The economy of Vietnam was predominantly agricultural in nature characterized by collective ownership and central planning.
The economy of Vietnam stagnated at a certain point due to several factors like:
- Faulty policies related to import substitution,
- Shift of focus to the heavy industries
- Budget deficit,
- Scarcity of food and various food products,
- High inflation,
- Imbalance in trading activities,
- Poor standard of living
In the year 1986, Vietnam economic reform was implemented, which was referred as “Doi Moi”. Vietnam economic reform consisting of the “Doi Moi” was to include overall revamping of Vietnam economy.
“Doi Moi”-Vietnam economic reform:
In the very beginning it has been mentioned that Vietnam concentrated primarily on heavy industries. With the advent of “Doi Moi”, efforts were made to shift focus to the the following areas.
- Food production
- Boosting private domestic investment as well as foreign investment
- Interference of the state pertaining to business activities.
The National Congress meetings held in 2006 laid stress on the same. However, it was felt that the country needed more structural reforms to be implemented. The economy of Vietnam is basically market economy, which has got many sectors.
The agricultural reforms in Vietnam is one of the redeeming features of the economic reforms. In the year 1981, the government in Vietnam adopted the contracting system pertaining to products. This was followed by the adoption of yet another contracting system pertaining to household. With the introduction of Land Law in the year 1993, all the faulty cooperatives were abolished. The farmers enjoyed title rights to the tillable land. They could also decide as to how their agricultural land could be best used. The Vietnamese government focussed on research and development in the agricultural sector. Domestic investment as well as foreign investment has been instrumental in bringing about Vietnam economic reform. The government supports the private sector and to this effect the Civil Code has been executed to give recognition to individual ownership. Several ordinances as well as laws have been passed to encourage the same.
State sector reform:
Vietnam economic reform did not support the state’s interference in business and contemplated bringing about changes in the state sector. Previously, the total number of SOE or state owned enterprises were approximately 12,300 in the year 1989. The number reduced to 5,600 in the year 2001 and further got reduced to 3,000 in the year 2005. These changes were brought about by dissolution, mergers or privatization. In Vietnam, privatization is known as equitization.
Liberalization in Trade:
Vietnam economic reform was further characterized by liberalization of domestic trade as well as the price of commodities. There was abolition of the system of double pricing. However, till date there are few resources, which are subject to price control by the government. This has been done to evaluate ceilings, price brackets and price levels.
Coming within the purview of the above are:
- Water resources
- Land resources
- Natural resources
Restrictions on export and import have been lifted to a great extent. It was noticed lately that Vietnam has experienced a switch over from state controlled foreign trade towards free trade. There has also been a shift from import substitution towards policies pertaining to export orientation.
Barriers to trade, including non tariff as well as tariff have been eased to a considerable extent. Products of export have been exempted from taxes(export). Limitations pertaining to import and export of goods have been significantly lifted.
Vietnam economic reform- Fiscal as well as monetary:
Banking sector underwent modifications and was made into a double tier system. The first tier consisted of central bank and state bank. The other tier consisted of commercial banks. This gave birth to the private banking sector. Earlier Vietnam had several exchange rates. With Vietnam economic reform, a single exchange rate was launched. There was relaxation in controls pertaining to foreign exchange. Interest rates were also made liberal. The country has embraced a strict monetary policy so that inflation can be checked. Earlier, the Vietnamese government used to print banknotes to compensate for budget deficits. Currently, the government issues treasury bills as well as bonds to make up for the same.
There was decentralization of the state budget. Establishment of a stock market facilitated the mobilization of private savings. The tax base was broadened and corporate income tax as well as value added tax or VAT was introduced. Corporate income tax substituted profit tax and turnover tax was substituted by value added tax.
Aftermath of Vietnam economic reform:
With the implementation of “Doi Moi”, Vietnam has managed to arrest the economic backsliding of the 1980s. Owing to reform in macro economy along with structural reforms, the country has spearheaded and has secured a position in the list of nations registering rapid economic progress. The standard of living of the common people has also increased manifold.
Statistical data indicating consequences of Vietnam economic reform:
- Gross domestic product or GDP was 7 percent during 1994 to 2004.
- In the year 2005, the GDP growth rate was 8.4 percent.
- There was growth in export of goods by approximately 20 percent between 1999-2000.
- The growth rate for 2004 was 31.5 percent
- The rate of growth for 2005 was 21.6 percent.