Post-Cold War Vietnam Economic Policy

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Major economic-related events: A timeline

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1986: Start of Doi Moi reform policy

1992: New

constitution

adopted with

certain economic freedoms

1994: removal

of US trade

embargo after 30 years

1995: Full member of ASEAN

2001: Application of the US-VN trade

agreement

2007: 150th

member of the

WTO after 12 years of talks

Aug 2013: 19th

negotiation round of

the TPP (12

countries)

March 2014: 7th negotiation round of the EU-VN

FTA

Commonly-known strengths3

◻ An important domestic market of 90 millions of habitants

◻ Young and increasingly well-trained population (70% of the population age between 15 and 64) having potential for high value added jobs

◻ Perfect location as a hub for South East Asia

◻ One of the most dynamic economies among the Emerging Asia nations

A synthesis of overall performance4

◻ Vietnam has been recognized as one of Asia’s great success stories in terms of economic and social development over the last 20 years ⬜Vietnam economy has a robust and steady growth

since 1990 (average growth rate of 6.41% since 2000). China is the only Asian country that performed better

⬜ The growth is relatively balanced, with industry and services sectors contributing about 40% each to GDP

⬜ Trade openness and integration with the region and world has substantially increased (163.67% of GDP)

⬜Vietnam is among the most attractive countries in terms of external financing (FDI and portfolio equity)

⬜ There is a certain level of resilience as extreme shocks (recent crises have not caused serious effects on economic and investment activity (good management of economic and financial openness)

◆ Stable socio-political environment◆ Ongoing structural economic reforms◆ Abundant labor force with enhanced skills◆ Higher ability to meet debt obligations◆ Towards more price stability

Key success factors

Stable socio-political environment6

◻ Since the “Doi Moi” reform policy, the social, political and economic context has rapidly changed. It is mainly characterized by

⬜ A higher openness of the economy and a gradual move towards regional global integration through a number of bilateral and multilateral trade agreements

⬜ A multi-dimensional and multi-partner model that enables the country to develop the export-based economy

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⬜A higher participation of most socio-economic agents/institutions (governmental vs. non-governmental) in the planning, implementation and monitoring of economic policies⬜An encouragement of foreign investment as part of

the country’s development strategy

Stable socio-political environment8

◻ Country credit ratings (as of January 2015)

⬜ Standard & Poors: BB-

⬜Moodys rating for Vietnam sovereign debt: B2

⬜ Fitchs credit rating: B+

⬜ Same group of speculative investment grade as Russia (BB+), and one grade lower than Brazil and India (BBB-)

Ongoing structural reforms9

◻ Since 1986, Vietnam has embarked a vast program of structural reforms with objectives of turning a centralized economy into a market-based economy with socialist orientation⬜Abolishing agricultural collectives ⬜Removing price controls on almost all traded goods

and services⬜Encouraging the establishment of private businesses

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⬜Opening up the domestic market to foreign investment, including foreign-owned enterprises ⬜Liberalizing gradually the banking sector so that

interest rates are determined according to market conditions⬜Developing and improving the efficiency of the

domestic markets for goods/services and for capital (stock/bond markets)

Ongoing structural reforms11

◻ Numerous regulatory reforms to enhance international economic cooperation and to attract external financing

⬜ Focus on foreign investors: return, risks, legal barriers, Investor protection

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⬜Prior to joining the WTO, Vietnam has substantially reformed its legal system through revising a number of Laws and Codes:

■Labor Code, Land Law, Civil Code, Law on Securities, Law on Competition, Enterprise Law, and Investment Law

■Objective: making the investment environment more stable and transparent as well as to strengthen the enforcement of Laws

⬜The presence of foreign investors also helped the Vietnam’s legal environment more conform to international standards

Ongoing structural reforms13

◻ The Socio-Economic Development Strategy 2011-2020

⬜Continues the previous structural reforms, while paying more attention to environmental sustainability, social equity, and emerging issues of macroeconomic stability.

⬜ It defines three “breakthrough areas”: ■ i) promoting human resources/skills development

(particularly skills for modern industry and innovation), ■ ii) improving market institutions, and ■ iii) infrastructure development

◆ Weak labor productivity growth and skills◆ Slow pace of economic sector

transformations◆ Unbalanced financing means◆ Low quality of FDI inflows◆ Economic integration is not without risk

Main challenges for the coming years

Economic integration is not without risk

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◻ Advantages⬜A greater market for goods and services⬜Companies will have better access to international

capital markets for external financing⬜Reduced cost of capital and international risk sharing⬜ Technology transfer (cleaner technology for a

sustainable development)

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◻Risks⬜Vietnam companies may not be ready for dealing

with challenges■Vietnam has a low competitiveness level (labor-intensive

economy), while main trading partners are productivity-driven economy (Chile, Mexico), or innovation-based economy (US, Canada, Japan, Singapore, Malaysia, Australia, New Zealand)

■Exports of low value added products

◆ Strategic partnership: purposes ◆ Roles of strategic partnerships for

Vietnam economy◆ How to make it work?

Roles of strategic partnerships

Strategic partnership: purposes18

◻ Commitments between two nations⬜ to build a strong and mutual trust to develop

cooperation in various aspects ⬜ to promote a stable and reliable environment for

international and regional cooperation⬜ ensuring trade balance, and enhancing the

international profile of involved countries

Roles of strategic partnerships for Vietnam economy

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◻ Strategic partnerships for sustainable economic development⬜ Larger market for capital, goods and services (3.5 billion

of habitants, and close to 33.5 trillion USD of GDP)⬜ Attractiveness for FDI from 13 countries⬜ Source of ODA financing for infrastructure, urban

development, and other priority sectors (agricultural equipment, food processing, medical healthcare, railways, green energy and technology, oil and gas)

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◻Strategic partnerships to create favorable business environment and opportunities for solving current challenges

⬜Weak labor productivity growth and skills; Slow pace of economic sector transformations; Unbalanced financing means, Low quality of FDI inflows, Vulnerability due to economic integration

Post-Cold War Vietnam Foreign Policy

Vietnam’s foreign policy into three periods

1975-91 - Vietnam went from being a member of the socialist camp to a member of the international community)

1991-2006 - Vietnam sought to multilateralize and diversity it foreign relations by developing economic links and political relations with major powers in Asia, America, Europe and Southeast Asia, as well as join regional multilateral institutions)

2006-2015 - Vietnam consolidated its international role by forging strategic partnerships with major world powers and major Asian powers and pursued a policy of proactive international integratration.

Pre-1986

Antagonistic contradictions between socialism and capitalism

Two types of countries - friends and enemies (dich va ta)

International relations between these two worlds was a struggle of ‘who will triumph over whom’ (ai thang ai)

Throughout the period 1965-85 Vietnam viewed itself as the outpost of socialism on the front line in the struggle between socialism and imperialism.

Unification

In mid-1978 following unification, Vietnam joined the Council for Mutual Economic Assistance (CMEA/COMECON)

Became a member of the socialist community headed by the Soviet Union

In November 1978, the Soviet Union and Vietnam signed a twenty-five year Treaty of Friendship and Cooperation.

At this time Vietnam considered the Soviet Union as the cornerstone of its defence and national security policies.

Mid-1980s

In the early to mid-1980s Vietnam began to adopt significant changes in its national security policy.

At least two major factors influenced these developments.

1. The first was the grave socio-economic domestic crisis that confronted Vietnam.

2. The second factor was external and arose from the ‘new political thinking’ emanating from the Soviet Union under the leadership of Mikhail Gorbachev

New Foreign Policy Considerations

Foreign policy structured by ideological considerations was transformed to a foreign policy framework that placed greater emphasis on national interest and pragmatic diplomacy.

Vietnamese analysts now stressed global economic forces and the impact of the revolution in science and technology as key determinants of global order

Fears of dependency and assimilation (hoa nhap) gave way to a positive view of economic integration (hoi nhap)

Two Key Turning Points

Politburo Resolution No. 32 (July 1986)Politburo Resolution No. 13 (May 1988).

Politburo Resolution No. 32

Resolution #32 identified ‘peace and development’ as the highest priority

Laid the basis for ‘new thinking’ in the conceptualization of Vietnam’s national security policy.

Clearly set out guidelines and revised diplomatic policies, and moved toward a solution in Cambodia.

The Resolution clearly stated: “the external mission of Vietnam is to have good coordination between the strength of the people and the strength of the era, to...proactively create a condition for stability and economic construction...to move proactively to a new stage of development, and peaceful coexistence with China, ASEAN, and the United States, and build Southeast Asia into a region of peace, stability and cooperation”

Doi Moi (6th Congress -1986)

Overcoming the domestic socio-economic crisis

Expansion and heightening of the effectiveness of external economic relations as one of the means of addressing the domestic economic crisis

Open itself to foreign investment from non-socialist countries

Liquidate the Cambodian problem by withdrawing its military forces

Politburo Resolution No. 13 (1988)

Foreign policy objectives gave priority to economic development

Used the term national interest (loi ich dan toc) for the first time

New emphasis was ‘to maintain peace, take advantage of favorable world conditions’ in order to stabilize the domestic situation and set the base for economic development over the next ten to fifteen years

Called for a ‘multi-directional foreign policy’ orientation that had the goal of making ‘more friends, fewer enemies’ (them ban bot thu)

Politburo Resolution No. 13 (1988) (continued)

Resolution No. 13 not only called for a resolution of the Cambodian conflict but the normalization of relations with China3 and developing relations with ASEAN, Japan, European countries and “step-by-step” normalizing relations with the United States

Signaled the abandonment of the ‘two worlds’ view in favour of the concept of an interdependent world

Vietnam and Cambodia

End of 1989 Vietnam unilaterally withdrew the last of its armed forces from Cambodia

Vietnam was no longer an international pariah state subject to an aid and trade boycott

Vietnam succeeded in diversifying its foreign relations by moving from dependency on the Soviet Union to a more diverse and balanced set of external relations.

In 1989, Vietnam had diplomatic relations with only twenty-three noncommunist states; by 1995 this number had expanded to 163.

During this period Vietnam normalized it relations all members of ASEAN, acceded to the 1976 ASEAN Treaty of Amity and Cooperation, and in November 1991 normalized it relations with China

Seventh National Party Congress (1991)

The Seventh Congress adopted an important modification to Politburo Resolution No. 13

‘diversify and multilateralize economic relations with all countries and economic organizations...’

1993-94 - The United States ended its long-standing objections to the provision of developmental assistance to Vietnam by the World Bank and International Monetary Fund

Mid-Term Party Conference (1994)

January 1994, the VCP convened its first Mid-Term Party Conference

After the conference the official Vietnamese media highlighted what it termed the challenges of ‘four dangers’ facing Vietnam:

1. Being left behind (tut hau) economically by regional countries

2. Peaceful evolution against socialism

3. Corruption

4. Breakdown of social order and security

July 1995

Normalised relations with the United States

Became ASEAN’s seventh member

Signed a framework cooperation agreement with the European Union

For the first time, Vietnam had diplomatic relations with all five permanent members of the United Nations Security Council and, equally importantly, with the world’s three major economic centres - Europe, North America and East Asia

Vietnam and Russia

In March 2001 Vietnam consolidated its ties with the Russian Federation, a ‘traditional friendly state,’ by signing its first strategic partnership agreement during the course of a visit by President Vladimir Putin to Hanoi

Russian arms sales to Vietnam are the largest and most significant component of the strategic partnership. The Russian Federation is Vietnam’s largest provider of military equipment and technology.

Ninth National Congress (2001)

Stepped up the rate of economic growth

Encouraged more foreign investment

Continued regional and global integration

Integrated Vietnam’s economy with the global economy

In 2001 the United States granted Vietnam temporary normal trade relations status on a year-by-year basis

2003

Two new ideological concepts ‘partners of cooperation’ (doi tac) and ‘objects of struggle’ (doi tuong) in foreign relations

‘any force that plans and acts against the objectives we hold in the course of national construction and defense is the object of struggle’.

‘anyone who respects our independence and sovereignty, establishes and expands friendly, equal, and mutually beneficial relations with Vietnam is our partner.’

Tenth National Congress (2006)

Full transformation from a Marxist-Leninist framework of a globe divided into two hostile camps into a view of one global economy

Rejected the zero-sum view of the world divided into ‘friends and enemies’ and sought to become friends with all countries

Developed a comprehensive view of national security that depreciates the relative importance of military power and elevates the salience of economic and other factors.

‘must strive to unswervingly carry out a foreign policy of… multilateral and diversified relationships while staying proactive in integrating into the world economic community and expanding international cooperation in other fields.’