From those changes in administration thinking, the renewals of economic development guidelines and economic management policies have been correspondingly set forth.
3.2.1. With regard to the private economy and the household economy: the release of Decree 27/ND on the private economy and Decree 29/ND on the household economy by the Council of Ministers on March 9th 1987 has officially restored the private sector status in the national economic system. These policies’ enactment in practice has brought into full play the economic potentials that had been for many years inhibited in the socialist rigid economic model. The family economy has been legalized and encouraged. The households have become free from prohibition, checking, arrestment, and confiscation; rather they have been facilitated in registering their businesses. The private enterprises have been boomed out to greatly assist the heavily deficient economy. In the new legal and economic environment, these private economic entities have occupied the market, and brought about an increased GDP and an improved people’s living standard.
3.2.2. With regard to agriculture: the change in agricultural production mechanism to a partially de-collectivized product contract under the label “Contract 100” in 1981 was not as radical a change as it appeared, but in some ways regularized and developed an already existing phenomenon within the collective agriculture. The remedy to the shortcomings of halfway-reformed Contract 100 came with the emergence of Resolution 10, known as
“Contract 10,” by the Party Politburo in April 1988, which officially denied the obsolete elements of the collectivized cooperative model and set forth the progressive elements of a new de-collectivized cooperative model. The reoriented objective was to encourage individual initiatives in the household economy. This was achieved by expanding the right to free circulation and exchange of farm products so as to promote agricultural production and a more dynamic rural development. The official adoption of this fully de-collectivized household contract system was the result of the economic reforms in pursuit of a market economy. The contract has stimulated the farmers, pushed ahead production, and lessened the shortcomings as well as the negative features of the cooperatives. It anticipated a new tendency of postwar development in the rural areas. De-collectivization has obviously become another approach of Neo-Liberalism that has run counter to statism and the central
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planning mechanism, and has brought about remarkable changes in agricultural and rural development, as well as the societal changes in the market economy of Vietnam consequently.
Resolution 10, or Contract 10, stated that: i) cooperatives and production collectives are collective economic units with various types of ownership over the means of production;
ii) this new conception of the cooperative is applied to all business organizations willingly founded and pooled by the laborers, and democratically managed, without discrimination of dimension, technical level, or rate of collectivization towards the means of production; iii) the member households are autonomous economic units (Truong, 1999). As far as the ownership over the means of production is concerned, Contract 10 conducted an important change which officially granted land to cooperative members for their usage, and practiced multiple ownership forms over the means of production. As far as the management of production is concerned, cooperative farmers were entitled to autonomy in agricultural production and other economic activities for their well-being. As far as the distribution of produce is concerned, cooperative members had just to pay taxes to the state; all production activities between the cooperative and members were transacted via the commodity-monetary relationship; and the workpoint-based distribution was abolished. The foundation and raison d’être of the collectivization model was broken down. Collectivization over the means of production was no longer the crucial criterion of the cooperatives. The forces of production therefore escaped from binding with the relations of production under the old mechanism (Vo, 1988). Resolution 10 also “recognized the prolonged existence and the positive impacts of the private individual economy in the advancement to socialism; acknowledged the legal entity, ensured the equality of obligation and right before the law, protected the legitimate business and legal incomes of the private individual households” (Complete Works of Party Documents, 2007: p. 96).
3.2.3. With regard to the autonomy in business and production: with Decision 217/HDBT on November 14th 1987, the autonomy in business and production was officially granted to the state enterprises, which read: “Enterprises have the rights to make and conduct the long-term, mid-term and short-term plans for their production and business operations.”
Correspondingly, the number of the planned norms assigned by the state has been curtailed from hundreds to only two main norms, i.e. the total outcome value and the items of payment to the state budget. All of other norms were totally decided by the enterprises, including that of the human resources. In terms of the accounting, enterprises are required to exercise the socialist economic and business accounting, calculate properly and adequately the costs of production, discount the cost prices of products, deal with their own finance, and make profits on business. A trial of stocks selling and purchasing in selected enterprises has also been allowed in this text.
3.2.4. With regard to the commodity circulation: by the enactment of the government’s Decision 80/CT on March 11th 1987, all the commodities were freely circulated throughout the country. The Decision stipulated “to dissolve the check-points on the inner- and inter- provincial roads...” (Official Gazette, 1987: p.106). As a result, the producers managed to sell products at the market prices; the consumers managed to buy things at reasonable prices;
there were no more long queues for purchase; there were no more black market “cut-throat”
prices; the tension of the supply-demand relationships became released (Hoang, 2003). In retrospect, the prevailing thinking advocated the strict control. For example, rice was purchased in accordance to the size of the rice basket – the larger the basket, the more to be purchased. Another example is that people were blocked the way to have every sack of rice,
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every chicken, every kilogram of sugar... searched. This measure of strict control caused circulation jam and increased the faked scarce of commodities.
3.2.5. With regard to the distribution and compensation: from 1989, the ratio-based distribution system was totally abolished after 3 years of partial abolishment. The relationships of distribution in kind have been changed to the commodity-monetary relationships. Under these relationships, all of the prices in the market have been adjusted according to the supply-demand relationships of the market.
With dismantling the old public sector wage structure, no longer would workers be paid mainly according to length of service, nor would they be guaranteed employment for life. A plan was announced to place all government workers on contracts (Hiebert, 1993;
Norlund, 1993). The wages of public servants were gradually and partly monetized.
Previously, only a fraction of salaries of the civil servants or state enterprise employees was paid in cash. Up to 90 percent were received in the form of bonuses and in-kind payments (ILO, 1994). Now state workers would no longer receive access to rationed goods at artificial prices and fringe benefits, such as subsidized housing, health services, education and social insurance (Moock et al., 1998).
3.2.6. With regard to the price system: the resolution of the Party’s 2nd Central Executive meeting in April 1987 advocated “not to remain the prices of selling and purchasing as low as that at present, rather to step by step adjust them, without inducing any mutation towards other kinds of prices and any sudden increase of the currency in circulation” (Complete Works of Party Documents, 2007: p.64). It was affirmed that: “Apart from tax as the compulsory obligation of contribution, all of the exchange relationships between the farmers and the state economic organs, from now on, have to follow the principle of equality, at par, mutual interest, negotiation-based selling and purchasing” (Complete Works of Party Documents, 2007: p.63).
Table 5: Rates of Price Adjustment of Selected Main Materials (as of quarter IV, 1987) Kinds of
materials
Unit price Rates of price Rates of increase (times) Pre-adjustment Post-adjustment
Petrol A72-76 Coal
Electricity Cement Wood Cotton fibre Iron
dong/ton dong /ton dong/KWh dong /ton dong /m3 dong /ton dong /ton
690 600 1,200 2,000 1,300 29,600
4,830
5,600 5,200 8,500 25,000 15,000 220,000
33,800
8.1 8.6 7.0 12.5 11.5 7.4 6.9 Source: GSO (1988)
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There appeared a great change in the purchase price policy of agricultural products.
As stated by Vo Van Kiet, the then Deputy Chairman of the Council of Ministers, on March 18th 1987: “From now on, it is imperative to negotiate the prices with the farmers in the purchasing contracts; and cash must be paid instead of kind.” Upon September 1987, the purchase prices of the agricultural products were increasingly adjusted by 10 times compared with those of September 1985. In terms of the animal husbandry products, the prices increased 33 times compared with those of quarter III 1985 (Phan, 1992).
Table 6: Changes in Purchase Prices of Rice in Different Regions Agricultural
products
1985 price (dong/kg)
1987 price (dong/kg)
Rate of increase (times) Ordinary rice
In Northern Delta In Central Delta
In Mekong River Delta
2.5 2.2 1.75
31.0 28.0 25.0
12.4 12.7 14.2 Groundnut with shell
Dried tobacco Tea
Coffee Sugar cane Rush Jute Aniseed
6.0-8.0 21.0-26.0
3.5-4.0 30-32 0.23-0.40
2.7-3.0 7.0-7.5 8.0-10
75.0-93.0 341-403
42-46 364-403
5.0-6.2 31-34 84-93 108
11.6 15.0 11.5 12.5 15.5 11.0 12.4 10.8 Source: GSO (1988)
3.2.7. With regard to the property rights: in order strongly to embark upon agricultural de- collectivization, it is imperative to renew the Land Law to make up a legal foundation for the peasants’ property rights to land. The property rights reform is indeed guiding the former planned economy towards market incentives. Since the Vietnamese economy is basically agrarian, the establishment of a multi-sector market economy depends to a great extent on the solution of the ownership issue in agriculture, primarily the issue of land ownership (Makarov, 1991). The 1993 Land Law passed by the National Assembly formalized and rationalized this process already underway by acknowledging the right to sell or lease land, mortgage or inherit land use rights, and receive compensation for transfers based on the market prices. Land is the property of the entire people and placed under the management of the state, which hands it over to peasant households for stable and long-term use, the tenure of which is 20 years for the annual crops and 50 years for the perennials (Vu, 1994; LAB, 1994; Truong, 1999; Tran, 2001; Nguyen, 2003). When the fixed time limit is reached, users that need to use land for plantation purposes will be entitled to continue using the land entrusted to their management for a further period of time (Vu et al., 2000; Lam, 2002).
Peasants therefore become actual owners of the given land for a certain time, not only users of the land. The right to long-term land use thus creates a stable foundation for the autonomous economy of peasant households. In order to create favorable conditions for peasant households to properly manage the allotted land, the users are given state certificates for land rights. With these certificates, the households have the right to legally rent, transfer,
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exchange, or mortgage the land for financial purposes. Additionally, land certificates are accepted as collateral (Ravallion & Van de Walle, 2003).
3.2.8. With regard to the interest rates: with Decision 55/CT on March 10th 1989 by the Council of Ministers, the interest rates of savings had been increased closer to the market’s interest rates. Previously, there existed a nonsense phenomenon of the interest rates of saving and lending being much lower than the rates of the price slippages. It was ironically said: “if you deposit a chicken, you will withdraw an egg.” Various methods of administrative coercions were therefore practiced to mobilize the savings from the populace, such as: a portion of the government officers’ monthly salaries was extracted for a bank saving or government bonds. In times of the soared inflation rate at hundreds of percent, with the preferential interest rate at zero or symbolically from 1 to 2.5 percent per annum, the state enterprises just needed to purchase the raw materials to reserve. By this way, they could make a huge “profit” as many times of the borrowed sum, without doing any production or any business.
With Decision 39/HDBT on April 10th 1989 by the Council of Ministers and Decision 73/NH-QD on May 31st 1989 by the Governor of the State Bank, the interest rates of lending were readjusted in accordance to the rates of the price slippages. On June 13th 1989, the Governor of the State Bank issued Decision 29/NH-QD that increased the interest rate of the current accounts to 9 percent per month and that of three-month term to 12 percent per month (previously from 1.8 to 2 percent per month), which would be further readjusted in accordance to the fluctuation of the inflation rates. With these “positive interest rates,” the bank savings have been increased strongly. As a result, by the end of 1989, a sum of 1,900 billion dong was deposited in the banking system to be invested in production.
As the result of the interest rate reforms, the inflation pressure has also been greatly released (Official Gazette, 1989). In 1989, the national economy has got important achievements with the remarkable success of controlling and checking a serious and prolonged inflation, and greatly reducing the monthly increased rates of prices from 14.2 percent in 1988 to 2.8 percent in 1989 (Dang, 2008).
3.2.9. With regard to the exchange rates and import-export: the exchange rates at the domestic market were increased closer to those at the international market. Previously, the exchange rates of the imported goods were calculated very low which was far away from the real value of the local currency, thus the imported industrial and agricultural materials were sold at very low prices. This was the typical outcome of the subsidized and bureaucratic regime that failed to reflex the real prices of the imported materials and exported goods.
These two kinds of the state-stipulated prices were greatly different from those in the internal and international markets. These exchange rates distorted all economic relationships and economic calculations. Therefore, it was indistinguishable whether the state enterprises got a loss or a profit. As a matter of fact, the state lost billions of dollars by these “real losses and faked profits”. Finally, these exchange rates were officially abolished since March 1989 which has greatly facilitated the demolition of the subsidized and bureaucratic regime, and at the same time, forced the state enterprises to practice proper accounting.
In 1989, the Council of Ministers allowed the South Food Company to export rice as a trial that put an end to the interminable import and the chronic shortage of rice. As a result, the export turnover has doubled compared to the previous year, which accounted approximately 2 billion USD. The balance of payment deficit decreased from 1.7 billion USD in 1988 to 600 million USD in 1989 (GSO, 1994). The remarkable result was that from a
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country being chronically short of food, Vietnam has become the third then the second largest rice exporter in the world.
3.2.10. With regard to the foreign investment: in accordance to the thinking of an “open economy,” the Law on Foreign Investment on December 29th 1987 officially permitted the foreign capitalist investment in Vietnam. This has opened a door to various abundant sources of capital, technology, intelligence, and markets. This has also made a full stop to the discrimination towards the capitalist economy. Since then, the increased FDI has greatly contributed to the economic growth of Vietnam.
Table 7: Number of FDI Projects in Vietnam
1988 1989
Number of projects nationwide 37 68 The registered capital in total (mil. USD) 371.8 582.5 Source: GSO (1999)