Vietnam: Facing The Globalized Economy


Dr Binh Tran-Nam

During 1991-1997 the Vietnamese economy enjoyed a period of speedy growth in total output, averaging 8.4 per cent per annum. Vietnam slowed down considerably in 1998 and 1999 when GDP growth rates dropped to 3.5 per cent and 4.2 per cent respectively. Although the growth rate has improved in 2000 (forecast to be 6.7 per cent), it is unlikely that Vietnam will immediately return to the high-growth path in the near future. This is reflected by a recent decision by the Ministry of Planning and Investment to adopt an average target of 7-7.5 per cent growth rate per annum for the next ten years.

Two explanations for Vietnam’s slowdown are possible. The first blames Vietnam’s poor performance in recent years on its failure to pursue on-going reform in a coherent and decisive manner. This is evident from the government’s insistence on the leading role of the state sector. The second attributes Vietnam’s slowdown to the external shock of the Asian financial crisis, which ended the unsustainable bubble economy elsewhere in the region. The truth is likely to lie somewhere between these two alternative explanations.

It is abundantly clear that Vietnam will continue to depend on foreign direct investment (FDI) and export-oriented industries for its development. Although the Vietnamese economy is highly open (in terms of total trade or disbursed FDI as a percentage of GDP), its openness can be characterized as being regional rather than global. Vietnam’s major trading partners are either ASEAN or East Asian countries. The theory of international trade suggests that it would be more beneficial for Vietnam to engage in trade with highly dissimilar countries such as the US or the European Union. The recent signing of the US-Vietnam Trade Agreement will accelerate the process of Vietnam’s international integration and thus pave the way for global and more beneficial trade.

Yet globalization has certain implications and presents many fundamental political and economic challenges to Vietnam. Firstly, globalization is often associated with reduced national sovereignty. This is, in principle, not acceptable to the Vietnamese Communist Party which came to government on the platform of national independence. After a long war and a long period of international isolation, the Vietnamese government is understandably very conscious of national security. This resolve appears to be further strengthened by the recent Asian financial crisis. It will be a challenging task for the Vietnamese leadership to balance between the often conflicting forces of national independence and global interdependence in its economic policy deliberation.

Secondly, international economic integration will be a difficult process for Vietnam in view of its uneasy relationships with the US and China, the two most important countries in the world economy. The significance of the US market to developing and developed economies in Asia is undeniable. Yet, after twenty five years since the end of the war and despite President Clinton’s historic visit to Vietnam, many suspicions still remain on both sides. Many Vietnamese leaders believe the US should pay reparations to Vietnam before the two countries can engage in free trade. By the same token, the US government often links Vietnam’s human rights record to trade negotiations.

Vietnam also has a long history of struggle against its giant northern neighbour. In the last five years, the improving relations and settlement of some border issues between China and Vietnam have allowed freer trade, investment and tourism. However, the very strength of the Chinese economy presents a serious challenge to Vietnam, as Vietnam tends to produce goods at the low end of China’s manufacturing industries. In a globalized world economy, how can Vietnam try to avoid being practically an economic province of China? The interaction of China’s and Vietnam’s economic policies will be of strategic importance to Vietnam.

Thirdly, as a transitional economy, Vietnam does not have competent administrative and legal systems, and a reliable banking system to cope with global economic transactions. Vietnam will need to develop these infrastructures rapidly to capture the benefits of globalization. In this regard, Vietnam can perhaps make use of the experiences of China whose economic renovation began about a decade ahead of Vietnam. This is an example of ‘learning by watching’ at the government level.

Fourthly and finally, globalization is often viewed by many people as the inevitable shift from a manufacturing-oriented industrial economy to a service-oriented information economy. The information world is one in which intangibles (knowledge, intellectual property) will increasingly dominate over tangibles (physical capital). As a developing economy, Vietnam has not yet developed a mature machine-tool industry. Should Vietnam pursue a laissez-faire policy based on static comparative advantage (according to which Vietnam will specialize on low-value adding labour-intensive production)? Or should it attempt an interventionist industrial policy that promotes high-value adding industries that generate positive externalities to the rest of the economy?

WATCHPOINT: The ease and pace at which Vietnam’s National Assembly rectifies the US-Vietnam Trade Agreement will indicate Vietnam’s commitment to globalization.


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