Vietnam's Aspiration from the Innovation Journey: Creating Trust

Innovation is not only about changing an economic model, but first of all, it is about "unticking" profound and courageous thinking.

From eliminating subsidy, liberating prices, reforming currency and finance, to building a legal corridor for the private economy and opening the door to integration, the landmark decisions have unblocked social resources, bringing Vietnam out of crisis.

More importantly, from policies, the trust of people and businesses has been gradually restored, becoming a foundation for sustainable development.

Reform seeds bloom in hardship

In the mid-1980s, the Vietnamese economy fell into a comprehensive crisis. Inflation in 1986 reached 774.7%, the currency depreciated, and salaries often had to be paid in kind. The subsidized distribution system cannot meet the minimum demand, the black market overwhelms the official market. Social negativity is increasing, life is at a standstill, belief in policies and the future is eroded.

In that context, the Innovation initiated by the Party at the VI (1986) is the only way out. However, the path to a market economy is not flat when planning is concentrated, the manager and subculture have eaten deep into their awareness. The market economy is still seen as a product in contrast to the socialist bloc, causing the transition to take place in a fierce ideological struggle.

However, initial "opening the door" signals appeared early. In 1977, Decree 115-CP on foreign investment, then the Law on Foreign Investment passed by the National Assembly right after the 6th Congress, sent a clear message of reform. This is a pioneering step, laying the foundation for the policy of attracting foreign direct investment (FDI) and integrating internationally, even though the country was still under protection and embargo.

But the real boost to build trust comes from agriculture. Resolution 10-NQ/TW of 1988 of the Politburo, also known as Conclusion 10, has granted long-term land use rights to farmers, establishing them as production entities. When liberated, agricultural production exploded, food output skyrocketed, bringing Vietnam out of hunger to surplus and rising to the top group of rice exporting countries.

This platform has paved the way for the most comprehensive and drastic reform in the period 1990 - 1992. In a short time, a series of key policies were issued: Company Law and Private Enterprise Law 1990 for the first time "legalizing" the private economic sector; The Foreign Investment Law was amended in a more open direction.

In particular, the 1992 Constitution officially recognizes a multi-component economy, operating under a market mechanism under state management, marking a strong transition to a socialist-oriented market economy.

In parallel with institutional reform, the State has gradually released prices, eliminated the two- exchange rate mechanism, unified exchange rates according to market signals and ended import-export subsidies, stabilized macro, controlled inflation and integrated internationally. All to create an important stepping stone for strong economic development in the future.

Trust becomes a resource

According to Economist Nguyen Dinh Cung, former Director of the Central Institute for Economic Management Research, the first two years of the 1990s were "the most thorough reform in the history of modern Vietnam's economy".

The core bottleneck of the economy at that time was not a lack of capital or goods, but a mechanism for allocating non-market resources, eliminating production momentum. The State has just set prices, provided input and output, and directly intervened in enterprises, causing production to stagnate, the budget to be exhausted, while people are looking for ways to escape the formal sector.

Now, monetary policy is tightened, real interest rates are applied to stop inflation and restore confidence in money. The stamp was erased not only because of policy determination, but because the market now has enough goods, especially thanks to the results of Khoat 10. As a result, we have reduced inflation from three digits to two digits in just a few years, said Dr. Nguyen Dinh Cung.

State-owned enterprise reform is also taking place very strongly at this time. About 6,000 state-owned enterprises, mainly at the district level, were dissolved due to ineffective operations, prolonged losses in business; and support was cut. This very painful but mandatory decision has paved the way for the domestic private economic sector to clearly form, while FDI capital flows have begun to flow strongly as the embargo is gradually lifted.

1994 marked an important turning point in the thinking of our Party and State when the Law on Encouragement of Domestic Investment was promulgated, followed by the Law on State-owned Enterprises and the Law on Cooperatives, opening up a mechanism for Vietnamese people to freely do business, get rich, and form a multi-faceted economy.

The two "wings" of reform - domestic market and international integration, have now flown in the same direction.

In particular, Vietnam's normalization of relations with the United States, joining ASEAN, and signing the Vietnam-US Trade Agreement (BTA) in 2000 has opened up new development space. Exports have grown rapidly, becoming the main driving force of the economy.

The peak of the institutional reform wave was the Law on Enterprises and the Law on Investment in 2005, creating a unified legal framework for all economic sectors, paving the way for Vietnam to join the world trade union in 2007, attracting a record FDI flow in 2008, with a total registered capital reaching more than 64 billion USD.

Recognizing these turning point decisions, Ms. Manuela V. Ferro, Vice President of the World Bank (WB) in charge of the East Asia and Pacific region, emphasized: The bold decision to open the door to the economy and prioritize exports since the late 1980s is one of the key factors that create the success of Vietnam today.

Dr. Nguyen Dinh Cung also affirmed that Doi Moi's greatest success is not only GDP growth, but also that we have established an economic order based on the market and the law. When the State changes its role from "replacement" to "creation", when businesses and people are trusted, the economy can operate effectively. This is clearly demonstrated and very specifically in life. Hammer markets are more crowded, goods are more abundant, jobs are more, people are starting to accumulate and invest long-term. From worrying about eating every meal, society has shifted to worrying about learning, what to do and the future for the next generation.

However, reform is not always a success. The return of the "asking, giving" mechanism of state-owned corporation models that were previously ineffective shows that institutional reform always needs to be renewed and consolidated. But the truth is that Doi Moi, especially in the early 1990s, has created a historic turning point.

Innovation has restored the confidence that empowered people will know how to get rich legitimately, and if the market is led by the right institutions, resources will be allocated more effectively than administrative orders, Dr. Nguyen Dinh Cung emphasized.

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