Capitalist/Communist Vietnam

June 15, 2011
By Graeme Mackay
International Business Times (UK)

Following a ceasefire agreement, the last American ground troops left Vietnam in 1973 and in 1975, Saigon (officially now named Ho Chi Minh City) fell to the North Vietnamese Army. The fall of Saigon led to a considerable exodus, not just of people close to the South Vietnamese Government and military, but also of the better-off, better educated and more enterprising. Members of these groups who failed to escape the Communist takeover, were all too often persecuted and the mass collectivisation of farms and factories caused millions to flee, many by boat. The term "Boat People" became synonymous with Vietnam.

For more than 10 years after 1975 the united Vietnamese economy was stagnant at best. Only after 1986 and the removal of the "old guard" did the Communist Government take steps to liberalize the economy and attempt to increase growth, particularly in the exporting sectors. Known as Doi Moi (Renovation) the policy allowed for the privatisation of many farms and smaller businesses.

It has taken the best part of the last 25 years to finally erase most of trauma and destruction that Vietnam's long wars caused. Growth under the Doi Moi policy really picked up about 1990 and between then and 1997, Vietnam averaged over eight per cent per annum. Just when that growth level had reduced to a still very respectable average of seven per cent between 2000 and 2007, along came the 2008 debacle in its biggest export market - America, which took 20 per cent of Vietnam's exports in 2010.

A slowing of growth, high inflation, a major if controlled devaluation of the currency, questions being asked by government departments as to where and why inefficiencies have occurred - these are not matters that are meant to concern a controlled, communist economy. Nor is looking to the United States for support!

Although the state-owned sector of the economy still accounts for a 40 per cent share - 33 per cent in the country's most dynamic city, Saigon - it looks like prosperity and pragmatism will be the country's driving forces, just leave the politics aside, for there is no doubt that Vietnam, now with over 90 million people, wants to be one of the "developed" countries in the world by 2020. What's to stop it?

On 08 June 2011, Viet Nam News reported on the proceedings of a conference on the domestic marine economy taking place in the south-central province of Khanh Hoa. According to Government sources, the "ocean economy" earns Vietnam over $10 billion per year The important message from Nguyen Van Cu, head of the Viet Nam Administration of Seas and Islands however, was pretty negative. The Ocean Economy had "not reached its full potential...infrastructure in ocean and coastal regions, as well as islands, remained poor...Ports were small and equipment was out of date."

Emphasizing this issue of inadequate port infrastructure, a bulletin was released at the conference that showed that the volume of cargo moved per employee through Vietnamese ports was only 0.14 per cent of Singapore's. Not quite so unflattering were the comparisons with Malaysia at 14 per cent and with Thailand at 20 per cent.

Pham Trung Luong, from the National Administration of Tourism, complained at the conference that Vietnam had failed to attract foreign tourists to its extensive and often spectacularly beautiful coast.

There was near unanimous agreement that the "marine economy underperforms". Likewise, there was a similar level of agreement on the need for urgent investment in infrastructure, long-term planning to 2020 and 2030, and that port development should be coordinated within a national transportation system. Pham Huu Tan, the Director of the Cam Ranh Port Company Ltd, declared that: "Ports must become the logistical centres of their regions."

The "marine economy" is but one of the fronts on which Vietnam must address grave economic concerns. Whilst there is no doubt that the country continues to suffer, in places, the effects from chemical agents used by the American Air Force to deny the enemy cover during the Vietnam War, the Vietnamese themselves have contributed greatly since the War's end, to the deforestation and soil erosion and degradation of their country.

A number of factors have caused this to happen. The exploitation of the country's timber resources, a key element in Vietnam's export-led growth and a vital element in reducing a relatively large current account deficit, has caused soil erosion and degradation and increased water run-off. The current growth rate of Forest Product Exports is around 20 per cent per year. The Government is addressing the issue, however, under the auspices of a UN Food and Agricultural Organisation, Vietnam Forestry Outlook Study (to 2020).

Poor agricultural practices, including "slash and burn" cause considerable leaching of the soil and add to water pollution concerns. With just under 50 per cent of the population dependent on agriculture but contributing only 17 per cent to GDP, this might well be the country's single biggest economic problem.

Presently, only some 30 per cent of the population is urban though urbanization is growing at three per cent per annum as people, especially the young, seek a better life and higher income in the towns and cities. Inevitably, this leads to good agricultural land being used for housing and industry where laws regarding pollution need enacting, never mind firming up. In the Government's plans to 2020/2030 this will require factoring in, if only because a quarter of the population is 15 years old or younger.

The really big issue of the moment for Vietnam must surely be getting its fiscal house in order. On 23 December 2010, Bloomberg News reported that Standard & Poor had cut its sovereign credit rating to BB- with a negative rating - three levels below investment grade - putting pressure on the Government to address accelerating inflation (over 11 per cent in 2010) and a weakening currency.

S&P also noted that strong lending growth and macroeconomic volatility "have weakened the balance sheet of the country's banks... which lacked transparency..." and worried about the "persistent resident capital outflows..."

Standard & Poor's downgrade had come hot on the heels of one by Moody's who had cut Vietnam's rating to B1 (four levels below investment grade) citing, in particular, the possibility of a balance-of-payments crisis, a drop in foreign reserves whilst inflation was accelerating (+11 per cent in 2010) and the currency weakening.

Without making light of the credit agencies' concerns, Vietnam has one of the most open economies in Asia and the fastest growing sectors are in manufacturing, IT and high-tech industries and the good news for Mr Pham Trung Luong, is that visitor numbers have rebounded from their 10 per cent dip to 3.77 million in 2009, to 4.4 million for 2010. The figures for the first four months of 2011 look very promising too with an increase over the same period last year, of 10.5 per cent. As in previous years, nationals of China, Japan, South Korea and the USA lead the field.

Turning swords into ploughshares is the city of Nha Trang (300,000) the capital of Khanh Hoa province. A tourist resort set on a beautiful coastline with pristine beaches, it is attracting an international reputation as a centre for scuba diving. The city hosted the Miss Universe Pageant in 2008 and Miss Earth 2010 and will hold the Asian Beach Games in 2016. The former US Air Force Base at Cam Ranh, now serves the region as Cam Ranh International Airport.

If this is communism! But don't book the holiday just yet. There's a rather serious issue concerning disputed territorial waters in the South China Sea between Vietnam and China currently reaching quite a pitch. On 14 June 2011, the Financial Times reported that China had called on "third countries", that is the USA, to keep out of its territorial disputes. Vietnam, last weekend, said it would welcome efforts by the USA to resolve the issue and Nguyen Tan Dung, Vietnam's Prime Minister, "has issued a decree detailing who will be exempted from conscription in the event of war breaking out".