The most recent estimates for 2010 indicate that Vietnam is no longer among the underdeveloped countries of the world and has moved onto the ranks of middle-income countries. Financial remittances – better known as money being sent back to the home country – have lent a critical hand in accomplishing this major triumph in the country’s formerly depressed economy.
The influx of money by overseas Vietnamese, many of whom fled as political refugees, has dramatically changed the economic landscape of the country in terms of poverty levels and development.
Development Since the War
The aftermath of the war had left Vietnam among the five poorest countries in the world with 75 percent of the population living in poverty in 1984. Since then, the poverty level had dramatically decreased to 37 percent in 1998 and later to 29 percent in 2002, according to the World Bank.
The CIA World Factbook more recently estimated Vietnam as having only 10.6 percent of the population living below the poverty line in 2010, a far cry from the 75 percent just 26 years earlier. In terms of economic output, a brief on Vietnam by the World Bank reported that the real GDP increased by 7.3 percent per year during 1995-2005 and per capita income by 6.2 percent per year.
Vietnam was expected to enter the ranks of other middle-income countries by reaching the $1,000 GDP per capita marker by 2010, which it did according to the International Monetary Fund (IMF). The IMF estimated Vietnam’s GDP per capita as $1,155 for the 2010 fiscal year. Since then, the country’s Ministry of Planning and Investment (MPI) has set a new target that nearly doubles Vietnam’s current GDP per capita over the next four years. An expected GDP per capita of $2,100 by 2015 will allow Vietnam to surpass India’s GDP per capita in the global economy and be among the ranks of the Philippines.
The target GDP per capita, however, is still well below its communist competitor, China, which now boasts an average GDP per capita of $4,520. Even though China presently holds the title as the “Red Dragon of the East,” Vietnam, with its enormous potential for economic growth, has recently been referred to as the “Rising Dragon” and the “New Asian Dragon” by various scholars.
The World Bank avowed, “Vietnam is one of the best performing economies in the world over the last decade.” It further stated, “Vietnam’s poverty reduction and economic growth achievement in the last 15 years are one of the most spectacular success stories in economic development.”
Remittances Over the Years
Financial remittances have had a notable influence on the improved economic conditions in Vietnam over the years. This has been especially evident since the U.S. rescinded the embargo against Vietnam in 1995, which allowed for greater opportunities to remit money through formalized channels.
In the years immediately following the Vietnam War, it was close to impossible for Vietnamese-Americans to send money directly to their home country. The majority of remittances that were successfully sent back to the home country were primarily conducted through informal money transfers.
The gradual increase in official remittances over the past few decades, however, has been attributed to a combination of key events, which include but are not limited to: the Vietnamese government launch of a renovation process (Doi Moi) in 1986, the U.S. lifting of the embargo against Vietnam in 1995, and Vietnam’s membership into the World Trade Organization in 2007.
In 2008, Vietnam emerged as the tenth leading recipient of migrant remittances among developing countries with $7.2 billion received during that year alone. The U.S. neighbor to the south, Mexico, with $26.3 billion, was third behind India and China.
Later in 2009, Vietnam’s financial remittances fell slightly to $6.8 billion despite predictions of a greater drop among all developing countries. The slight decline during the considerable global economic downturn illustrated the resilience of money being sent to Vietnam from abroad, particularly from troubled economies such as the United States, France and in Eastern Europe.
In addition, remittances appear again on an upswing. By the end of the 2010 fiscal year, Vietnam set a new total inward remittance record of more than $8 billion through official channels. This $8 billion represented about 8 percent of the overall GDP for the country that year.
The Role of remittances on development
Although there have been no notable studies that directly connect migrant remittances and development specifically in Vietnam, the effects of financial remittances on the Vietnamese economy are likely to be profound.
Existing studies on other countries in the world have already illustrated the significant relationship between migrant remittances and development in the home country in terms of balance of payments, saving and investment, structural changes in the economy, and other channels influencing development and growth. In recent decades, these links between mother country and expatriates have played a critical role in the rise of both China and India.
Such ties are particularly critical for developing countries which see remittances as a reliable long-term source of foreign capital. In 2000, the United Nations reported that financial remittances had increased the GDPs of El Salvador, Jamaica, Jordan, and Nicaragua by 10 percent. The World Bank in 2004 further revealed that financial remittances accounted for 31 percent, 25 percent, and 12 percent of the GDP in Tonga, Haiti, and Nicaragua, respectively.
More recent data from the Migration Policy Institute (MPI) in 2009 astonishingly showed that remittances constituted 49.6 percent, 37.7 percent, and 31.4 percent of the overall GDP for Tajikistan, Tonga, and Moldova, respectively. Although Vietnam’s inward formal remittances comprise less than 10 percent of the country’s overall GDP, it was still ranked 16th among the top 30 remittance receiving countries by the World Bank in 2010.
The existing potential of remittances on development has been notable in Vietnam and continues to grow exponentially – even despite the slowing of the economy in the rest of the world.
Whether or not these effects are positive or negative may be a matter of ideology and politics. The Vietnamese government clearly wants to maximize the benefits of remittances. But there is concern about such issues as “dollarization” of the economy and the role such transfer may play in worsening the growing inequality between the rich and poor widely decried in Vietnam. Yet overall remittances should be seen as a net positive, helping to spark entrepreneurial ventures critical to the country’s movement from a third world to a solidly second world status.
Jane Le Skaife is a doctoral candidate in the Department of Sociology at the University of California, Davis. She is currently conducting her dissertation research involving a cross-national comparison of Vietnamese refugees in France and the United States.
Photo by Yen H Nguyen