Vietnam witnessed four economic crises in the last 40 years

According to Du, Vietnam witnessed four economic crises in the last 40 years every 10 years, in 1979, 1989, 1999 and 2009.

The first crisis occurred in 1979, when Vietnam, which was optimistic after the end of the war, wanted to go fast to obtain many goals, when the development model was unsuitable. As a result, production came to standstill and the economy faced big challenges.

Because of the difficulties and failure of the price and wage reform in 1985, Vietnam had to carry out doi moi (renovation) in 1986.

Ten years later, Vietnam saw the second crisis with the collapse of a series of credit co-operatives and financial crisis. With lack of experience, the cooperatives rushed to mobilize capital from people and created a ‘Ponzi scheme’, under which they paid profits to earlier investors using funds obtained from newer investors. 

The reforms in agriculture, reasonable policies in foreign trade, and FDI attraction then created a driving force for growth. 1995 was considered the best year of the period. 

Vietnam re-joined ASEAN and normalized diplomatic relations with the US. GDP grew by 9.5  percent. However, problems still existed, which were seeds for a new problematic period.

The third crisis broke out in 1998-1999 with the collapse of many banks. The open land policies applied in that period created ‘fever attacks’. This prompted businesses to pour money into the real estate sector.

However, the real estate sector unexpectedly froze because of the regional financial crisis in 1997-1998. As a result, businesses could not pay debts.

The reasonable policies set in that period, including the 1999 Enterprise Law and the Vietnam-US Bilateral Trade Agreement, created a new growth period.

The optimism returned and increased rapidly. The VN Index reached its peak in March 2007 and the real estate market also heated up. Once again, these factors triggered a new crisis period, in 2009-2011, when many banks became insolvent and state-owned corporations fell into distress.

Huge capital flew to Vietnam after It joined WTO, which activated the asset markets (shares and real estate). As people felt it was easier to make money, they changed production and business methods, pouring more money into stocks and real estate.

As banks expanded and used capital immoderately, they incurred losses and bad debts. 

The excessive optimism of people and businesses was pointed out by Du as the factor behind all the previous economic crises.

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Kim Chi