Vietnam gets back on track toward becoming a tiger


POSTED: Sunday, March 08, 2009

Since the institution of Doi Moi (renewal) in 1986, Vietnam has impressed the world with its ideological flexibility in economically advancing the country. Everything seemed to be going swimmingly as Vietnam joined the World Trade Organization in 2007, making its entry onto the global economic stage official. In the view of many, it was only a matter of time before Vietnam would join Taiwan, South Korea, Singapore and Hong Kong as the next economic Asian Tiger.

Then disaster struck as the stock market dropped, oil prices soared and corruption remained uncontrollable. It was obvious that Vietnam would not become the fifth Asian Tiger, at least not quite as soon as hoped. Yet with the same flexibility that had launched the country onto the global economic stage, Vietnam is working hard to capture the title it almost had.

After the American War (as the Vietnamese call the war with the U.S.) ended in 1975, life in Vietnam was very difficult economically. There was little food and medicine. To make matters worse, Vietnam had to beat off a Chinese invasion in 1979. Soon Vietnam hooked up with the Soviet Union. Following the Soviet model of economic development, Vietnam began the collectivization of agriculture, which by the early '80s was an obvious disaster.

If there were any silver lining in the situation, it was that Vietnam was pushed toward a market economy. Since 1986, Vietnam has followed the path of Doi Moi. As a result of the 1986 Congress of the Vietnamese Communist Party, Vietnam began to reach out to the world, and in 1995, joined the Association of Southeast Asian Nations. In 2007, Vietnam joined the World Trade Organization and hosted the annual summit of the Asia-Pacific Economic Cooperation in Hanoi.


Annual growth had averaged 7. 5 percent over the previous 10 years. Upscale boutiques lined both sides of Dong Khoi Street (which Vietnam veterans might remember as Tu Do Street) in the heart of Ho Chi Minh City. Coffee, rice, footwear and clothing exports led a rising stream of Vietnamese exports. Moreover, millions were lifted out of poverty.

Vietnam was on a roll, but storm clouds were forming over the immediate horizon. Perhaps no one should have been surprised. James Redel and William Turrey, Vietnam specialists, predicted in 1999 that the country's reform program eventually would lead to questions about political leadership and institutional viability. Their study further called for greater control over fiscal, monetary and revenue matters. It also called for more transparency and accountability. It predicted the payments problem, accelerated inflation and revenue loss that would trigger crisis.

They were right! In July inflation was running at 28 percent, with a year-end average predicted to be between 25 and 30 percent. There was a balance of payments deficit of $15 billion in the first seven months of 2008. The stock market was down by 67 percent. Real estate prices were down in both Hanoi and Ho Chi Minh City. The price of rice had gone up 72.7 percent by July. The Asian Development Bank predicted a loss in GDP from 7.0 to 6.5, or even a drop to 5 percent. Factory workers and the growing middle class were disheveled.

Prime Minister Nguyen Tan Dung rolled up his sleeves and sought to immediately manage the country's deteriorating situation. He accepted the advice of a board of foreign economic advisors by cutting subsidies to state-owned enterprises, raised petroleum prices by 31 percent and removed the cap on electricity prices, letting them rise by 8.92 percent. Earlier this week, Dung announced a $17 billion package to stimulate the economy in view of the global financial situation.

While Dung has been aggressive, he faces certain political opposition within the Vietnamese Communist Party from conservative elders to those who are enjoying personal benefit from Vietnam's economic development. This is especially true where benefit is gained and authority is abused in the management of state-owned enterprises, a large source of national debt. While Vietnam is more open and less authoritarian than China, many say that the economy will not really move ahead until political liberty is completely unfettered.


Just as in China, corruption remains a problem in Vietnam. In fact, Berlin-based Transparency International gives Vietnam a score of 2.7 on its 2008 Corruption Perceptions Index. Denmark, New Zealand and Sweden get scores of 9.3. Out of 180 countries, the same three countries are ranked one, two and three, respectively; Vietnam is ranked at 121. Corruption hinders Vietnam's ability to attract private foreign investment and aid. Japan, the largest donor of development aid, suspended assistance in December due to concern about corruption. Swedish Ambassador to Vietnam Rolf Bergman said, “;The fight against corruption should be based on zero-tolerance”; and urged further action.


There is no doubt that Vietnam has an abundant supply of hard-working cheap labor that undercuts the price of labor in China. However, Vietnam lacks the infrastructure that China has created. Products can be cheaply produced in Vietnam, but the problem occurs when transporting the product from the factory to a ship when rail links are limited and harbors often are not deep enough for large cargo ships. Vietnam has oil reserves but no refinery. Like other Asian countries, it has been too reliant on the U.S. market. Socioeconomically, there is a growing gap between the rich and the poor, always an ominous sign and especially for a country concerned with maintaining stability.

Nevertheless, the country offers boundless potential. Whereas China is an aging society, the average age in Vietnam is 25. Education standards are relatively high, and in Ho Chi Minh City and Hanoi, GDP (per capita) has surpassed $1,000, which is considered a key marker in developing a consumer society.

Even though Vietnam lost its opportunity to be crowned “;tiger,”; the International Monetary Fund and World Bank give the country two thumbs up. The IMF is impressed by Vietnam's central bankers who have rebuilt trust in the banking system, restored confidence in the dong and are successfully fighting inflation and credit problems by raising interest rates. All of this has helped to bring down food prices. The World Bank is impressed by how Vietnam works with donor countries and has achieved success in every project undertaken. It also believes the country will maintain a strong economic growth rate. A clear sign of confidence in Vietnam's economic future comes from the Intel Corporation, whose plans to complete a $1 billion factory in Hanoi remain in effect.

Resilience is the substance of Vietnam's national psyche. A nation that has fended off Chinese encroachment for much of its history, helped to defeat Imperial Japan, dealt the coup de grace to French colonialism in Indo-China and successfully countered American military power is back on track to becoming a “;tiger.”;