councilor.org
| Source | Louis Proyect |
| Date | 11/01/09/15:23 |
| www.nytimes.com
Vietnam Confronts Economic Quagmire By THOMAS FULLER HO CHI MINH CITY — The New Year’s decorations are coming down in this frenetic city, replaced by hammer and sickle flags that flutter near luxury boutiques competing for access to the wallets of the newly rich. Ho Chi Minh City, the seemingly irrepressible bastion of Vietnamese capitalism, is dutifully marking the start on Tuesday of the Communist Party’s National Congress, an event that comes every five years and is meant to chart the future course of a country that has witnessed an economic miracle in recent decades. But this time, things are different. In a region where governments are swollen with foreign currency reserves and inflation remains relatively tame, Vietnam is an island of economic instability. The country’s economy is still growing at 7 percent, but double-digit price increases for food and other essentials are punishing the working class. The Vietnamese currency is consistently falling below the official exchange rates, creating a thriving black market for gold and dollars. And Vinashin, one of the country’s largest state-owned companies, is all but insolvent, brought down by debts that are the equivalent of more than 4 percent of the country’s total output. “We are on the edge — there’s not a lot of room for mistakes,” said Le Anh Tuan, head of research at Dragon Capital, an investment company here. “The Vietnam story will depend much on how much the government understands the root of the problem and can fix it.” The problems, say many businesspeople and economists, are rooted in its hybrid system, the odd mix of Adam Smith economics and Karl Marx politics that the country shares with other former planned economies like China and Laos. For years, the government touted its vast network of state-run companies as the vanguard of the economy, large conglomerates that the Communist Party could use to steer the country toward prosperity. The scandal involving Vinashin, the deeply indebted state company, has shown the shortcomings of relying so heavily on government-owned enterprises, which Mr. Tuan calls the “cancer” of the economy. From its core mission of building ships, Vinashin expanded into about 450 different businesses that it failed to make profitable and was ill suited to manage, including spas, motorcycle assembly and real estate. On the brink of bankruptcy with $4.5 billion in debts, the company is now in effect being bailed out by the government: It has been exempted from paying taxes this year and will be given interest-free loans, according to Vietnamese news media reports. Vietnam has fought off many external threats in its history — wars, colonial oppression — but the Vietnamese are looking inward for the roots of their current woes. “This crisis comes from the inside,” said Nyugen Thi Mai Thanh, the general director of Ree Corp., a large engineering firm that specializes in air-conditioning. “State investment is not efficient.” The Vietnamese economy appears to be divided between plodding and profligate government-owned companies — the legacy of the country’s communist heritage — and the cutthroat private sector, which is expanding rapidly and profitably. As a measure of their inefficiency, Vietnamese state-owned companies use 40 percent of the capital invested in the country but produce only 25 percent of the country’s gross domestic product. The reach of the state-owned companies, even after several waves of privatizations, remains impressive. It would be easy for a consumer here to spend an entire day doing business with the government: paying a mobile phone bill, depositing a check at the bank, shopping at a local supermarket, filling up a car with gas and lunching at a fancy hotel. State-owned companies are prevalent in all those businesses. Economists say the opaque way in which the government has handled the Vinashin meltdown and the lack of consistency among the top economic officials have eroded confidence in the currency and the market in general. The stock market has been among the worst-performing in Asia for the past three years. Masato Miyazaki, the head of Asian operations for the International Monetary Fund, put aside diplomatic language last month when he publicly told the government it needed to change its “style of policy conduct.” Economists and businesspeople here are watching the Communist Party meeting to see whether state-run companies will be coddled or given sink-or-swim discipline. “Until now, we haven’t seen many cases of the government letting them die,” said Ms. Thanh of Ree Corp. “Sometimes you have to make an example.” Prime Minister Nguyen Tan Dung, who is seeking support for another term at the party meeting, has been quoted in the Vietnamese news media saying that the reform of state-owned enterprises is a “key criterion for a market economy.” But analysts say attempts at reform may be complicated by the involvement in the businesses of government officials and their family members. Investors say they are also watching to see whether the government carries out long-discussed plans to reduce a paternalistic web of regulations and restrictions. Fred Burke, the managing director of the Vietnam offices of Baker & McKenzie, the international law firm, offers this example: Driving a truck displaying an advertisement through Ho Chi Minh City requires 17 separate government approvals. Companies that want to call a news conference or make an announcement need to get permission from the government. Last year, in what companies see as a misguided attempt to control inflation, the government passed regulations requiring companies to submit the prices of all their ingredients in some consumer products. Mr. Burke, who is part of a government advisory panel on cutting red tape, says there has been “backsliding on reform” in recent years and describes the management of Vietnam’s currency as “dysfunctional.” But he sees signs that the government is trying to reduce paperwork. He also sees higher-end manufacturers coming to invest in the country. “Our business has never been better in terms of quality inbound investment,” Mr. Burke said. Indeed, part of Vietnam’s problem is that it may have been too popular with foreigners for its own good. The country has some of the symptoms of classic overheating: The economy has grown an average of 7 percent over the past five years and has grown at a similarly fast clip since the 1980s. That growth has helped deliver unprecedented increases in material well-being: Workers earning minimum wages now have motorcycles, television sets, rice cookers and mobile phones. But inflation, which is running at about 12 percent, has become a major preoccupation in Vietnam, especially among the poor. “How could people be happy?” asked Pham Thi Ngoc, a fruit seller on the outskirts of Ho Chi Minh City. “Money is losing its value.” Those worries have extended well beyond the country’s shores. Moody’s, the credit rating agency, downgraded Vietnamese sovereign debt last month because of what it described as “shortcomings in economic policies,” including an inability to tackle inflation. As a result of the downgrade, borrowing by the government and state-owned companies has become more expensive. PetroVietnam, the state-owned oil producer, announced Jan. 5 that it would postpone a planned $1 billion bond sale, because of “unfavorable” market conditions. Vietnamese companies are reluctant to borrow from banks at lending rates that can go as high as 16 percent or 18 percent, a seeming anachronism in a world awash in cheap cash. “What can a small company do?” asked Nguyen Lam Vien, the chairman of Vinamit, a food processing company that exports dried fruit, among other products. “The financial picture in Vietnam is bad, and the government is only responding with painkillers.” Mr. Vien, a former employee at a state-owned farm, says his sales inside Vietnam were down about 15 percent last year, but with a Mercedes in his driveway and a Hummer in his garage, the current woes do not seem like a major setback. Many foreign investors say they are betting that Vietnam’s indomitable spirit and legendary work ethic will carry the day. “There’s no way you can understand Vietnam unless you can see the frenetic activity and the happiness that’s here,” said Peter Ryder, the chief executive of Indochina Capital, an investment company. “It’s one of the reasons the government gets away with its incompetence. After 100 years of war and starvation, people never thought life would be this good.” |
Copyright (c) 1998, Joongpil Cho