Viet Nam has made substantial progress in the transition to a market economy and toward financial stability since embarking on economic reform in 1986. Piecemeal measures were adopted at first, followed by the launching of a bold and comprehensive program of structural reform in March 1989. Progress has included far-reaching land reform, comprehensive price liberalization, exchange rate unification, tax reform, public enterprise restructuring, modernization of the financial system, and steps toward freer trade. These reforms have taken place against the background of a more general decentralization of decision making.
The initial conditions for reform were set by the unsuccessful period of central planning, the damage incurred during the years of war, and the period of isolation from the international community. Notwithstanding, Viet Nam’s structure of production was amenable to a quick supply response, while the recent legacy of a market economy in the South, enhanced by its endowment of natural and human resources, helped that region emerge as the driving force of growth. In addition, Viet Nam’s low degree of integration into the Council for Mutual Economic Assistance (CMEA) and its proximity to the dynamic Southeast Asian economies cushioned the effects of the collapse of the CMEA. Finally, the growth in oil exports boosted fiscal revenue, thereby contributing to financial stability.
Since 1989, the structural reform process has been complemented by policies designed to achieve financial stabilization. The main features have included a reduction in the budget deficit, restraint in the growth of money and credit, and a rationalization of the interest rate structure. In the initial stages of stabilization, however, the withdrawal of external financing from the former Soviet Union and the breakdown of preferential arrangements with the CMEA area resulted in the temporary weakening of economic performance. Notwithstanding these constraints, the Vietnamese intensified the adjustment process and hastened the transition to a market economy. Viet Nam has since resumed its progress toward financial stability and sustained growth.