Have your state and eat it too
The coming party congress will tell us who Hanoi's
next leaders will be. But the big decision is what to
do about state-sector reform
HANOI - With its whispered power struggles and
obsessive secrecy, the Communist Party of Vietnam
cultivates an air of mystery. But for the Ninth Party
Congress, tentatively set for late March or early April,
the agenda is clear. The party's elite will assemble in
Hanoi facing their biggest and most pressing
dilemma--how to implement significant economic
reforms that inspire competition, while preventing those
reforms from threatening the party's lock on power.
Competition without capitulation. The quest for that
formula could make this important event, which is held
just once every five years, even more significant.
Party insiders say the flashpoint lies in determining the
respective roles of the state sector and the private
sector in driving future growth. For the party, it's a
matter of weighing the short-term and long-term
political risks. In the short term, there's the social
turmoil that could result from state workers being laid
off. In the long term, the greater risk might lurk in the
failure to absorb the 1.4 million new job-seekers each
year. As the congress approaches, the party is already
under increasing public pressure to create more jobs,
especially more highly paid jobs. And as foreign donors
have pointed out, the only way to generate those jobs is
to foster the rapid growth of the private sector.
Big jobs matter less
And what of Vietnam's very top jobs? Here the party's
obsession with secrecy still prevails. In the weeks
leading up to the congress no one yet knew, for certain,
who would fill the troika of party chief, prime minister
and president. And arguably, it doesn't matter a great
deal any more. In charting a course for reform,
personnel choices are going to be less important than
the collective economic decisions on the table right
now.
Even the party central committee's draft report for the
congress reflects a refreshing sense of urgency in facing
the decade-old problem. Noting "an increasingly fierce
environment of international competition," the report
warns that "if we fail to advance rapidly, we will be left
even further behind economically."
That doesn't mean dramatic reforms will emerge from
the congress. Indeed, early signs suggest that the party
is moving to preserve and strengthen the state sector
rather than act forcefully to get rid of its most
debt-ridden, inefficient firms. The caution is
understandable: Both the party and the military remain
heavily reliant on such firms for funding and for a loyal
political constituency.
But beyond the congress rhetoric lies the reality of
powerful forces that are already combining to
modernize and energize Vietnam's economy. Such
forces include a bilateral trade agreement with the
United States, the Asean Free Trade Area, commercial
competition from China, expanding information
technology, an imminent $800 million package from the
World Bank and International Monetary Fund to
support economic reform, and a new enterprise law
that has cut red tape and facilitated the births of nearly
15,000 new private firms within the past year.
These forces will help shape a more level playing field
between state and private firms, accelerate reform of
the state banks, enhance administrative transparency
and create new opportunities for investors. The
U.S.-Vietnam trade agreement, while it still awaits
ratification by both sides, is already generating a more
positive investment climate, investors and foreign
analysts say. By signing the pact last July, Vietnam's
leaders signalled a readiness for substantive reforms
despite nervousness about the political pressures such
measures could unleash.
The congress promises a fascinating look at how party
leaders nationwide are responding to such new
opportunities and pressures. Consensus is unlikely, but
there is already a greater climate of public participation
than in past congresses. Many newspapers have
published the central committee's complete draft report
and invited feedback through letters and essays.
National and provincial TV stations have also
broadcast grassroots comment on the report. Topics of
concern run the gamut from education, jobs and
ethnic-minority policies to a perceived decline in the
party's prestige due to corrosive corruption. A recent
internal inspection revealed that 69,000 party
members--43% of those reviewed--had been found
guilty of corruption during the past five years.
But it's still ideologically risky to link corruption with the
fundamental problem of state-sector favouritism. Both
the leading party daily, Nhan Dan, and the police daily,
Cong An Nhan Dan, have lashed out this month against
public criticism of stagnancy and corruption within
state-owned firms, and denounced efforts to boost
private companies at the expense of state firms.
The numbers tell their own story. The state's share of
industrial output fell to 42% last year from 62% in
1990. Eleven years ago 2.5 million people were
employed by state firms; today it's 1.6 million.
State-owned firms now owe a staggering $12.9 billion,
with 11% considered bad debt, according to the
Finance Ministry. Yet these firms continue to absorb
roughly half of all bank credit.
State-bank officials estimate that 75%-80% of the
5,400 state firms are operating in the red. "It's a burden
for the budget and also for the banking system," says
Tran Trong Do, director of the banking-operations
centre at the State Bank of Vietnam.
The party congress is expected to address this painful
burden. But don't anticipate moves toward rapid,
radical restructuring. Though the economy is largely
agricultural--state firms employ only 4% of the
workforce--and international donors have established a
"social safety net" of cash payouts and training for
redundant workers, the government still fears social
turmoil. "They cannot push labour out onto the street,"
says Nguyen Van Trung, deputy director of the
department of enterprises at the Ministry of Planning
and Investment.
"Unemployment is just an excuse," counters a
prominent Hanoi businessman. "The real factor is that
they would lose power to control the economy, so they
wouldn't be able to exert power over the nation."
Another problem is trust. At this critical juncture in
global trade, some party leaders remain sceptical of the
private sector's ability to help Vietnam compete
vigorously with neighbouring countries. They cite poor
management skills and unwillingness to pay taxes. Such
leaders also remain wary of a growing gap between rich
and poor.
For these reasons, congress participants may favour a
plan to upgrade management and efficiency of the
biggest, most strategic state-owned firms without
privatizing them. Although the World Bank-IMF reform
package targets 1,800 firms for "equitization"--a
procedure that transfers a portion of shares into private
hands--this just covers smaller and more-marginalized
firms, representing no more than 10%-15% of invested
capital.
Some analysts worry that the government is
back-pedalling. "It looks like what they're doing is
trying to set up state capitalism. It won't work. It's what
we had many years ago," says Nguyen Xuan Oanh, a
top economist based in Ho Chi Minh City.
Adds one Western economist: "I think there's a lot of
illusion about their ability to maintain competitiveness,
and transform enterprises which remain under state
control. The evidence around the world doesn't support
that."
To be sure, the Vietnamese are still looking to China for
clues on conducting economic reform without triggering
social instability. China has relied on nonstate
enterprises as the engine of growth, while forcing the
military to give up commercial operations. China has
also started to privatize state-owned firms and lay off
workers.
"The China example is for us to study, not follow,"
cautions Le Thien Thang, an officer for the economic
and external affairs office of the Fatherland Front, a
supervisory body for state policy which participates in
planning the agenda of the party congress. "There are
many countries looking at [global] integration," Thang
says. "We have to look at the best ways and then
choose."
The likely choice will be quiet pragmatism. Party
leaders and government officials don't need to lose face
by loudly attacking the state sector. To some extent,
they believe they can still leave the state sector to its
own devices, while creating a positive climate for
private enterprise in harmony with the trade agreements
and other forces in play. After all, with the private
sector populated by the sons and daughters of state
workers, such compromises serve everyone's interests.
By Margot Cohen and Adrian Edwards - The Far Eastern Economic Review - March 15, 2001.
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