Vietnam and the experience of the Asian crisis Pietro Masina University of Naples “L’Orientale” (Italy) A decade after: recovery and adjustment since the East Asian crisis Bangkok , 12-14 July 2007

The Vietnamese transition Reforms started already in the late 1970s, through ‘fence breaking’ and experiments in agriculture and industry In 1986 the CPV launched the doi moi: from central planning to market economy The reform process was accelerated in the late 1980s by the collapse of Soviet Union By the early 1990s ‘price mattered’ but the government maintained a prudent step-by-step attitude

A new fifth dragon? Lights and shadows Growth is sustained and less unbalanced than in China Poverty reduction has been outstanding Inequality has increased - so far not dramatically, but risks are high The WTO accession presents many opportunities and many challenges But the government is still in command of many economic leverages Financial liberalization has been resisted – the booming stock market may become a vehicle of destabilization

GDP growth rates, trendline

Households living below the government poverty line, percentage

From hero to villain, to hero again, to undisciplined pupil Hero: in the early 1990s Vietnam was supported by the IFIs - it was moving towards the market (and they hoped towards the US) Villain: by 1996 it had become a poor performer, too slow in implementing reforms In 1997/98, it was told that its problems were locally rooted – without bold reforms, it would miss recovery Hero again: in the early 2000s growth and poverty reduction made Vietnam popular Undisciplined pupil - it should do better/faster

Resilience during the Asian crisis Vietnam was hit already before the crisis by a contraction of Asian FDI Its currency remained stable, i.e., appreciated in relation to Asian currencies Economic growth slowed down, but the country was insulated by the financial storm (the dong was not convertible) Growth of the agricultural sector played a counter-cyclical role

GDP growth by sector, 1996–2005

GDP, annual growth rate (ASEAN 6)

Saving and investment (in percent of GDP)

FDI inflows, 1986–2005

Net FDI inflows 2004 (% of GDP)

GDP by ownership

GDP per capita as % of GDP per capita in Asian countries, PPP

GINI Index, Asian countries

Income ratio of richest 10% to poorest 10%

Privatization of SOEs Privatization of SOEs regarded so far small and not strategic companies The ‘equitization’ process is due to accelerate and to touch large SOEs Risk of loss of sovereignty and creation of foreign monopolists Risk of higher inequality through appropriation and sale of SOEs shares

Current challenges Agricultural diversification played a major role in poverty reduction - there is little scope to move further in this direction Employment generation in the formal industrial sector is insufficient Inequality may play a destabilizing role The alliance between SOEs and FDI may alter the political nature of the leadership