or

overland through Cambodia. This brain drain severely reduced the rate of state and

economic reconstruction.

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Five Year Plans (December 1976 – 1990)

Government planning is a key characteristic of communism. As communism

revolves around equality, each state policy usually applied to the entire country as an

entity. The Vietnamese Communist Party constructed four five year plans that were

intended to be used as guides for the development of the Vietnamese economy, with

detailed economic development guidelines for all its regions. The 1st Five Year Plan

was carried out from 1961 to 1965, and only involved North Vietnam. The other three

were adopted after the Vietnam War and thus involve the reunified Vietnam.

2nd Five Year Plan (December 1976 – 1981)

This was the first major plan adopted by the Vietnamese Communist Party

after the Vietnam War. Due to their victory in the War, and the realization that their

dreams to unify Vietnam under communism had become real, the communist state

was extremely optimistic about future economic growth. The state expected to

observe annual growth rates of 8 – 10% in the agricultural industry and annual

growth rates of 13 – 14% in national income! Vietnamese leaders even claimed that

this plan would allow the country to bypass the capitalist industrialization stage that

made capitalist economies prosper.

As stated earlier, this Plan was the first major plan after the Vietnam War.

Thus, it included specific details and orders from the state to the various provinces

regarding post-war reconstruction and reparations. The state wanted to integrate the

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North and the South, and physical infrastructure damaged in the war by United

States bombardment had to be repaired.

The 2nd Five Year Plan also wanted to improve and develop Vietnam’s

agricultural and heavy industry. Investments and development plans were ordered to

focus more on these two particular sectors of the economy. Vietnam, having adopted

communist ideals, also hoped to improve and extend the state’s involvement and

control over the economy.

However, Vietnam was incapable of undertaking such an ambitious plan on its

own and thus tried to solicit for financial support from Western nations, international

organizations and communist allies. The economic aid that Vietnam received was

substantial but still fell short of requirements. Due to this lack of funding and the fact

that the goals set were just too high, Vietnam did not achieve all the goals of this

Plan.

3rd Five Year Plan (1981 – 1985)

Observing the failure of the 2nd Five Year Plan, the state proceeded more

cautiously in the drafting and construction of the 3rd Five Year Plan, presenting the

Plan one year at a time. The communist state realized that there had to be a

compromise between the ideological and pragmatic elements in the governing of

Vietnam. This compromise has happened to all self-declared communist countries in

the history of mankind. There has never been an entirely communist country with a

flourishing economy. Certain free-market elements must be utilized, forcing

industries to be more efficient and competitive, thus reducing welfare loss.

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The authorities hoped that if the economy was growing at a rapid pace,

Vietnam would then be in a better position to undergo the complete transformation

into a communist state at a later stage. The government also realized that the private

trade sector could not be fully eliminated until the state was capable of assuming

responsibility for trade, which it could not as communist Vietnam was still struggling

with other social and economic problems. Due to these two reasons, the state

decided to temporarily sanction capitalist activities and free enterprise, which are

elements found in free market economies. The nationalization of businesses ended

and planning was decentralized. Privatization resulted in increased profits for the

private sector as the state monopoly weakened and competition increased. This also

gave entrepreneurs the incentive to be innovative and creative. Employers were

also given more autonomy. Little did the communist leaders of Vietnam know that

this was to be the start of Vietnam’s move away from communism and towards

capitalism and global integration.

While certain aspects of the Vietnamese economy became more capitalist,

other aspects became more communist under state orders. Collectivization was

accelerated in the state’s attempt to develop Vietnam’s primary and small-scale

industries. This was to meet Vietnam’s material needs, create goods for exportation

and speed up the development of the heavy industry. By the end of this Plan, 72% of

peasant households in the South were enrolled in some form of government

cooperative organization.

This Plan also attempted to improve the managerial skills of government

officials and reduce government expenditure. To do this, the state no longer

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compensated losses incurred by state enterprises and no longer subsidized food and

certain consumer goods for state employees. These two measures were intended to

make the state more efficient and capable. The state also started promoting the

employment of science and technology in more of Vietnam’s industries. For example,

the government introduced intensive cultivation and crop specialization to

Vietnamese farmers in attempts to increase agricultural yield. Monetary

organizations in Vietnam were also required to adopt modern accounting measures

and methodology, which would prove helpful in the future when Vietnam started

opening up her market and economy and doing business with foreigners.

During this period of time, Vietnam’s main goal continued to be the attainment

of complete communism. The capitalist elements adopted were meant only to be

temporary springboards towards that goal. The 3rd Five Year Plan included various

measures that were meant to make the government, the country and the economy

better in general.

4th Five Year Plan (December 1986 – 1990)

A decade after the reunification of Vietnam, many economic problems were

still not addressed. Capitalism, trade and foreign investments started looking more

favorable. Thus, in 1986, a new government was appointed, headed by the new

general secretary, Nguyễn Văn Linh, who was pro-capitalist. Immediately after taking

office, he started reforming Vietnam’s economy, and introduced free market reforms

known as Đổi Mới, which can be translated as the word ‘renovation’.

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This Plan lived up to its name, and became a significant turning point for

Vietnam’s ailing economy, putting Vietnam on the road to globalization and to being

a part of the global economy. Linh, being pro-capitalist, abandoned the Stalinist

central planning economy in favor of today’s socialist-oriented market economy

based on commodity production.

This Plan introduced more capitalist elements into Vietnam’s economy. The

private ownership and entrepreneurship of farms, firms and businesses was

encouraged. The number of state-owned enterprises was reduced from around

12,000 to approximately 6,000, a reduction of 50%. This was done through mergers

and liquidations. A key characteristic of communist countries, centralized planning

and decision making, was abolished. Other communist-oriented policies and

regulations that hindered the growth of the economy were also removed, such as

mandatory output requirements, internal customs checkpoints, price controls and

production quotas. This gave employers and managers more freedom, autonomy

and flexibility to make decisions in response to market changes. This Five Year Plan

also included policies that allowed for increased foreign participation in the banking

sector, and policies that helped to create export processing zones (EPZ) for foreign

enterprises, setting the stage for increased foreign investments and trade.

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Figure 5 – This graph depicts the change in size of the state, private and foreign economic sectors as a percentage of annual GDP (%).

The state’s domination of the annual GDP is observed to decrease, while the foreign economic sector increases. The private economic sector shows a very slow increase in size.

Capitalism attracts foreign investments. The average investor and

transnational company understands the importance of a capitalist structured

economy, and knows that it is much easier to make profits when investing in free

market economies than when investing in economies subject to heavy government

intervention and regulation. Thus, when Đổi Mới came to Vietnam, her economy

became much more attractive to foreigners. The 4th Five Year Plan also started

encouraging the private ownership of enterprises, and decreased the amount of

regulations, quotas, controls and paperwork required by private enterprises, making

it more feasible to invest in Vietnam.

0

5

10

15

20

25

30

35

40

45

1994 1995 2000 2001 2002 2003

Pe

rce

nta

ge o

f A

nn

ual

GD

P (

%)

Vietnam's Economic Sectors

State Private Foreign

Source: Statistical Yearbook

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The Vietnamese state also wanted an

increased focus on the production of food,

consumer goods and export goods in order to

create more jobs, meet the basic needs of the

population and develop important sources of

export commodities. This was done by building

and improving infrastructure. Fertilizer was imported, pest control and tractor use

was introduced, and water was conserved. A factor that investors and traders often

look out for is the level of infrastructure. By increasing the level of infrastructure,

Vietnam made itself more attractive.

The repercussions of the 4th

Five Year Plan were immense and

are felt even until today. From a food

deficit country and a rice importer in

the mid-1980s, Vietnam was

transformed into a food surplus

country and the world's second

largest rice exporter. Vietnam’s economy achieved rapid growth, and more than

30,000 private businesses had been created. Exports to ASEAN more than doubled,

while imports to ASEAN tripled (Figure 7).

A strong potential for growth could be observed, attracting foreign investors

and more trade. Foreign investments have grown threefold since the introduction of

Đổi Mới, the 4th, last, and most successful Five Year Plan.

Figure 6 – 4th Five Year Plan Targets: Food and consumer goods

Figure 7 – Vietnam’s Trade with ASEAN (Imports & Exports)

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Towards a Free Market System – Policies & Laws Implemented

(1989 - 2001)

Đổi Mới was to be the very last Five

Year Plan, not because it was unsuccessful

and deemed useless, but because it was too

successful. The years after Đổi Mới witnessed

huge and rapid economic growth (Figure 8).

Numerous economic policies and laws were

implemented by the new pro-capitalist government, which helped to bring about

Vietnam’s current position as a globalized country playing a major role in the South-

East Asian region and in the global economy. These golden years also saw foreign

countries like the United States and her South-East Asian neighbors play an

increasingly significant role in her economy. This would be discussed critically in the

next chapter, Towards a Free Market System – Foreign Influences (1989 – 2006).

This chapter looks at the policies and legislation implemented after the Đổi Mới

reforms.

Law on Foreign Investments (1989)

In 1989, the very first Law on Foreign Investments (FIL) was drawn up. It

intended to encourage and make provisions for foreign direct investment (FDI), thus

contributing to the modernization, industrialization and development of Vietnam’s

Figure 8 – Economic Growth after the 4th Five Year Plan

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economy. This law liberalized trade and led to increased participation in the global

economy, which presented new opportunities for many low-income Vietnamese.

This law was significant as communist Vietnam’s change in mindset towards

foreigners and foreign investments was now written in black and white. There was

now little doubt that the state wanted to be a part of the global trade and economy.

Law on Enterprise (April 15, 1991)

The Law on Enterprise was adopted on April 15, 1991 and applied solely to

Vietnamese citizens. It helped to further demarcate and outline the boundaries in

setting up companies in Vietnam, thus eliminating the grey areas encountered when

citizens set up businesses. This law also enhanced the efficiency of the state when

managing the economy, and protected the lawful interests of private entrepreneurs,

thus encouraging investment, business and entrepreneurship amongst the

population of Vietnam.

The Law on Enterprise was revised in January 2000. This revision created

almost 40,000 private businesses and approximately 1 million new jobs.

Investment Law & Enterprise Law (July 1, 2006)

Before the adoption of the Investment Law, foreign investments were

governed by the Law on Foreign Investments (FIL), mentioned above. Domestic

investments were governed by another law, the 1999 Law on Domestic Investments.

Before the adoption of the Enterprise Law, foreign enterprises were governed

by the Law of Foreign Investments (FIL). Domestic enterprises were governed by

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another law, the 1991 Law on Enterprise, mentioned above. Nationalized and state-

owned enterprises were governed by yet another law, the 2003 Law on State-owned

Enterprise. While domestic enterprises simply needed to register their business,

foreign enterprises had to carry out feasibility studies and faced much more

administration and paperwork. State-owned enterprises had much more advantages

than both domestic and foreign enterprises, with numerous governmental

protectionist schemes and the occasional state subsidy.

These were forms of discrimination, and were caused by the state’s earlier

anti-foreigner and pro-communist mindset.

Đổi Mới introduced pro-capitalist and pro-trade ideologies which made the

Vietnamese state interested in globalization, trade and the global economy. Thus,

Vietnam expressed interests in joining the World Trade Organization (WTO).

However, Vietnam failed to meet the criteria, which stated that foreign and domestic

investments and enterprises had to be treated equally. This prompted the

formulation of laws that unified the treatment of both foreign and domestic

investments and enterprises, leading to the adoption of the Investment Law and the

Enterprise Law.

Under these laws, investors were given more autonomy and control. Foreign

employees could now be recruited. To encourage the growth of the tertiary and

quaternary industry, government guarantees were promised to investments in the

sectors of these two industries. Examples of such sectors include biotechnology,

mechanical manufacturing, and research and development (R&D).

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Towards a Free Market System – Foreign Influences (1989 – 2006)

In the years after Nguyễn Văn Linh came to power, Vietnam started changing

its mindset towards trade and globalization, gradually becoming a country with a free

enterprise economy but yet under communist party control. She began to open her

doors to foreign investments and influence and started rising in importance in the

global economy. This chapter looks at the influence other countries had on Vietnam,

and their effects on the Vietnamese economy.

Foreign Aid (1990 – 1993)

In the chapter on the reunification of Vietnam, Reunification (July 2, 1976),

Vietnam was said to have required US$3 billion annually in economic and military aid

from the communist Soviets. This went into supporting Vietnam’s ailing economy

under communist control, and accounted for up to 30% of the state budget. When

the USSR collapsed in 1990, this much needed pillar of support was lost, propelling

further economic change towards a free enterprise system where such support was

redundant.

In 1993, many developed countries such as Australia and the United Kingdom

started or resumed their assistance programs after noting Vietnam’s intentions to set

up a laissez-faire free market economy. These new sources of foreign aid helped to

facilitate Vietnam’s economic transitions.

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ASEAN Membership & CEPT (July 28, 1995 – January 1, 1996)

On July 28, 1995, Vietnam became a full member of the Association of South-

East Asian Nations (ASEAN). 5 months after her induction into ASEAN, Vietnam

started to implement the Common Effective Preferential Tariff scheme (CEPT). This

scheme involved all ASEAN members, and formed the ASEAN Free Trade Area

(AFTA). This trade bloc agreement aimed to increase ASEAN’s competitive edge as

a production base in the world market through the elimination of non-tariff barriers,

tariffs and other limitations and restrictions to trade between ASEAN countries.

The joining of ASEAN and the CEPT sent a clear message to foreign

investors regarding Vietnam’s pro-trade economic policies, and demonstrated her

commitment to trade liberalization, to economic cooperation in the South-East Asian

region, and to the opening up of her economy. This attracted more foreign

investments as these are the economic traits that businessmen, entrepreneurs and

transnational companies often look out for when choosing markets for investment.

Asian Financial Crisis (1997)

With the Đổi Mới state reforms and the implementation of other state policies and

legislation, the economy of Vietnam saw huge growth. From 1990 to 1997, Vietnam

achieved an 8% growth in GDP annually.

In 1997, the Asian Financial Crisis gripped South-East Asia. Vietnam was one of

the least affected countries as her economy was not as open as compared to her

neighbors. Vietnam did not rely much on liquid foreign finance and the đồng was

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non-convertible then. However, negative repercussions were still felt, and Vietnam

suffered from a loss in confidence and export demand. Annual GDP growth also

dropped from 8% to 4% due to a sharp decline in Foreign Direct Investment (FDI).

(Figure 9)

Figure 9 – A graph of Foreign Direct Investments (FDI) into Vietnam from 1998 to 2006.

The sudden drop in 1997 is due to the 1997 Asian Financial Crisis. The years after that are characterized by low FDI. It is not only until 2003 that the Vietnamese economy starts picking up.

A warrior would only become aware of the flaws in his sword when he uses it

in battle. Similarly, the Asian Financial Crisis highlighted the problems in the

Vietnamese economy, and made the state place further emphasis on

macroeconomic stability.

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Bilateral Trade Agreement (July 13, 2000)

Time is a perfect healer. 25 years after the Vietnam War, a Bilateral Trade

Agreement (BTA) was signed between the United States and Vietnam. This was

symbolic as, in order for countries to have trade agreements with the most anti-

communist country in the world, they must have an economy that is deemed non-

communist.

This trade agreement reduced the U.S. Import Tax on Vietnamese goods and

services, increasing profits. It also helped to transform the economy into a

manufacturing based, export oriented economy, and helped to attract more trade

and foreign investments to Vietnam. From 2000 to 2007, Vietnam’s exports to the

United States increased nine-fold. Today, the United States is currently Vietnam’s

largest investor and export market. (Figure 10)

Figure 10 – The United States is the largest investor in the Vietnamese market.

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United Nations Development Program (2000 – 2001)

Ever since the end of the Vietnam War, the United Nations Development

Program (UNDP) had been providing Vietnam with neutral advice on policy making.

Vietnam slowly came to realize that the world really wanted to help, communist or

not. Thus, for the very first time, the state started consulting the international

community. In the years 2000 and 2001, a series of Round Table Consultations and

Technical Workshops were held between Vietnam’s senior officials and a variety of

ministers and senior officials from Non-Governmental Organizations (NGOs) and

Official Development Organizations (ODAs). These discussions were surprisingly

open, and the Vietnamese government was remarkably receptive to ideas.

This is a key role of the state in its country’s economic development – being

open-minded to the ideas, critiques and opinions of outsiders.

World Trade Organization (November 7, 2006)

Vietnam has consistently achieved a 7% growth in GDP every year from 2000

till 2005, making her the second fastest growing economy. She has come a long way

to meeting the requirements of entrance into the World Trade Organization (WTO)

with the adoption of policies and laws such as the 2006 Investment Law and

Enterprise Law, mentioned above. Finally, on the 7th of November, 2006, Vietnam

was accepted as a member of the World Trade Organization.

This symbolized the world’s recognition of Vietnam’s transition to a market

based economy which was increasingly being integrated into the global economy.

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Being a member of the WTO provided an important boost to Vietnam’s economy and

ensured that the economy continued to be reformed. It also required Vietnam’s

economic sectors to improve transparency and to open the doors to increased

foreign competition in the global arena.

Vietnam Today

As discussed in this paper, the economy of Vietnam has undergone an

impressive amount of growth and reform. From an agrarian and agricultural economy,

Vietnam morphed a French colonial base intent on raw material production. From a

communist-oriented and centrally planned economy, the economy was then molded

into a pro-capitalist economy under the guidance of Nguyễn Văn Linh. Vietnam is

currently a country under communist party control but possessing a free market

economy. Her current impressive economic growth testifies to the state’s vigorous

drive towards economic reformation.

Today, manufacturing, high-tech industries and information technology form a

large and rapidly growing part of the national economy. Vietnam is no longer heavily

dependent on the primary industry, a trait shared by many developed and affluent

countries today (Figure 11). Vietnam’s commitments to the U.S. – Vietnam Bilateral

Trade Agreement (BTA) and the ASEAN Free Trade Area (AFTA), as well as its

negotiations with the World Trade Organization (WTO), provide a clear path for

Vietnam’s integration into the global economy.

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Figure 11 – Foreign Direct Investment (FDI) in Vietnam in 2009

However, this is not the end of Vietnam’s worries. Current economic problems

include a lack in foreign investments and a low level of infrastructure. Vietnam also

needs to further reduce poverty amongst the Vietnamese population, and create

more jobs for a rapidly growing labor force. Finally, Vietnam needs to find ways to

reduce its dependence on foreign aid in order to avoid a replay of the economic

repercussions experienced when the Soviet Union toppled in 1990.

The boat people have a long way to go, with many obstacles on the way.

However, with the monetary and advisory support of countries and Non-

Governmental Organizations, and with the state’s ever-increasing openness towards

foreign investments and other capitalist elements, Vietnam’s road to a successful

economy is just over the horizon.

-------------------------------------------------- The End --------------------------------------------------

Vietnam



26

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