Suggestions that Vietnam could be the next Asian Tiger economy have been bandied around a lot in the past few years with the economy growing year on year on year. But whereas the Asian Tiger label in its first iteration may have been synonymous with high-growth East Asian economies, a lot has changed since then. Specifically, the Asian Financial Crisis–the AFC–which, when factored into the Asian Tiger narrative, makes the Vietnam-as-an-Asian-Tiger concept a little less ‘Wow!’ and a little more ‘Hmmm…’.
With this in mind, this article looks at what the Asian Tigers were before 1997, what happened in 1997 when the AFC hit, and then what that might say about Vietnam’s current economic development trajectory.
What were the Asian Tiger economies?
The Asian Tiger economies were a group of East Asian countries led by Singapore, Hong Kong, Taiwan, and South Korea, which all averaged around 6 percent growth each year from the 1960s to the 1990s. That said, the concept is also often extended to cover Indonesia, Malaysia, Philippines, and Thailand, dubbed the ‘Tiger Cubs’ which all averaged growth rates over the same period of about 3-5 percent.
These economies were held up as examples of successful economic development and were analysed to the nth-degree to try and isolate what they had done that had been so effective. This was in the hopes that a model might be developed that could be rolled out in other developing countries. This was, of course, until the AFC hit in 1997.
How did they manage this pre-AFC growth?
There is no definitive consensus on what made the Tigers tigers. That said, there are a few recurring themes: they were all mostly export-led in their early days; they all invested heavily in education; and they all recorded huge amounts of investment from both home and abroad.
After that, however, there is somewhat of a divergence. Hong Kong and Singapore, in particular, deregulated their financial sectors and became financial centres benefitting extensively from access to China and Asia more broadly.
South Korea and Taiwan on the other hand doubled down on their manufacturing industries, investing and betting on making high-tech goods for export–think TSMC, Samsung, LG and the like.
These two economies also had a divergence with South Korea promoting the development of its manufacturing sector by supporting a handful of big conglomerates or chaebols, with Taiwan focusing more on providing industry-level support promoting the development of small to medium enterprises more broadly.
Thailand, Indonesia, the Philippines, and Malaysia, on the other hand, grew their economies by investing huge sums of borrowed foreign capital in their manufacturing sectors and in major infrastructure projects.
Moreover, all of these economies benefit from geographically and geopolitically strategic locations forming a buffer between the United States’ interests in the region and China and subsequently, there was a lot of US support.
What happened to the Asian Tigers?
Whereas the term ‘Asian Tigers’ was popularised in the early nineties, fitting within a broader ‘Asian Economic Miracle’ narrative that had been developing at the time, it was only a few short years later, in 1997, that the economic miracle ran into a few, cold, hard economic realities.
Firstly, exactly what happened to kick-off the AFC crisis is complex. However, very generally speaking, in the early 90s, the Thai Baht was pegged to the US dollar and at the same time interest rates in Thailand were significantly higher than interest rates in the US. The peg made investing in Thailand look relatively safe and the interest rate differential made investing in Thailand look relatively profitable. Subsequently, a lot of foreign currency flowed into Thailand, much of which was in short-term US dollar-denominated loans. These were made out to banks that were significantly under-regulated which allowed them to borrow without thinking too hard about the risks.
However, in 1994 the US Federal Reserve started raising interest rates. This made the US dollar stronger and subsequently, the gap between the real value of the Thai Baht and the pegged value began to grow. Moreover, as the gap between Thai and US interest rates closed Thailand became a less attractive investment option.
This saw investors begin to pull their funds out of Thailand which put further pressure on the Baht’s peg. To keep the currency stable, the Bank of Thailand went on to burn through most of its foreign currency reserves until, in July of 1997, almost out of US dollars, it changed tact and decided to abandon its peg.
The Baht, allowed to float freely, subsequently devalued by roughly 25 percent of its pegged value. With a huge number of US dollar loans on its books that had all become roughly 25 percent more expensive to service, the Thai economy was brought to its knees.
Moreover, realising the structural issues that had led to the collapse of the Baht were not unique to Thailand but common throughout the region, investors started to pull their funds out of the other Asian Tigers too and currencies around the region began to fall.
Whereas the economies of Hong Kong, Singapore, Taiwan, and Malaysia were robust enough to weather the storm (though all three took substantial hits), those of Korea, Indonesia, and Thailand were not and all three had to go hat-in-hand to the IMF for support. (Of note, for Indonesia this is often cited as a key contributor to the downfall of Suharto’s authoritarian government).
That’s not to say this was necessarily a bad thing. The reforms forced on these countries by the IMF have arguably made their economies all the more stronger for it.
So, is Vietnam the next Asian Tiger?
Vietnam has opened up its manufacturing sector with recent economic development largely export-led. Last year, it exported US$405.5 billion worth of goods all over the world. This was almost three times the US$150.2 worth of exports the country shipped in 2014, just ten years earlier.
The government has also sought to introduce support policies for high-tech industries–the Investment Support Fund legislation passed at the end of last year, for example.
Moreover, Vietnam has mandated that 20 percent of government spending should be on education and training as part of the 2019 Law on Education.
And, of course, its location fits well within the US-China buffer zone.
With all of this in mind, Vietnam carries many of the main hallmarks of an early-stage Asian Tiger.
That said, Vietnam also pegs its currency to the US dollar, a peg it has maintained by burning through its US dollar reserves. By the end of last year, it had spent roughly a fifth of its foreign currency holdings since 2022 trying to keep the local currency from devaluing.
On that note, there has been a noticeable outflow of capital in recent years–Since the beginning of October 2023 more than US$4.5 billion has been withdrawn from the Ho Chi Minh City Stock Exchange by foreign traders. There are a number of reasons why this might be but interest rate differentials are a recurring theme in most analyses.
Moreover, Vietnam’s banks are not particularly well regulated or supervised. In 2022, for example, allegations surfaced that, Truong My Lan, the head of a local real estate firm, who also had indirect control of Saigon Commercial Bank, had used this linkage to write her real estate firms billions of dollars worth of loans, much of which was allegedly embezzled or used to pay-off banking regulators.
Furthermore, credit growth has become a key pillar of the government’s economic strategy. In 2024 it grew by a whopping 15.08 percent over the end of 2023, bringing Vietnam’s outstanding private debt to roughly 137 percent of GDP and climbing. This is in line with policies that promote credit growth well in excess of sustainable levels.
The point being that: one, when defining the Asian Tiger economies including the period from 1997 onwards, the picture is a little more nuanced and the term loses a lot of its buzz; and two, not only does Vietnam bear the growth indicators that earned the Asian Tigers their moniker, but also the structural issues that led to the AFC.
That is to say, that to suggest Vietnam may be the next Asian Tiger economy, is also to suggest that its future may not be quite as rosy as purporters of the Vietnam-as-an-Asian-Tiger narrative may actually intend.