"OPEN-DOOR"
ECONOMIC DEVELOPMENT
By
Van Nguyen
In April 1988, the Vietnamese government legalized
several aspects of free market trading and private property in such a hope that
trade increase along with interaction with the international market. The
Party’s “open-door policy” began as soon as Nguyen Van Linh came to power in
1986. The core leadership Nguyen Van
Linh, Pham Hung, Do Muoi, Vo Van Kiet, and Nguyen Co Thach realized the urgent
need for more “open-door” was pressing and immediate. In his analysis “Vietnam the new Investment Frontier in Southeast Asia”
(1992), Nguyen Xuan Oanh and Phillip Donald noted that there was a rather strong
confidence in the economic renovation of the country: “The decades-long command
economy is still in the process of being transformed into a market-oriented
structure which encourages private initiative for personal gain pragmatic and far-sighted,
the new leadership itself to economic renovation, providing its hard-working
people with higher incomes, better working and living conditions, increased
educational opportunities and more adequate health care and services.” On the other hand, they pointed our negative
reserves according to which” if these aspirations are to be fulfilled further
reforms creating major structural changes in the economy will have to be undertaken
and, the longer this process is delayed, the more difficult
and costly it will be to achieve their ambitious their developmental goals.”
Efforts were made to restructure the
administrative autocracy, encouraging entrepreneurial spirit, and looking forward
to the eventual lifting of the U.S. decade-long embargo. Along with other
actions and aspirations, these efforts had given impetus for the economic
reforms for the six years 1986-1992 to gather momentum. During the three years
1990-1992, the authors noted, more than three billion had been invested in the
country by foreign enterprises and trading companies, most of which entered
into joint ventures with State-owned enterprises and private firms. The
country’s economy responded positively to the government’s reform measures. The
rate of economic growth rose from three percent per annum in 1986 to almost
twenty-five percent in the five following years. Private enterprises were concentrated
on various service-type industries. Private firms were developed in the light
industry sector. Joint-ventures with foreign partners were established to
produce light industry goods for export.
Vietnam sought few markets
for its products as well. Asian companies were in the forefront in this
investment surge. In the context of the lifting of the trade embargo by the
United Sates, the country would well be along on the path toward become the
next “tiger” on the block in Asia by the year 2000. Nevertheless, the controversy over the policy within
opposing factions in the Communist Party hindered much the progress towards
economic renovation. It was not until 1991, the phraseology “market economy” was
only used sparingly in the strategy project to stabilize and develop the
economy and society. However, along the move from concentration economy to market
economy, Vietnam’s GDP growth came up to 6’6% in 1992.
In practice, during the period of
economic development from 1986 to 1992, efforts
were made in the process of transition from the concentration economy into a
market-oriented structure were noticeable. Plans to restructure the administration
was proceeded to create favorable conditions for investment and business
transactions ahead of the lifting of the U.S. embargo. Achievements in these
efforts by Premier Vo Van Kiet and his deputy Phan Van Khai were encouraging.
For five years 1987-1992, some 350,000 small private firms emerged, and about
seventy percent of all trade and service industries were in the hands of the
private firms. Even more, during the three year 1989-1992, more than three
billion dollars, most of which entered into joint ventures with State-owned enterprises
and private firms, were invested in the country by foreign enterprises and
business companies. The impact of such plans of reforms would create an impetus
for competition in a concentration economy and thus a serious danger to the
monopoly of power of the Communist Party and State. Ardent “conservatives’ in
the Communist Party, right at the outset of “doi moi” (openness), consistently
opposed the tendencies of market-oriented reforms, viewing them as
“deviations,” and efforts to restructure the economies system of the existing
regime a process of “peaceful evolution.” Premier Vo Van Kiet faced an ever
growing opposition until 1994 when the rise gathered momentum in 1994.
Impediments were numerous. The laws on
Investment, for example, were a hazardous hindrance. Melanie Beresford pointed
out: “The passage of the 1987 law constitutes Vietnam's second attempt to
attract foreign investors. The earlier law of 1977 failed to attract
significant amounts of investment, mainly due to the poor state of the
Vietnamese economy and official discouragement of Western investors by their
governments as well as the law's more restrictive provisions. Despite more
liberal conditions for foreign investors, however, I doubt that the law itself
is primarily responsible for the rapid increase in investment over the last
five years. In the first place, the expanding body of regulations is reportedly
somewhat confusing, and, secondly, the authorities have been rather "flexible"
in its application. The flow of investment was small due to uncertainty about
moving into uncharted territory, poor infrastructure, and the generally low
level economic activity. The main areas of interest were in oil exploration,
tourism, and services, only the first of which was an area of priority
identified by the Vietnamese government.
Moreover, foreign investment figures were artificially inflated since
they referred to the value of projects rather than the amount actually spent in
the country. In the case of oil, the majority of funds were spent in other
countries; for other types of investment, there was a disappointingly low rate
of project competition.
... As for private Vietnamese capital, it
remains small. The problem here is not so much the scarcity favored in the
explanations of orthodox development economists but the difficulty in
mobilizing it. Vietnamese households do have a lot of savings, but they tend to
be hoarded as gold or invested in private housing or in more speculative,
short-term ventures (smuggling, for example).
... There is still a large state enterprise
in Vietnam. It currently absorbs about 85 percent of the state investment and
produces around one-third of the GDP. Most of the SOE stat remained in
operation after the shakeout beginning in 1989 continued to receive support
from the state in one form or another, even though direct subsidies were
abolished. Between 1990 and 1992, subsidies were continued through the credit
system, and the soft-budget constraints characteristic of the shortage economy
were thus revived. While positive interest rates were restored in 1992, the
social costs of closing non-performing enterprises could prove to be
unacceptable in the medium term (Melanie Beresford, The Vietnamese Economy. 1993:
42-44)
Corrupt practices were pervasive. Since 1986, the government had begun
the market oriented economic reforms. Goods and services are more widely
available in the cities. However, only the privileged groups of entrepreneurs
who had connections with influential officials are free to engage in the
industry and business enterprise. Investment fraud is extensively practiced.
The party-run daily Nhan Dan (The
People) carried, on its front page, an article by Nguyen Tien Pruco analyzing
why investment projects in Ho Chi Minh City cannot be implemented. According to
Nguyen, since the beginning of May 1986, there have been 171 projects approved
by the State Committee for Cooperation and Investment. The Law on Investment
came into existence. However, the number of projects put into practice is only
57 or 33.33 percent of the approved projects. There are 24 other projects that
are facing difficulties. Nineteen (19) projects cannot be started. Twenty (20)
projects forfeited their operating licenses. All of these projects account for
46 percent of the total projects. This situation is not a trivial matter. The
cause of the situation is that many self-proclaimed investors are only
high-class intermediaries when they apply for investment licenses. They apply
for the license then sell it to other companies for a sumptuous commission.
They do not care whether or not the projects are viable. The intermediaries
exploit the lack of information, research, and dialogue in Vietnam and pretend
to be big investors. Worse still, they also use licenses as fronts for illegal
trading activities. They do not invest any money in production or business as
stated in the licenses. They bring in tax-free commodities and then sell in the
market instead of for foreign currencies as stipulated in their projects. An
example of such commodities is Voice of Vietnam, Network in Vietnamese, June
22, 1992.
Commenting
on the economic situation of the "thoi
mo cua" -the period of openness), the Thoi Bao Kinh Te (Economic
Times) published in Saigon, in its issue of December 23-29, 1993, had this to
say:
“At the time of
First Secretary-general Le Duan, there was anxiety about the interest loans the
Socialist Republic of Vietnam owed to the Soviet Union. As far as the interests
are concerned, our comrades do not demand for interests. As for the term for
reimbursement, we will only begin to reimburse the loans in 15 years, and
during these 15 years, we will have already been in retirement, and our
children and grandchildren will pay our debts.”
According to
the newspaper, the capitalist countries agreed, in principle, on a loan of U.S.
$1.8 billion for Vietnam. Tran Bach Dang, a high dignitary of the regime, in a
round table discussion organized by the said magazine said that the State
accepted these loans, but it had to create beforehand conditions to receive
them and administer them in such a way that the future generations would not be
crushed with debts someday. Unfortunately, with preconditions, the entrepreneurs seemed to be beset with doubt. There were strictly economic preconditions such
as the capability to administer with efficacy the loan on contract, to mobilize
corresponding domestic savings, to consolidate and ameliorate the national
monetary system. According to Huynh Buu Son, an economist, the money in the
cities is the American dollar, and the Vietnamese dong is for the countryside. The
newspaper stressed that the administration had to administer scientifically credits
to reimburse regularly instead of taking recourse to expedients every yearend
as it has usually conducted its affairs. Moreover, it had to serve a writ until
it reached its purposes: to eliminate theft and peculation in all forms.
Commenting on the Vietnamese Communist Party's approaches to policies, a
longtime member in the Vietnamese Communist Central Party Committee said in
bitter terms that, after the 1975 victory, there appeared ideas of an eccentric
pride among the leadership of the Party, a Communist deceit. Even worse,
trading and business transactions were virtually monopolized by state
enterprises. The Company for Agricultural Commodities and Foods of Ho Chi Minh
City directed by Nguyen Thi The (female), for instance, trampled underfoot laws
and regulations, monopolizing the purchase of rice in the provinces. On the other hand, private businesses were in
disarray. Sean Kelly, an Australian businessman in Saigon, observed that "one can do anything as one wishes."
Indeed, imported goods were
not regularized on social needs. Japanese cars and French wine, for instance,
were imported to publicize the "freedom of trade." Worse still,
contraband goods from Thailand, Singapore, Hong Kong, and Communist China
inundated the streets of Saigon, creating an atmosphere of false prosperity.
