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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-bystep 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) 15.0 10.0 5.0 0.0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -5.0 -10.0 -15.0 Indonesia Malaysia Philippines Singapore Thailand Vietnam Saving and investment (in percent of GDP) 40 35 30 25 20 15 10 5 0 2001 2002 Gross national saving Gross investment 2003 Private saving Private inv. 2004 Public saving Public inv. 2005 FDI inflows, 1986–2005 10,000 8,000 4,000 2,000 20 05 20 04 20 03 20 02 20 01 20 00 19 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 -2,000 19 87 0 19 86 US$ millions 6,000 -4,000 -6,000 Indonesia Malaysia Philippines Thailand Viet Nam Net FDI inflows 2004 (% of GDP) State Non-State FDI 20 05 20 04 20 03 20 02 20 01 20 00 19 99 19 98 19 97 19 96 19 95 19 94 19 93 19 92 19 91 19 90 19 89 19 88 19 87 19 86 GDP by ownership 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 GDP per capita as % of GDP per capita in Asian countries, PPP 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1991 1992 1993 % China 1994 India 1995 1996 Indonesia 1997 1998 Malaysia 1999 2000 2001 Philippines 2002 2003 Singapore 2004 2005 Thailand GINI Index, Asian countries 6 0 4 0 2 0 0 Malaysia Thailand China 49.2 42 44.7 Philippines Indonesia 46.1 34.3 Viet Nam India 37 32.5 Income ratio of richest 10% to poorest 10% 2 5 2 0 1 5 1 0 5 0 Malaysia Thailand China Philippines Indonesia Viet Nam India 22.1 12.6 18.4 16.5 7.8 9.4 7.3 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