The Subregional Economic Integration and the Economic Transition: the case study of the Greater Mekong Subregion (GMS) and the Economic Transition in Vietnam By Tran Thi Le Dung A thesis submitted in partial fulfillment of the requirement for the degree of Master of Arts (International Relations) Faculty of Political Science, Thammasat University September 2010 The Subregional Economic Integration and the Economic Transition: the case study of the Greater Mekong Subregion (GMS) and the Economic Transition in Vietnam By Tran Thi Le Dung A thesis submitted in partial fulfillment of the requirement for the degree of Master of Arts (International Relations) Faculty of Political Science, Thammasat University September 2010 ABSTRACT After the Cold War, the world has entered a new phase in history: the phase of cooperation and integration. However, the former centrally planned economies find it hard to fully integrate into the world’s economy due to their unreadiness. And the emergence of sub- regionalism has facilitated the process of economic integration of transitional economies. The main objective of this paper is to explore the contribution of the sub-regional scheme in assisting members to integrate into the regional and multilateral markets.
The case studies of the Greater Mekong Sub-region and Vietnamese economy can be considered as a noteworthy example of the impact of the sub-regional cooperation on the economic transition of a country. Qualitative methodology is employed including documentary research and in-depth interviews. The East West Economic Corridor (EWEC) is used as the artery to analyze its direct and indirect impacts on two selected nodes along the EWEC, namely junction node: Lao Bao International Border Gate (Quang Tri Province) and gate way node: International Seaport of Da Nang (Da Nang City). The role of the GMS program towards to economic transition in Vietnam was investigated under two main aspects: the relationship between the central government and the local government, and the participation of the private sector.
In conclusion, the GMS program, particularly the EWEC, has played the catalytic role in assisting Vietnam to develop its economy towards a more market one. The implementation of the EWEC initiative has facilitated the Vietnamese government to pilot and adjust the legal framework concerning to cross-border movements, trade facilitation and economic development, to improve infrastructure systems and investment environment serving the economic development, and to change the administrative practices. The GMS program is a testing ground for Vietnam to apply new regulations, policies and learn to harmonize with other countries before fully integrating into the regional as well as the world economy. [2] ACKNOWLEGEMENT It is a pleasure to thank those who made this thesis possible.
I am heartily thankful to my adviser, Assoc. Siriporn Wajjwalku, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the topic. I own my deep gratitude to Assoc. Kajit Jittasevi, who has made available his support in a number of ways.
In addition, I would like to thank Asst. Kanokwan Manorom for her recommendations of the two interesting books about the transition in Lao PDR and her sharp comments on the thesis. Furthermore, I would like to express my thanks to all the staff of the MIR office for helping me continuously at the very beginning. Moreover, I would like to thank the officials of the organizations and people concerned, in Vietnam, who were generous in granting me interviews and providing crucial data.
My thanks also goes to Sean Meadows, who helped me check grammar of my thesis. And most importantly, I would to also thank my family and my husband for cheering and inspiring me. Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the project.1 Significance of the problem .2 Questions for research and objectives for research .1 Questions for research .3 Main argument and hypothesis .4 Research methodology and scope .1 The evolution of the gms economic cooperation and the economic cooperation within the gms framework .2 The socialist market-oriented economy and the economic integration of vietnam. Vietnam’s economic transition process from centrally planned economy to socialist market-oriented economy.2 Trade and investment.3 Structure of labor force .2 The centrally planned subsidized economy (1975-1986) .1 Centrally controlled economy .3 Trade and investment.3 Socialist market economy (1986 – now) .1 Factors contributed to the economic reform .3 Industrialization and modernization .4 Trade and investment.
Subregional economic cooperation in southeast asia and the needs to cooperate: the greater mekong subregion and vietnam .1 Subregional economic integration in southeast asia: .1 Subregionalism: aims and mechanisms .2 The emergence of subregional integration in southeast asia .2 Vietnam and the greater mekong subregion .1 Vietnam and the needs to integrate into the mekong subregion .2 The greater mekong subregion – a solution for the puzzle. The catalytic role of the GMS program to the process of economic transition in vietnam .1 The interaction between the central and local governments in implementation the ewec initiated by the Greater Mekong Subregion (GMS) .1 Description of vietnam’s nodes and administration structure .2 The response to GMS scheme on infrastructure development of the EWEC .3 The development of the special border zone, the seaport, and software harmonization.5 Human resource development .2 Participation of the private sector. Conclusion and challenges .2 Challenges of the research. 37 Table 2: Targets and actual performance for selected economic indicators of second Five-Year- Plan.
39 Table 3: Contribution of state and private sectors in total retailing turnover (%), 1976-1985. 43 Table 4: Export-import during the pre-Doi Moi period. 44 Table 5: Some major economic indicators, 1991 – 2009. 49 Table 6: Economic structure from 1990-2008 (percent).
51 Table 7: Main milestones of legal reform in Vietnam under Doi Moi policy. 54 Table 8: Milestone of Vietnam's economy integration. 55 Table 9: FDI investment projects licensed in period 1998-2008. 56 Table 10: Index of export and import of goods.
57 Table 11: Means of transport in Quang Tri province, 2001 -2008 (Road way). 84 Table 13: Main indicator for Trading Across Borders, GMS. 91 Table 12: Foreign Direct Investment projects licensed in Da Nang, 2000 – 2008 (Thous. 94 Table 14: Number of establishment in transportation (road, inland water ways and maritime transport) of Da Nang City, 2003-2007 .2 Figure 2: US economic assistance to South Vietnam by fiscal year, 1955-1975 (million dollar)26 Figure 3: Industrial development index from 1962 to 1973 (percent).
28 Figure 4: Proportion of industrial activities in the total industrial output value of RVN in 1973. 29 Figure 5: Index of import and export turnover of the Republic of Vietnam, 1956-1975 (Million Dollar. 32 Figure 6: Students in Universities in the South Vietnam, 1954-1972 (in thousands). 34 Figure 7: Industrial growth: 1977 - 1985 (1982 price, percent).
41 Figure 8: Industrial output value at current prices by ownership (1996-2007). 50 Figure 9: Share of intra-regional trade to total trade of Vietnam (1992-1997). 68 Figure 10: Total capacity of major ports in Vietnam, 1998. 79 Figure 11: Administrative structure of Vietnam, based on the 1992 Constitution.
80 Figure 12: Volume of freight implemented of Da Nang Port (thousand tons). 88 Figure 13: The share of SOEs and private enterprises in 6 IZs in Da Nang .1 Significance of the problem After the reunification in 1975, the Vietnamese government quickly applied a socialist centrally planned economic system in the whole country in 1976. Under this system, private ownership was not recognized but state and collective ownerships were. The government's ambition for rapid industrialization and economic growth led to the massive state investment.
But the investment efficiency was exceptionally low due to the economic mismanagement, administrative inefficiency, and bureaucratic inertia. The first efforts at rehabilitation and reconstruction which were embodied in the Second Five-year Plan (1976-1980) failed. The growth rate was at only 0.4 percent per annum, far lower than the target set by the government (13-14 percent). Food production in 1980 reached only 14 million tons, which was lower than the plan target by 7 million tons.
Moreover, Vietnam experienced a number of disasters over two successive years in 1978 and 1979, all of which resulted in a miserable situation in the whole country 1. Being aware of these facts, the government decided to adjust the development model after 1981. The economic policies were more open to allow more participation of private ownership and individuals in production and circulation of goods. The new incentives brought some positive effects on the economy.
The average of GDP growth during 1981-1984 was 7 percent, however, the economic recovery did not continue for long as the partial relaxation of economic management system and partial adjustment of the pricing system brought a huge budget deficit and high inflation together with income disparity. In addition, the macroeconomic crisis in 1985- 1986 prompted the government to implement more radical measures to reform the economy In general, the centrally planned economy in Vietnam gradually proved its ineffectiveness as the growth rate remained very low for many years. The average growth rate of GDP in the period of 1975-1986 was only at 3. (See Figure 1) 1 Masahiko Ebashi, Vietnam joins the world (New York: M.
1 2 Figure 1: Vietnam's Gross Domestic Growth Rate (1975-1986) (1990 constant price, percent) Source: Based on the data downloaded from: http://unstats.org/unsd/snaama/selcountry.asp (The United Nations) on 9th December 2009 General Statistics Office. Statistical Yearbook of Vietnam 1985 - 1986, Statistics Publishing House Therefore, there was a wave of pro-reformation within the government, who advocated drastic reform with an open policy and transformation of the economic management system from central planning to a market mechanism. Moreover, the international environment changed dramatically and that significantly affected the thinking of the Vietnamese government in many ways: 1. China's open-door policy in 1978 was effective, which drew the attention of Vietnamese government due to the similarity between the two states' conditions, though the relations between two states were tense and were not normalized yet.
The reformation of the Soviet Union revealed some bad signals which urged Vietnamese leaders to reconsider the state's situation. The success of newly industrialized countries (NICs) in East Asia was the good examples of developmental methods for the agricultural based economies. The foundations for the development were such as: promoting the national capacity, opening the market, export-oriented economy and attracting 3 foreign investment. Confrontation among states was rapidly replaced by cooperation and competition.
This made states including Vietnam reorient their thinking about development. The open-door policy should be replaced the close-door and self- sufficient economy. There are, of course, some other causes that led to the decision to transform the economy, which will be discussed further in the following chapter. Consequently, the 6th Vietnamese Communist Party Congress (12/1986) introduced a comprehensive reform policy, or renewal policy known as "Doi Moi" (Đổi mới) policy.
The first two year of the reform policy, saw only part of the program was implemented and on a gradual basis. The comprehensive program was implemented in 1989. The essence of the Doi Moi policy was setting up the market economy under the guidelines of the state, which is commonly known as the "socialist market economy" or "socialist- oriented market economy". The socialist market-oriented economy is defined by the National Party as a multi-sectoral commodity economy, which is regulated by the market, under the state management.
The combination of a planned economy and market economy used to be thought as an unusual combination due to their contrary characteristics. However, the initial success of China has somehow shown this combination's advantages. The socialist market economy places emphasis on innovating the mechanisms and structures of the economy including opening the economy for the participation of various economic sectors, establishing infrastructure serving to develop the country, upgrade the legal systems in order to be compatible with the new economic system, and to change the state administrative methods towards the economy and so forth.