Vietnam

Originating in what is now southern China and northern Vietnam, the Vietnamese people pushed southward over two millennia to occupy the entire eastern seacoast of the Indochinese Peninsula. Ethnic Vietnamese constitute about 90% of Vietnam's 77.3 million population.

Vietnam's approximately 2.3 million ethnic Chinese, concentrated mostly in southern Vietnam, constitute Vietnam's largest minority group. Long important in the Vietnamese economy, Vietnamese of Chinese ancestry have been active in rice trading, milling, real estate, and banking in the south and shopkeeping, stevedoring, and mining in the north. Restrictions on economic activity following reunification in 1975 and the subsequent but unrelated general deterioration in Vietnamese-Chinese relations sent chills through the Chinese-Vietnamese community. In 1978-79, some 450,000 ethnic Chinese left Vietnam by boat as refugees (many officially encouraged and assisted) or were expelled across the land border with China.

The second-largest ethnic minority grouping, the central highland peoples commonly termed Montagnards (mountain people), comprise two main ethnolinguistic groups--Malayo-Polynesian and Mon-Khmer. About 30 groups of various cultures and dialects are spread over the highland territory.

The third-largest minority, the Khmer Krom (Cambodians), numbering about 600,000, is concentrated near the Cambodian border and at the mouth of the Mekong River. Most are farmers. Other minority groups include the Cham--remnants of the once-mighty Champa Kingdom, conquered by the Vietnamese in the 15th century--Hmong, and Thai.

Vietnamese is the official language of the country. It is a tonal language with influences from Thai, Khmer, and Chinese. Since the early 20th century, the Vietnamese have used a Romanized script introduced by the French. Previously, Chinese characters and an indigenous phonetic script were both used.

Vietnam's identity has been shaped by long-running conflicts, both internally and with foreign forces. In 111 BC, China's Han dynasty conquered northern Vietnam's Red River Delta and the ancestors of today's Vietnamese. Chinese dynasties ruled Vietnam for the next 1,000 years, inculcating it with Confucian ideas and political culture. In 939 AD, Vietnam achieved independence under a native dynasty. After 1471, when Vietnam conquered the Champa Kingdom in what is now central Vietnam, the Vietnamese moved gradually southward, finally reaching the rich Mekong Delta, encountering there earlier settled Cham and Cambodians. While Vietnam's emperors reigned ineffectually, powerful northern and southern families fought civil wars in the 17th and 18th centuries.

French Rule and the Anti-Colonial Struggle
In 1858, the French began their conquest of Vietnam starting in the south. They annexed all of Vietnam in 1885, but allowed Vietnam's emperors to continue to reign, although not actually to rule. In the early 20th century, French-educated Vietnamese intellectuals organized nationalist and communist-nationalist anti-colonial movements. Japan's occupation of Vietnam during World War II further stirred nationalism.

Vietnamese communists under Ho Chi Minh organized a coalition of anti-colonial groups, the Viet Minh, though many anti-communists refused to join. After Japan stripped the French of all power in March 1945, Ho Chi Minh announced the independence of the Democratic Republic of Vietnam on September 2, 1945.

North and South Partition
France's post-World War II unwillingness to leave Vietnam led to failed talks and an 8-year guerilla war between the communist-led Viet Minh on one side and the French and their anti-communist nationalist allies on the other. Following a humiliating defeat at Dien Bien Phu in May 1954, France and other parties, including Britain, China, the Soviet Union, and the United States, convened in Geneva, Switzerland for peace talks. On July 29, 1954, an Agreement on the Cessation of Hostilities in Vietnam was signed between France and the Democratic Republic of Vietnam. The United States observed, but did not sign, the agreement. French colonial rule in Vietnam ended.

The 1954 Geneva agreement provided for a cease-fire between communist and anti-communist nationalist forces, the temporary division of Vietnam at approximately the 17th parallel, provisional northern (communist) and southern (noncommunist) zone governments, and the evacuation of anti-communist Vietnamese from northern to southern Vietnam. The agreement also called for an election to be held by July 1956 to bring the two provisional zones under a unified government. However, the South Vietnamese Government refused to accept this provision. On October 26, 1955, South Vietnam declared itself the Republic of Vietnam.

After 1954, North Vietnamese communist leaders consolidated their power and instituted a harsh agrarian reform and socialization program. In the late 1950s, they reactivated the network of communist guerillas that had remained behind in the south. These forces--commonly known as the Viet Cong--aided covertly by the north, started an armed campaign against officials and villagers who refused to support the communist reunification cause.

American Assistance to the South
In December 1961, at the request of South Vietnamese President Ngo Dinh Diem, President Kennedy sent U.S. military advisers to South Vietnam to help the government there deal with the Viet Cong campaign. In the wake of escalating political turmoil in the south after a 1963 generals' coup against President Diem, the United States increased its military support for South Vietnam. In March 1965, President Johnson sent the first U.S. combat forces to Vietnam. The American military role peaked in 1969 with an in-country force of 534,000. However, the Viet Cong's surprise Tet Offensive in January 1968 deeply hurt both the Viet Cong infrastructure and American and South Vietnamese morale. In January 1969, the United States, governments of South and North Vietnam, and the Viet Cong met for the first plenary session of peace talks in Paris, France. These talks, which began with much hope, moved slowly. They finally concluded with the signing of a peace agreement, the Paris Accords, on January 27, 1973. As a result, the south was divided into a patchwork of zones controlled by the South Vietnamese Government and the Viet Cong. The United States withdrew its forces, although U.S. military advisers remained.

Reunification
In early 1975, North Vietnamese regular military forces began a major offensive in the south, inflicting great damage to the south's forces. The communists took Saigon on April 30, 1975, and announced their intention of reunifying the country. The Democratic Republic of Vietnam (north) absorbed the former Republic of Vietnam (south) to form the Socialist Republic of Vietnam on July 2, 1976.

After reunification, the government confiscated privately owned land and forced citizens into collectivized agricultural practices. Hundreds of thousands of former South Vietnamese Government and military officials, as well as intellectuals previously opposed to the communist cause, were sent to re-education camps to study socialist doctrine.

While Vietnamese leaders thought that reunification of the country and its socialist transformation would be condoned by the international community, this did not happen. Besides international concern over Vietnam's internal practices, the Vietnamese invasion of Cambodia in 1978 and its growing tight alliance with the Soviet Union appeared to confirm suspicions that Vietnam wanted to establish hegemony in Indochina.

Vietnam's invasion of Cambodia also heightened tensions that already existed between Vietnam and China. Beijing, which had long backed the Khmer Rouge regime in Cambodia, retaliated in early 1979 by initiating a border war with Vietnam.

Vietnam's tensions with its neighbors and its stagnant economy contributed to a massive exodus from Vietnam. Fearing persecution, many Chinese in particular, fled Vietnam by boat to nearby countries. Later, hundreds of thousands of other Vietnamese nationals fled as well, seeking temporary refuge in camps throughout Southeast Asia.

The continuing grave condition of the economy and the alienation from the international community became focal points of party debate. In 1986, at the Sixth Party Congress, there was an important easing of communist agrarian and commercial policies.

Economic stagnation marked the period after reunification from 1975 to 1985. In 1986, the Sixth Party Congress approved a broad economic reform package called "Doi Moi," or renovation that dramatically improved Vietnam's business climate. Vietnam became one of the fastest-growing economies in the world, averaging around 8% annual GDP growth from 1990 to 1997. Vietnam's inflation rate, which stood at an annual rate of over 300% in 1987, fell below 4% in 1997. Simultaneously, investment grew three-fold and domestic savings quintupled. Agricultural production doubled, transforming Vietnam from a net food importer to the world's second-largest exporter of rice.

Foreign trade and foreign direct investment improved significantly. The shift away from a centrally planned economy to a more market-oriented economic model improved the quality of life for many Vietnamese. Per capita income, $220 in 1994, rose to $372 by 1999 with a related reduction in the share of the population living in acute poverty.

The striking economic progress that marked the 1990s slowed in the last years of the decade. Despite an impressive 23% rise in 1999's export performance to $11.5 billion, a sharp drop in new foreign investment commitments foreshadows slower economic growth than Vietnam experienced in the early 1990s. Government control of the economy and a nonconvertible currency have protected Vietnam from what could have been a more severe impact resultant from the East Asian financial crisis. Nonetheless, the crisis, coupled with the loss of momentum as the first round of economic reforms ran its course, has exposed serious structural inefficiencies in Vietnam's economy.

Vietnam's economic stance following the East Asian recession has been a cautious one, emphasizing macroeconomic stability rather than growth. While the country has shifted toward a more market-oriented economy, the Vietnamese Government still continues to hold a tight rein over major sectors of the economy, such as the banking system, state-owned enterprises, and areas of foreign trade. Substantial reforms to create a sound banking system and privatize state-owned enterprises need to be speeded up. Without these reforms, Vietnam might not cope with a rising unemployment problem. Urban unemployment has been rising steadily in recent years, and rural unemployment, estimated to be up to 35% during nonharvest periods, is already at critical levels. Layoffs in the state sector and foreign-invested enterprises combined with the lasting effects of an earlier military demobilization further exacerbate the unemployment situation.

The international community has told Vietnamese leaders that the situation calls for a bold new round of structural economic reforms. The country's leadership, however, has chosen to follow a less ambitious, slow-paced reform program. Overall systemic economic reform has been limited by both Vietnam's communist ideology and a bureaucracy which views reform as a threat to the status quo. The country's slow-paced reform has hindered Vietnam from progressing in tandem with regional competitors.

The July 13, 2000 signing of the Bilateral Trade Agreement (BTA) between the U.S. and Vietnam is a significant milestone for Vietnam's economy. Pending U.S. congressional approval, the BTA will provide for Normal Trade Relations (NTR) status of Vietnamese goods in the U.S. market. Access to the U.S. market will allow Vietnam to hasten its transformation into a manufacturing-based, export-oriented economy. It would also concomitantly attract foreign investor interest back to Vietnam, not only from the U.S., but also from Europe, Asia, and other regions.

Agriculture and Industry
Land reform, decollectivization, and the opening of the agricultural sector to market forces converted Vietnam from a country facing chronic food shortages in the early 1980s to the second-largest rice exporter in the world. Besides rice, key exports are coffee, tea, rubber, and fisheries products. Despite this unquestioned success story, agriculture's share of economic output has declined, falling as a share of GDP from 42% in 1989 to 26% in 1999, as production in other sectors of the economy has risen.

Paralleling its efforts to increase agricultural output, Vietnam has sought with some success to invigorate industrial production. Industry contributed 32.5% of GDP in 1999. However, most branches of heavy industry--cement, phosphate, steel, etc.--have stagnated or declined. State-owned enterprises are marked by low productivity and inefficiency, the result of a command-style economic system applied in an underdeveloped country. Foreign direct investment (FDI)--much of it gravitating to the new industrial zones in the south--is a new and dynamic feature of Vietnam's industrializing economy. Billions of FDI dollars from countries around the globe are helping to transform the industrial landscape of Vietnam. Foreign invested enterprises are also responsible for helping the country achieve large export gains recently. Another inflow of FDI is expected once the BTA is ratified by legislatures of both countries.

Of late, Vietnam has achieved some success in increasing exports of some labor-intensive manufactures. Subsidies have been cut to some inefficient state enterprises. The government also has repeatedly stated its intent to "equitize" a significant number of state enterprises. However, only a relatively small percentage of remaining state enterprises have been equitized in recent years.

Trade and Balance of Payments
From the late 1970s until the 1990s, Vietnam was heavily dependent on the Soviet Union and its allies for trade and economic assistance. To compensate for drastic cuts in Soviet-block support after 1989, Vietnam liberalized trade, devalued its exchange rate to increase exports, and embarked on a policy of regional and international economic re-integration. As Vietnam's integration into the global community progressed, bilateral and multilateral aid to the country resumed.

As a result of these reforms, exports expanded significantly, growing by as much as 20%-30% in some years. In 1999, exports accounted for 40% of GDP, an impressive performance in a recovering Asia. Efforts to control Vietnam's import growth have been fairly successful. In the last 4 years, import levels have remained fairly stable. For the second consecutive year, Vietnam had a balance-of-payments surplus in 1999. The country's balance-of-payments surplus has been due not only to robust trade performance but also to official development assistance and remittances from overseas Vietnamese. Vietnam's total external debt, accounting for 37.1% of GDP in 1999, is $10.6 billion.