Vietnam’s Turning to Market Economy

Market Economy Policies

Vietnam is one of the fastest growing economies in Asia. According to Uyen (2014), the country’s GDP increased by 5.25% in the second quarter of 2014. The rapid growth is attributed to economic liberalization, globalization, and market regulation policies. Economic liberalization is the main market economy policy being followed by the country. This perspective is justified by the fact that since the introduction of the open-door economic policy, the country has established trade relationships with over 160 countries (KPMG, 2012, pp. 1-36). This involved removal of tariff and non-tariff barriers to trade between Vietnam and other countries.

Market Economy

Vietnam is likely to achieve a prosperous market economy in future due to its government’s commitment to reduce its participation in economic activities. The private sector is increasingly being allowed to make independent decisions concerning production and allocation of resources (KPMG, 2012, pp. 1-36). The enactment of the Enterprise Law has enabled private local and foreign companies to operate freely in the country. In addition, the government has focused on privatizing state owned enterprises to boost the development of the private sector. However, government intervention through subsidies and protectionist trade policies such as import quotas in sectors such as agriculture continue to prevent achievement of a free market economy (Roskin & Berry, 2010, pp. 56-112).

Most Effective and Least Effective Policies

Economic liberalization has been the most effective policy in Vietnam. In the last two decades, the country has signed free trade agreements with major trade blocs such as the AFTA, ASEAN, and APEC (KPMG, 2012, pp. 1-36). It has also joined the WTO and signed a bilateral trade agreement with the US. The resulting rapid increase in exports has enabled the country to maintain a GDP growth rate of at least 6% in the last decade. Additionally, foreign direct investment flows to Vietnam have increased significantly. This has led to an increase in economic growth, reduction in unemployment, and improved equality.

Globalization policy, on the other hand, has been the least effective. Most Vietnamese companies are still very small. Thus, they lack the expertise and resources that are necessary for competing effectively at the global level. For instance, nearly 50% of USA’s fortune 100 companies have joined the Vietnamese market (KPMG, 2012, pp. 1-36). However, majority of Vietnam’s large companies have failed to join the US market despite the fee trade agreement between the two countries. In addition, Vietnam is yet to benefit fully from trade opportunities in the global market since its exports are mainly agricultural commodities and minerals rather than finished goods.

Although economic liberalization has enabled Vietnam to achieve rapid economic growth, the country has to implement more market economy policies to spur economic development in the next decade. Specifically, the government has to strengthen regulation in key sectors such as the banking industry to facilitate economic growth (Truong, 2013, pp. 1-33). For instance, access to credit is currently limited because most of the country’s commercial banks are debt ridden and lack the capacity to issue cheap loans.

The country’s globalization policy should be strengthened through strategies that focus on developing local industries (Truong, 2013, pp. 1-33). The government should promote value addition in key sectors such as agriculture and manufacturing. This will improve the competiveness of the country’s exports in the global market. In addition, removal of government interventions such as subsidies will facilitate achievement of a free market economy by promoting fair competition between local and foreign firms in the country.

References

KPMG. (2012). Investing in Vietnam. Hanoi, Vietnam: KPMG. Web.

Roskin, M., & Berry, N. (2010). The new world of international relations. Boston, MA: Pearson Education. Web.

Truong, Q. (2013). Vietnam: An emerging economy at a crossroad. Amsterdam, Netherlands: Maastricht School of Management. Web.

Uyen, N. (2014). Vietnam second quarter GDP growth quickens as dong devalued. Bloomberg News. Web.