Following economic stagnation after reunification from 1975 to 1985, the 1986 Sixth Party Congress approved broad economic reforms (known as "Doi Moi" or renovation) that introduced market reforms, opened up the country for foreign investment, and dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from 1998-2003. From 2004 to 2007, GDP grew over 8% annually, slowing slightly to 6.2% in 2008. Viewed over time, foreign trade and foreign direct investment (FDI) have improved significantly. Average annual foreign investment commitment has risen sharply since foreign investment was authorized in 1988, although the global economic crisis has affected FDI in 2009. As of August 2009, registered FDI (including new and additional capital) was $10.4 billion, a fall of about 82% from the same period in 2008. Disbursed FDI capital totaled $6.5 billion by August 2009, down 8.5% from the same period in 2008. In 2008, registered FDI was $71.7 billion and actual FDI $11.5. From 1990 to 2005, agricultural production nearly doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice. As of August 2009, Vietnamís exports ($37.3 billion) were down by 14%--a much lower drop than had been expected. Vietnamís imports ($42.4 billion) were down by 28% from 2008, but the country is still running a $5 billion trade deficit.
The shift away from a centrally planned economy to a more market-oriented economic model has improved the quality of life for many Vietnamese. Per capita income rose from $220 in 1994 to $1,024 in 2008. Inflation in 2008 was 23% year-on-year, but most estimates predict inflation will be restrained to less than 7% for 2009. The average Vietnamese savings rate is about 30%. Urban unemployment has been rising in recent years, and both urban and rural underemployment, estimated to be between 25% and 35% during non-harvest periods, is significant.
The Vietnamese Government still holds a tight rein over major sectors of the economy through large state-owned enterprises and the banking system. The government has plans to reform key sectors and partially privatize state-owned enterprises, but implementation has been gradual and the state sector still accounts for approximately 36% of GDP. Greater emphasis on private sector development is critical for job creation.
The 2001 entry-into-force of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam was a significant milestone for Vietnam's economy and for normalization of U.S.-Vietnam relations. Bilateral trade between the United States and Vietnam has expanded dramatically, rising from $2.91 billion in 2002 to $15.7 billion in 2008. Total bilateral trade ($7.7 billion) was down by 5% for the period January-July 2009. The U.S. is Vietnam's second-largest trade partner overall (after China).
Implementation of the BTA, which includes provisions on trade in goods and services, enforcement of intellectual property rights, protection for investments, and transparency, fundamentally changed Vietnam's trade regime and helped it prepare to accede to the World Trade Organization (WTO) in 2007.
Vietnam was granted unconditional normal trade relations (NTR) status by the United States in December 2006. To meet the obligations of WTO membership, Vietnam revised nearly all of its trade and investment laws and guiding regulations and opened up large sectors of its economy to foreign investors and exporters.
A U.S.-Vietnam Trade and Investment Framework Agreement (TIFA), a bridge to future economic cooperation, was signed in 2007 during President Triet's visit to the United States. The first TIFA Council occurred in December 2007 in Washington, and there have been five TIFA meetings since then. During Prime Minister Dung's June 2008 visit, the United States and Vietnam committed to undertake Bilateral Investment Treaty (BIT) negotiations. The first round of BIT talks took place in December 2008, with a second round in June 2009 in Washington.
Agriculture and Industry
Besides rice, key exports are coffee, pepper (spice), cashews, tea, rubber, wood products, and fisheries products. In 2008, Vietnam was ranked 17 among all suppliers of food and agricultural products to the United States, a strong indicator of Vietnamís growing importance as a global supplier of key agricultural commodities. Agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 21.99% in 2008, as production in other sectors of the economy has risen.
Vietnam's industrial production has also grown. Industry and construction contributed 39.86% of GDP in 2008, up from 27.3% in 1985. Subsidies have been cut. The government is also in the process of "equitizing" (e.g., transforming state enterprises into shareholding companies and distributing a portion of the shares to management, workers, and private foreign and domestic investors) a significant number of state enterprises. However, to date the government continues to maintain control of the largest and most important companies. Despite reforms, the state share of GDP has remained relatively constant since 2000, at 36%-40%.
Trade and Balance of Payments
To compensate for drastic cuts in Soviet-bloc support after 1989, Vietnam liberalized trade, devalued its currency to increase exports, and embarked on a policy of regional and international economic re-integration. Vietnam has demonstrated its commitment to trade liberalization in recent years, and integration with the world economy has become one of the cornerstones of its reform program. Vietnam has locked in its intention to create a more competitive and open economy by committing to several comprehensive international trade agreements, including the Association of Southeast Asian Nations (ASEAN) Free Trade Area (AFTA) and the U.S.-Vietnam Bilateral Trade Agreement (BTA). Vietnam's accession to the World Trade Organization further integrated Vietnam into the global economy. In February 2009, Vietnam officially joined the Trans-Pacific Partnership (TPP) as an ďassociate member.Ē
As a result of these reforms, exports expanded significantly, growing by as much as 20%-30% in some years. In 2008, exports accounted for 72% of GDP. Imports have also grown rapidly, and Vietnam had a significant trade deficit in 2008 ($17.5 billion). Vietnam's total external debt, amounting to 29.8% of GDP in 2008, was estimated at around $21.8 billion.
Information by U.S. Department of State