In 1986, the Sixth Party Congress approved a broad economic reform package called "Doi Moi," or renovation that dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual GDP growth from 1990 to 1997 and continuing at around 7% from 2000 to 2002, topped only by China. Vietnam's inflation rate, which stood at an annual rate of over 300% in 1987, fell below 4% in 1997. Simultaneously, investment grew three-fold and domestic savings quintupled. Agricultural production doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice.
Foreign trade and foreign direct investment improved significantly. The shift away from a centrally planned economy to a more market-oriented economic model improved the quality of life for many Vietnamese. Per capita income, $220 in 1994, rose to $372 by 1999 with a related reduction in the share of the population living in acute poverty.
The striking economic progress that marked the 1990s slowed in the last years of the decade. Despite an impressive 23% rise in 1999's export performance to $11.5 billion, a sharp drop in new foreign investment commitments foreshadows slower economic growth than Vietnam experienced in the early 1990s. Government control of the economy and a nonconvertible currency have protected Vietnam from what could have been a more severe impact resultant from the East Asian financial crisis. Nonetheless, the crisis, coupled with the loss of momentum as the first round of economic reforms ran its course, has exposed serious structural inefficiencies in Vietnam's economy.
Vietnam's economic stance following the East Asian recession has been a cautious one, emphasizing macroeconomic stability rather than growth. While the country has shifted toward a more market-oriented economy, the Vietnamese Government still continues to hold a tight rein over major sectors of the economy, such as the banking system, state-owned enterprises, and areas of foreign trade. Substantial reforms to create a sound banking system and privatize state-owned enterprises need to be speeded up. Without these reforms, Vietnam might not cope with a rising unemployment problem. Urban unemployment has been rising steadily in recent years, and rural unemployment, estimated to be up to 35% during nonharvest periods, is already at critical levels. Layoffs in the state sector and foreign-invested enterprises combined with the lasting effects of an earlier military demobilization further exacerbate the unemployment situation.
The international community has told Vietnamese leaders that the situation calls for a bold new round of structural economic reforms. The country's leadership, however, has chosen to follow a less ambitious, slow-paced reform program. Overall systemic economic reform has been limited by both Vietnam's communist ideology and a bureaucracy which views reform as a threat to the status quo. The country's slow-paced reform has hindered Vietnam from progressing in tandem with regional competitors.
The July 13, 2000 signing of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam is a significant milestone for Vietnam's economy. Pending U.S. congressional approval, the BTA will provide for Normal Trade Relations (NTR) status of Vietnamese goods in the U.S. market. Access to the U.S. market will allow Vietnam to hasten its transformation into a manufacturing-based, export-oriented economy. It would also concomitantly attract foreign investor interest back to Vietnam, not only from the U.S., but also from Europe, Asia, and other regions.
Paralleling its efforts to increase agricultural output, Vietnam has sought with some success to invigorate industrial production. Industry contributed 32.5% of GDP in 1999. However, most branches of heavy industry--cement, phosphate, steel, etc.--have stagnated or declined. State-owned enterprises are marked by low productivity and inefficiency, the result of a command-style economic system applied in an underdeveloped country. Foreign direct investment (FDI)--much of it gravitating to the new industrial zones in the south--is a new and dynamic feature of Vietnam's industrializing economy. Billions of FDI dollars from countries around the globe are helping to transform the industrial landscape of Vietnam. Foreign invested enterprises are also responsible for helping the country achieve large export gains recently. Another inflow of FDI is expected once the BTA is ratified by legislatures of both countries.
Of late, Vietnam has achieved some success in increasing exports of some labor-intensive manufactures. Subsidies have been cut to some inefficient state enterprises. The government also has repeatedly stated its intent to "equitize" a significant number of state enterprises. However, only a relatively small percentage of remaining state enterprises have been equitized in recent years.
As a result of these reforms, exports expanded significantly, growing by as much as 20%-30% in some years. In 1999, exports accounted for 40% of GDP, an impressive performance in a recovering Asia. Efforts to control Vietnam's import growth have been fairly successful. In the last 4 years, import levels have remained fairly stable. For the second consecutive year, Vietnam had a balance-of-payments surplus in 1999. The country's balance-of-payments surplus has been due not only to robust trade performance but also to official development assistance and remittances from overseas Vietnamese. Vietnam's total external debt, accounting for 37.1% of GDP in 1999, is $10.6 billion.
GDP - real growth rate: 4.8% (1999 est.)
GDP - per capita: purchasing power parity - $1,850 (1999 est.)
GDP - composition by sector:
Household income or consumption by percentage share:
Labor force: 38.2 million (1998 est.)
Labor force - by occupation: agriculture 67%, industry and services 33% (1997 est.)
Unemployment rate: 25% (1995 est.)
Budget:
Industrial production growth rate: 10.3% (1999 est.)
Electricity - production: 20.62 billion kWh (1998)
Electricity - production by source:
Electricity - exports: 0 kWh (1998)
Electricity - imports: 0 kWh (1998)
Agriculture - products: paddy rice, corn, potatoes, rubber, soybeans, coffee, tea, bananas; poultry, pigs; fish
Exports: $11.5 billion (f.o.b., 1999 est.)
Exports - commodities: crude oil, marine products, rice, coffee, rubber, tea, garments, shoes
Exports - partners: Japan, Germany, Singapore, Taiwan, Hong Kong, France, South Korea, US, China
Imports: $11.6 billion (f.o.b., 1999 est.)
Imports - commodities: machinery and equipment, petroleum products, fertilizer, steel products, raw cotton, grain, cement, motorcycles
Imports - partners: Singapore, South Korea, Japan, France, Hong Kong, Taiwan, Thailand, Sweden
Debt - external: $7.3 billion Western countries; $4.5 billion CEMA debts primarily to Russia; $9 billion to $18 billion nonconvertible debt (former CEMA, Iraq, Iran)
Economic aid - recipient: $2 billion in credits and grants pledged by international donors for 1999 and again for 2000
Currency: 1 new dong (D) = 100 xu
Exchange rates: new dong (D) per US$1 - 14,020 (January 2000), 13,900 (December 1998), 11,100 (December 1996), 11,193 (1995 average), 11,000 (October 1994), 10,800 (November 1993)
Fiscal year: calendar year
Agriculture and Industry
Land reform, decollectivization, and the opening of the agricultural sector to market forces converted Vietnam from a country facing chronic food shortages in the early 1980s to the second-largest rice exporter in the world. Besides rice, key exports are coffee, tea, rubber, and fisheries products. Despite this unquestioned success story, agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 26% in 1999, as production in other sectors of the economy has risen. Trade and Balance of Payments
From the late 1970s until the 1990s, Vietnam was heavily dependent on the Soviet Union and its allies for trade and economic assistance. To compensate for drastic cuts in Soviet-block support after 1989, Vietnam liberalized trade, devalued its exchange rate to increase exports, and embarked on a policy of regional and international economic re-integration. As Vietnam's integration into the global community progressed, bilateral and multilateral aid to the country resumed. Miscellaneous
GDP: purchasing power parity - $143.1 billion (1999 est.)
Population below poverty line: 37% (1998 est.)
Inflation rate (consumer prices): 4% (1999 est.)
Industries: food processing, garments, shoes, machine building, mining, cement, chemical fertilizer, glass, tires, oil, coal, steel, paper
Electricity - consumption: 19.177 billion kWh (1998)