Vietnam entered a grim period in 1979. The cumulation of unresolved economic problems together with the unfavourable confluence of politico-strategic factors left the country in a situation that might even be described as desperate. There were many constraints and little room for manoeuvre.

Reports from the International Monetary Fund (IMF) showed that by the end of 1978, Vietnam's outstanding disbursed debt in convertible currencies stood at US$1,100 million of which US$400 million were in commercial loans of three to five years maturity and the remaining bilateral loans on concessionary terms. With the socialist bloc, in the same period, the debt (in non-convertible currencies) reached the equivalent of US$1,400 million. The same IMF study noted that debt servicing in 1978 in convertible currencies alone had exceeded Vietnam's export receipts in these currencies thereby aggravating the country's already bad balance-of-payment deficits. Additionally, Hanoi's involvement in the war inside Democratic Kampuchea (DK) drew away much scarce resources from the over-stretched economy to the defence industry. But what followed from the December 1978 invasion of Kampuchea proved far more expensive than the leadership had anticipated. The country had to contend with a blitzkrieg attempt at “punishment” from China as well as placement of troops in constant preparedness against a possible second “punishment”. worse, it had to confront a generally hostile environment with its condemnations and embargoes — retaliations which added incalculable strains to the weak economy. As early as June 1978, Sino-Vietnamese quarrels had already cost the country a massive price when China terminated all aid estimated at US$900 million. However, with international retaliations, Hanoi lost a further US$78.5 million in bilateral aid and US$99 million in multilateral aid which had been pledged before the invasion of Kampuchea. Without doubt, the loss of badly needed foreign assistance exacerbated the heavy debt-servicing burden. While the SRV membership in the Council of Mutual Economic Assistance (CMEA) as well as its increasingly close ties with the Soviet Union did offer some economic relief in the short-term, the partnership also exacted its price.