Information about Asia and the Pacific Asia y el Pacífico

II Output Performance in Transition

Krishna Srinivasan, Erich Spitäller, M. Braulke, Christian Mulder, Hisanobu Shishido, Kenneth M. Miranda, John Dodsworth, and Keon Lee
Published Date:
March 1996
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Information about Asia and the Pacific Asia y el Pacífico
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One of the most striking features of Vietnam’s transition to a market economy has been the resilience of output. The level of general economic activity never declined; there was only a temporary deceleration in the pace of expansion under the impact of external shocks and fundamental changes in domestic policy. The economy grew at an average annual rate of 6 percent in the transition period of 1988-91, during which comprehensive steps were taken to transform the economy from a command system to a system based on market principles (Box 2.1). These steps included decentralization of decision making, creation of a new incentive structure, and the liberalization of trade, prices, and the exchange rate. The stance of monetary policies was temporarily relaxed in 1990-91 when the economy suffered the collapse of its commercial and financial relationship with the CMEA. Since then, however, financial stabilization has resumed, the reform process has continued, inflation has declined, and the growth of the Vietnamese economy has accelerated to an annual rate of 8-9 percent.1 This picture contrasts sharply with the collapse of output in other transition economies in Eastern Europe and the former U.S.S.R., raising questions about the reasons behind Vietnam’s success. The aim of this section is to explore those reasons in the context of output developments by sector, with an emphasis, first, on the strong supply response to reform policies and the broadly favorable initial supply conditions. The section then considers factors on the demand side, arguing that wage and price flexibility and buoyant exports helped sustain real demand.

Output and Employment Performance

Output performed surprisingly well during the core transition years. During 1988-89, output growth reached an average of 6—7 percent a year, well above the average of 4-5 percent achieved since the unification of North and South Vietnam in 1975.2 Output growth in these two years was driven by strong performance in the agriculture and services sectors. Industrial growth, however, stagnated. During the second phase of the transition, 1990-91, output growth slowed somewhat to 5-6 percent, as the impact of agricultural reform on food production tapered off.

Several special factors contributed to the measured output performance in those years, including the coming onstream of oil production and a large—but statistically dubious—increase in state management. The direct contribution of those factors to output growth is estimated at 9 percent of GDP during 1988-91 (Table 2.1), of which about half was attributable to oil.3 Excluding those factors, average annual growth is still estimated at about 4 percent, a more than solid performance compared with that of other transition countries.

Table 2.1.Real Growth Rates, Adjusted for Special Factors(Percentage change)
Real GDP3.
Excluding oil8.3−8.1−
Agriculture forestry−
Excluding rice2.7−
Excluding state management5.14.914.310.
Real GDP excluding oil and state management3.
Real GDP excluding oil, rice, and state management5.
Sources: General Statistical Office; and IMF staff estimates.

Preliminary data.

Sources: General Statistical Office; and IMF staff estimates.

Preliminary data.

Output growth during the transition appears to have been driven mainly by structural changes rather than by the traditional forces of growth—investment and employment—for which data are weak (see Box 2.2). However, real investment is estimated to have declined somewhat after 1985 and did not start to increase again until 1990. Thus, investment itself did not drive output growth, but utilization of excess capacity did play a role (see subsection on industrial output restructuring below). Overall employment is estimated to have increased relatively rapidly during the transition compared with historical trends, but the increase was small relative to the growth in output. The main contribution to output from the employment side may have come from the shedding and voluntary departure of over 1 million public sector workers, mainly from state-owned enterprises (SOEs). A large proportion of these workers were reemployed by the private sector.4

Box 2.1.Stages of the Transition

The start of Vietnam’s transition (doi moi, which means renovation) is generally associated with the Sixth Party Congress of December 13-19, 1986. Although no specific actions were taken at the Congress, its tone, notably in the political report, was very critical and diagnosed many ills, including (1) emphasis on large-scale projects, (2) bureaucratic centralism, and (3) excess money creation.

Major reforms of the institutional framework of the economy followed in 1987-88, notably the passing of a liberal foreign investment law, the creation of a treasury, and a two-tier banking sector; some partial price and wage liberalization policies were also instituted. During the core transition period, 1988-89, the centralized control of output and prices was dismantled, and exclusive land-user rights were established in the agricultural sector. This period was followed by a second phase, 1990-91, marked by the collapse of the CMEA-based trade system, the end to Soviet aid, and the disintegration of the cooperative system. In 1992, the Vietnamese economy emerged from the transition period without pervasive subsidies or controls on prices and output, but with a reasonably balanced fiscal situation and moderate inflation.

Sectoral Output Performance and Supply-Side Policies

Agricultural Output

The positive response of the agriculture sector to the reforms of the transition period is well known. From importing about half a million tons of food annually in 1986-88, Vietnam became the third-largest exporter of rice by 1989, with exports totaling about 1.4 million tons.

Following the reunification of Vietnam in 1975, agriculture in the country as a whole was increasingly collectivized (see Box 2.3). In the process, and because of a forced switch of production from rice to other cereals, per capita food production slumped, falling by more than 10 percent between 1976 and 1980, despite a rapid increase in the area under cultivation (Table A2). Facing these difficulties, the authorities initiated some reforms in the early 1980s that allowed farmers to sell production in excess of quotas at market prices and boosted the use of fertilizer, mainly imported with Soviet aid. This policy met with substantial initial success, as per capita food production increased by nearly 15 percent, from 266 kilograms in 1980 to 300 kilograms in 1986. Soon thereafter, however, production growth tapered off. The experiments with more liberal economic policies under doi moi, started in 1987, initially had a perverse impact on paddy production.5 With rampant inflation eroding the nominal rice contract price to 10 percent of the market price, production, particularly in the surplus-producing areas in the south, fell rapidly. Aggravated by poor weather, this trend caused a famine at the end of 1987 and early 1988 in parts of Vietnam.

Box 2.2.Sectoral Composition of the Economy

At the start of the transition, Vietnam was still a largely agricultural economy. In 1987, two-fifths of GDP was derived from agricultural production. Compared with other low-income countries, Vietnam nevertheless had a relatively large industrial sector. The share of industrial output in GDP (25 percent in 1987) ranked close to that in such countries as Kenya, Pakistan, and Sri Lanka, which have about double the per capita income of Vietnam (Table A1).

The state sector was relatively small, with a share in 1988 of about 30 percent. However, with the inclusion of cooperatives—which dominated agriculture and had large shares in industrial and services output—the public sector share was 75 percent, which is comparable with that in other transition economies (see Table 2.2).

Table 2.2.Importance of the State-Owned Sector in Various Countries(In percent)
Share in Output1Share in Employment
Transition economies
East Germany (1982)96.594.2
Former Soviet Union (1985)96.0
Poland (1985)81.771.5
China (1984)73.6
Hungary (1984)65.269.9
Market economies
France (1982)16.514.6
United States (1983)1.31.8
Vietnam (1988)
Industry and construction (state)50.537.0
Services (state)47.170.1
Sources: Lipton and Sachs (1990), drawing upon Milanovic (1989); General Statistical Office; and IMF staff estimates.

Gross social product. Share of services in social product in 1988 is just 12.6 percent, compared with a share of 36 percent in value added in 1989.

Share in rice production. Statistics on production of other agricultural products indicate that the share in total agricultural production of cooperatives is smaller.

Sources: Lipton and Sachs (1990), drawing upon Milanovic (1989); General Statistical Office; and IMF staff estimates.

Gross social product. Share of services in social product in 1988 is just 12.6 percent, compared with a share of 36 percent in value added in 1989.

Share in rice production. Statistics on production of other agricultural products indicate that the share in total agricultural production of cooperatives is smaller.

Box 2.3.Role of Cooperatives and Regional Agricultural Output Response

At the outset of the reforms in 1988, cooperatives dominated production of paddy and some annual industrial crops; the private sector dominated the cultivation of vegetables, cereals other than paddy, most of the annual industrial crops, and a few of the perennial industrial crops (coffee and fruits). The state farms dominated only rubber production (see Table A4).

Cooperatives never established firm roots in the south. In the main rice-producing area, the Mekong Delta, cooperatives covered only 7 percent of farmers, compared with nearly 100 percent in the north (Table A5). Soon after the start of the reforms, the number of collective units declined (Table A6), and many of the production brigades were disbanded.

The output response was strongest where the collective organization was weakest. Rice production in the Mekong Delta surged by 40 percent in 1988 and 1989. From 1986 to 1990, food grain output increased by 25 percent in the south and 11 percent in the north. From 1990 to 1993, output in the south grew by a further 13 percent, while output in the north surged by about 30 percent.

The famine and the recognition that halfway price liberalization and financially undisciplined reforms did not work were among the key factors leading to the bold reforms that mark the first core phase of transition, 1988-89. In the agricultural sector, the core policies, undertaken throughout 1988, consisted in liberalizing agricultural prices, introducing competition among agricultural trading companies, granting individuals and families long-term user rights to the land they were cultivating, and removing internal barriers to trade.6 These reforms reduced the role of the cooperatives, particularly that of production brigades, and stimulated investment. At the same time, competition led to increased availability of inputs and to the sale of the large marketable surpluses that soon emerged.

The reforms elicited a substantial output response: total agricultural production increased by 4 percent in 1988 and by 8 percent in 1989, with per capita food production rising by nearly 10 percent in both years. It is estimated that the increase in paddy production added 3 1/2 percent to GDP growth.7 The response of the nongrain agricultural sectors was more subdued and came later (Table A3).8

During the second phase of the transition, 1990-91, the growth of food output leveled off to a modest 1 percent a year. This is because food prices were depressed by the sizable output response in the previous years, while the CMEA trade collapse led to sharply higher fertilizer prices. In contrast, output of industrial crops surged by a cumulative 24 percent, reflecting a delayed response of the perennial crops to the earlier liberalization measures.

Industrial Output Restructuring

Overall industrial output (on a value-added basis) stagnated during the first phase of the transition, after rapid growth in the previous years that had been supported by large-scale Soviet aid. In the second phase, however, the industrial sector expanded by about 13 percent. Without the coming onstream of oil, industrial production would have declined by about 10 percent during the four transition years. This was nevertheless a stronger performance than that of other transition countries where the industrial sector was hard hit.


Reform policies crucially affected the performance of the industrial sector and the restructuring that took place. First, most industrial prices were liberalized by the end of 1988, and the few prices that remained controlled for official (state) customers, such as those of cement, steel, and electricity, were generally set close to the free market values (Table 2.3). Second, the official exchange rate was devalued and aligned closely to the rate in the parallel market; export subsidies were eliminated; foreign currency earnings were allowed to be retained; and trade was liberalized, in particular by allowing production enterprises to trade directly abroad, thereby dismantling the tight and bureaucratic grip of the trading companies. These policies subjected the industrial sector to domestic and foreign competition. Third, the state enterprise sector was reformed and the private sector encouraged. The state enterprise reforms focused on ensuring autonomy in decision making, releasing the enterprises from the constraints of the central plan, and the credible institution of hard budget constraints. These policies resulted in impressive output gains, while the cash flow and net tax contributions generated by the state enterprises also improved quite dramatically (see Section III). Policies to encourage the private sector included providing access to credit and introducing nondiscriminatory taxation and commercial legislation.

Table 2.3.Selected Prices and Interest Rates(Dong per unit, unless otherwise indicated)
Rice (per kilo)
Free market14505406506507201,8002,2002,6002,0001,8001,9002,1002,3152,993
Pork (per kilo)1
Free market4,3004,3005,4005,4005,5008,00010,00013,00013,00013,00015,00013,00015,55116,853
Gasoline (per liter)
Free market4508008008008502,3502,5002,5002,5002,5002,9002,9002,6643,038
Cement (per kilo)
Free market120160240250300380480550560560650660830850
Steel (6 millimeter)
Free market8001,0001,2001,2501,5002,8003,2506,0005,5004,5005,0004,3003,9504,300
Interest rates
Interest rate spread (percent)2−1.5−3.3−1.3−1.3−1.3−0.5−
Inflation (percent)−
Real three-month savings deposits for households (percent)−3.71.6−
Source: State Pricing Committee, General Statistical Office.

Official business prices were abolished in 1989.

Difference between interest rates on lending to industry (from December 1992 on short-term loans) and households’ three-month savings deposits.

Average monthly inflation during the quarter; not seasonally adjusted.

Measured with respect to nominal interest rates at the end of each quarter and average monthly inflation during that quarter.

Source: State Pricing Committee, General Statistical Office.

Official business prices were abolished in 1989.

Difference between interest rates on lending to industry (from December 1992 on short-term loans) and households’ three-month savings deposits.

Average monthly inflation during the quarter; not seasonally adjusted.

Measured with respect to nominal interest rates at the end of each quarter and average monthly inflation during that quarter.

These policies contributed to a substantial restructuring of the Vietnamese industrial sector. Activity moved away from cooperatives and poorly managed state enterprises toward private enterprises and better-managed state enterprises. By 1993, the number of cooperatives had declined to one-sixth of the 1988 level, while the number of new private and household enterprises rose sharply (Table A7). Several of the key heavy industries, and some of the consumer-oriented state enterprises, did relatively well—partly owing to demand factors—while scores of smaller (most locally managed) state enterprises were effectively bankrupted.


The main segment of the industrial sector that performed well during the transition, and for reasons not directly linked to the reforms, was the oil sector. Oil output from the sizable Bach Ho oil field, exploited by a Vietnamese-Soviet joint venture, added 8 percentage points to the growth of industrial value added during 1988-89, and a further 15 percentage points during 1990-91. Other heavy industries that performed well were the power and cement industries. In both, there was excess capacity.9 Cement production, in particular, benefited from booming housing and foreign-invested construction that more than offset the decline in cement demand from large-scale government investment projects. The collapse of the CMEA trade arrangements had the unexpected effect of boosting the domestic steel and fertilizer industries. Steel production was increased to partly replace imports, the cost of which soared after cheap imports from Russia ceased. Domestic fertilizer production likewise rebounded, in contrast to the sharp decline in the early reform period when farmers had preferred the cheap and higher-quality supplies from the CMEA (Table A8).

In addition to these heavy industries, a number of domestic consumer industries, which were curtailed under central planning, expanded rapidly during the transition. In particular, the production of liquor, beer, and cigarettes responded to market demand and, toward the end of the transition, benefited from the implementation of foreign-invested projects. In response to these developments, gross output in the energy, food, and building material sectors per-formed well.

In contrast, production in several other areas was cut. Gross production in the equipment, machinery, wood products, paper, and household materials (glass, porcelain, and so on) sectors performed poorly, with declines ranging from 10 percent to 25 percent. Products such as sewing machines, bicycles, and tires faced increasing competition from imports, and production had to be drastically reduced.10 Many of the local state enterprises did not survive the autonomy and increased competition. Yet, the loss of traditional exports through the collapse of CMEA trade arrangements had a relatively limited direct impact on industrial output except for the production of textiles (clothes) and some foodstuffs. This was because exports to the nonconvertible area had traditionally been quite low (about 3—4 percent of GDP in 1988-89), and in general most industrial products were produced for the domestic market.11

Services Sector

The services sector boomed during the transition, with average annual growth of 14 percent during 1988-89 and 10 percent during 1990-91 (Table A9). Excluding the category state management (for example, government services), value added rose by 10 percent on average during 1988-91. In most of the services subsectors, the boom resulted from the liberalization measures undertaken during the transition. Private transport, notably road transport, benefited from the elimination of internal trade barriers; private retail outlets sprang up and increased their share in trade value added from 50 percent in 1988 to 60 percent in 1989 and 70 percent in 1991; tourism strengthened after the opening of the economy, and the arrival of businessmen rose sharply following the adoption of foreign investment legislation in 1987; and finance and other supporting services benefited from the increased trade on a commercial basis. Large increases also took place in repairs and private housing services—this was in part to respond to the cutback in the provision of public housing and in part to fulfill the demand for many foreign representative offices. The category “housing, tourism, and repairs” surged by nearly 90 percent during 1988-91, accounting for about two-thirds of the growth in the services sector (excluding state management) over this period.

Role of Demand

The Vietnamese authorities have pursued tight demand policies to reduce inflation, which exceeded 300 percent in 1987-88, as part of a strategy aimed at achieving sustained economic growth in the context of structural reform and financial stability. In many transition economies, financial tightening and the containment of demand have, in the presence of wage and price rigidities, contributed to a fall in output. In Vietnam, these adverse effects were cushioned for a number of reasons, as outlined below.

Level of Demand

The main policy instrument used to contain demand during late 1988 and early 1989 was high real interest rates (Table 2.3), supported by strict credit conditions for state-owned enterprises. Notably during early 1989, interest rates on three-month savings deposits of households were raised from 6 percent to 12 percent a month, rewarding depositors with positive real rates, compared with the negative real rates that prevailed before that time. Fiscal policies were initially expansionary because the budget had to cope with a decline in Soviet aid and the costs of laying off many public sector employees. This was reflected in average monetary financing of the deficit amounting to 6 percent of GDP in 1988-89. Despite such monetary financing, however, inflation was reduced to less than 100 percent in 1989, as the velocity of broad money halved during the year.12 During 1990-91, interest rates were effectively lowered and credit for state-owned enterprises was relaxed. With fiscal policies not sufficiently tight to contain overall demand, inflation rose in 1991 before declining in 1992 in response to a renewed commitment to contain demand.

The impact of these tight nominal demand policies on real aggregate demand was limited for at least two reasons. The first reason was the absence of significant price and wage rigidity. Almost all prices had been liberalized, and the prices of agricultural commodities were particularly flexible. Moreover, the compensation of employees of state enterprises was relatively flexible because of bonus and welfare funds. Besides, a major share of their compensation took the form of expenditure for new housing and housing maintenance. Expenditure on these items allowed enterprises a fair measure of wage flexibility, which was underpinned by limited increases in the nominal base wage.

The second important element in averting a fall in real aggregate demand was that the increase in oil production and agricultural export earnings helped sustain overall demand. In addition, the loss of foreign aid in 1990 fell in part on project-related imports of investment goods rather than on domestic demand and was partly offset by a reduction in foreign debt payments. Also, the negative terms of trade effect associated with the CMEA collapse was smaller than in many other transition countries. This was partly because the prices that Vietnam was paying for imports were relatively higher than those paid by other CMEA countries and partly because Vietnam was able to obtain improved prices for exports switched to the convertible currency area.

Demand Composition

Explanations of the output declines in other transition economies also refer to lags in adjustment. It takes time to accommodate an intersectoral shift in demand through a shift in factors of production. Most transition economies have been characterized by excessive investment, with an overemphasis on heavy industry and a poorly developed services sector. The liberalization of prices and the abandonment of the command structure that determined production and investment have led to massive shifts in relative demand in those countries; these shifts could not be readily accommodated through an expeditious reallocation of production factors because in many economies labor was relatively immobile in the short run. Thus, output generally fell during the transition.

Box 2.4.Employment Trends

Employment in the industrial and service sectors grew rapidly during the first phase of transition, 1988-89, followed by stagnation at the time of the collapse of the CMEA trade arrangements. Within this overall trend, the public and private sectors show quite opposite developments. The public sector shed about 1 million people during 1988—92, or about one-fourth of its workforce. Private sector employment, in contrast, increased by 1.8 million people, or about 45 percent in these sectors (see Table A12).

By contrast, four factors attenuated the adjustment cost of demand shifts in Vietnam. First, there is ample evidence of higher labor mobility in Vietnam, as shown by the observed shift from public to private sector employment (Box 2.4). Second, investment in Vietnam had been relatively small (about 10-15 percent of GDP). Third, new export markets, both for goods previously exported to CMEA partners and for new products, were readily found among Vietnam’s fast-growing neighbors and in Asia more generally. Finally, although large shifts occurred between the public and private sectors and within the industrial sector, the demand shift among agriculture, industry, and services was limited (see Table A11).

Underrecording of Output

One of the other major explanations of the measured output collapse in transition economies is the underrecording of emerging private sector output. In Vietnam, as in other transition economies, the recording of private sector and joint-venture output is weak because data gathering for the industrial and services sectors has relied primarily on reporting by state-owned enterprises. The underrecording of output growth, however, only strengthens the conclusion of successful performance rather than explaining part of an output collapse.

There is strong evidence in Vietnam that industrial and services output by the private sector has been underrecorded. The fact that a large increase in private sector employment is barely reflected in private sector output is one indication. Another thread of evidence is that output in the construction sector increased much less than cement production. Despite a decline in cement-intensive large-scale investment projects, production of cement doubled during 1988-93, to a large extent driven by private construction, which is poorly captured in official statistics. There are indications also of underrecording of the output contribution of the rapidly expanding, wholly foreign-owned enterprises.

Acceleration of Growth

The acceleration of growth to 8-9 percent during 1992-94 was unrelated to special factors, such as oil and state management output. Indeed, excluding those factors, output growth shows a much stronger upward trend—from 3—4 percent a year during 1988-91 to 7-8 percent a year during 1992-94 (Table 2.1).

Against a background of increasing macroeconomic stability, the acceleration in growth was supported by increased investment and additional structural reforms, creating a steady rise in employment. Investment is estimated to have increased from 15 percent of GDP in 1991 to 22 percent of GDP in 1994.13 A significant part of the increase is accounted for by foreign direct investment. As discussed in Section IV, foreign direct investment increased from about $100 million in 1989 to $650 million (4 percent of GDP) in 1994 and is estimated to have had an impact on output of 2 percent of GDP or more in 1994. The government increased its capital expenditure to about 7 percent of GDP in 1994, from a low of 3 percent in 1991, placing emphasis on the development of the energy sector.14 The rise in government investments was financed primarily through a growing surplus on current account operations, which reached 5 percent of GDP in 1994. Recorded nongovernment, non-foreign-financed investment—which in the official statistics consists mainly of housing—increased by about 1 1/2 percentage points. However, there are abundant signs of increased private output related to nonhousing investment, pointing to a possible underestimation of private sector investment.

Employment grew steadily during 1992-94, at a rate slightly higher than the growth of the labor force. Employment growth in the nonagricultural sector accelerated from about 2 percent in 1992 to 3 percent in 1994, while growth in the agricultural sector increased at a steady rate of 3 percent over the period.

In recent years, growth has originated less in the services sector (and agriculture in the very early transition years), coming more from industry. Within industry, growth shifted from oil to other products. Industrial growth gradually accelerated to 14 percent in 1994, with strong performance across the board. Construction increased particularly quickly—nearly 50 percent during 1992-94—sparked by land reform (in particular, the establishment of urban residential land-use rights following the issuance of the Land Law) and aided by foreign direct investment and increased government investment. The growth of oil production, by contrast, tapered off, but nevertheless increased by 10 percent in 1994. Also in 1993 and 1994, the services sector grew at an annual average rate of 9 percent, while agricultural output increased by 4 percent a year, after an exceptional 1992 performance. Agricultural performance was good in most subsectors, with relatively high growth in animal husbandry and perennial crops, such as coffee, rubber, and tea.

The prospects of sustaining recent high growth rates over the medium term appear good. Foreign investment commitments are increasing rapidly in response to favorable developments in international relations and administrative reforms. This investment will underpin growth particularly in light industry, tourism, and supportive services. Agricultural prospects at current world market prices are quite favorable. In addition, further growth of the oil and gas industry is expected, following promising discoveries of gas reservoirs and several smaller oil depositories and the application of techniques to sustain the life of the current main oil field.


One of the most remarkable features of Vietnam’s transition to a market economy is that it has avoided a decline in output during the transition and quickly moved on to high growth. Even after taking into account some special incidental factors, such as the coming onstream of oil, this observation remains valid. Decisive supply-side policies provided the basis for the successful transition. These policies in essence brought about the textbook result that the underutilization of human and physical capacity resulting from controlled prices and a lack of incentives could be redressed rapidly by liberalizing prices and instituting an incentive system.

For the agricultural sector, the key objectives were land reform—the establishment of land-use rights—and the enhancement of competition for outputs and inputs through the liberalization of prices and internal and external trade. For the state enterprise sector, the main policies consisted in increasing autonomy in decision making, establishing accountability, instituting hard budget constraints, and increasing competition. The necessary institutions were established to mobilize government revenues and improve the payments system. Foreign investment was sought to supplement domestic resources and widen the use of new technologies.

Government policies resulted in a large shift in labor from the public to the private sector; cooperatives were abandoned and the industrial structure was realigned. Nevertheless, no major sectors of industry were abandoned, either because new export markets were found or because additional domestic demand—particularly following the collapse of the CMEA—took up the slack.

Decisive macroeconomic policies helped bring down inflation. However, a demand collapse was avoided, primarily because price liberalization and remuneration policies allowed substantial price and wage flexibility. Stabilization policies were particularly effective in the presence of a large agricultural sector, generally characterized by homogenous products and small units, which facilitated competition. Political continuity and the decisive implementation of reforms prevented another potential problem, that of government bailouts of inefficient firms.

The restructured economy formed a sound basis for accelerated growth in recent years. This growth is being sustained through increased investment, both from the government and from foreign investors drawn by the ongoing reform commitment and increasing openness of the Vietnamese economy. Provided that sound and pragmatic policies are followed with the resolution that Vietnam has shown throughout the transition, there are good prospects for sustained high growth.

1It is consistent with the recent finding by Bruno and Easterly (1995) that, in a transition economy, stabilization of high inflation tends to be associated with higher growth.
2The period 1976-80 was unsuccessful economically; national income was stagnant despite a 3 percent annual growth in the labor force. The subsequent six years, 1981—87, saw a rapid re-bound aided by large-scale Soviet aid and some liberalization policies at the beginning of the period.
3Data on value added for oil production have been constructed as follows: from the data on gross production of the fuel industry, gross production for oil in 1989 was derived by excluding coal production, using the 1986 value of coal, and data on the increase of oil and coal production. The first year of large-scale oil production and the base year for the series on gross production in constant prices was 1989. The 1989 figure on the gross production of oil has been used to derive value added by assuming an intermediate consumption rate of 25 percent. The real growth rate of oil production is used to construct a series of oil production for 1987-94, based on the 1989 value added for oil.
4It is difficult to interpret employment data, particularly with regard to the impact of the large military demobilization in 1989—90 and ambiguities in the definition of “employee.”
5The experiments included partial liberalization of prices, with compensation in wages for any price increase.
6User rights of 15 years and more were granted. Initially, the cooperatives retained a role in allocating land-user rights.
7Data on the value added of rice production have been constructed using data on rice production, evaluated at the 1989 price of rice. For 1989, the price of rice was assumed to be equal to the average price of food production in rice equivalency terms. To convert the data on gross production of rice to data on value added, an intermediate consumption rate of 50 percent was assumed.
8Animal husbandry, the second largest source of agricultural output, suffered in 1988 from the slaughter of animals to compensate for depressed food output in 1987 and rebounded only in 1989.
9Since at least 1986, the increase in electricity capacity has out-paced production. The completion of the sizable Hoa Binh hydroelectric station added substantial further capacity over the transition years. The increase in cement production capacity in the early 1980s far outpaced the increase in actual production.
10In 1988 and 1989, there was a marked decline in the ratio of value added to gross output. This ratio fell from 0.46 in 1987 to 0.40 in 1989. This shift is somewhat counterintuitive; one would expect that the increased enterprise autonomy and higher input prices would help eliminate waste and reduce the amount of inter-mediate inputs. Also, the shift in the composition of production to the energy sector, where the ratio of gross value added to output is large (these are capital-intensive, input-extensive operations, such as hydropower plants and oil exploration), should lead to a shift in the opposite direction. This could indicate some underestimation of the growth of value added.
11Exports in 1990 to the nonconvertible area increased sharply on account of a major shipment of oil—presumably as payment in kind of the share in oil profits—but oil exports are easily redirected to other countries.
12This drop in velocity contrasts sharply with the experience of other transition economies, which generally witnessed a rapid increase.
13The method used to estimate capital formation in the national accounts has been revised. According to the revised method, 1994 investment was estimated to be 25 percent of GDP.
14Large-scale investment in the power grid has facilitated a large increase in electricity supply to the south, which in turn has helped industrial growth in that region and in the power-supplying north.

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