Problems Of Vietnam

Policy Briefing for Vietnam 1

POLICY BRIEFING FOR VIETNAM

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Policy Briefing for Vietnam 2

EXECUTIVE SUMMARY

This research paper aims at empirically examining the problems of Vietnam and critically

analyze and use theories how to improve the economic growth of Vietnam. The economy

Vietnam has fundamentally changed due to the policy reforms which were implemented during

1980s in order to provide an environment which is conducive for social stabilization and

economic growth. The economic policy reforms have major impact on the economy in the

aspects of social life and economic activities. The Vietnam economy has shifted from a centrally

planned economy which is characterized by public ownership to a mixed and market-oriented

economy. The administrative systems and social structures, values, legal, institutional systems

have gradually changed. This process of economic reform has given rise to many challenges and

problems which affect the development and growth of Vietnam.

The paper will focus problems and policy recommendations which Vietnam face due to the

economic growth after Doi Moi policy reforms. Macroeconomic implementation policies aim at

stabilizing the economy to help in controlling inflation and ensuring the balance of major

economy aspects are not really sustainable. Economy recovery is still slow, growth has not

reached the set target, low GDP at 5.9% per capita / year from 2010 to 2017 lower than the

previous 5 years. Vietnam has a socialist-oriented market economy which is unable to create a

breakthrough solution to promote economic development. Inadequate capital to fund research

and development. Infrastructure systems do not meet the requirements of development. There are

many problems in the development of socio-culture area associated to big gap between the rich-

poor, labor market is not very transparent, inadequate information on demand - supply of labor is

limited. Climate change, natural resource mismanagement, and environmental pollution.

Key word: Economic Reforms, Poverty, Policy Recommendations, Vietnam

Policy Briefing for Vietnam 3

Table of Contents

EXECUTIVE SUMMARY ....................................................................................... 2

INTRODUCTION ..................................................................................................... 4

ISSUES ...................................................................................................................... 4

a) Unemployment ................................................................................................. 4

b) Poverty ................................................................................................................. 7

c) Unstable Economy and Financial institutions ..................................................... 8

ANALYSIS OF THE ISSUE ..................................................................................... 9

POLICIES RECOMMENDATION AND EVALUATION ....................................10

CONCLUSION ........................................................................................................12

BIBLIOGRAPHY ....................................................................................................13

Policy Briefing for Vietnam 4

INTRODUCTION

Vietnam is a country with single-party Communist with a fast-growing economy worldwide. The

aim is to be a developed country by 2020. For the past decade, Vietnam has experienced a

tremendous transformation in the economy in order to become a middle-income country.

However, there has been many challenges and problems which has undermined the global

integration and inclusive growth of Vietnam (Le Hong, 2012, pp. 145-172).

ISSUES

a) Unemployment

Vietnam has a high youth population which are unemployed but are able and willing to do some

work but the jobs remain unavailable. There are many jobless youth and other people in the

economy which are eligible for a job because possess a certain qualification but you are unable

to find any work that is irrelevant or relevant depending on to their expertise. Most of the people

are between the age of 15-59 years and are willing to work at current wages rates but are unable

to get work (Kvist, J 1998, p. 33).

Vietnam’s unemployment rate averaged between 2.02 % from 2015 up to 2017.The

unemployment reached a high of 2.27 % in the 4

quarter of 2015 and a reached a low of 1.96 %

in the 2

quarter of 2016. Youth unemployment is the percent of 15-24 years old who are part of

the labor force but are unemployed (Bendassolli,2015, et.al, pp. 153-164).

Policy Briefing for Vietnam 5

Source: Statista 2018

Causes of Unemployment in Vietnam

High rate of population growth. It remains to be a leading cause of unemployment both in rural

and urban Vietnam. Particularly in rural parts experience a rapid population increase. Population

increase lead to high unemployment rate in two ways. The first way affirms that an increase in

population has a directly impact on the unemployment because there is large available labour

force that exceeds the jobs in the market. The Vietnam economy remain stagnant in not

generating more job opportunities for the unemployed people. Any increase in labour force

requires the economy to create of new job opportunities to match the existing labour force in the

market in order to reduce the unemployment rate. Increase in population rate at 23% affect

unemployment indirectly because it reduces the available resources used in capital formation

(Peter, et.al, 2004, pp. 2233-2237).

Seasonal Agriculture. Agriculture is the largest source of employment in the rural areas.

However, people in the rural areas engage in agriculture either indirectly or directly in order to

earn an income. But, in most parts of Vietnam, agriculture is practices on a seasonal basis. Some

Policy Briefing for Vietnam 6

crops are grown only in some season in the year leaving the labour force unemployed during the

off-peak season. For instance, during the harvesting and sowing period, individuals are fully

employed and but remain unemployed during the next sowing season and post harvesting period.

It affects the living standards of the casual workers (Darpeix, et.al, 2014, pp. 257-272).

Defective education. The education system in Vietnam is very unstructured and defective

because it mainly focusses on theoretical approach. The current educational system does not

equip learners with the right skills to meet the job market expectations. Thus, many people who

get general education are unable to acquire jobs because the lack the skills on demand. That

some of the reason the rate of unemployment among the youth is so high because they lack the

necessary skills to get the job opportunities. They are only after white color jobs rather than self-

employment. It can lead to underemployment and unemployment (Trung, & Oostendorp, 2017,

pp. 34-56).

Effects of Unemployment in Vietnam

There will be an additional expenditure on the budget of Vietnam on social goods. More

resources are need in order for the government of Vietnam to provide the social goods to its

citizen in form of basic needs for underprivilege in the society and public consumption such as

social amenities, medicine and proper health care, and education. This has reduced the capital

which have been used to develop other sectors of the economy will have to be diverted on

meeting these expenditures. Thus, an increase in population has created many problems in

slowing down the economic growth and generating job opportunities (ROPA, & ROPA, 2017,

pp. 92-102).

Policy Briefing for Vietnam 7

b) Poverty

Vietnam is fastest growing nation with an emerging economy that is projected to develop in the

coming years. GDP and Per capita income is growing but the employment opportunities are

shrinking reducing the economic growth. Poverty is a leading problem in Vietnam because it is

associated to the human welfare in form of poor quality of life, poor health, and low level of

education. Unfortunately, about 33 % of the Vietnam’s population continue to stay in acute

conditions of poverty to mean that most people only live on a less than $1 per day (Trung, &

Oostendorp, 2017, pp. 34-56).

Source: pinerest.com

Policy Briefing for Vietnam 8

Causes of Poverty

Vietnam has a growing population with less employment opportunities because jobs that are

available in the market do not match the increasing population. Differences in income increases

the gap between the rich and the poor. Henceforth, the concentration economic power towards

the rich remain to be a major problem for equitable progress and growth especially in rural parts

that are prone to acute poverty. Many people in Vietnam are unable to get job opportunities in

the private sector leaving them to depend on allocation government jobs on bias. Most

Vietnamese are unable to sustain themselves to improve their living standards but live in

poverty. Therefore, Vietnam’s public sector is on daily basis shrinking because of the few

available jobs with poor wage rate because of the informalization in the economy. The market-

oriented approach economy hence lacks the economic freedom. Vietnam government have

policies which restricts individual from becoming very rich (Bendassolli, 2015, et.al, pp. 153-

164).

Effects of Poverty

Vietnam has a stunted economic growth due to the rising poverty levels as a result of corruption

and resources mismanagement at the connivance of the rich and politicians at every level in the

economy. The Vietnam government has allocated 20%-30% of its budget to alleviate poverty has

yet to reach the poor. High corruption rate in mismanaging the resources to generate money.

c) Unstable Economy and Financial institutions

Vietnam economy has been growing but the demand is less than supply allowing producers to

lay off workers to reducing the aggregate wages and amount of money available to consumers

and thus also reducing demand. There is no tendency toward full-employment GDP where the

Policy Briefing for Vietnam 9

demand can equal supply at any level of employment of resources. monetary policies are

affected by the present government together to realize a financial target of a government. The

monetary is generally assumed to have an effect on typical interest rates that are charged by

commercial banks and other financial institutions (Kim, 1992, p. 46).

Causes and Effects of Unstable Economy and Financial institutions

The state bank of Vietnam has a primary role in regulating and controlling the financial segment

in order to fast-tracked economic development. The principle objectives of the state bank of

Vietnam is to formulate and implement monetary policy in maintaining and achieving stability in

the level of general prices in the economy. The purpose of monetary policy is to impact the bank

lending and borrowing rate. Recent information shows that the central banks in the developing

economies are unwilling to spread out credit facilities to the private businesses (Gourinchas, &

Rabanal, 2017, pp. 1-4).

ANALYSIS OF THE ISSUE

Issue

Theory

Analysis of the Issue

Unemployment

Monetarist Theory

Insufficient creation of money result into

fiscal deficit which is the prime mover of

the economy. When deficits run short

recession follows resulting into high

turnover rates.

Policy Briefing for Vietnam 10

Poverty

Marxist theory

The higher the poverty level the lower the

Gini coefficient which mean that there will

be slowed economic growth. Poverty

increase especially in rural parts because of

a decrease in the economic growth due to

high level of abject poverty and poor living

conditions (Maher, & Aquanno, 2018, pp.

33-50).

Unstable

economy and

financial

institutions

Keynesian Theory

Keynesians theory advocates for an active

stabilization of the economy. The financial

institutions depend on the economic

problems. Monetary policy controls the

movement and the direction of credit

facilities in achieving economy growth and

stable interest rates in financial institutions

(Harcourt, & Kriesler, 2015, pp. 27-41).

POLICIES RECOMMENDATION AND EVALUATION

1) Monetary policy should be the lead tool to influence the rates of interest by central bank.

Fiscal policy has little effect on the rates of interest and therefore should be employed by

the government as the second resort from the monetary policy. The policy to be used

should be based on the impact which is expected after its employment especially on

Policy Briefing for Vietnam 11

whether the government aims at employment creation, price levels, and control

investments among others. The monitory policy has been effective in Finland (Chang, &

Velasco, 2017, pp. 154-191).

2) Population Control. Vietnam has a high population growth which need to be controlled.

Vietnam has a growth rate of 5.8%. For the reduction of unemployment, inequality, and

poverty, hence the Vietnam government need to control population growth rate in

controlling early marriages and birth control (Chen, & Summerfield, 2007, 63-92). For

instance, in India.

3) Increase the employment opportunities. The Vietnam government need to expand the

economy through investment by formulating policies to create more jobs. Job

opportunities will decrease the dependence ratio for the few working class in order to

improve living standards to reduce poverty. Vietnam need to develop the agricultural

sector to create indirect or direct job opportunities to its people. The government of

Vietnam should develop cottage industries in order to create jobs (Nord, et.al, 2015, pp.

241-245).

4) Equal Distribution of Income: The distribution and allocation of political resources need

to be based on marginalization in order to enhance equitable development. Even

redistribution of income reduces unemployment and poverty (Földvári, & van Leeuwen,

2011, pp. 537-554). For instance, in Singapore.

5) Provision of social Amenities. Vietnam government need increase budget allocation to

support expenditure on social good such as quality health care and education to its

people. This will enhance self-sufficiency in the society (Tadenuma, & Xu, 2017, pp.

221-237).

Policy Briefing for Vietnam 12

6) Develop Agriculture. The only main sector which provide a source of income and

employment either indirectly or directly. The Vietnam government need to develop the

agricultural sector by providing extension services, incentives, modern technology and

regulation framework to improve productivity (Koziarska, et.al, 2018, pp. 1-9). For

instance, in, China.

CONCLUSION

From the analysis, unemployment, poverty, and economic instability has many diverse effects on

the Vietnam’s economic development and growth. These problems pose a serious effect on

reducing disposable income for people in order to consume basic needs. The analysis affirms that

there will be an increase in unemployment and poverty levels in Vietnam if the Income per

Capita, Income distribution, and GDP growth will decrease. Vietnam has slow economic growth

which increases unemployment and poverty. The government of Vietnam need to increase the

expenditure on social goods for better social amenities, education, and health care to contribute

in reduction of unemployment and poverty levels (Rache, 1993, p. 1). Inequality, Poverty,

economy and financial institutions instability are serious challenges in Vietnam because impact

on human welfare in form of poor health, education and poor quality of life.

Policy Briefing for Vietnam 13

Bibliography

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Emerging Economies', IMF Economic Review, 65, 1, pp. 154-191.

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Policy Briefing for Vietnam 14

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Policy Briefing for Vietnam 15

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