Economic Reform in Vietnam 1 the Economic Reform in Vietnam in 1989: “shock Therapy” or Gradualism?

The purpose of this study is to examine with both political and economic perspectives the economic reforms implemented in Vietnam during the period 1986-89. Specifically, the paper seeks to re-assess the the political and economic contexts of the then-Vietnam, with respect to the systematic changes in ideology and shift of power at the highest level of the Politburo during this critical period. In order to accurately examine the situation, this paper adopts a political science model to evaluate the competing factors in shaping the transition path of the economy, concerning divergent political philosophies, systemic stability, and reconciliation between socialist principles and market ideologies. As Vietnam gradually moved from a centrally-planned economy to a socialist-oriented market economy, it undertook a fast-paced and thorough reform that marked a new milestone in the history of the country. Since the Doi Moi movement in 1986, Vietnam has liberalized its economic policies, lifted investment restrictions and price controls, and embraced friendly economic relations with other countries. Despite the sudden turn in policies toward a “Big Bang” reform, it is significant to recognize the similarities and differences between Vietnam and its powerhouse neighbor China, as it departed from the simple adoption of the Chinese reform and turned toward a combination of both Chinese and Eastern European and Former Soviet Union countries’ policies (henceforth, EEFSU). With the success of disinflationary plans and macroeconomic balancing in 1989-90, Vietnam’s economy since then has achieved tremendous successes. This paper argues that the decision to depart from emulating the Chinese reform and Maoist doctrines was a radical and necessary change for the Communist Party and ultimately ECONOMIC REFORM IN VIETNAM 3 the socialism-oriented Vietnam, and the reform in 1989, in fact, was an admixture of both the “Big Bang” and gradualist approaches. The structure of the paper is organized as follows. Section I details the theoretical models and assumptions exacted by the argument in this paper. Section II provides a brief description of the historical description of Vietnam and the political and economic context of the country after 1975. Section III illustrates the history of economic reforms in Vietnam from 1975 to 1986 and their results. Then, section IV describes the popular radical (“Shock Therapy”) and gradualist approaches to economic reform in centrally-planned economies during that period. The next section discusses the reform in 1989, with regards to its context, policy, and results. Section V makes comparisons of the 1989’s reform with those in countries that adopted the Big Bang and gradual reforms and determine its validity. Lastly, section VI concludes with comments on the reform, with regards to its role as a pivotal point in Vietnam’s politics and economy. I. THEORETICAL MODEL 1. ANALYTICAL MODEL As communist states embarked on reforming and ultimately transitioning their economies from being centrally planned to embracing the mechanism of the free markets, each country chose a different approach defined by distinctive characteristics. This divergence in transition approaches, may it be due to initial conditions of the country or its leaders’ choice of policy, has led countries to different economic standing and performance in the world today. In this paper, initial conditions were considered important factors which determined the timeframe and circumstances for the adoption of a reform (or transition); and the ruling class’ ideology could be used to best explain the policy choices in the process and the pattern of transition. Recognizing ECONOMIC REFORM IN VIETNAM 4 the three factors as a set of antecedent causal relationships, this paper adopts the analytical framework of Guo, Sujian which analyzes a transition using this model of causation: