In the late 1970s and early 1980s, Vietnam faced dire economic challenges, exemplified by a devastating famine in 1985 and staggering inflation that peaked at 775 percent in 1986. An experimental mix of planned and market economies attempted in 1979 failed to yield results, and by the early 1980s, the country was heavily reliant on Soviet aid. Due to American pressure, Vietnam was barred from seeking development loans from institutions like the IMF or World Bank, further isolating the nation.

The turning point came in 1986 when Nguyen Van Linh was appointed as general secretary. Under his leadership, a series of market-oriented economic reforms, collectively known as doi moi or “renovation,” were introduced. These reforms included limited decentralization and privatization, the abandonment of collectivized agriculture in favor of individual land ownership, and efforts to attract foreign investment through the liberalization of foreign investment regulations. Although political reforms lagged behind economic changes, the government initiated purges against corrupt officials and granted the press greater freedom to critique the system. However, following the collapse of Communism in Europe in 1989, press freedoms were curtailed again. In a significant speech, Nguyen Van Linh rejected the idea of a multiparty system while maintaining all economic reforms.

The process of reintegrating Vietnam into the international community began with the withdrawal of troops from Cambodia in 1989 and gained momentum throughout the 1990s. Efforts to assist U.S. search teams looking for over two thousand missing American soldiers (MIAs) intensified during this period. In 1993, following the appointment of the reform-minded Vo Van Kiet as prime minister, the United States lifted its veto on aid to Vietnam, leading to an influx of Western investment. By the end of that year, inflation had been reduced to five percent.

Relations with the United States improved further in 1994, culminating in the lifting of the U.S. trade embargo by President Clinton. By February 1995, the two nations opened liaison offices in their respective capitals. Vietnam joined ASEAN (the Association of Southeast Asian Nations) in July 1995, and diplomatic relations with the U.S. were fully restored the same month.

In the subsequent two years, foreign investment surged, propelling economic growth rates to nearly ten percent per year. Revenues from oil, manufacturing, and tourism soared, leading many to predict that Vietnam would become the next Asian tiger. However, while urban areas, particularly Ho Chi Minh City, thrived, rural populations saw little benefit from the economic upturn. Corruption scandals involving high-ranking officials emerged, prompting the government to launch a campaign against perceived “social evils,” targeting Western influences like videos, advertising, and pornography that were seen as threats to traditional values.

By 1997, the initial optimism began to wane. Economic growth slowed as foreign companies reduced operations or exited the market altogether due to an unwieldy bureaucracy and an unpredictable regulatory environment. State-run industries struggled with inefficiency, leading to increased smuggling activities. In May 1997, widespread corruption and agricultural unemployment, coupled with a growing disparity between urban and rural populations, sparked protests by thousands of dissatisfied farmers in Thai Binh province, a region historically aligned with Communist ideologies.

The national elections in July 1997 brought a much-anticipated shift in leadership, with the appointment of Prime Minister Phan Van Khai and a younger, more globally minded cabinet. However, his administration faced immediate challenges, including the arrest of senior Politburo member Pham The Duyet for corruption in 1998. The same year saw the onset of the Asian Financial Crisis, which, while Vietnam’s GDP growth barely dipped below five percent, masked the harsh economic realities faced by many. The burgeoning middle class reaped the most benefits, leaving significant portions of the population to struggle amid the shifting economic landscape.