Thursday, May 03, 2007, The Jakarta Post
The Vietnam News Agency and Asia News Network organized an international conference on regionalism and modernization of Vietnam in Ho Chi Minh City on April 23 and 24. Vincent Lingga represented The Jakarta Post, a member of ANN, at the meeting. The following are his reports.
Almost 20 years after abandoning its collectivist economic strategy to implement market-based reforms, Vietnam has become one of the best-performing developing economies in the world with an annual growth of 7 to 8 percent over the past eight years.
Although not a complete picture of success - as it is still a poor country with a per capita income of US$700 - Vietnam has, to some extent, achieved economic development.
Vietnam's economy is on a roll and the outlook is quite promising.
It is amazing to see how a country ravaged by war for decades has been able to catch up so fast. Vietnam has now become one of Asia's most open economies, with two-way trade totaling US$85 billion last year and accounting for more than 60 percent of its economy.
Vietnam is now the world's biggest pepper exporter, second largest rice exporter after Thailand and a leading exporter of coffee, tea and shrimp.
Remarkably, Vietnam's high economic growth has not impacted on income inequality. The poverty rate has decreased from 60 percent in 1990 to around 15 percent. More than 90 percent of rural households now have electricity.
Where did Vietnam go right and where does Indonesia lag?
Foreign analysts, investors, businesspeople and Vietnam's senior officials, who declared Vietnam an economic success story at an international seminar last week, gave credit to consistent reform, strong government leadership and industrious citizens with great entrepreneurial spirit as the key factors.
Strong leadership succeeded in reducing animosity toward the United States, an enemy until the war ended in 1975; the French, the country's former colonialists; and China.
"This is by no means a small achievement, because almost every family has had a relative killed in the war. However, we decided to bury hatred in the past and turn our attention and energy to providing employment and creating prosperity," said Dao Duy Chu, senior economist and former chief executive officer of state-owned PetroVietnam.
Vietnam watches China carefully to learn from its neighbor's mistakes. Duy focussed particularly on income inequality between people in rural and urban areas.
Vietnam has not been suspicious of the Washington-based World Bank and International Monetary Fund, even though many other developing countries consider these an extension of U.S. foreign policy. Vietnam rejoined both institutions in 1993 and has since benefited greatly from intensive policy discussions with seasoned economists and technical assistants.
Even though Vietnam has never been heavily dependent on foreign aid (it accounts for less than 15 percent of public-sector spending), 30 donors are now actively engaged in extensive policy reform under the coordination of the World Bank.
Like many other developing countries, reform in Vietnam initially occurred in a haphazard manner, but as success eventually bred success, confidence rose and encouraged even bolder reforms.
An egalitarian redistribution of farmland early on, coupled with free trade in agricultural products and better agricultural support services at the local level, led to a boom in exports and a dramatic reduction in rural poverty.
"I think reform (doi moi) in Vietnam was successful because it started in the agricultural sector and created a basis for a stronger national market," said Pietro P. Masina, a senior economist from the University of Naples, who has long studied Vietnam's development strategies.
The egalitarian redistribution of land to rural households allowed for a strong recovery of the agriculture sector, which became a safety net for many people when the economic crisis hit East Asia in 1997, Masina said.
Foreign investment grew as domestic entrepreneurial spirit was unleashed. Urban residents moved into paid employment, further reducing the number of rural poor and spurting economic expansion.
Vietnam permitted 7,067 foreign direct-investment projects worth US$63.55 billion between 1988 and March, 2007, according to the ministry of planning and investment.
"In the last five years our National Assembly enacted 84 laws, 60 of which are related to rules of the game in a market-based economy," said Vu Khoan, representing the prime minister.
Included among the new laws are the unified Investment Law, which provides equal status to both domestic and foreign investors, and legislation regarding the securities market, real estate market, credit organizations, science and technology transfer from foreign to domestic companies.
Vietnam avoided the economic crisis of 1997-1998 that devastated other Asian economies, including Indonesia. Vietnam's economic growth rate has exceeded 8 percent in the last two years and the government has increased reforms, now aiming for middle-income country status by 2010.
Vietnam's communist regime has another track record to be proud of. While Indonesia's reform of its state enterprises has been bogged down in narrow-minded nationalist sentiments and vested-interest capitalists, Vietnam has recorded impressive progress in the reform and privatization of state companies.
Figures presented at the seminar showed that state companies have performed reasonably well over the past few years, with more than 75 percent profiting with rates of return on equity (ROA) of 7-8 percent a year. ROA of most state companies in Indonesia, a market economy, was only between 2 and 4 percent over the same period.
Massive privatization halved the number of state firms to around 3,000 over the past five years.
"We will privatize 600 more state companies this year, including those operating in power, post, telecommunications, aviation, maritime, oil and gas, finance, insurance and banking," said Deputy Minister of Planning and Investment Nguyen Bich Dat.
Privatization has created space for the expansion of private firms. As the private sector expands rapidly, both domestic and foreign-invested firms have connected well with global markets.
Private firms now contribute 65 percent of manufactured products and over 70 percent of non-oil exports. Vietnam is progressively becoming an integral link in international production and distribution chains.
Vietnam's geographical location is also a great advantage. Vietnam is strategically located in the Greater Mekong Sub-region (GMS), comprising Cambodia, Laos, Myanmar, Thailand and two provinces of southern China. Vietnam will play a major role as a regional economic hub.
The tremendous growth of tens of thousands of family firms, resulting from a bold government move in 2001 to ease restrictions on small businesses, is quite impressive.
Vietnam's accession to the World Trade Organization (WTO) in January has exposed its agriculture sector and companies to new competition and will accelerate the modernization of the legal system.
Vietnam should be proud of the high-quality, egalitarian growth that has been the key to maintaining social cohesion.
The biggest challenge facing the ruling communists is how to continue delivering jobs, public services and prosperity.
Official statistics show that one million young Vietnamese join the labor force each year and another one million rural people migrate to the cities annually.
"Social cohesion will continue as long as the economy expands steadily with an equitable distribution of income," noted Nguyen Van Tan, chief executive officer of T&T, a service and consulting company.
Moreover, Tan added, the Communist Party will continue to gain respect from the people because it has ruled the Vietnam since 1930 and successfully led its citizens through a succession of wars against foreign colonialists.
But as Vietnam's economy becomes more sophisticated, new challenges emerge and the need arises for better feedback mechanisms from its citizens on the quality of public policy and higher standards of transparency and accountability.
Like China and India, Vietnam has benefited enormously from the return of citizens who had fled the country. Thousands of Vietnamese have returned from overseas after learning English, gaining entrepreneurial experience and acquiring technical skills.
However, as the Vietnamese enjoy more economic freedom and as more of their countrymen and women return, bringing foreign ideas of pluralism and free speech, expectations of political liberty and free expression of opinion will grow.
The Vietnamese government appears to realize the challenges and consequences of this economic development.
"Many issues, such as the inadequate and inconsistent legal system, complex administrative procedures, overlapping departments and ambiguous responsibilities of state institutions and incompetent and corrupt civil servants have yet to be resolved," Khoan said.
A businessman from Europe expressed great concern, particularly over high-level corruption related to big government projects or business deals with state companies but "they are taking serious steps to tackle this problem."
The businessman, who insisted on anonymity, welcomed a government decision to gradually open a mechanism for expressing grievances.
"The government has previously allowed street protest demonstrations, though only a very small number of people joined," he said.
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