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SAP 2.74/WP.128
Agrarian transition in Viet Nam
The transition in agriculture in Viet Nam is part of the more general process of economic reforms that started more or less after the reunification of the country in 1975. At that time an optimistic five-year plan was formulated, but around 1980 it became evident that the targets were indeed too optimistic and a first round of reforms was initiated allowing farmers and industries to sell freely any of their surplus output beyond the quotas laid down in the plan. These early reforms yielded an initial bout of growth, but around the mid-1980s agriculture again faltered and inefficiencies in state-owned enterprises (SOEs) exacted their toll in terms of fiscal deficits and inflation. The Sixth Party Congress of the Communist Party of Viet Nam in 1986 took the bull by the horns and decided to go for a clean-sweep reform of the economy, appropriately referred to as "doi moi" in Vietnamese, or renovation.
Earlier reforms had been piecemeal and their stance towards open markets ambivalent. Some were improvisations by individuals and groups to take advantage of perceived relaxation of regulations -- e.g. cooperative farmers enlarging their private plots beyond the 5 per cent official limit, industrial enterprises undertaking activities outside the plan framework. The sixth plenum of the Central Committee in August 1979 had formally accepted these bottom-up reforms and they were even incorporated into law in January 1981. Two distinctive policy measures were the "three-plan" system for industries and the "output contract" system for agriculture. Plan B of the "three-plan" system allowed industries to operate in the open market, but always with the proviso that their primary obligation was to fulfil quotas from state-supplied inputs (plan A). Plan C even permitted them to produce and sell "minor" products from freely purchased inputs. The "output contract" system, in a similar fashion, allowed agricultural cooperatives to sell produce beyond their official quotas on the open market. There was an initial positive supply response to these early reforms, only for growth to peter out due to bottlenecks posed by the basic structures of the economy. Inflation began to accelerate and all other significant macroeconomic parameters -- debt service ratio, trade balance, budgetary balance -- too deteriorated.
The 1986 reforms at last began to tackle the structural weaknesses of the economy. Macroeconomic measures were devised to curb inflation and the private sector was accorded a greater role in the development of the economy. Land was returned to the tiller and subsidies on essential items reduced or altogether abolished. The breakdown of the Council for Mutual Economic Assistance (CMEA) system, by removing at one stroke the major support to the economy in terms of trade and aid, provided further impetus to the reform process.
Table 1 summarizes reforms undertaken up to 1992. By and large, further consolidation happened in the last five years. The table shows clearly that while reforms started in agriculture -- and quite before the announcement of "doi moi" -- they soon spread to the other sectors and those reforms in their sheer quantity easily surpassed the agrarian reforms once "doi moi" was launched. However, the significance of the agricultural reforms should not be minimized because they dared for the first time to touch the collectives which were the core of the Vietnamese economy until then. 
Some of the highlights of the reform process may be noted. In 1987 the Law on Foreign Investment was introduced. Resolution 10 of 1988 strengthened the land use rights of farming households and gave farmers the freedom to choose their crops and inputs. Resolution 16 of the same year legalized small-scale private businesses. In 1989 domestic and external trade were liberalized, followed in 1990 by the promulgation of a company law and a private business law. The Government abandoned its control over prices. The exchange rate was unified and significantly devalued. The number of state-owned enterprises was reduced from 12,000 to 7,000 within just three years immediately after the reforms (World Bank, 1995a), at the cost of more than a million jobs (ILO/EASMAT, 1994). Financial restructuring was equally impressive. The mono-bank system of central planning was abolished and the State Bank of Viet Nam (SBVN) emerged as the central bank, with four state-owned commercial banks to take care of credit activities and deposit mobilization. New banking laws set the rules for the creation of banks and shortly many new domestic and foreign banks opened office.
Economic necessity rather than political change provided the impetus for reforms in Viet Nam, while external shocks added to the need for reform. In the late 1980s, communist countries in the former Soviet Union and Eastern Europe started their radical political reforms -- and their economic collapse. Viet Nam's extreme dependence on these countries for its foreign trade and aid made a radical reorientation in economic policies almost imperative. Reforms have been restricted to the economic sphere; the Communist Party of Viet Nam (CPVN) remains in power and continues to espouse socialism as the desirable political system.
The shift in trade away from CMEA implied a shift from a stagnating market to the dynamic Asian market. By a stroke of luck, oil exports from Viet Nam were coming on stream just at this time, agricultural reforms contributed to a sharp increase in exportable surplus, new industrial exports emerged (particularly textiles and garments), and earning from tourism increased sharply.
Macro impact
The impact of reforms has been positive in terms of all the usual macroeconomic indicators -- GDP growth, price stability, exports, and revenue (table 2). Growth in national income had been negative around 1980 but spurted thereafter. However, by 1987 the steam was running out, just as "doi moi" began to be implemented in earnest. Growth then picked up appreciably, reaching over 8 per cent for each of the years from 1992 to 1996. The cost of living index declined from triple digit levels up to 1987 to double digits between 1988 and 1991, and thereafter even to single digit, except for 1995. Exports increased eightfold between 1987 and 1996, from 21.2 per cent of GDP to 31.5 per cent. Revenue increased almost tenfold between 1990 and 1996, from 14.7 to 23.6 per cent of GDP.
