Date: Thu, 17 Oct 1996 16:35:01 -0400 (EDT)
From: louisgodena-AT-ids.net (Louis R Godena)
Subject: Hyperinflation & Economic Growth in Vietnam



Economists are more and more beginning to view Vietnam as a successful
imitator of the emerging Chinese model of Asian economic powerhouse,
particulary in the crucial areas of agricultural growth and inflation.   Yet
important differences in political culture obviate much of this comparison. 

Vietnam is doing remarkably well.   Gross domestic product growth in 1994
was 8.8 per cent,  mainly due to the rapid growth in construction (the
largest single area of foreign direct investment at more than 24%),
increased exports and industrial growth.    Ho Chi Minh City,  the country's
engine of growth,  grew by almost 15 per cent,  although there are signs
that Hanoi and the north are catching up.    Prime Minister Vo Van Kiet told
last month's National Assembly that the economy was expected to grow 9.5 per
cent this year,  with industry expanding by 14 per cent.    Agriculture,
still the backbone of the nation's economy (more than 70% of the labor force
is engaged in farming) would grow by a healthy 4.7% (though this figure was
stunted by damaging floods earlier this year).    Exports,  too--mainly
rice,  coffee and oil,  were higher,  growing by more than 30% over 1994 and
totaling more than $4.7 billion (US).    Vietnam is now practically tied for
second place as the fastest growing economy in Asia (with Malaysia and South
Korea) after China.

Inflation, too,  appears to be under control;  less than 7% (from a high of
more than 300% in 1988) last year,  though a steep rise of consumer prices
in the year to September of 17 per cent is a worrying sign.    Domestic
savings is on the rise as well--accounting for some 17% of growth in 1994
(far above the paltry 7.4 recorded in 1990)--though it remains far below
that of China (35%),  and South Korea (36%).

But the starkest difference between the two centrally-planned economies of
China and Vietnam lies in the so-called non-state controlled sector.    We
have already seen that non State-Owned Enterprises (SOEs) in China has
fueled much of that nation's spectacular economic growth,  as both
cooperatives and Town and Village Enterprises (TVEs).    No such animal
exists in its southeastern neighbor.    Vietnam's private sector is
restricted to small-scale enterprises such as food processing and the
manufacturing of garments and some consumer goods.    The state sector,
too,  has a monopoly of many high profit businesses like telecoms,  real
estate,  export and import,  and finance (state owned banks).    Following
the economic disasters of the 1980s,  Hanoi moved to cut the number of its
SOEs from more than 12,000 in 1990 to less than 6,000 at the beginning of
this year.   

The government,  however,  seems intent on maintaining the state sector's
dominance of key sectors of the economy,  in stark contrast to China.    In
fact,  as foreign economists are wont to point out,  most of the SOEs given
the ax were small,  town-based units in the provinces,  with little economic
clout,  even collectively.    And Vietnam seems to be more keen on the
Korean model of development than in imitating China's experiment with
decentralization.    In mid-1994,  Hanoi formed 14 conglomerates in sectors
such as electricity,  cement,  textiles and rubber.   The idea was
officially described as a way to "increase competition and to form more
commercial establishments."   Foreign economists and the World Bank,
however,  suspect that the creation of such conglomerates may be just
another way of strengthening SOE control over the economy,  as was done by
the Seoul governments in the 1980s.

This forms the gist of the difference between the models espoused in Beijing
and Hanoi.    The former is willing to undertake devolution to local power
centers controlled by the local (and often more or less autonomous
economically) branches of the Communist Party,  this in exchange for
increased economic vitality at the local level. In Vietnam,  on the other
hand,  the central government is loathe to undertake decentralization,  and
prefers to maintain tight control of both the economy and political life
through the central organ of the Party.    Both its size and history
probably combine to make the Vietnamnese wary of any excercises in
decentralization.    Instead,  they are seeking to maintain wide popular
support by instituting ambitious programs of modernization in the areas of
infrastructure,  education and healthcare,   programs that will certainly
demand huge sums against a background of  foreign arrears totaling nearly $1
billion. 

Louis Godena