Working Together: Vietnam and the IMF

Source details

Publication: Vietnam: Raising Millions Out of Poverty, August 2018.
The Doi Moi (renovation) reforms began in 1986 and initiated Vietnam’s shift from a centrally planned economy to market-oriented policies, encouraging private enterprise and foreign investment.
Between 1993 and 2014, Vietnam lifted 40 million people out of poverty; the poverty rate fell to 14 percent from almost 60 percent in that period.
Per capita growth since 1990 averaged 5.6 percent a year as of 2017, second only to China’s among peers.

In the mid to late 1980s, inflation ran at 400 percent; stabilizing the economy was prioritized through easing price controls, raising interest rates, limiting subsidies to inefficient state-owned enterprises, and devaluing the dong.
By 1993, inflation had fallen to an annual rate of around 8 percent, down from 300-400 percent per year in the mid to late 1980s.
IMF contributions included financial and technical assistance and advisory support to improve public administration, tax policy, central banking, and statistics gathering.
IMF assessments of the economy helped improve Vietnam’s credit rating, supporting foreign investment inflows.
Quoted institutional perspectives:
- Vo Tri Thanh (Central Institute for Economic Management): “Cooperation with the IMF has been very, very, important for the whole process of reform.”
- Jonathan Dunn (IMF’s resident representative): “Vietnam is now in a very strong position. It has a very dynamic economy; it's very integrated into the global system.”

Key reform steps:
- Move toward private ownership beginning with agriculture: dissolution of cooperative farms and household land rights led to a surge in food production.
- Legal foundations for private companies and greater autonomy for state-owned enterprises.
- Opening to foreign trade and investment: ASEAN accession in 1995 and WTO accession in 2007 spurred larger inflows of foreign investment.
Foreign investment outcomes and firm examples:
- Samsung began manufacturing mobile phones in 2009; it has three plants in the north and one in the south.
- Samsung has invested $17.5 billion in Vietnam and employs 160,000 people.
- Vinamilk: started in 1976; as of the source, employs 15,000 and has annual sales of about $2 billion, of which a quarter are exports.
- FPT Corp.: founded from a small state-owned enterprise; listed in 2006; as of 2017 had sales of $2 billion and employed almost 30,000 workers.
Quoted corporate view:
- Ha Chan Ho (Samsung strategic adviser): “The labor force of Vietnam is very excellent... The people are very hard working and diligent.”
- Mai Kieu Lien (Vinamilk CEO): “Now that the state has decided to give us autonomy, we have full discretion to do business according to the strategy that we have drawn up.”

A credit-fueled expansion in 2011-12 was followed by a real estate bust and a slowdown in economic growth; recovery has occurred but highlighted the need for sound economic management.
Greater openness increases vulnerability to external shocks.

Environmental costs of rapid growth: polluted air and water and deforestation.
Geographic vulnerability: Vietnam has a 3,260-kilometer (2,2026-mile) coastline and is among the five countries deemed most likely to be affected by climate change.
Demographics:
- Population: 95 million.
- Vietnam has benefitted from a demographic dividend in recent decades, but the window is closing; population will begin to age in a couple of decades.
- Aging will slow labor force growth and raise costs for elderly care as per capita income may remain relatively low.
- Nguyen Thi Hong (Deputy Governor, State Bank of Vietnam): “Vietnam has been enjoying the demographic dividend in the last two decades, but the demographic window is coming to an end.”

Core objective: maintain rapid economic growth by improving productivity (output per worker-hour).
Recommended and planned measures attributed to policy discussions and officials:
- Add fresh capital to some banks and close others.
- Restructure state-owned enterprises that still account for a large share of the economy.
- Continue to streamline business regulations to foster private-sector dynamism.
Potential payoff: If second-generation reforms are pursued, Vietnam could match the performance of the most successful Asian tiger countries such as South Korea and Taiwan (attribution: Jonathan Dunn, IMF).