OPEN-DOOR ECONOMIC DEVELOPMENT

"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.