The book provides a factual account of the economic reform process and economic performance in Viet Nam that should be a useful reference to a broad cross-section of readers. The authors offer a distinctive interpretation of the process of economic reform and the performance of the economy, drawing on their direct observation of the policy-making process and changes in the Vietnamese economy since the late 1980s, as well as domestic and international research. There is considerable discussion of reform processes, the internal debates and pressures that led to reforms. There is a particularly strong focus on the role of institutions, incentives and human capital in encouraging business investment and promoting economic growth.

Since it initiated its Doi Moi economic reforms in the late 1980s, Vietnam has seen consistent rapid economic growth and impressive declines in poverty. The government has taken a selective, step-by-step approach to reform. Analysing aspects of Vietnam's reform process, enterprise development, income growth and poverty alleviation, the authors -- both with long working experience in the country -- argue that Vietnam's remarkable development is not readily explained by the more orthodox versions of the "Washington Consensus." Successful policy is not built on mechanistic replication of some general reform blueprint, but on responding pragmatically to specific national circumstances. Vietnamese policymakers, they conclude, will need to be even more flexible and pragmatic if the country's economic growth is to be sustained.
contents

Tables vi
Figures vii
Maps viii
Boxes viii
Abbreviations ix
Preface xi

Viet Nam and its recent experience with development
1 Viet Nam's development experience 1
2 Geography, resources and population 11
3 Economic performance and key issues 27

The Doi Moi process
4 Prelude to reform: the attempted introduction of central planning 38
5 Political institutions and economic management 56
6 The introduction of Doi Moi 65
7 Strategic building blocks of Doi Moi 79
8 Ongoing reforms: building the institutions for macroeconomic management 90

Enterprise development
9 Institutional change and business development 103
10 State enterprises 122
11 Household and private business development 153

Economic growth performance
12 The pattern of economic growth 176
13 Capital formation and external assistance 204

Income growth and poverty alleviation
14 Poverty alleviation 224
15 Causes of continuing poverty 235
16 Poverty, location and internal migration 239

Conclusion
17 Achievements of Doi Moi and future challenges 252

Statistical Appendix 267
References 274
Index 288

vi
Tables

1.1 Per capita incomes in selected Asian countries, 1950-98 5
1.2 Per capita income in Viet Nam, 1950-98 5
2.1 Biodiversity in Viet Nam 13
2.2 Key rural indicators in selected Asian economies 14
2.3 Population distribution by region, 1995-2001 19
2.4 Gross regional product per capita by major region, 1995-2000 22
2.5 Share of GDP by region, 1995-2000 22
2.6 Agriculture value-added by region, 1995-2000 23
2.7 Industrial value-added by domestic enterprises by region, 1995-2001 24
2.8 Total industrial value-added by region, 1995-2001 24
3.1 Average annual indicators of growth and inflation, 1976-80 to 1996-2001 28
3.2 Key indicators of economic developments, 1986-2001 30
3.3 Structural changes in the economy, 1986-2001 30
4.1 Comparative indicators of human development, 1990 52
6.1 Some milestones in the Vietnamese reform process, 1986-98 72
8.1 Allocation of bank lending to enterprises in Viet Nam, 1991-2001 100
9.1 Formal laws governing business entities 109
9.2 Share of industry group output by ownership, 1995 and 2000 116
10.1 Decision 91 State Corporations 134
11.1 Number of newly registered enterprises, 1991-2001 168
11.2 Average registered capital of new enterprises, 1991-2001 168
11.3 Newly established enterprises by region, 1991-2001 170
11.4 Cooperatives re-registered under new cooperative law 170
12.1 Annual growth rates, 1994-2000 180
12.2 Export performance, by main commodity, 1998-2000 183
12.3 Growth rates in selected Asian economies, 1996-2001 189
12.4 Average annual growth rates in paddy output and inputs, 1976-94 194
12.5 Industrial output, 1985-2001 199
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13.1 Gross fixed capital formation, 1991-2001 205
13.2 Investment, by ownership, 1995-2000 207
13.3 Allocation of state investment, 1995-2000 207
13.4 Savings-investment balance, 1995-2000 211
13.5 Foreign direct investment: disbursement by economic sector, 1988-2000 212
13.6 Manufacturing output by foreign-invested sector, total and selected sub-sectors, 1995 and 2000 214
13.7 Annual ODA commitments and disbursements, 1993-2001 217
14.1 Food poverty and overall poverty headcounts in Viet Nam, 1993 and 1998 228
14.2 Poverty gap and poverty severity level headcounts for Viet Nam, 1993 and 1998 231
A1.1 GDP at current price by economic sector, 1985-2001 267
A1.2 GDP at constant prices by economic sector, 1985-2001 268
A1.3 GDP growth at constant prices by economic sector, 1985-2001 269
A1.4 Retail price inflation—consumer goods and services, 1986-2001 270
A1.5 Total values of exports and imports, 1990-2001 271
A1.6 Merchandise exports by major commodities, 1992-2000 272
A1.7 Balance of payments, 1992-2000 273
Figures

1.1 Viet Nam's per capita income relative as a proportion of selected Asian economies' per capita income, 1950-98 4
1.2 GDP growth in selected transition economies, 1980-2000 7
2.1 Viet Nam population pyramid, 1989 and 1999 18
2.2 Age dependency ratio in selected Asian countries, 1986-2000 19
3.1 GDP growth by sector, 1997-2001 28
9.1 GDP growth, 1986-2000 114
9.2 Share of GDP by sector, 1986-2000 114
12.1 Financing development and growth, 1986-2001 178
12.2 Export growth in selected Asian economies, 1986-2000 182
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12.3 Total trade turnover in selected Asian economies, 1986-2000 187
12.4 Growth rates in selected Asian countries, 1986-2001 189
12.5 FDI inflows in selected Asian countries, 1986-2000 191
12.6 Per capita food production in Viet Nam, 1975-88 193
13.1 Savings ratios in selected Asian countries, 1986-2000 210
Maps

2.1 Main regions of Viet Nam 12
Boxes

12.1 The seed sub-sector 197
Symbols used in tables

n.a. not applicable
.. not available
- zero
. insignificant

ix
Abbreviations

ADB Asian Development Bank
AFTA ASEAN Free Trade Area
ASEAN Association of Southeast Asian Nations
CBR crude birth rate
CDF Comprehensive Development Framework
CIEM Central Institute of Economic Management
CIS Commonwealth of Independent States
CMEA Council for Mutual Economic Assistance
CPI Consumer Price Index
CPV Communist Party of Vietnam
CSCER Central Steering Commitee for Enterprise Reform
DAC development assistance community
EPZ export processing zone
ESAP Enhanced Structural Adjustment Program
EU European Union
FDI foreign direct investment
GDP gross domestic product
GNP gross national product
GSO General Statistical Office
HDI Human Development Index
HRD human resource development
IFPRI International Food Policy Research Institute
IMF International Monetary Fund
IRRI International Rice Research Institute
LSMS Living Standards Measurement Study
MARD Ministry of Agriculture and Rural Development
MFI multilateral financial institutions
MOFI Ministry of Finance
MOJ Ministry of Justice
MOLISA Ministry of Labour, Invalids and Social Affairs
MPI Ministry of Planning and Investment
NIC newly industrialised country
ODA official development assistance
OECD Organisation for Economic Cooperation and Development
x
PIP Public Investment Program
PSA Provincial Seed Agency
SAC Structural Adjustment Credit
SBVN State Bank of Viet Nam
SGELI Steering Group for Enterprise Law Implementation
SOE state-owned enterprise
UK United Kingdom
UN United Nations
UNDP United Nations Development Programme
US United States
USSR Union of Soviet Socialist Republics
VAT value-added tax
VCCI Vietnam Chamber of Commerce and Industry
VLSS Vietnam Living Standards Survey

xi
preface

This volume is a by-product of the work done by the two authors in Viet Nam over the past 15 years. Over that period we have worked with many different government agencies in Viet Nam and for a large number of donors. We have had the opportunity to discuss developments in Viet Nam with many knowledgeable observers—Vietnamese scholars and government officials, domestic and foreign business people, foreign academics, NGO representatives, the staff of donor agencies, diplomats and others. Given the help we have received from so many, it is difficult and a little invidious to acknowledge only a few. Nevertheless, there are a few people who have been particularly helpful and particularly deserve our thanks.

Early in our work in Hanoi, we were both very lucky to work with Vu Tat Boi, then with the office of the Council of Ministers, and the able team of young Vietnamese he assembled to staff and advise the UN Management Development Programme. Under that project, we both participated in a program to select and train twenty-seven young Vietnamese for overseas postgraduate training in subjects relevant to the economic reform process. From those two groups of young people, we made many friends whom we keep meeting in increasingly high-level positions in government, business, academia and donor agencies.

Le Dang Doanh and his colleagues, national and international, at the Central Institute of Economic Management also have provided us with valuable insights and challenged our thinking and interpretations on numerous occasions. Pham Chin Lan from the Vietnamese Chamber of Commerce and Industry was an important source of ideas on business issues.

Many individuals from the offices of government; ministries of planning and investment, finance, agriculture and rural development, and foreign affairs; and provincial peoples' committees have assisted us, both professionally and at a personal level, making Viet Nam a stimulating and productive work environment. In particular, we gained valuable insights working on projects headed by former planning ministers, Do Quoc Sam and Tranh Xuan Gia.

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We have also learnt much from discussions with the international community during our work, sometimes learning most when we agreed least. The two Adams—Adam Fforde and Adam McCarty—have been a continuing source of stimulus. Among aid officials during the early 1990s, David Dollar of the World Bank provided valuable insights to all those working on economic reform in Viet Nam, while in more recent years, J.P. Verbiest, previously the Asian Development Bank (ADB) resident representative, and Robert Glofcheski of the UNDP office in Hanoi, have proved stimulating colleagues. Two successive Swedish ambassadors, Borje Lljunggren and Gus Edgren, were also most helpful in generating lively exchanges of ideas. A number of domestic and foreign lawyers and business experts (too many to name) helped stimulate our thinking about law and economic development.

We also thank the development agencies that have funded much of our work in Viet Nam, including the Asian Development Bank, United Nations Development Programme and World Bank, from the multilateral agencies, and the Australian Agency for International Development (AusAID), GTZ, SIDA, DANIDA, NORAD, and the Netherlands DGIS amongst the bilateral agencies. If in the text we have occasionally bitten the hands that have fed us, we have no doubt it will be taken in good spirit.

In preparing the text for publication we received help from Richard Jones in Hanoi, who volunteered his time and energy to check the manuscript, and Matthew May, of Asia Pacific Press, who has taken on the daunting tasking of preparing the manuscript for publication. We also thank those readers who took the time to provide valuable comments on earlier drafts of this manuscript.

Ray Mallon would particularly like to offer his personal thanks to To Hanh Trinh and her family for their insights into Viet Nam. Brian Van Arkadie would like to offer personal thanks also to Ray and his family, and to Goran Andersson, of the Swedish Institute of Public Administration (SIPU), for offering encouragement and hospitality.

Needless to say, as this volume offers personal judgments and interpretations on a number of complex and sometimes contentious issues, none of those thanked should be held responsible for any of the contents, although they surely can claim credit if our efforts prove useful.

Brian Van Arkadie and Raymond Mallon

March 2003