VIETNAM IN 2007

A Profile in Economic and

Socio-Political Dynamism

Vo X. Han

Abstract
The year 2007 witnessed a continuation of a five-year dynamic momentum
evident on several fronts, notably a fast-growing economy and a vivid socio-
political landscape, coupled with an active diplomacy. People’s standard
of living has improved and a sense of confidence and hope in a better future
has permeated the populace. Viet Nam’s scorecard on the diplomatic front
continued to show impressive gains. Yet, momentum can be sustained only
if limitations in institutions, education, and infrastructure can be addressed
effectively.

Keywords: Vietnamese economy, economy in transition, economic develop-

ment, social development, politics and governance

A Vibrant Economy
In August, World Bank President Robert B. Zoellick as-
sessed the current Vietnamese economy fairly accurately in these terms: “Viet-
nam has the potential to be one of the great success stories in development. It
has already achieved one of the fastest improvements in living standards in the
world, with a great reduction in poverty.”1 Viet Nam’s2 growth momentum con-
tinued, with its gross domestic product (GDP) growing at 8.48% in real terms

Vo X. Han is Associate Professor of Economics, Winthrop University,

Rock Hill, S.C., U.S.A. Email: voh@winthrop.edu.
1. World Bank, News & Broadcast, http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/
0,,contentMDK:21434085~pagePK:34370~piPK:34424~theSitePK:4607,00.html.
2. The author prefers to use the spelling Viet Nam.
Asian Survey, Vol. 48, Issue 1, pp. 29–37, ISSN 0004-4687, electronic ISSN 1533-838X. © 2008
by The Regents of the University of California. All rights reserved. Please direct all requests for permis-
sion to photocopy or reproduce article content through the University of California Press’s Rights and
Permissions website, at http://www.ucpressjournals.com/reprintInfo.asp. DOI: AS.2008.48.1.29.

29
 30 ASIAN SURVEY, VOL. XLVIII, NO. 1, JANUARY/FEBRUARY 2008

during 2007.3 This is the highest growth rate in the country in 10 years and
also this year in East Asia; only China exceeds this performance. Meanwhile,
general price inflation also continued to rise, as the Consumer Price Index
(CPI) showed an increase of 8.12% between January and October. Consumer
goods prices rose by 9.34%, fueled by a food price increase of 13.94% (food
and foodstuffs make up 42.8% of the typical consumer commodity basket).
Prices of housing and construction material also increased at the fastest rate
ever. Hanoi experienced what appeared to be another explosive cycle in real
estate prices.
The industrial and service sectors have continued to play a dominant role in
the expansion of the Vietnamese economy. The high rate of growth in 2007
was also supported by a strong export performance (up by 20.5% from 2006),
owing mostly to the implementation of Viet Nam-U.S. bilateral trade agree-
ments and robust total capital investment (up by 16.6% from 2006 and reach-
ing 40.6% of GDP). Thus, growth in private investment and consumption (up
by 7.6%, after correction for inflation, in the first three quarters of 2007, com-
pared to the same period in 2006) played an important role in the GDP growth.
To the 2007 GDP growth rate, agriculture contributed a mere 0.5%, compared
to industry, 3.9%, and services, 3.4%. Evidently, industrial production and
construction played a key role in output expansion. Agriculture accounts for
only 20% of GDP, the service sector contributes almost 38%, and industry/
construction, 41%. The share of agriculture in GDP has declined somewhat,
but that of industry and service has risen slightly over the past year. The agri-
culture sector suffered several setbacks in 2007 caused by adverse weather
conditions and the avian flu epidemic.
Per capita GDP increased by 4.6% from $655 in 2006 to $685 in 2007. Ac-
cording to official data, the percentage of the population living below the pov-
erty line dropped from 59% in 1993 to 35% in 2000 and 18% today. This
poverty reduction record is attributable to improved agricultural productivity,
diversification to new crops and non-agricultural activities, high prices for
some export products, and government poverty-reduction programs, including
low-cost credits to farmers. However, although few would dispute the positive
long-term trend, data collected at the regional level suggested a different pic-
ture. For example, in August, according to a report of the Leadership Council
of the Southwest Region in Viet Nam, the average income of farmers in a four-
person household was VND 175,000 ($10.85) per month, far below the current
official poverty line of VND 260,0004 ($16.12). In short, there exists a large

3. Viet Nam Government Statistical Office, http://www.gso.gov.vn/default_en.aspx?tabid

491.
4. V ăn Hóa Phât Giáo Magazine, no. 42, October 1, 2007.
 VIETNAM IN 2007 31

and growing gap in living standard between the urban and the countryside or
highland populations. The proportion of households below the poverty line in
the highlands was four times greater than the national average.
Viet Nam’s export performance in 2007 and the prospect for the foreseeable
future both look good. This should favor expansion of overall economic activ-
ity and output because foreign trade is becoming more and more important for
the economy; its ratio to GDP increased to 150% recently. Viet Nam has suc-
cessfully pursued trade liberalization in recent years. Exports in the first 10
months of 2007 reached a record level of $39.05 billion, up by 18.6%, while
imports rose to $49.98 billion, up 30.5%, yielding a record trade deficit of $8.9
billion, which was about one billion above the first nine-month figure. A con-
tributing factor to the rising deficit was the purchase by industries of foreign
raw materials and equipment worth $8.28 billion.
The current account deficit is projected at 0.6% of GDP for 2007. Although
the trade deficit has been growing rapidly (over 50% compared to the same pe-
riod in the preceding year), the Vietnamese government expressed confidence
that this is a concern rather than an alarm, because fast expanding exports will
help reduce the trade gap thanks to better access to the U.S. market, recent
Viet Nam membership in the World Trade Organization (WTO), and overall
economic expansion. For 2007, exports are projected to reach $42.9 billion;
they are expected to grow by 22% in 2008. But against this favorable back-
ground, Viet Nam will have to steer a careful course because it was designated
as a non-market economy for up to 12 years from its WTO accession date,
2006, which allows other WTO countries to impose anti-dumping levies
against its exports.
Viet Nam’s top export markets are the United States, Japan, China, Austra-
lia, and Singapore, and its top import partners are China, Japan, Singapore,
and South Korea. In fact, while exports to the U.S. increased, export growth to
Asia decreased, especially to China and the Association of Southeast Asian
Nations (ASEAN). To the latter, Viet Nam’s exports have mainly consisted of
farm products, seafood, textiles and garments, and electric wire and cables.
Crude oil, textiles, footwear, fishery products, furniture, rice, and computer
and electrical components have recently been the leading export items, while
top imported products have included petroleum, textiles and fabric, iron and
steel, machinery, vehicles, and electronics. Significantly, textiles exports are
expected to surpass crude oil earnings for the first time in 2008.
Against this bright background, there are important factors that have pre-
vented Viet Nam from achieving its full growth-development potential, in-
cluding an underdeveloped infrastructure—especially regarding power, water
supply, transportation, and lack of skilled workers. The latter issue has be-
come an increasingly significant factor because it has tended to limit the coun-
try’s absorptive capacity and also hinders foreign direct investment (FDI).
 32 ASIAN SURVEY, VOL. XLVIII, NO. 1, JANUARY/FEBRUARY 2008

Another impediment to FDI is the lack of high-caliber contractors involved in

large projects. Additionally, foreign investors have expressed dissatisfaction
with several points in the new Investment Law passed last year dealing with
foreign and domestic investment.
Registered FDI rose to a record level of $11.26 billion in the first 10 months
of 2007, up 36.4% of which the implemented value for the first three quarters
was $3.5 billion, expected to increase to approximately $4.5 billion for the en-
tire year. During that 10-month period, the government licensed 1,114 new
projects worth $9.75 billion, representing a 58% increase in the number of
projects from the same period in 2006. The amount of investment disbursed by
foreign firms during the period was $3.71 billion, or 33% of the total regis-
tered capital.5 The top five investors were South Korea, Singapore, the British
Virgin Islands, Taiwan, and Japan. Heavy industry accounted for the largest
share of total FDI in the first 10 months of 2007 (45.3% compared to 29% in
2006), followed by light industry (27.3%), services, broadly defined (14.6%,
of which hotels and tourism were 9.3%), and food-processing and agri-forest
industry (11.8%).6 FDI during this period contributed nearly 4% to GDP and
played an increasingly important role in overall capital formation and eco-
nomic growth in 2007. The Vietnamese government recently announced an es-
timate of total committed FDI for the entire year 2007 at $20.3 billion (a 70%
increase over 2006 and 53% higher than the target for the year), but this figure
appeared preliminary and no details were provided. Also according to govern-
ment sources, although the estimated level of capital commitment for 2007 is
well beyond expectations, the disbursement rate has actually decreased.7
The projected state total revenues for 2007 are VND 300,900 billion ($18.64
billion), representing the projected year’s revenues plus the amount brought
forward from 2006. Projected total expenditures, including principal payment,
are VND 357,400 billion ($22.14 billion), suggesting a state budget deficit of
VND 56,500 billion8 ($3.49 billion). This budget deficit represents 5% of GDP;
however, according to the International Monetary Fund Government Financial
Statistics (IMF-GFS) system, which excludes principal payment, the govern-
ment projected a budget deficit of only VND 19,821 billion ($1.23 billion) or
about 1.8% of GDP. Also according to the projections, income taxes contribute

5. Vietnam targets $52.5 billion in FDI, Investment & Trade Promotion Center, Ho Chi Minh
City, January 14, 2007, http://www.itpc.hochiminhcity.gov.vn/en/business_news/Investment/
news_item.2007-11-01.5149064290.
6. Vietpartners, FDI Statistics, http://www.vietpartners.com/Statistics-FDI.htm.
7. “Viet Nam Attracts Record Level of Foreign Direct Investment,” Asia Pulse, Hanoi, Janu-
ary 7, 2008.
8. VN Ministry of Finance, 2007 http://www.mof.gov.vn/DefaultE.aspx?tabid4912&Item
ID38679. All state budget figures are provided by this source.
 VIETNAM IN 2007 33

only 2.2% to total budget revenues and corporate income taxes, 35%. There is
strong evidence of problems with personal tax collection: the 12th National
Assembly in Hanoi on November 2 was considering a new bill on income taxes
to address the issue, but concrete action appears remote. Revenues generated
from the petroleum sector were projected at VND 71,700 billion ($4.44 bil-
lion), or 25.5% of total state budget revenues.
In short, for sustainable social and economic development—as opposed to
growth alone—to take place, Viet Nam needs to turn more attention toward qual-
itative improvements. To begin with, these would include more investment in
human capital, improvement in the educational and training fields, strengthening
of institutional and governance capabilities, and better physical infrastructure.
The proposed state budget for 2008 is one step in the right direction: it provides
for much greater expenditures and bond financing to upgrade economic and
social infrastructure, including transportation and water resources management.

Political and Social Dynamism

The current leadership structure is fairly balanced and generally younger with
Party Chairman Nông—Dú˙c Manh, National Assembly Chairman Nguyễn Phú
Trong (both Northerners), and ˙President Nguyễn Minh Triết and Prime Minis-
˙
ter Nguyễn Tấn Dũng (both Southerners). The last two are acknowledged reform-
ers and have solid business experience. They also have strong anti-corruption
credentials and are said to be committed to fighting graft. In short, the top polit-
ical positions in 2007 appear to be a stable combination of (northern) party
loyalty and reform-mindedness on the one hand and (southern) entrepreneurial
spirit on the other. Political stability and capable leadership seem to be what
Viet Nam needs to continue on its promising path of economic expansion, socio-
political reform, regional cooperation and stability, and global integration.
In a sense, the new leadership structure is a result of the democratization pro-
cess initiated at the Vietnamese Communist Party (VCP) 10th Congress in 2006,
which was a milestone in the political evolution toward more open leadership
selection and succession. The 2006 Congress took important unprecedented
steps to ensure that the process of determining its new top leadership structure,
i.e., the political bureau and the top party/cabinet members, is more open to
public scrutiny and chosen from a larger, albeit still restricted, pool that is more
representative of the will of the people. Notably, newly instituted measures in
preparing for the Congress encouraged participation from a wide assortment
of persons including party leaders both old and young, state officials, private
experts and professionals, and foreign specialists. Reforms in 2006 involved a
thorough pre-Congress preparation, including availability to and scrutiny by
the VCP Central Committee’s 13th Plenum of draft policy documents based
on reports from the Politburo.
 34 ASIAN SURVEY, VOL. XLVIII, NO. 1, JANUARY/FEBRUARY 2008

Also new was solicitation of public debate over the Internet of the draft Po-
litical Report (a fairly comprehensive document), after revision of Congress
documents and public posting of the names of newly elected Politburo mem-
bers in the order of votes received (from the 160 full-member Party Central
Committee). For the first time, party delegates to the Congress were given the
responsibility of nominating candidates for the Central Committee—with self-
nomination also allowed—which opens up room for new faces in the Central
Committee and the Politburo.9
Significantly, VCP Secretary-General Nông—Dú˙c Manh (elected to a second
term) once reflected the new openness and democratic˙evolution in the leader-
ship succession, when he stated back in 2002: “During the revolution, we had
to keep secrets to ensure the success and victory of the cause, to gain indepen-
dence and unification. Now the party has won a leading role . . . I think every-
thing should be governed by law. We don’t want to keep secrets anymore.”10
With this attitude and open commitment coming from the top, Viet Nam in
2007 strived to become a law-driven society, albeit with limited success on the
enforcement level. There were new positive movements toward greater de-
mocracy in the legislative structure, too. For instance, with its first session, the
12th National Assembly (NA) in 2007 became more assertive by deciding to
vote for top parliamentary posts including the NA chair, state president, and
prime minister. The NA, which used to play a low-key, “let’s-get-along” role,
will also actively discuss and decide on the organizational structure of the
government and approve the appointment of deputy prime ministers, minis-
ters, and other cabinet members.
On the broad social level, in a Gallup International poll of 53 countries to
gauge the respective levels of citizen optimism during 2007, the Vietnamese
were found to head the list regarding confidence in a bright future.11 Based on
casual observation of life in large and medium-sized cities of Viet Nam and
the media, including TV shows and steadily multiplying popular publications,
one can feel a sense of optimism and vitality, especially among the urban pop-
ulation. The burgeoning activities in large urban areas, including work, eating,
and entertainment, have betrayed a clearly visible surge and pulse—a genuine
élan vital. Poverty-reduction programs and rural modernization, including
electrification, have also brought about visible improvement in people’s living
standard and changes in life style in smaller towns and the countryside.

9. Carlyle A. Thayer, “VietNam––The Tenth Party Congress and After,” in Southeast Asian
Affairs 2007, edited by Daljit Singh and Lorraine C. Salazar, Institute of Southeast Asian Studies,
Singapore, 2007, pp. 381–96.
10. Quoted by Kay Johnson, Time, November 3, 2002. Italics are the author’s.
11. VNExpress online, January 2, 2007, http://www.vnexpress.net/Vietnam/Xa-hoi/2007/
01/3B9F1EB1/.
 VIETNAM IN 2007 35

On the other hand, widespread corruption has continued to cast a threaten-

ing cloud on the vibrant socio-economic picture. For many years, this crisis
has been at the forefront of attention at many levels of government, from the
legislature to the executive branch at the national level to local government.12
Yet, despite the high-level commitment and real efforts to combat corruption,
the anti-corruption law passed in 2006 appeared to have little effect in 2007,
mainly because of the inadequacy of the institutional mechanism and human
incapacity, especially the will of the government officials responsible for en-
forcing the law.
One significant event in 2007 was the second visit home from February 20-
May 9 of Thích Nhất Hanh, a world-renowned Vietnamese Zen master and
˙ exiled since leaving Viet Nam in 1966 on a peace
peace activist. He had been
mission abroad, and his first return to Viet Nam was in 2005. With blessings
from the authorities, this visit had a dual purpose: to propagate the teachings
of the Buddha and to conduct ceremonies aimed at liberating the souls of
those who had sacrificed for the national cause or died a bitter, forgotten death
in the most recent Viet Nam war and its aftermath in the three regions of Viet
Nam. True to the Buddhist spirit, the purpose of the grand ceremonies, which
took place in three regions stretching all the way from the north to the south,
was to pray for all those killed in the war regardless of ideological and reli-
gious persuasion, place of birth or death, gender, age, and ethnic background.
The core idea behind the events was to bring acrimonious memories of the war
to a resolution and promote peace and reconciliation between the dead and the
living and between the two sides of the tragic conflict. Nhất Hanh’s Viet Nam
visit was a great success, judging from the outpouring of popular˙ support and
participation.
While freedom of the press in the conventional or Western sense may not
apply to Viet Nam in 2007, one outstanding
¸ yet unexpected phenomenon has
been the media explosion since –Dôi Mó˙i (Renovation) was proclaimed in
1986. This flourishing trend appears to continue with a still (subtly) controlled
but vigorous press that has become increasingly assertive and vocal in criticiz-
ing government mistakes and shortcomings.13

12. See, for example, the government report by Prime Minister Nguyễn Tấ n Dũng to the NA,
October 22, 2007, Tình Hình Kinh Tế ––Xã Hôi Năm 2007 Và Nhiêm Vu N ăm 2008, http://www.
˙ ˙ ˙
na.gov.vn/htx/Vietnamese/default.asp?sAction ¸ DETAIL_CONT&intDocID604 ¸ .
—i mó˙i era), given
13. In a 2004 lecture, “Nhà vă n tho˙i H â u –Dôi Mó˙i” (The writer in the post- dô
´

at the University of California, Berkeley, and ˙ reproduced on the Talawas.org website, writer Pham
˙
Thi Hoài argued to the effect that as long as writers stay clear of politics, they can say just about
˙
anything they wish. Ironically, some Vietnamese authors, possibly including Hoài herself, think
that such newfound openness has led to instances of abuse by the press. See http://www.talawas.
org/talaDB/showFile.php?res411&rb0401.
 36 ASIAN SURVEY, VOL. XLVIII, NO. 1, JANUARY/FEBRUARY 2008

Active Diplomacy ¸
Opening up Viet Nam to the world at large was the turning point for –Dôi Mó˙i,
once the country’s leaders decided that the former policies of ideology-based
and bilateral relationships were counterproductive and led the country to fur-
ther isolation. In 2007, Viet Nam continued actively to broaden its involvement
in foreign affairs and increase its diplomatic recognition around the world with
bilateral and multilateral efforts. It currently holds regular membership in many
major regional and international organizations such as ASEAN, APEC (Asia-
Pacific Economic Cooperation), ASEM (Asia-Europe Meeting), and the U.N.
and its affiliates. On May 15, President Nguyễn Minh Triết paid a four-day state
visit to China, his first visit there, to strengthen economic and trade ties and
promote Greater Mekong Subregion (GMS) cooperation based on the concept
of “two corridors, one economic belt.”14
In the following month, he visited the United States officially at the invita-
tion of President George Bush. In August, Prime Minister Nguyễn Tấn Dũng
followed suit with major ASEAN members, including the Philippines, Indone-
sia, Brunei, Singapore, and Myanmar. In late August, Viet Nam hosted the East-
West Economic Corridor (EWEC), a conference concerning a 1,450-kilometer
roadway linking Viet Nam, Laos, Thailand, and Myanmar, with the goal of
boosting trade, development, investment, and tourism along the corridor.
During September 24–28, the prime minister led a delegation to high-level
meetings and discussions at the U.N. marking the thirtieth anniversary of Viet
Nam’s admission to the world body. On October 15, Viet Nam hosted the
ASEAN Capital Business Forum led by Vice Prime-Minister Pham Gia Khiêm,
˙
with nearly 1,000 representatives from the Vietnamese business community and
regional countries participating. The purpose of the forum was to strengthen
economic, business, and tourism cooperation among regional businesses.
On October 16, Viet Nam was elected a non-permanent member of the 15-
member U.N. Security Council by an overwhelming majority (183 of 190
votes). This was a peak achievement to date for Viet Nam, affirming the U.N.’s
confidence in its ability to assume a more active role in world affairs and to
contribute to global governance. From October 18–31, President Nguyễn Minh
Triết officially visited France, a former enemy, in a gesture of mutual friend-
ship and cooperation. The two countries signed 11 agreements, including the
purchase by Viet Nam of Airbus aircraft and the promotion of exports (mainly
garments and seafood) to France and the EU markets. Additionally, France

14. GMS is an economic cooperative enterprise involving five Southeast Asian countries
(Cambodia, Laos, Myanmar, Thailand, and Viet Nam) and one Chinese province (Yunnan) that are
linked by the great Mekong River (the belt). The GMS can, therefore, be accessed from the west
as well as the east sides (two corridors).
 VIETNAM IN 2007 37

agreed to continue to promote cultural and educational exchanges and to pro-

vide needed support in the medical and scientific fields.
In other noteworthy diplomatic developments in October, during the 117th
assembly of the IPU (Inter-Parliamentary Union) in Geneva, Viet Nam was
elected to the 16-member Executive Committee in recognition of¸ its active
contribution to the IPU’s development. As an official policy since –Dôi Mó˙i be-
gan, Viet Nam now has diplomatic and trade relation with 170 countries and
has participated in and hosted major regional conferences, most recently the
APAC (Association of Pacific-Asian Countries) in 2006 and others such as
ASEM. Contrary to Viet Nam’s hitherto low profile on terrorism, the govern-
ment explicitly stated its commitment to contribute to total disarmament and
to condemn and work toward eliminating terrorism of any form in conformance
with international law. In short, the year 2007 marked a number
¸ of Viet Nam’s
successes in the diplomatic field consistent with its post- –Dôi Mó˙i goals that,
together with its energetic economy, had the effect of enhancing this transi-
tional nation’s position in the region and in the world.
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