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Prashanth Parameswaran | The Asianist

Staying cool on Vietnam

Published: Wednesday, March 16, 2011

Updated: Wednesday, March 16, 2011 07:03

Whenever starry−eyed investors knock on his door at the Vietnamese embassy in Washington, D.C., Tung Nguyen, the boyish, bespectacled deputy chief of mission, is sure to inject a dose of reality into their sunny optimism.

"I have to cool them down, because things are not that rosy in Vietnam right now," Mr. Nguyen told a roundtable at the Fletcher School of Law and Diplomacy last month.

Vietnam has certainly made great strides over the past few decades, digging itself out of the ravages of war, pushing for economic reforms and pulling an astonishing 40 percent of its population out of poverty. The Goldman Sachs and HSBCs of the world have boldly included Vietnam in their catchy lists of future emerging markets, citing its robust economic growth (7 percent per year on average), well−educated and young populace and stable political system.

Yet a gloomy shadow has recently descended upon the rising dragon. Vietnam has struggled to restore investor confidence amid stubbornly high inflation, ballooning trade and fiscal deficits and an ever−weakening dong. Its large, unwieldy, state−owned enterprises still have an iron grip on the economy despite their inefficiencies and abject recent failures. The government continues to round up dissidents and suppress media freedom, an authoritarian streak that manifested itself most recently when a U.S. official in Vietnam was roughed up while attempting to visit a dissident Roman Catholic priest. Most worryingly, the Communist Party elite appears to be turning Vietnamese capitalism into a family business through powerful, corrupt networks.

These problems are not intractable, particularly for a resilient nation like Vietnam, which has persevered through centuries of war and weathered several economic crises over the past few decades alone. But they are formidable nonetheless. Mr. Nguyen laments that there is "frankly speaking no political will" to battle corruption and that Vietnamese macroeconomic policy continues to be run by interest groups rather than intellectuals.

For years, Vietnam's party elite has tried to set policy from behind the scenes and delegate implementation to the state, nudging and pushing where appropriate. Now some wonder whether the party will either be overwhelmed by corrupt forces or be underwhelmed about redistributing wealth from its wealthy supporters to the poor.

To their credit, Vietnamese leaders have recently hiked interest rates and slashed the dong to control inflation, which hit an alarming annual rate of 12.2 percent in January. Yet many believe that deeper changes are required with regard to corruption, government spending and the state sector in order to avert a financial crisis. They were disappointed when the Communist Party's five−yearly congress concluded earlier this year with an unwavering commitment toward maintaining heavy state involvement in the economy and remain unconvinced that the government has decided to put tackling inflation ahead of stimulating growth.

In his declaration of independence speech in September 1945, Vietnam's revolutionary hero, Ho Chi Minh, spoke colorfully about "mobilizing" all the "physical and mental strength" of the Vietnamese people. That may well be the kind of energy the Vietnamese government needs to confront the emerging problems that it faces en route to becoming a major economic power.

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