Vietnam: progress and problems

Wednesday, May 8, 1991

After the social upheavals of 1989 in Eastern Europe, there has been much speculation in the Western press that Vietnam would follow a similar path. STEPHEN ROBSON, recently returned from a three-week visit to Hanoi and Ho Chi Minh City, describes the country's process of economic reform.

The history of the Vietnamese revolution, and in particular its recent economic changes, are quite different from the experiences of Eastern Europe. Traumas like Czechoslovakia in 1968 or Poland in 1971 or Beijing in 1989 have not shaped the political consciousness of the Vietnamese people.

With the victory on April 30, 1975, Vietnam was free of colonial domination for the first time since 1859. After 30 years of almost continuous war against the French and then the United States, there were few Vietnamese who did not share Ho Chi Minh's view that "nothing is more precious than independence and freedom".

But independence by itself does not overcome underdevelopment. Vietnam is still a Third World country, with a low level of industrialisation and agriculture dominating economic activity. Less than 20% of the population is urban.

The effort to improve living standards has been hampered by the legacy of war. In southern Vietnam 9000 out of 15,000 hamlets were destroyed. Almost 1.5 million civilians were killed between 1965 and 1973 alone. There were an estimated 362,000 war cripples and 600,000 orphans. Agriculture was affected badly, with 10 million hectares hit and 1.5 million buffaloes and oxen killed.

By 1975, 10 million people in southern Vietnam had been driven from their villages by bombs and raids.

While formal unification of the country took place in 1976, it was some years before basic economic reforms were completed. It was only in May 1978, for example, that one currency for the country was implemented.

Attacks by the Pol Pot regime culminated in the dispatch of troops to Cambodia in December 1978. This was followed by China's attack on Vietnam the following February. Both cost Vietnam dearly in terms of human resources, the impact on the economy and loss of aid. The United States used the events as an excuse to refuse payment of compensation for the war devastation it had inflicted.

More recently, the crisis in the Soviet Union and Eastern Europe has reduced aid and trade. Cooperation with the German Democratic Republic, Czechoslovakia, Bulgaria, Poland and Hungary has ended. Repatriation of the hundreds of thousands of Vietnamese workers in Eastern Europe is likely to exacerbate the high levels of unemployment.

Centralised economy The liberated north had functioned as a war economy for more than a generation. The moral and material values of subordinating everything to the war effort could not continue in peace time.

The economy of the north was highly centralised, similar to that in the Soviet Union. Major food items were sold at subsidised prices and rationed. Vietnam was not self-sufficient in food, relying on massive imports.

For city resident, this meant queues. "On a Sunday, our only day off, we used to have to get up at 2 a.m. to join the queue for our rice rations", one friend explained.

Food was bought from the peasants compulsorily at below market prices and sold in the cities at subsidised prices. Because peasants could get a better price on the black market, the incentive was to sell there, and many in the city had to rely on the black market to acquire some of their food.

In the years after liberation, the gross national product increased at an annual rate of only 1.4%. Agricultural production increased on average by only 1.9% - less than the population increase of 2.2%.

In September 1979, the sixth plenum of the Central Committee opened the way for an expanded role for family-based production and exchange at market prices. Two years later, these changes began to improve food production as farmers benefited from the sale of their surplus crops on the market.

Although fertilisers, pesticides and fuel were still in short supply and consumer goods a mere trickle, in the period 1981-85 GNP increase averaged 7.3% and agricultural production 5.0%.

Despite these specific policy changes, the general economic strategy had not altered. Finance and currency faced a particularly acute crisis as galloping inflation hit the country.

A new course

By December 1986, at the time of the Sixth Congress of the Communist Party, a sharp change of direction was being projected.

At the congress, Nguyen Van Linh, the general secretary of the Central Committee, summed up the mistakes of the late '70s as "wishful thinking, voluntarism, simplistic ways of thinking and acting, and hastiness".

Speaking to a Hanoi party congress a few months prior to the national congress, Truong Chinh said the mistakes were manifested "in the arrangement of the economic structure along the line of developing heavy industry on a large scale beyond our practical capacity, in the maintenance for a very long time of the bureaucratically centralised mechanism of economic management based on state subsidies with a huge superstructure which overburdens the infrastructure".

An example of this over-projection was the view of the Fourth Party Congress in 1976 that it would take only 20 years to rom small-scale production to large-scale socialist production.

Important changes made by the Sixth Congress included: promoting peasant family economy and petty trading; assistance to sectors producing essential items; financial autonomy and prices set by the market; abolition of restrictions on the circulation of goods; an end to subsidised pricing; and encouragement of import-export trade.

The most important result of the changes has been the improvement in food production. Peasants households now pay a tax of between 8 and 10%. The rest of their production is sold on the market - a strong incentive to improve output.

In million of tonnes of paddy equivalent, food production stood at an average of 13.4 for the five years to 1980. Five years later, this had risen to an average of 17.0. By 1988 the figure was 19.6 and in 1989 21.4. million tonnes, allowing Vietnam to export rice.

Combating inflation

Inflation had begun to climb rapidly in the late '70s. By 1977 it was over 100% per annum and in 1986 over 500%. A major cause was subsidies to the state sector, the least efficient part of the economy.

The government, at this time, set the prices for consumer goods, but many other items were governed by the black market. Money, labour, technology, services and means of production were out of the control of the government. The response was to increase the subsidies, which simply compounded the problem.

In mid-1988 the government began a campaign to bring inflation under control. An end was put to the continual adjustment of funding for state enterprises as compensation for inflation.

In early 1989 the interest rate was significantly increased, taking it above the inflation rate, thus making it attractive to deposit money in banks.

The rate of inflation came down below 40% per annum - still high by the standards of industrialised countries, but a significant improvement for the Vietnamese economy.

As inflation began to come under control, the hoarding of goods declined, and the market, which had suffered a scarcity, expanded rapidly.

The reforms of agriculture have put more money into the hands of peasants. This has been reflected in housing construction and increased demand for electrical goods and other consumer items. Consumer demand in turn provides some jobs in the cities, although many electrical goods are imported.

Urban unemployment is extremely high - between 5 and 8 million. Millions more are underemployed. Particularly in Ho Chi Minh City, begging is common.

The government has sought to attract foreign investment, which could help to address to unemployment situation. So far, foreign capital, while increasing, has made only a small dent in this problem.

Another area facing serious problems is health care. Most hospital suffer from a lack of basic medical equipment and drugs. Most drugs have to be imported and paid for in US dollars - extremely difficult for a country with a per capita income of less than US$150/annum.

Inflation badly eroded the incomes of state employees. There has still been little adjustment to improve these incomes. Nurses typically receive only 70,000 dong a month, doctors not much more. A one-room apartment costs at least 100,000 dong/month, so most medical workers have to work second jobs to make ends meet.