The new politics of debt in the transition economy of Vietnam
Keywords:Consumerism, Corporate Debt, Culture of Indebtedness, Emerging Market, Household Debt, Vietnam
This study reviews the rising household debt and nonfinancial corporation debt in Vietnam, a socialist-oriented, lower middle-income emerging economy. Vietnam has made huge strides in economic growth within three decades of reforms, lifting millions of people out of poverty thanks to better access to credit. At the same time, there are lending and borrowing practices that signal troubles ahead. Based on a thorough examination of the theoretical literature on indebtedness, the study sets out to identify the drivers of borrowing and over-borrowing in Vietnam in recent years. Particularly, the abundant financial and physical resources have given rise to consumerism and the boom of the super-rich. These are two of the four factors that have shifted Vietnamese culture from one that traditionally condemned debt as a vice to one that now tolerates indebtedness. The other two factors can be found at the corporate level where there is an over-reliance on debt financing and rampant rent-seeking. Here, a kind of ‘resource curse’ threatens sustainable corporate growth – businesses rely too much on borrowing to fuel their operations, but in fact are overlooking the innovation factor. The new politics of debt, we suggest, have created a toxically pro-consumption, debt-tolerant society.
Alter, A., Feng, A. X., & Valckx, N. (2018). Understanding the macro-financial effects of household debt: A global perspective. IMF Working Paper WP/18/76, Monetary and Capital Markets Department International Monetary Fund. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2018/04/06/Under¬standing-the-Macro-Financial-Effects-of-Household-Debt-A-Global-Perspective-45744
Ando, A., & Modigliani, F. (1963). The “life cycle” hypothesis of saving: Aggregate implications and tests. The American Economic Review, 53(1), 55-84.
Barbier, E. B., López, R. E., & Hochard, J. P. (2016). Debt, poverty and resource management in a rural smallholder economy. Environmental and Resource Economics, 63(2), 411-427.
Barslund, M., & Tarp, F. (2008). Formal and informal rural credit in four provinces of Vietnam. The Journal of Development Studies, 44(4), 485-503.
Beeson, M., & Pham, H. H. (2012). Developmentalism with Vietnamese characteristics: The persistence of state-led development in East Asia. Journal of Contemporary Asia, 42(4), 539-559.
Breu, M., Salsberg, B. S., & Tu, H. T. (2010). Growing up fast: Vietnam discovers the consumer society. Retrieved from http://www.usvtc.org/info/wb/Mckinsey%20Vietnam%20August%202010.pdf
Cameron, J. M. (2018, February 24). Real estate lending risks.Vietnam Investment Review. Retrieved from http://www.vir.com.vn/real-estate-lending-risks-56466.html
Chen, G., Rasmussen, S., & Reille, X. (2010). Growth and vulnerabilities in microfinance. Focus Note No. 61. Washington, DC: CGAP. Retrieved from https://www.cgap.org/sites/default/files/ CGAP-Focus-Note-Growth-and-Vulnerabilities-in-Microfinance-Feb-2010.pdf
Chen, K. C., & Chivakul, M. (2008). What drives household borrowing and credit constraints? Evidence from Bosnia and Herzegovina. IMF Working Paper 08/202. Retrieved from https://www.imf.org/external/ pubs/ft/wp/2008/wp08202.pdf
Chichaibelu, B. B., & Waibel, H. (2017). Borrowing from “pui” to pay “pom”: Multiple borrowing and over-indebtedness in rural Thailand. World Development, 98, 338-350.
Chichaibelu, B. B., & Waibel, H. (2018). Over-indebtedness and its persistence in rural households in Thailand and Vietnam. Journal of Asian Economics, 56, 1-23.
Do, H. T. K., Nguyen, N. T. M., & Le, T. H. (2017). Effects of the credit boom on the soundness of Vietnamese commercial banks. International Journal of Financial Research, 8(3), 57-73.
Do, X. L., & Bauer, S. (2016). Does credit access affect household income homogeneously across different groups of credit recipients? Evidence from rural Vietnam. Journal of Rural Studies, 47, 186-203.
Dollar, D. (1994). Macroeconomic management and the transition to the market in Vietnam. Journal of Comparative Economics, 18, 357-375.
European Union. (2018). Agricultural and farm income. Retrieved from https://ec.europa.eu/agriculture/ sites/agriculture/files/statistics/facts-figures/agricultural-farm-income.pdf
Fforde, A. (2017). The emerging core characteristics of Vietnam’s political economy. Asian-Pacific Economic Literature, 31(2), 45-60.
Friedman, M. (1957). A theory of the consumption function. Princeton: Princeton University Press.
Garðarsdóttir, R. B., & Dittmar, H. (2012). The relationship of materialism to debt and financial well-being: The case of Iceland’s perceived prosperity. Journal of Economic Psychology, 33(3), 471-481.
Gathergood, J. (2012). Self-control, financial literacy and consumer over-indebtedness. Journal of Economic Psychology, 33(3), 590-602.
General Statistics Office of Vietnam. (2017). Dân số trung bình phân theo giới tính và thành thị, nông thôn [Average population categorized by sexes, rural, and urban areas]. Retrieved from https://www.gso.gov.vn/ SLTK/Selection.aspx?rxid=8f161760-9ba0-4c6d-&px_db=02.+D%c3%a2n+s%e1%bb%91+v%c3%a0+-lao+%c4%91%e1%bb%99ng&px_type=PX&px_language=vi&px_tableid=02.+D%c3%a2n+s%e1%b-b%91+v%c3%a0+lao+%c4%91%e1%bb%99ng%5cV02.02.px
General Statistics Office Vietnam. (2017). Doanh Nghiệp Việt Nam: 15 Năm Đầu Thế Kỷ (2000-2015) [Vietnamese enterprises: the first 15 years of the century (2000-2015)]. Hanoi, Vietnam: Nhà Xuất Bản Thống Kê.
Godquin, M. (2004). Microfinance repayment performance in Bangladesh: How to improve the allocation of loans by MFIs. World Development, 32(11), 1909-1926.
Grohmann, A. (2018). Financial literacy and financial behavior: Evidence from the emerging Asian middle class. Pacific-Basin Finance Journal, 48, 129-143.
Gutiérrez-Nieto, B., Serrano-Cinca, C., & de la Cuesta González, M. (2017). A multivariate study of over-indebtedness’ causes and consequences. International Journal of Consumer Studies, 41(2), 188-198.
Hansen, A. (2016). Doi moi on two and four wheels: Capitalist development and motorised mobility in Vietnam. In A. Hansen & K. B. Nielsen (Eds.), Cars, automobility and development in Asia (pp. 113-129). London: Routledge.
Harari, Y. N. (2014). Sapiens: A brief history of humankind. New York: Random House.
Hoang, Q. X., Biger, N., & Nguyen, N. V. (2007). The determinants of capital structure: Evidence from Vietnam. In S.-J. Kim & M. D. Mckenzie (Eds.), Asia-Pacific financial markets: Integration, innovation and challenges. Vol. 8 (pp. 307-326). West Yorkshire: Emerald Group Publishing Limited.
Hoang, T. (2018, May 27). Vay tiền trả góp dễ như thế nào? [How easy is it to get instalment loans?]. Zing News. Retrieved from https://news.zing.vn/vay-tien-tra-gop-de-nhu-the-nao-post845049.html
Hoff, K., & Stiglitz, J. E. (1993). Imperfect information and rural credit markets: Puzzles and policy perspec¬tives. In K. Hoff, A. Braverman, & J. E. Stiglitz (Eds.), The economics of rural organisation: Theory, practice and policy (pp. 33-52). Oxford: Oxford University Press.
International Monetary Fund. (2017). Household debt and financial stability. Global financial stability report: Is growth at risk? Washington, DC: International Monetary Fund.
Iwase, M. (2011). Current situation on consumer credit in Vietnam: Legal framework for formal financial sector. Japan Social Innovation Journal, 1(1), 40-45.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica, 47(2), 263-291.
Kang, J. H., Matusik, J. G., & Barclay, L. A. (2017). Affective and normative motives to work overtime in Asian organizations: Four cultural orientations from confucian ethics. Journal of Business Ethics, 140(1), 115-130.
Kotwal, A., & Eswaran, M. (1990). Implications of credit constraints for risk behaviour in less developed economies. Oxford Economic Papers, 42(2), 473-482.
Lascelles, D., Mendelson, S., & Rozas, D. (2012). Microfinance Banana Skins 2012. London: Centre for the Study of Financial Innovation.
Le, Q. L. (2016). Dân giàu, nước mạnh, dân chủ, công bằng, văn minh là mục tiêu, đích đến của Việt Nam [Wealthy people, strong country, democratic, just and civilized society are the goals and destinations of Vietnam]. Tạp chí Lý luận chính trị [The Journal of Political Theories], 2. Retrieved from http:// lyluanchinhtri.vn/home/index.php/nguyen-cuu-ly-luan/item/1714-dan-giau-nuoc-manh-dan-chu-cong-bang-van-minh-la-muc-tieu-dich-den-cua-viet-nam.html
Le, P. L., Ngo T. H. L., Tran L. H. A., Truong H. D., Can T. T. H., Vu T. K. C., & Huyen, N. T. (2016). Household debt in Vietnam: An overview. Household debt in SEACEN economies. Retrieved from https:// www.seacen.org/publications/RStudies/2018/RP102/8-VietnamHouseholddebt.pdf
Lea, S. E. G., Webley, P., & Levine, R. M. (1993). The economic psychology of consumer debt. Journal of Economic Psychology, 14(1), 85-119.
Lea, S. E. G., Webley, P., & Walker, C. M. (1995). Psychological factors in consumer debt: Money management, economic socialization, and credit use. Journal of Economic Psychology, 16(4), 681-701.
Liv, D. (2013). Study on the drivers of over-indebtedness of microfinance borrowers in Cambodia: An in-depth investigation of saturated areas. Retrieved from https://sanr.oikocredit.coop/l/es/library/download/ urn:uuid:2982b1e3-2166-4461-b568-457f968427a3/over-indebtedness-in-cambodia-full-report.pdf
Lunt, P., & Furnham, A. (1996). Economic socialization. Cheltenham, UK: Edward Elgar Publishing.
Lunt, P. K., & Livingstone, S. M. (1991). Everyday explanations for personal debt: A network approach. British Journal of Social Psychology, 30(4), 309-323.
Meniago, C., Mukuddem-Petersen, J., Petersen, M. A., & Mongale, I. P. (2013). What causes household debt to increase in South Africa? Economic Modelling, 33, 482-492.
Miguel, E. A., Gertler, P., & Levine, D. I. (2003). Did industrialization destroy social capital in Indonesia? University of California, Berkeley, Department of Economics. Working Paper No.C03-131. Retrieved from http://faculty.haas.berkeley.edu/levine/papers/Miguel%20Gertler&%20Levine%20Did%20 Industrialization%20Destroy%20Social%20Capital%20in%20Indonesia%20WP.pdf
Modigliani, F. (1986). Life cycle, individual thrift, and the wealth of nations. Science, 234(4777), 704-712.
Nepomuceno, M. V., & Laroche, M. (2015). The impact of materialism and anti-consumption lifestyles on personal debt and account balances. Journal of Business Research, 68(3), 654-664.
Ngo, C., & Tarko, V. (2018). Economic development in a rent-seeking society: Socialism, state capitalism and crony capitalism in Vietnam. Canadian Journal of Development Studies/Revue Canadienne D’Études du Développement, 39(4), 1-19.
Ngo, C. N. (2016). Developmental rent management analysis: Learning, upgrading, and innovation. Journal of Economic Issues, 50(4), 1045-1068.
Nguyen-Marshall, V., Welch, L. B., & Bélanger, D. D. (Eds.). (2012). The reinvention of distinction: Modernity and the middle class in urban Vietnam. Dordrecht: Springer.
Nguyen, D., Diaz-Rainey, I., & Gregoriou, A. (2012). Financial development and the determinants of capital structure in Vietnam. Retrieved from https://ssrn.com/abstract=2014834
Nguyen, D. L. (2008). Ngân Hàng Việt Nam Giai Đoạn 1986-1990: Những Trang Sử Khắc Nghiệt Cần Được Nhìn Lại Và Suy Ngẫm [Vietnam’s Banking 1986-1990: Tough historical period that needs to be reviewed and reflected on]. State Bank of Vietnam. Retrieved from https://www.sbv.gov.vn/webcenter/portal/vi/menu/fm/ddnhnn/ nctd/nctd_chitiet?leftWidth=20%25&showFooter=false&showHeader=false&dDocName=CNTHWE¬BAP01162524875&rightWidth=0%25¢erWidth=80%25&_afrLoop=7869287812646432#%40%3F_ afrLoop%3D7869287812646432%26centerWidth%3D80%2525%26dDocName%3DCNTHWEBAP011 62524875%26leftWidth%3D20%2525%26rightWidth%3D0%2525%26showFooter%3Dfalse%26show-Header%3Dfalse%26_adf.ctrl-state%3Dpdue2bdln_9
Nguyen, N. N., Özçaglar-Toulouse, N., & Kjeldgaard, D. (2018). Toward an understanding of young con¬sumers’ daily consumption practices in post-Doi Moi Vietnam. Journal of Business Research, 86, 490-500.
Nguyen, N. T. P., Nguyen, L. P., & Dang, H. T. T. (2017). Analyze the determinants of capital structure for Vietnamese real estate listed companies. International Journal of Economics and Financial Issues, 7(4), 270-282.
Nguyen, V. H. (2016). Classifying the shadow banking in commercial banks of Vietnam. International Journal of Humanities and Management Sciences, 4(3), 271-276.
Nguyen, V. T., & Freeman, N. J. (2009). State-owned enterprises in Vietnam: Are they ‘crowding out’ the private sector? Post-Communist Economies, 21(2), 227-247.
Nợ như Chúa Chổm [In Debt Like Lord Chom]. (n.d.). Retrieved from http://truyencotich.vn/truyen-co-tich/co-tich-viet-nam/no-nhu-chua-chom.html
Noonan, L. (2017, December 13). Vietnam’s nascent debt markets set for bigger deals. Financial Times. Retrieved from https://www.ft.com/content/5a28f5ee-dfe3-11e7-8f9f-de1c2175f5ce
OECD. (2018). Household debt. OECD Data. Retrieved from https://data.oecd.org/hha/household-debt. htm
Okae, T. (2009). Rural credit and community relationships in a Northern Vietnamese village. Japanese Journal of Southeast Asian Studies, 47(1), 3-30.
Oxfam. (2017). Even it up: How to tackle inequality in Vietnam. Retrieved from https://cng-cdn.oxfam.org/ vietnam.oxfam.org/s3fs-public/file_attachments/Vietnam%20Inequality%20Report_ENG.pdf
Pham, T. T. H. (2018). Nghiên cứu mối liên hệ giữa hiệu quả đầu tư và tăng trưởng kinh tế [On the relationship between investment efficiency and economic growth]. Industry and trade magazine. Retrieved from http://tapchicongthuong.vn/bai-viet/nghien-cuu-moi-lien-he-giua-hieu-qua-dau-tu-va-tang-truong-kinh-te-53966.htm
Pham, T. T. T., & Lensink, R. (2007). Lending policies of informal, formal and semiformal lenders: Evidence from Vietnam. Economics of Transition, 15(2), 181-209.
Pham, T. T. T., & Lensink, R. (2008). Household borrowing in Vietnam: A comparative study of default risks of formal, informal and semi-formal credit. Journal of Emerging Market Finance, 7(3), 237-261.
Phan, D. N., & Phan, T. A. D. (2013). Determinants of corporate investment decisions: The case of Vietnam. Journal of Economics and Development, 15(1), 32-48.
Qureshi, M. A., Ahsan, T., Azid, T. (2017). Equity and debt financing strategies to fuel global business operations during crisis. In U. Hacioğlu & H. Dinçer (Eds.), Global financial crisis and its ramifications on capital markets: Opportunities and threats in volatile economic conditions (pp. 297-319). Dordrecht: Springer.
Real Estate Loans Remain High in Some Banks. (2018, April 16). Vietnamnews. Retrieved from https:// vietnamnews.vn/economy/426445/real-estate-loans-remain-high-in-some-banks.html#7XlZ¬g06IO6Bkk5y6.97
Risal, N. (2018). Microfinance position and indebtedness: Empirical evidence from microfinance institu¬tions in Nepal. Pravaha, 24(1), 120-136.
Roiland, D. (2016). Frugality: A positive principle to promote sustainable development. Journal of Agricultural and Environmental Ethics, 29(4), 571-585.
Ruddle, K. (2011). “Informal” credit systems in fishing communities: Issues and examples from Vietnam. Human Organization, 70(3), 224-232.
Schicks, J. (2013a). Microfinance over-indebtedness: Understanding its drivers and challenging the com¬mon myths. Oxford Development Studies, 49, 1236-1255.
Schicks, J. (2013b). The sacrifices of micro-borrowers in Ghana: A customer-protection perspective on measuring over-indebtedness. The Journal of Development Studies, 49(9), 1238-1255.
Schumpeter, J. (1942). Creative destruction. Capitalism, socialism and democracy. New York: Harper and Brothers.
Shefrin, H. M., & Thaler, R. H. (1988). The behavioral life-cycle hypothesis. Economic Inquiry, 26(4), 609- 643.
StoxPlus. (2018). Infographic: Vietnam Consumer Finance Report 2018. Retrieved from http://stoxplus.com/ News/Detail/2076186
Strömbäck, C., Lind, T., Skagerlund, K., Västfjäll, D., & Tinghög, G. (2017). Does self-control predict finan¬cial behavior and financial well-being? Journal of Behavioral and Experimental Finance, 14, 30-38.
Tran, B. T., Ong, B., & Weldon, S. (2015, January 23). Vietnam banking industry report. Duxton Asset Management. Retrieved from https://www.duxtonam.com/wp-content/uploads/2015/01/ Vietnam-Banking-Report_2015.pdf
Tran, V. T. (2013). Vietnamese economy at the crossroads: New doi moi for sustained growth. Asian Economic Policy Review, 8(1), 122-143.
Tsai, C. T. L. (2006). The influence of Confucianism on women’s leisure in Taiwan. Leisure Studies, 25(4), 469-476.
Tung, T. (2017, November 16). SOE reform to fuel higher economic growth. Vietnam Investment Review. Retrieved from https://www.vir.com.vn/soe-reform-to-fuel-higher-economic-growth-53888.html
Vann, E. F. (2012). Afterword: Consumption and middle-class subjectivity in Vietnam. In V. Nguyen-Marshall, L. B. W. Drummond, & D. Bélanger (Eds.), The reinvention of distinction: Modernity and the middle class in urban Vietnam (pp. 157-170). Dordrecht: Springer.
Vietnam’s Growing Middle Class Expected to Double by 2020. (2016, September 6). Learning English. Retrieved from https://learningenglish.voanews.com/a/higher-priced-goods-popular-with-vietnams-middle-class/3496221.html
Vietnam Microfinance Working Group. (2014). Microfinance in Vietnam: The real situation and policy recommendations. Retrieved from http://www.microfinance.vn/wp-content/uploads/2014/12/ Report-on-Microfinance-in-VN.pdf
VN Middle Class Booms. (2018, April 6). Việt Nam News. Retrieved from https://vietnamnews.vn/ society/425849/vn-middle-class-booms.html#WuhDb8SfXPWI7YxT.97
Vo, X. V. (2017). Determinants of capital structure in emerging markets: Evidence from Vietnam. Research in International Business and Finance, 40, 105-113.
Vo, X. V., & Ellis, C. (2017). An empirical investigation of capital structure and firm value in Vietnam. Finance Research Letters, 22, 90-94.
Vuong, Q.-H., La, V. P., Vuong, T. T., Nguyen, V. H., Ho, M. T., Nguyen, T. H. K., . . . Ho, M.-T. (2018). Cultural additivity: Behavioural insights from the interaction of Confucianism, Buddhism, and Taoism in folktales. Palgrave Communications, 4(1), 1-15.
Vuong, Q. H. (2000). The Vietnamese corporate bond market: An early exploration into the 1992-1999 period. Working Papers Centre Emile Bernheim, WP-CEB No. 04/032, Université Libre de Bruxelles. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1473762&rec=1&srcabs=1608223&alg=7&pos=2
Vuong, Q. H. (2010). Financial markets in Vietnam’s transition economy. Saarbrucken: VDM Verlag.
Vuong, Q. H. (2014). Vietnam’s political economy in transition (1986-2016). WP-CEB No.14-010, Université Libre de Bruxelles. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2795174
Vuong, Q. H. (2016). Determinants of firm performance in a less innovative transition system: Exploring Vietnamese longitudinal data. International Journal of Transitions and Innovation Systems, 5(1), 20-45.
Vuong, Q. H. (2018). The (ir)rational consideration of the cost of science in transition economies. Nature Human Behaviour, 2(1), 5.
Vuong, Q. H. (2019). The financial economy of Viet Nam in an age of reform, 1986–2016. In M. Volz & Yoshino (Eds.), Routledge handbook of banking and finance in Asia (pp. 201-222). London: Routledge.
Vuong, Q. H. (2019). Computational entrepreneurship: From economic complexities to interdisciplinary research. Problems and Perspectives in Management, 17(1), 117-129.
Vuong, Q. H., & Napier, N. K. (2014). Resource curse or destructive creation in transition: Evidence from Vietnam’s corporate sector. Management Research Review, 37(7), 642-657.
Vuong, Q. H., & Napier, N. K. (2015). Acculturation and global mindsponge: An emerging market perspective. International Journal of Intercultural Relations, 49, 354-367.
Vuong, Q. H., & Tran, T. D. (2009). The cultural dimensions of the Vietnamese private entrepreneurship. The IUP Journal of Entrepreneurship and Development, VI(3&4), 54-78.
Vuong, Q. H., & Tran, T. D. (2011). Vietnam’s corporate bond market, 1990-2010: Some reflections. Journal of Economic Policy and Research, 6(1), 1-47.
Wellman, B. (2018). The network community: An introduction. In B. Wellman (Ed.), Networks in the global village: Life in contemporary communities (pp. 1-47). London: Routledge.
Wong, C.-Y. (2011). Rent-seeking, industrial policies and national innovation systems in Southeast Asian economies. Technology in Society, 33(3-4), 231-243.
How to Cite
Copyright (c) 2019 SEAS - Society for South-East Asian Studies
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 Unported License.
Articles published before December 2019 are licensed under the following Creative Commons License: Attribution-NonCommercial-NoDerivs 3.0 Unported. Articles published after that date are licensed under the following Creative Commons License: Attribution-NonCommercial-NoDerivs 4.0 International.