Second time around
HANOI - Vietnam's economy is caught in a waiting game. Both
domestic and foreign investors are anxiously awaiting
the passage of the United States-Vietnam bilateral trade
agreement, which has run into snags on the U.S. side.
Economists are hoping that new Communist Party chief
Nong Duc Manh, chosen in April, will offer some clear
signals for reform and fulfil fresh promises to the
International Monetary Fund. And the nation's
beleaguered farmers are looking for an end to
disastrously low rice and coffee prices on world
markets.
That doesn't mean that everything has ground to a
standstill. International analysts predict that Vietnam's
economy will grow by at least 5% this year. While this
prediction falls well short of the government's 7.5%
target, it is still a respectable one for the region. Nonoil
exports grew by 16% in the first quarter of 2001, but
that was way below the 25% growth rate for the same
period last year.
Foreign direct investment received a welcome boost in
the first three months of this year, with $273 million
worth of projects pledged in the first quarter of 2001, a
78% increase over the same period last year. Thanks to
three major energy projects signed in late 2000 and
early 2001--including the Nam Con Son gas pipeline
project, and two electricity projects--Vietnam is
expecting FDI inflows of almost $2.5 billion between
now and 2003. Foreign reserves remained broadly
stable in the first quarter at $3.1 billion.
The country also got a welcome vote of confidence in
April from Moody's Investors Service, which changed
its assessment of Vietnam from negative to stable.
"Renewed commitment to reform, regained support
from the IMF and World Bank, and normalization of
debt arrears has stabilized the near-term ratings
outlook," Moody's analysts said in a statement
accompanying the announcement. "However,
uncertainties about economic and financial conditions
persist because of the lack of transparency in official
reporting."
One tool aimed at increasing transparency is a deal
struck by the government in April with the IMF, which
released the first $53 million tranche in a three-year
loan. The $368-million facility is the first since the fund
suspended lending to Vietnam five years ago.
The IMF programme will recapitalize the country's four
largest state banks on condition of improved
performance, including better lending discipline and
transparency. Ceilings have been set on lending to
state-owned firms, most of which are corrupt and
mismanaged. The programme also mandates
international-standard audits at 200 of the largest, most
troubled state firms.
Western analysts were cautiously optimistic over the
leadership's agreement with the IMF, with some striking
a warning note. "I think it's a big gamble," says one
economist in Hanoi. "If it is not connected to a reliable
system of monitoring and enforcement, then it's a waste
of money."
Others say that any backsliding would clearly harm the
government's interests. "If Vietnam backed down from
these commitments, there would be too much downside
risk," says another Hanoi-based economist. "The
potential for future investment would decrease sharply."
While the agreement can be taken as a sign that
Vietnam's leaders have renewed their commitment to
economic reform, it is far from certain that the lower
levels of bureaucracy will rise to the challenge.
By Margot Cohen - The Far Eastern Economic Review - May 24, 2001.
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