Portal de Periódicos da CAPES

Vietnam: Ready for Doi Moi II?

1998; Volume: 15; Issue: 3 Linguagem: Inglês

10.1355/ae15-3g

0217-4472

Ari Kokko,

Global trade and economics

Compared with its ASEAN neighbours, Vietnam appears to have weathered the crisis quite well. Official statistics indicate a GDP growth rate of 6.6% for the first half of 1998; export growth remains positive, and the dong has depreciated by only 20% against the U.S. dollar. But the relatively favourable picture has more to do with controls than with sound economic fundamentals. In the absence of comprehensive reforms, the Vietnamese economy will gradually slide into a deeper recession. Influential interest groups, such as SOEs and their employees, hanker after a return to central planning. What is needed instead is a doi moi II, including measures to liberalize trade, strengthen the financial system, and promote transparency throughout the economy. Introduction Compared with most of its ASEAN neighbours, it may appear that Vietnam has weathered the crisis quite well. Although the rapid growth of the past few years has slowed down, official statistics still suggest an overall growth rate of about 6.6% for the first six months of 1998. Export growth remains positive, at a rate of 5% to 10%. The exchange rate has been adjusted several times since early 1997, but the depreciation of the dong with respect to the U.S. dollar has been limited to some 20%. The rate of inflation has accelerated, but may stay below 10% for the year. The most significant negative developments are a reduction in foreign direct investment (FDI) and a moderate increase in unemployment. On balance, the official picture does not look very bad, particularly in comparison with the deep recession plaguing countries like Indonesia, Malaysia, Thailand, and South Korea. The fact that Vietnam has been relatively mildly affected by the Asian flu so far, however, has more to do with controls and regulations than with sound economic fundamentals. The exchange rate has been relatively stable because the Vietnamese dong is not freely convertible, and because both trade and foreign exchange transactions are strictly regulated. The withdrawal of foreign portfolio capital from Asia's emerging markets has not shaken Vietnam, because the weakly-developed financial market did not attract much foreign capital in the first place. There has not been any stock market collapse, because there is no stock market. Aside from these features, which have their roots in Vietnam's recent past as a command economy, the country shares many characteristics with the rest of the region. In fact, most of the structural weaknesses that have contributed to the crisis in other countries can be found in Vietnam as well. Many of the state-owned enterprises (SOEs) that dominate the manufacturing sector are inefficient and heavily indebted. The financial system is weak and suffers from a substantial amount of bad debt. The lack of transparency precludes detailed assessments of exactly how serious these problems are. Yet, many of the largest SOEs operate in import-substitution industries, and are not likely to become internationally competitive in the foreseeable future. The country's foreign debt is significant. The current account has recorded large deficits in recent years, and the dong is overvalued at the prevailing exchange rate. Keeping these weaknesses in mind, it is very likely that the crisis will have a more profound impact on Vietnam in the near future. The turbulence in the rest of the region will make it more difficult to hide the structural deficiencies, and it will be impossible to avoid serious problems, perhaps of crisis proportions, unless significant economic reforms are undertaken. The remainder of this article provides a closer look at the Vietnamese economy during the past few years. The second section describes some features of the economy before mid-1997 and the outbreak of the crisis. The third section summarizes the macroeconomic developments since then, with particular emphasis on developments during 1998. The fourth section discusses the possible consequences for the country's development and concludes the article. …