VIETNAM IN TRANSITION: PROSPECTS FOR AND IMPLICATIONS OF REFORM

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP92T00306R000200110007-3
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 21
• Document Creation Date: December 23, 2016
• Document Release Date: July 3, 2013
• Sequence Number: 7
• Publication Date: July 1, 1988
• Content Type: SNIE

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Intelligence
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Vietnam in Transition:
Prospects for and
Implications of Reform
Special National Intelligence Estimate
This Special National Intelligence Estimate represents
the views of the Director of Central Intelligence
with the advice and assistance of the
US Intelligence Community.
SNIE 14.3-88
July 1988
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Central
t 4 Intelligence
Ska.9
SNIE 14.3-88
Vietnam in Transition:
Prospects for and
Implications of Reform
Information available as of 28 July 1988 was used
in the preparation of this Special National Intelligence Estimate.
The following intelligence organizations participated
in the preparation of this Estimate:
The Central Intelligence Agency
The Defense Intelligence Agency
The National Security Agency
The Bureau of Intelligence and Research,
Department of State
The Office of Intelligence Support,
Department of the Treasury
also participating:
The Deputy Chief of Staff for Intelligence,
Department of the Army
The Director of Naval Intelligence,
Department of the Navy
The Assistant Chief of Staff, Intelligence,
Department of the Air Force
This Estimate was approved for publication by the
National Foreign Intelligence Board.
Secret
July 1988
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Key Judgments
We believe that Vietnam?at least for the next few years?intends to
concentrate on domestic reform and pursue a diplomacy that is generally
more conciliatory and principally focused on expanding and diversifying its
economic ties. While Hanoi is unlikely to foreswear military posturing
entirely, we believe Vietnam is moving toward a new security framework in
its own Indochina backyard that is much less dependent on military
domination.
The economy has been reduced to virtual paralysis, spawning widespread
deprivation and a deep-seated malaise that has infected all levels of the
society. General Secretary Nguyen Van Linh has instituted a broadbased
program of domestic reforms not unlike Gorbachev's perestroyka and
glasnost policies?so far to little effect. The overall situation has actually
deteriorated over the past two years.
We believe several factors militate against a rapid economic turnaround
for Vietnam:
? A weak economic infrastructure, including a limited capacity to absorb
foreign aid or investment.
? An inability, thus far, to implement effectively its reform initiatives.
? An inability to expand agricultural production much beyond present
levels.
Linh and other senior officials concede that reforms will not have any
discernible impact for at least four or five years. Although improvements in
some sectors are possible in the short term, we find Linh's prognosis to be
optimistic.
A far less likely prospect, in our view, is the early stabilization of the
current economic chaos, followed by a period of sustained growth fueled by
large infusions of international aid. While Japan, France, and others have
expressed interest in an international consortium, at least several years of
efforts focused on infrastructure development would be necessary to
stimulate real growth.
We also do not rule out the possibility of widespread popular agitation and
rioting should the living standards of most Vietnamese continue to decline.
While the security apparatus probably could contain such outbursts, the
unrest could engender a serious backlash by conservative leaders against
the reform program and its proponents.
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The new leadership increasingly has also come to view the conflict in
Cambodia as a costly and counterproductive venture that is militarily
unwinnable. Although Hanoi probably does not expect substantial savings
from a military pullback from Cambodia, particularly early on, it does
believe that the conflict in Cambodia distracts attention and resources
from urgent domestic problems, and blocks meaningful access to the
Western and Japanese aid, trade, investment, and technology it needs to
forge an economic recovery and development strategy.'
Despite the deep hostility in Vietnam's relationship with China, there
appears to be grounds for, and some signs of movement toward, an eventual
accommodation with Beijing. Hanoi's pledge to withdraw from Cambo-
dia?when met?will resolve a central point of contention with China.
Vietnamese officials seem resigned, nonetheless, to the probability that
Beijing will dictate a relatively slow pace toward full normalization.
However, disputes over the Spratly Islands could derail even these modest
efforts.
We see little reason to suspect that Soviet influence in Vietnam will decline
over the near term. Moscow will remain Hanoi's main aid donor, and we
have no evidence that the Soviets are prepared to take drastic steps, such as
cutting aid to force Vietnamese compliance on issues of Soviet concern.
Nevertheless, occasional tensions will arise, particularly over aid and Sino-
Soviet relations, and residual nervousness exists in Hanoi that Moscow
could sell Vietnam's interests short in favor of improved relations with
Beijing.
We judge that Vietnam's break with the past in its domestic and foreign
policies has important implications for the United States. If, as expected,
diplomatic momentum on Cambodia continues to gather, there will be
increasing pressure in the near term from the Association of Southeast
' INR basically agrees with the analysis of Vietnam's economic and domestic political
condition, but we believe that this Estimate overstates the linkage between Hanoi's
economic straits and flexibility in its Indochina policy. Vietnam's security policy never
envisioned indefinite military occupation of Cambodia and Laos, but rather, the emplace-
ment of pliant regimes in both these countries. Hanoi's recent willingness to revise its
approach to a Cambodian settlement, in our judgment, represents a tactical response,
rather than a major strategic shift, as implied in the main text. INR believes Hanoi's
leaders have decided to step up withdrawals and possibly facilitate the settlement
process?even at some risk?partly in response to domestic problems and Soviet urgings,
but also for what they judge are positive factors and opportunities: the balance of power in
Cambodia rests with Vietnam and the People's Republic of Kampuchea, Sihanouk is
clearly anxious to return to Phnom Penh, the non-Communist resistance is weak, and there
have been signs of softness in the consensus of the Association of Southeast Asian Nations.
We believe that Hanoi is very unlikely to accept a negotiated settlement in Cambodia that
seriously compromises its Phnom Penh clients or risks a major Khmer Rouge resurgence.
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Asian Nations and others for a more direct and prominent US involvement
in resolving the issue. Even Hanoi and Moscow have expressed support for
greater US participation in achieving and guaranteeing an accord. Given
the large number of competing interests, there are risks that the United
States may at times be pulled in opposing directions by friendly, as well as
by adversarial parties. The complex maneuvering of Cambodia's Prince
Sihanouk, in particular, appears to hold such potential, as does the
resolution of the Khmer Rouge role in a settlement.
Vietnam is also likely to press for rapid normalization of relations with the
United States after Vietnamese troops are withdrawn from Cambodia.
Although Hanoi views improving relations as an important component of
its overall strategy for emerging from its isolation, it probably holds out
little hope for major US Government aid. Hanoi will, however, attempt to
exploit any diplomatic headway on Cambodia to pressure Washington to
drop its opposition to international aid, trade, and investment.
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Contents
Page
Key Judgments
III
Discussion
1
Prospects for Reform
1
The Economy: An Empty Basketcase
1
The Economic Restructuring Program
3
Glasnost Vietnamese Style: An Impossible Dream?
4
Reform: Much Talk, Little Movement
4
How Will Hanoi Fare?
5
The Implications of Reform
6
Declare Victory in Cambodia and Come Home
6
Indochina: Toward a New Framework
6
China: No Way To Go But Up
7
The Soviet Union: Prodding for Change
8
Hanoi: Can It Break Out of Its Economic Isolation?
9
Implications for the United States
9
Annex: Vietnamese Economic Reform: Just
What the Doctor Ordered?
11
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Vietnam and Its ASEAN Neighbors
ingapore
O-aingapore
iidone
Malaysia Association of Southeast Asian Nations (ASEAN)
Boundary representation is
not necessarily authoritative.
714062 (A05455) 7-88
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Discussion
Prospects for Reform
The Economy: An Empty Basketcase
Vietnam is facing a systemic crisis similar to that in
many Communist countries. Factors of its own mak-
ing?bureaucratic and ideological rigidity, misguided
policies, and leadership shortcomings, as well as de-
cades of war and periodic natural disasters?have
reduced the economy to virtual paralysis. This in turn
has spawned a deep-seated malaise that has infected
all levels of the society (see inset)
Vietnam is one of the world's poorest nations:
? It has a per capita income of less than $200 per
year.
? It has had greater than a 1,000-percent rate of
inflation at several points over the past three years.
? Over 1 million people enter the work force annually,
with less than half finding full-time jobs.
? Malnutrition is common in the northern and central
provinces.
The agricultural sector, the economy's success story in
the early 1980s, has recently fallen on hard times.
Productivity is held down by shortages of insecticides,
fertilizers, and farm machinery. The government also
faces difficulties in the collection and distribution of
farm products. Grain production?which rose from
12 million to 18 million tons between 1979 and
1985?has leveled off, and insect damage in 1987
caused production to fall short of target for the third
straight year. Hanoi pointed to a decline in per capita
grain production as one of the key failures of the
economy in 1987. This trend is especially worrisome
to the leadership, because the population?currently
about 65 million?is expanding 2.5 percent per year,
and may approach 90 million by the year 2000
Hanoi's statistics acknowledge that growth in indus-
trial output has also slipped in recent years. Industries
are operating at about 50 percent of capacity and
suffer from shortages of raw materials, spare parts,
1
Vietnam's Desperate Condition:
Assessing Blame
Nguyen Van Linh's indictment of Vietnam's
economy strikes particularly hard at his pre-
decessors' failed policies and highlights the
psychological factors created by the party's
paternalistic approach over the years. The so-
called "subjective factors" he cites as most
critical to Vietnam's plight are:
? Misplaced emphasis on development of heavy
industry in the late 1970s.
? Inefficient circulation and distribution of raw
materials and goods.
? Mistakes in implementing price, wage, and
monetary reforms in late 1985.
? A bloated and inefficient government
bureaucracy.
? Widespread corruption and criminal behavior.
In addition to problems of its own making, a
number of external "objective factors" have
compounded Vietnam's difficulties:
? Four decades of war.
? Chinese hostility.
? Economic isolation from much of the world.
? A backward and small economy that limits
the base for expansion.
? An overly rapid population growth in relation
to economic development.
and fuels. Transportation bottlenecks, inappropriate
pricing policies, and a lack of managerial skills also
hamper production
Vietnam does not have the domestic capital, the
foreign exchange, or the creditworthiness to make
needed investment in agriculture and to import
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Vietnam: Selected Economic Indicators
Note scale change
Real GDP Growth Rates, 1980-86
Percent
10
Per Capita Grain Output, 1980-86
Kilograms
325
1980 81 82 83 84
85
86
250
1980 81
82 83 84 85 86
Selected Countries: Per Capita Income. 1986 Selected Countries: Average Annual
Population Growth, 1981-86
Thousand US $ Percent
7
3.0
6
2.5
5
2.0
4
1.5
3
1.0
2
0.5
1
0 Vietnam Thailand Malaysia Singapore 0 Vietnam Thailand Malaysia Singapore
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equipment and spare parts to upgrade the country's
antiquated factories. Hard currency reserves stand at
only about $10 million, or about three days' worth of
imports. Moreover, with exports largely limited to
agricultural products and handicraft items, Vietnam's
ability to generate foreign exchange is poor. Prospects
for acquiring hard currency from exports is limited by
obligations to the Soviet Union?roughly 70 percent
of Vietnamese exports is used for debt servicing.'
The Economic Restructuring Program
General Secretary Nguyen Van Linh has conducted
an incessant and highly personalized "jawboning"
campaign stressing the urgency of a thorough "reno-
vation" in Vietnamese behavior and thinking?partic-
ularly in economic matters. Beginning with the Sixth
Party Congress in December 1986, he has attempted
to address many of the problems afflicting Vietnam's
economy and prescribed remedies that mark major
departures from earlier policies (see annex, "Vietnam-
ese Economic Reform: Just What the Doctor Order-
ed?"). The political report of the Congress under-
scored the primacy of economic imperatives in
Vietnam's national priorities and stressed that?con-
trary to past leadership concerns for "balance"?
existing conditions called for effective economic mea-
sures even at the expense of ideological orthodoxy.
Major economic themes addressed by the Congress
included:
? Private trade. Some controls on private commerce
would be loosened. At the same time, state enter-
prises would be pressed to outperform the private
sector.
? Socialization of southern Vietnam. Socialization
would be pushed only when it could be expected to
lead to increased production.
? Accumulation of wealth. Private citizens would
have the right to become wealthy as long as they
rendered useful and legal services and fulfilled their
obligations. Small private enterprises were
encouraged.
'The Soviet Union provided Vietnam approximately $1.9 billion in
economic aid last year?an amount 'second only to its aid to Cuba.
For the last five years, Vietnam has been the largest recipient of
Soviet military aid in the Third World, receiving about $1.8 billion
in 1987
3
Nguyen Van Linh
? Open door policy. Foreign investment would be
encouraged, with particular attention paid to at-
tracting investment in high-technology areas.
? Economic development priorities. Production of
food, consumer goods, and exports was assigned top
priority
The overhaul that Linh envisions calls for decentraliz-
ing Vietnam's system of economic decision making.
This depends on removing the party and government
as much as possible from their present micromanage-
ment of economic affairs and on allowing this respon-
sibility to devolve to local and enterprise levels. Phas-
ing out large-scale subsidies and basing economic
decisions on market forces are also required. (s NF)
By all accounts?Vietnamese included?the reform
program has had little practical impact thus far. In a
review of the first year of his reform program at a
plenum of the Central Committee in December 1987,
Linh acknowledged the general failure of reforms to
that point, admitting that life for the average Viet-
namese remained fraught with difficulties and
instability:
? Productivity, quality control, and efficiency
remained low.
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? Income was distributed in irrational and inequitable
ways.
? Little capital accumulation was occurring.
? Business generally operated at a loss.
? Huge government deficits persisted.
? Many artificial and harmful controls on commerce
remained in place.
Linh also pointed to the slowness by state and local
enterprises to adapt to accounting based on business
principles, and their continuing heavy reliance on
central direction and state subsidies
Glasnost Vietnamese Style: An Impossible Dream?
Along with his economic restructuring program, Linh
wants to streamline the party and government work-
force. He eventually plans to trim the bloated and
stagnant government bureaucracy by up to 25 per-
cent. A countrywide campaign has been launched to
improve the quality of party cadres and to purge
corrupt, insensitive, and inflexible members
Linh has moved to stem the general social malaise
that has been induced by Vietnam's prolonged eco-
nomic siege by encouraging greater openness and
communication among the party, government, and the
populace. His own version of glasnost has featured a
vigorous attack on inefficient and corrupt party and
government cadres. Throughout most of 1987, Linh
penned a series of articles entitled "Things That Must
be Done Immediately" that exposed a variety of
corrupt officials and practices, and demanded early
and decisive corrective measures.
Linh has also introduced greater "democracy" into
Vietnam's polity, encouraging popular debate on
major domestic issues (sensitive foreign policy issues
like Cambodia, however, remain above popular de-
bate) and calling on the press in particular to be more
assertive in molding and reflecting public opinion.
These limited democratic impulses were also mani-
fested in the April 1987 National Assembly elections,
which featured multiple candidacies for many of the
seats at stake
It is in the area of atmospherics that reforms have had
the most visible and practical impact. Foreign visitors
report considerably more openness in the society as a
result of the easing or removal of various government
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restrictions on everyday activities, especially those
connected to commerce. Similar openness is apparent
in the greatly increased accessibility to foreign visitors
of senior Vietnamese officials anxious to cultivate a
more attractive international image
Reform: Much Talk, Little Movement
Despite the uncertainties and long leadtime involved
in reform efforts, Linh contends that past policy
failures and the rapid pace of world technological
advances leave Vietnam no alternative but to pursue
bold new initiatives. Under the rubric of "renova-
tion," Linh has been attempting to halt the disastrous
slide in Vietnam's economy and to achieve a measure
of stability over the next few years that, he hopes, can
serve as a base for subsequent recovery and develop-
ment.
On the issue of reform, all top leaders pay lipservice,
but with varying degrees of enthusiasm. The recently
elected Premier, Do Muoi, for example, promotes
reform but tempers his support by emphasizing the
need for order and stability in the process. Defense
Minister Le Duc Anh, meanwhile, emphasizes that
the reform process must take account of the unique
needs of the military. Of the three old guard leaders
who stepped down at the Sixth Party Congress, only
Le Duc Tho appears to have any continuing impact,
although the extent of his influence is not clear. Tho
accords great importance to ideological purity, and
clearly is not an enthusiastic backer of sweeping
reform
The most active proponents of reform, along with
Nguyen Van Linh, are President Vo Chi Cong, Vice
Premier Vo Van Kiet, and Foreign Minister Nguyen
Co Thach. The present lapse in reform momentum
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stems not only from the outright opposition that Linh
acknowledges persists at various levels, but also from
confusion and wrangling over what the next steps
should be. Linh has stated that Vietnam must feel its
way on various measures, discarding those that do not
work
Linh's real challenge is to mobilize a skeptical and
often recalcitrant bureaucracy and populace to accept
and implement sweeping changes. Many bureaucrats
and party cadres not only are inherently conservative,
but also stand to lose valued influence and monetary
benefits under genuine reform programs. Linh also
faces formidable obstacles in trying to ignite support
for his programs among a generally cynical and
dispirited populace that has seen numerous past prom-
ises of a better day go unfulfilled. In the absence of
early and visible benefits accruing from reform?
which Linh himself acknowledges are not likely?
popular support, at best, will remain lukewarm and
could erode.
This inertia and opposition is compounded by the
shortage of trained and skilled technocrats available
to implement the complex renovation program Linh is
pushing. Moreover, Vietnam's archaic economic
infrastructure frustrates truly innovative reforms.
Transportation facilities are in deplorable condition,
domestic and international telecommunications are
outmoded, and the banking system is incapable of
handling the growing demands for investment and
cash flow.
How Will Hanoi Fare?
More of the Same. Various foreign observers have
noted that although the Vietnamese leadership speaks
the language of perestroika and glasnost, it is not
moving to implement reforms; Vietnamese economists
question whether the leadership is willing to take the
necessary steps to solve the country's problems. Linh
and other senior officials concede that reforms will
not have any discernible impact for at least four or
five years. Although improvements in some sectors
are possible in the short term, we find Linh's progno-
sis to be optimistic. Vietnam's limited capacity to
absorb foreign aid or investment, its inability thus far
to effectively implement its reform initiatives, its
inability to expand agricultural productivity
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appreciably, and its weak economic infrastructure all-
militate against a rapid turnaround. Instead, it argues
for more of the same (see inset).
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If Linh's Reforms Are Derailed. While the forces for
fundamental change in Vietnam's domestic and for- 25X1
eign policy orientation are powerful, there are coun-
tervailing influences that could disrupt or derail the
process. On the domestic side, Nguyen Van Linh's
tenure could be abbreviated by natural (he is 72 years
old) or political factors. He has openly acknowledged
that differences exist among the leadership on certain
parts of his reform package, and failure to demon-
strate improvements could undermine his personal
standing and slow or stall the reform effort. Linh's
position could also be undermined by social unrest.
Linh's credibility, as well as that of his reform
program, also rests in part on the legitimacy
Gorbachev bestows. If the Soviet leader is discredited,
Vietnam's reform impetus would sustain a serious,
though not fatal setback. We believe that, in light of 25X1
the demonstrable failure of more orthodox Marxist
economics, any near term shifts in economic policy
will be within the broad context of reform rather than
involving open repudiation of it 25X1
A Brighter Future. A far less likely prospect, in our
view, is for an early stabilization of the current
economic chaos, followed by a period of sustained
growth fueled by large infusions of international aid.
While Japan, France, and others have expressed
interest in an international consortium to restore and
develop the economies of Vietnam, Laos, and Cambo-
dia, at least several years of efforts focused on
infrastructure development would be necessary to
stimulate real growth
Alternatively, A Worse Case. We do not rule out the
possibility of widespread popular agitation and rioting
should the living standards of most Vietnamese con-
tinue to decline. Popular opinion toward the party and
government is at an alltime low, and the Vietnamese
press has reported serious increases in social disorder,
especially in Ho Chi Minh City. Government initia-
tives perceived by the populace as unwarranted or
heavyhanded could spark serious confrontations.
While the security apparatus could probably contain
such outbursts, they could engender a serious back-
lash against reform.
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What's Wrong? A Firsthand View
Among the
group's key observations were:
? The growth rate of the economy is stagnant
or, at best, only slightly upward, but is proba-
bly declining on a per capita basis.
? Agricultural production is failing to keep pace
with population growth and is nearing the
limits of what can be achieved under existing
land use programs. Capital-intensive irriga-
tion is needed to increase production beyond
current levels.
? Vietnamese economists seem unrealistic and
incapable of dealing with problems, and the
statistical base for planning is woefully
inadequate.
? Reforms are basically passive?a series of
deregulation programs?and even those are
widely sabotaged by self-interested
bureaucrats.
? Corruption is pervasive. While it is required
in order to accomplish anything under exist-
ing circumstances, it constitutes an inherent
obstacle to reform.
? Decentralization essentially has replaced a set
of central regulations with multiple sets of
local ones, creating confusion and inaction.
reforms to that
point?even if successfully implemented?
would allow the economy to rise only modestly.
Programs to stimulate economic activity
through investment, technology, trade, and in-
centives represent the real challenge, but appear
years off
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The Implications of Reform
Declare Victory in Cambodia and Come Home
We believe General Secretary Linh recognizes that,
without retrenchment from the overextended and
confrontational foreign policy of the past decade,
political and economic reform cannot succeed. The
new leadership increasingly has come to view the
conflict in Cambodia as a costly and counterproduc-
tive venture that is militarily unwinnable. Although
-Hanoi probably does not expect substantial savings
from a military pullout from Cambodia, particularly
early on, it does believe that the conflict in Cambodia
distracts attention and resources from urgent domes-
tic problems, and blocks meaningful access to the
Western and Japanese aid, trade, investment, and
technology it needs to forge an economic recovery and
development strategy. Under Linh, Hanoi's previous
obsession with military strength and control of an
Indochina bloc has been subsumed into a broadened
national security calculus predicated more heavily on
international cooperation and requiring a deemphasis
of military means.
While it is still too early to conclude that such
changes are permanent, we believe that, at least for
the next few years, Vietnam intends to pursue a
generally more conciliatory diplomacy, principally
focused on expanding and diversifying its economic
ties. Although Hanoi is not likely to entirely foreswear
military posturing, we believe that it will sharply
retrench on the use or threat of military force.
Indochina: Toward a New Framework
In its own Indochina backyard, Hanoi is moving
toward a new security framework that is much less
dependent on military domination. While the basic
concept of Indochina "solidarity" that rests on the
existence of cooperative regimes in Cambodia and
Laos as buffers remains unchanged, Hanoi is moving
toward a more restrained?and probably riskier?
application of that concept as it aspires to a post-1990
era of regional stability and economic development
(see inset on page 7)
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1990: Transition to a New Era?
Vietnamese Communists have long valued the
symbolism of dates in setting national goals. In
this regard, the year 1990 shapes up as a
crucial one in the new leadership's ambitious
program to enter a new era of stability and
economic growth. A Politburo resolution issued
in January 1988 ordered that preparations be-
gin for commemorating several significant anni-
versaries in 1990:
? The 60th anniversary of the Indochinese
Communist Party.
? The 100th anniversary of Ho Chi Minh's
birthdate.
? The 45th National Day of Vietnam.
? The 15th anniversary of "total victory" over
the United States.
? The 120th anniversary of Lenin's birth.
Hanoi will not intentionally leave itself dangerously
exposed as it retrenches from its forward posture in
Indochina. At a minimum, it will expect both
Vientiane and Phnom Penh to refrain from actions or
policies that are inimical to Vietnam's security. Once
Vietnam has withdrawn most or all of its troops from
Cambodia and Laos, the potential for subsequent
reintervention on a large scale, in our view, will be
7
quite low. Hanoi's overriding concerns will lie in
enhancing its international standing and moving to-
ward rapprochement with China. However, Hanoi
would react quickly and firmly?but probably still
short of large-scale military intervention?if it per-
ceived that China were using the Laotian and Cambo-
dian regimes to undermine Vietnam's interests.
Beyond these concerns Hanoi will rely principally on
more subtle political and economic means to maintain
its equities in Indochina, building, for example, on the
multiplicity of trilateral and interprovincial relation-
ships that have been developed among the three
countries in recent years
China: No Way To Go But Up
Although Cambodia is Vietnam's most immediate
and pressing foreign policy issue, historical antagonist
China stands as the most imposing long-term reality
with which it must cope. Since 1975, Beijing has
sought to prevent Vietnam from becoming a rival
power center in Southeast Asia by obstructing
Hanoi's efforts to develop a cohesive Indochina secur-
ity bloc. China has employed a three-part strategy
against Vietnam, consisting of political and economic
isolation; direct, but generally small-scale military
pressure that, since 1984, has focused on a small and
remote Vietnamese border salient; and political and
military support to the Cambodian resistance.
Though undertaken primarily because of economic
imperatives, Hanoi's pledge to withdraw from
Cambodia?when met?will resolve a central point of
contention with China. Hanoi has already achieved
some headway in mending fences with China by
encouraging Laos to normalize its relations with
Beijing, a process that produced agreement to restore
ambassadorial-level ties. Moreover, Hanoi's with-
drawal of more than half its troops from Laos since
late 1987 was intended in part to demonstrate to
Beijing that Vietnam is serious about military re-
trenchment in Indochina and reducing tensions with
China.
While the terms of a Cambodian settlement are, on
balance, likely to favor Vietnam more than China,
Beijing's objective of denying Hanoi consolidated
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VGUI
control over Indochina has already been largely
achieved. We believe Beijing can tolerate a residual
Vietnamese influence in Cambodia and Laos as long
as Hanoi is discreet and refrains from efforts to parlay
such influence into a regional bloc.
Despite its relatively limited leverage over the ulti-
mate form of a Cambodia settlement, China holds the
trump cards concerning the stable security environ-
ment that Hanoi seeks in order to refocus its main
energies on economic development. Hanoi recognizes
that it will have to pursue the initiative in restoring
some measure of mutual trust in the battered relation-
ship, with a Cambodia settlement removing the most
important?but by no means only?impediment.
Despite the deep hostility in the relationship, there
appears to be grounds for, and some signs of move-
ment toward, an eventual accommodation. Vietnam-
ese officials seem resigned, nonetheless, to the proba-
bility that Beijing will dictate a relatively slow pace
toward full normalization
Beijing's pronounced new assertiveness toward the
Spratly Islands underscores its intention to keep
Hanoi on the defensive even as the latter assumes a
less confrontational strategy in regional affairs. Apart
from its immediate interest in enforcing and consoli-
dating its own claims to the islands, China's height-
ened posture serves to sustain pressure on Hanoi to
acknowledge that China is not merely an outside
intruder, but an integral player in Southeast Asian
affairs. The forceful stand in the Spratlys also com-
pensates, in part, for the prospective loss of leverage
over Vietnam that China faces in the event of a
Cambodia settlement. We doubt, however, that
Beijing will attempt to comingle the Spratlys dispute
directly with the Cambodia issue because of the
sensitivities of the Association of Southeast Asian
Nations (ASEAN) countries that also have claims in
the islands. Nor does the Spratlys issue appear likely
to figure prominently in the Sino-Soviet calculus.
Moscow, to Hanoi's apparent chagrin and annoyance,
has avoided any reaction that would prompt Beijing to
turn the issue into a fourth "obstacle" to normaliza-
tion by refraining from condemning China's actions
there.
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The Soviet Union: Prodding for Change
Soviet-Vietnamese relations are likely to remain solid
over the next several years. Hanoi frequently under-
scores the continuing centrality of the Soviet role in
Vietnam's internal and foreign policy development
and orientation. There is little reason to suspect that
Soviet influence, or the Soviet military presence at
Cam Ranh, will decline over the near term. Neverthe-
less, occasional tensions will arise, particularly over
aid and Sino-Soviet relations.
Although the Soviets show no signs of backing away
from their role as Hanoi's principal aid donor,
Moscow has sent strong signals to Hanoi on the
necessity for domestic reform and the efficient use of
Soviet economic and military aid. The Soviets have
informed Hanoi that they do not want Vietnam to be
a long-term drain on Soviet resources, and reportedly
are claiming a higher percentage of Vietnamese ex-
ports?they already take 70 percent?in repayment
for aid. They also apparently have responded slowly
and reluctantly to recent Vietnamese requests for food
aid, blaming the shortages on a poor internal distribu-
tion system.
The Soviets also have encouraged Hanoi to seek
political solutions to regional conflicts. Gorbachev has
stressed to the Vietnamese his interest in resolving the
Cambodian conflict, both to improve relations with
China and to reduce the cost of Soviet military
assistance to Vietnam. Similarly, Moscow urged Viet-
namese restraint during clashes in the Spratlys this
spring. We have no evidence that the Soviets have
taken drastic steps, such as reducing aid, to try to
force Hanoi to seek a settlement in Cambodia, and
Moscow is likely to let the Vietnamese set the pace of
the search for a solution, at least until 1990. Never-
theless, residual nervousness exists in Hanoi that
Moscow could sell Hanoi's interests short in favor of
improved Sino-Soviet relations.
A Cambodian settlement would reap positive benefits
not only for Hanoi, but for Moscow as well. Gorba-
chev will try to capitalize on a settlement to advance
the prospects for normalizing relations with China
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and to increase Soviet entree into a more productive
web of relations?especially economic?with the
ASEAN countries. Regional perceptions of a less
threatening Soviet Union could also alter attitudes
toward Great Power involvement in the region on
such issues as the Philippine bases and nuclear free
zones in ways unfavorable to the United States.
Hanoi: Can It Break Out of Its Economic Isolation?
Hanoi has made headway over the past year or two in
eroding what was once a fairly solid international
consensus on restricting economic contacts with
Vietnam until it withdrew its forces from Cambodia.
Complementing its efforts to improve the diplomatic
environment surrounding Cambodia has been a vigor-
ous campaign to portray to prospective international
clients opportunities for ground floor entry into prom-
ising new markets in Vietnam
Hanoi has entertained a steady stream of prospective
business clients from Japan, South Korea, and West-
ern Europe, and dispatched one of its top techno-
crats?Harvard-educated economist Nguyen Xuan
Oanh, a former South Vietnamese official known to
Americans as "Jack Owen"?on a tour of ASEAN
and Japan in late 1987 to stimulate business interest
in Vietnam. The National Assembly, following
lengthy delays, passed a new foreign investment code
in December that is amon? the most liberal for a
Communist country.
The most telling effect of these initiatives has been on
ASEAN, which has spearheaded the economic re-
strictions on Vietnam since 1979. In the year since
ASEAN lodged a demarche in Tokyo protesting the
rapid growth in Japanese trade with Vietnam, busi-
ness interests in ASEAN itself have succumbed in-
creasingly to a "herd mentality" out of concern for
keeping pace with competitors in staking out opportu-
nities in Vietnam: Indonesia, for example, has in-
creased both government and private economic con-
tacts in recent months.
Hanoi appears intent on improving its political and
economic relations with ASEAN and its individual
members. While occasional Vietnamese talk of join-
ing ASEAN is unlikely to materialize, we believe
Hanoi sees major potential in trade with its members.
9
Thailand stands to benefit most from a withdrawal
from Cambodia and any diminution of the Vietnam-
ese military threat. While the Thai will remain suspi-
cious of Hanoi, especially regarding potential Viet-
namese support for internal subversion in Thailand,
Bangkok probably could move relatively fast in devel-
oping closer relations. Thailand's present close rela-
tions with China would complicate, but not block,
parallel pursuit of improved ties to Hanoi.
Indonesia and Malaysia would also welcome the
emergence of a less menacing Vietnam. Both see
utility in a stable and inwardly focused Vietnam as a
counterweight to the more fundamental threat they
believe China poses. We estimate both countries
would move quickly to strengthen political and eco-
nomic ties to Hanoi following a Cambodian accord.
Ironically, while ASEAN could claim high marks for
sustaining a policy that contributed heavily to a
Vietnamese turnabout, the very resolution of the
Cambodia issue could deprive the group of one of its
most compelling unifying influences. On the other
hand, the benefits inherent in more conciliatory and
cooperative Vietnamese behavior would probably be
viewed by most of its members as a more than
adequate tradeoff.
Implications for the United States
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We judge that a continuing evolution in Vietnam's
strategic outlook along present lines has important
implications across a broad spectrum for US policy in
the next few years. The most immediate question it
raises is the nature and extent of a US role in a
Cambodian settlement and its aftermath. ASEAN
and others are increasing pressure for more direct and
prominent US involvement in resolving the issue.
Even Hanoi and Moscow have expressed support for
greater US participation in achieving and guarantee- 25X1
ing an accord. These pressures will grow if, as expect-
ed, diplomatic momentum continues to gather in the
near term. Given the large number of competing
interests involved in the equation, there are risks that
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the United States may at times be pulled in opposing
directions by friendly as well as adversarial parties.
Sihanouk's complex maneuvering, in particular,
appears to hold such potential, as does the resolution
of the Khmer Rouge role in a settlement.
Vietnam is likely to press for rapid normalization of
relations with Washington after Vietnamese troops
are withdrawn from Cambodia. Hanoi views improv-
ing relations as an important component of its overall
strategy for emerging from its isolation. Hanoi is
already moving on several fronts to improve Washing-
ton-Hanoi relations. Progress has been made on
arranging emigration to the United States under the
Orderly Departure Program and on the early move-
ment of Amerasian children. In addition, Hanoi early
this year announced the release of all but a few of the
senior military and civilian officials of the former
South Vietnamese Government held in reeducation
camps, and recently agreed on a program that would
allow them to emigrate to the United States.
On the most crucial issue?resolving the status of
missing US servicemen?the pace of recovery efforts
has also begun to pick up following the visit in August
1987 of a US delegation headed by presidential
emissary Gen. John Vessey, Jr. Contradictory
impulses in Vietnam's policy community and efforts
to manipulate American opinion on the POW-MIA
issue, however, are likely to make for uneven progress.
Moreover, in the final analysis?because of such
factors as the circumstances of loss and the passage of
time?many missing US personnel will never be
accounted for, regardless of the level of cooperation
by the Indochinese governments
This could sour improving rela-
tions and impede progress toward normalization.
In any event, Hanoi probably holds out little hope for
major US Government aid that would complement
the nongovernment humanitarian assistance already
provided. But, we anticipate Hanoi will attempt to
exploit any diplomatic headway on Cambodia to
Secret
pressure Washington to drop its opposition to interna-
tional aid, trade, and investment. Hanoi is also anx-
ious to add the participation of technologically superi-
or US companies?and, where possible, the
technology itself?in stimulating Vietnam's economic
development. Particularly promising, in Hanoi's eyes,
are potential involvement by US firms in Vietnam's
nascent oil exploration program, and investment in
Vietnam by the large overseas Vietnamese commun-
ity
Hanoi will try to gain US cooperation in constraining
Chinese hostility toward Vietnam, especially with
regard to Cambodia issues. Hanoi's foreign policy
orientation will remain heavily influenced by the
Soviets, but increasingly flexible as it cultivates
broadened international contacts. We can expect
Hanoi to lend strong support to the ASEAN-proposed
and Soviet-backed Southeast Asia Nuclear Weapons
Free Zone
A Cambodian accord would also change the complex-
ion of the Indochina refugee problem in important
ways and alleviate a major source of pressure on
Bangkok and US-Thai relations?it probably would
allow substantial numbers of the more than 250,000
Khmer refugees in Thailand to return to Cambodia.
A general lowering of Thai-Vietnamese tensions
might also facilitate the return of significant numbers
of Laotian refugees from Thailand as well. The
exodus of Vietnamese refugees by boat is a more
complex problem, the resolution of which depends in
part on improvements in economic conditions in
Vietnam, which are unlikely in the near term. Never-
theless, a Cambodian settlement would remove a
major barrier to more systematic efforts to address
the refugee problem in all its dimensions.
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I.
Annex
Vietnamese Economic Reform: Just
What the Doctor Ordered?
Plenums of the Central Committee were convened in
April and August 1987 to flesh out and add impetus
to the reforms validated by the Sixth Congress. The
Second Plenum in April focused on "circulation and
distribution," addressing the chronic imbalances
among prices, money supply, and wages, and on the
restrictions on movement of goods and supplies
throughout the economy. Linh cited this problem as
the focal point of the country's economic difficulties,
describing its resolution as the "socioeconomic and
psychological precondition" for real reform. Specific
issues addressed included:
? Tax relief, setting of realistic prices for state-
supplied materials, and guaranteed profits for
farmers.
? State-run enterprises would gain a more rational
pricing system for raw materials, salary increases
for workers, and new authority to raise capital from
private sources.
? Discrimination against private traders would end,
and they would receive price and tax incentives for
investing in "priority areas."
? The state bureaucracy would be "drastically
streamlined" and state workers would receive only
gradual, rather than immediate, salary increases
due to budgetary constraints.
? A government decree abolishing checkpoints other
than those necessary to maintain security was
strongly endorsed.
? Restrictions on investments and contributions by
overseas Vietnamese were eased
The Third Plenum, held in August 1987, called for
reducing the government's role in economic manage-
ment and for greater autonomy for state-run enter-
prises, which in turn were called on to shift to
"socialist business and accounting" based on market
forces by 1990
The government would be streamlined and reorga-
nized in accordance with a new charter that confined
its role to formulating development strategies, manag-
ing long-term projects, developing annual and
11
long-term plans, budget planning, and creating favor-
able conditions for economic development in general.
A government decree issued in November 1987,
known as Decision 217, outlined the expanded autono-
my?and corresponding responsibility for profits and
losses?for state-run enterprises. The decree:
? Mandates supply and distribution of goods through
contractual arrangements instead of by state fiat.
? Authorizes sales of shares in order to acquire
capital.
? Reduces the number of goods with state-set prices.
? Sets minimum wages for workers, but no limits on
individual income.
? Eliminates state-guaranteed permanent
employment.
? Enlarges authority for local enterprises to engage in
direct dealings with foreign countries, and allows
them to retain most of the profits on exports in
excess of those mandated by the state plan. (c NF)
The Politiburo issued a resolution in April 1988
addressing the country's critical agricultural situa-
tion. The resolution called for a reorganization of the
agricultural sector focused on greater specialization,
improved use of technology, and increased integration
of agriculture with other key economic sectors such as
transportation and communications. Along with ef-
forts to intensify rice production, development of
secondary crops is planned in order to achieve a rapid
boost in overall food production. Greater investment
in irrigation projects and in research is planned, and
an agricultural bank is to be established to assist
farmers. Industrial production of farm equipment and
implements is to be increased, minimizing reliance on
imported equipment
The resolution also encouraged farmers to improve
their land by allowing them to retain agricultural
plots for up to 15 years (the previous limit was five
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years). Family enterprises are to be expanded and
private farmers are granted additional legal protec-
tion. Peasants are allowed to leave state-run coopera-
tives?the cornerstone of Vietnam's agricultural sys-
tem for over 30 years?to engage in private farming.
Finally, large cooperatives, as well as individual fam-
ilies, are permitted to sell excess production on the
open market at negotiated rates
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