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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 9 - 15 September 1999 Issue No. 446
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Focus Culture Features Books Special Profile Travel Living Sports People Time Out Chronicles Cartoons Letters Marriage of convenience
By Mohamed KhaledVietnam is currently undergoing a process that might offer a new model of economic development for Asia's battered economies -- a mixed approach that seeks to maintain a delicate balance between the conventional free market economy and an orthodox Marxist approach. This Vietnamese model rejects the development paradigm -- the so-called New Dogma based on industrialisation, export-led growth and a free market economy with minimum state intervention -- that has dominated Southeast Asia over the past few decades. But while it may represent a pragmatic response to changing economic circumstances, Vietnam's experiment still lacks the theoretical underpinnings that have shored up free market doctrines and capitalist development patterns.
On the face of it, Vietnam has officially embarked on a free market economy. But considerable state intervention remains, manifested in a package of laws and legislation that guarantees the state's substantial partnership in any foreign investment. Moreover, the one-party system, coupled with state subsidies on basic goods, education, medical treatment and much more, remains untouched.
The features of the emerging Vietnamese model became clear by 1992-93, just as the country had completed the difficult period of transition from a planned to a mixed-market economy. Foreign investment was encouraged and private enterprise tolerated.
State-owned enterprises remain important, mostly in the form of relatively large conglomerates or industry-wide combinations. Price stability is maintained through low budget deficits and limits on credit. The exchange rate is stable and exports, particularly of industrial products, are encouraged.
Though political control remains in the hands of the Communist Party the gaps separating the party, government and an increasingly vocal National Assembly are widening. Major decisions are made by consensus, among a leadership where power is shared to some by three main factions -- party conservatives, economic liberalisers and the army.
According to the United Nations Development Programme (UNDP) economic changes have resulted in growth levels averaging 8.9 per cent over the period from 1991 to 1997. This has brought about a modest level of prosperity, particularly in the two large urban centres, Hanoi and Ho Chi Minh City (Saigon) where two thirds of households now own motorbikes. Nevertheless, 80 per cent of the population continue to live in poor, rural areas.
Current interest in the Vietnamese experience is due in part to the fact that the country was largely closed to the outside world during the decade following national reunification in 1975. Only 6,000 tourists visited Vietnam in 1986. At the time, they saw one of the world's poorest countries, slipping behind its neighbours as the centrally planned economy failed to deliver economic growth.
The political and intellectual turning point came in 1986 with a commitment to the policy of Doi Moi, "renovation". By 1988 a foreign investment law was in place and some investment had begun to flow into the country. Prices were largely freed in March 1989, when subsidies to state-owned corporations were all but eliminated. The system of communes was dismantled and the household was reinstated as the basic economic unit in the countryside. Private business was permitted.
Earnings from oil came on stream just in time to compensate for the rapid fall in other tax revenues and the loss of Soviet aid. When Vietnam's traditional export markets in Eastern Europe dried up, the country turned rapidly, and successfully, to Japan, Singapore and Hong Kong.
According to the Institute of Southeast Asian Studies in Singapore, despite material poverty Vietnam's social indicators are surprisingly good. Inflation was brought down from almost 500 per cent in 1986 to 3.6 per cent by 1997, largely through pursuing fiscal rectitude.
A major question remains unanswered, though. To what extent can the Vietnamese model withstand potential pressures and continue walking the current economic tightrope as it attempts to balance a free market economy with socialist ideals?
Vietnam continues to attract foreign investors' attention for a number of reasons, not least the country's policy shift to a market economy. Increases in production costs in neighbouring Southeast countries, in comparison to Vietnam's low-cost, disciplined and highly skilled labour force trained in large numbers in former socialist countries, has also attracted investors. But can the trend be sustained indefinitely?
Some observers maintain that tight measures and excessive state intervention continue to represent a barrier to many foreign investors. But according to the World Bank, economic growth looks assured for the next few years, though there is some doubt about the ability of the regime to reduce economic controls, corruption and state intervention, any of which is capable of restricting in the medium term. But if current trends can be maintained, then Vietnam is well positioned to become one of the comparatively affluent Asian "dragons" within a generation. Certainly, isolation has ended.
