Viet Nam - Reform and Stabilization, 1986-92


WP/93/46-EA

Viet Nam--Reform and Stabilization, 1986-92
by Gabrielle Lipworth and Erich Spitäller

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 endow-
ment 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.