Hanoi to ease its hold
Ho Chi Minh City is set to win some autonomy from
the central government in Hanoi by promising the
move will attract business and generate more
revenues
HO CHI MINH CITY - Loosen up or lose out. That's the message
that leaders of Ho Chi Minh City have long tried to
drive home to Vietnam's restrictive central government.
In return for greater freedom to manage their fiscal and
administrative affairs, they promise faster economic
growth to pump more money into Hanoi's pocket for
national development.
But if the central government's straitjacket remains
intact, this vibrant southern city will never fulfill its
dreams of becoming a regional economic powerhouse,
and the whole country will suffer, local officials argue.
"The clothing we are wearing is too tight. We have to
change," says Mai Quoc Binh, vice-chairman of the Ho
Chi Minh City People's Committee. The city submitted
a wish-list to Hanoi in June.
Now it looks like the cautious tailors of Hanoi are
finally willing to let out the seams. In late August the
central government drafted a pivotal decree granting
greater autonomy to Ho Chi Minh City, following Prime
Minister Phan Van Khai's verbal agreement in principle.
The new communist party chief, Nong Duc Manh, has
also given the nod--his first major decision since coming
to power in April. But wrangling over critical details has
delayed the issuing of the final decree and highlights
Hanoi's fears of helping the south's rich get richer.
The autonomy controversy cuts to the core of
Vietnam's most treasured national goals: striking a
balance between north and south, promoting communist
ideology, reducing poverty nationwide, and minimizing
the gap between urban and rural citizens. Ho Chi Minh
City, providing one-third of the nation's budget, dwarfs
the capital in economic importance.
"There's a long-term fear of loss of control," says one
Hanoi economist. "They don't want to see Ho Chi Minh
City become another Hong Kong, isolated from the
country. In Vietnam, the notion of 'one country, two
systems' is not acceptable."
The degree of autonomy depends on the final decree.
One high-ranking Hanoi official reckons that it will
emerge before the end of September. But central
government officials remain wary of the slippery slope
toward the accelerated devolution of power across the
nation. Despite their formal embrace of
"decentralization," they are loath to surrender control
over master plans for national development.
Municipal leaders of the northern city of Haiphong and
the central city of Danang are keen to see how much
new power Ho Chi Minh City actually gets because
they are also pressing for greater autonomy this year. "It
will be easier to implement our ideas without having to
ask the 'boss,'" says Phi Van Duc, director of
Haiphong's chamber of commerce. Hanoi has promised
these cities more leeway, but not as much as Ho Chi
Minh City as they lack capable managers.
What's the linchpin of Ho Chi Minh City's autonomy
bid? Money. Last year, the city got back 24% of the
roughly 25 trillion dong ($1.67 billion) it contributed to
state coffers. Now municipal leaders are asking for a
flat rate of 30%, to hold steady over the next five years
without renegotiation. They argue they are capable of
making the pie bigger by spurring investment and
collecting additional fees, so the central government
won't receive less money.
Meanwhile, the city plans to spend 60% of its
additional capital to improve infrastructure, with the rest
for new hospitals, schools, and programmes to improve
the environment and cope with 1.3 million provincial
migrants. More money will also go into trade promotion
and credit to upgrade equipment to make companies
more competitive.
From an economic viewpoint, most domestic and
foreign investors welcome the prospect of greater
autonomy for Ho Chi Minh City. They predict it will
spur competition among other cities and provinces to
provide investment incentives. This would create jobs
and blunt poverty, they argue.
Autonomy may be Khai's last hurrah
Politically, some analysts see the impending decree as
the last hurrah for the prime minister, a southerner who
is expected to retire next April. "This is a very brave
decision," says a Ho Chi Minh City business consultant.
"I don't think anyone would take the risk if he had five
years of political life ahead of him." In Vietnam's
consensus-driven system Prime Minister Khai may have
found more allies this year. The 15-member politburo
has five southerners--higher than in previous
years--while the party's 150-member central committee
has fewer representatives from giant state-owned firms,
which normally seek to advance the central
government's interests above all else.
A broader explanation of the decree's timing lies in the
macroeconomic pressures on Vietnam. With a steep
decline in prices for key agricultural commodities like
rice, coffee, and cashews, and tougher competition in
textile and footwear exports, Vietnam finds itself on
shaky ground.
The country must also gear up for challenges presented
by the Association of Southeast Asian Nations Free
Trade Area in 2003 and a U.S.-Vietnam trade
agreement, slated to be ratified by Congress before
October 1. Against this backdrop, Ho Chi Minh City
officials persuasively argue that a more liberal regime
would generate much-needed cash for the nation's
coffers and boost the country's competitive standing.
They also play the China card, pointing to
decentralization by a neighbour that is both feared and
envied for its economic muscle.
Ho Chi Minh City and some southern provinces are
already more flexible for business than Hanoi and the
northern provinces--a result of the country's divided
history. Long accustomed to a centrally planned
economy, northern officials were slow to grasp the
demands of private enterprise for efficient, transparent
decision-making. Southern officials were faster at
responding to the private sector, especially with the
capitalist fervour that was prevalent prior to 1975 when
Ho Chi Minh City was known as Saigon.
Investors still routinely shell out more money in the
north to obtain licences or win a slot on the bidding
shortlist for major projects. "In the south, the whole
mechanism will be mobilized to help the investor and do
it quickly. Here in Hanoi, they all think, 'Ah, some extra
money for me,'" says a Hanoi-based business adviser,
who often sees potential clients flee south. Today, 74%
of all investment is concentrated in Ho Chi Minh City
and the southern provinces of Dong Nai, Binh Duong,
and Ba Ria-Vung Tau.
Still, Ho Chi Minh City is impatient. Like every other
city and province, it must run to Hanoi's Ministry of
Planning and Investment for approval of any project on
more than one hectare of land. That includes even a
road over a kilometre long. Local officials must request
approval for investment projects that top $10 million.
While approvals are becoming faster, they are
unpredictable. "When you have to consult with others,
without any fixed criteria, that hinders the process.
Handling everything case-by-case is not a good way to
do business," says Nguyen Dinh Mai, vice-director of
Ho Chi Minh City's planning and investment
department.
South-North divide lives on
Officials still smart over Hanoi's refusal several years
ago of a $20 million foreign-invested steel mill. They are
impatient over the delay in granting a licence to
MeetVietnam.com, a B2B Internet portal partly funded
by the International Finance Corp. They bristle at
bureaucratic procedures that complicate investment by
overseas Vietnamese--who pour most of their money
into the south and could provide even more with a
streamlined system. And with a highly skilled workforce
urgently needed, they are frustrated by the tortuous
approval process for new training centres and
universities.
Le Cong Giau is president of the foreign trade and
investment development centre, a promotional board
under Ho Chi Minh City jurisdiction. In 1998 he
applied to set up a vocational engineering school for
1,600 students. He finally got his licence last year, but
only after three personal meetings with the prime
minister, three meetings with a deputy prime minister,
and a meeting with the education minister.
Dealing with Hanoi is doubly difficult because few
southerners work in the capital's ministries. They
generally avoid promotion to Hanoi, anticipating stilted
office relations and fearing they would lose from
political infighting. On their own turf, southerners long to
be free of central government interference in key
personnel decisions. "The main objective is to choose
the right, qualified person for that position," says Binh of
the Ho Chi Minh City committee.
Southerners also long to play a more active role in
reforming state-owned enterprises, or SOEs, which
answer only to Hanoi. What particularly rankles is such
firms' inefficient use of land, the price of which is set
well below market rates by the central government. "If
the local authorities can't touch these SOEs, it is very
hard for the city to plan its development," Binh says.
(Land-use is a particularly sensitive because the
defence ministry owns large plots in Ho Chi Minh City).
Moreover, if the city can stimulate the private sector,
that could also compel the SOEs to be more
competitive.
Ho Chi Minh City's demand for 30% of what it gives to
the state is the major obstacle for the new decree.
Insiders say finance ministry officials have baulked,
worried that the city won't be able to expand the pie
fast enough and will leave a 4-trillion dong hole in the
budget for poorer provinces. Out of Vietnam's 61 cities
and provinces, only five generate excess capital for the
state budget.
As for the city's hopes to independently consider any
proposed investment regardless of land allocation or
project value, a high-ranking Hanoi official scoffs,
"Impossible." At most, he says, the city will gain
autonomy in planning five to 10-hectare plots, with
higher thresholds for project value. Such thinking rests
on the principle that Ho Chi Minh City should not gain
more privileges than the capital, even though the
southern city has twice the industrial growth of Hanoi.
And while Ho Chi Minh City officials will be welcome
to "make suggestions" about reforming the SOEs on
their turf, Hanoi will still call the shots, the official insists.
But communist party stalwarts also recognize another
home truth: that the party is only as strong as public
support for local party leaders. And autonomy, even in
a limited form, gives those leaders the chance to prove
their mettle to constituents.
In the current system, the party admits that public
alienation is growing. "The central government assigns
the party chief of Haiphong to speed up the city's
development. Without autonomy, how can it develop
faster?" says Vu Huu Thiem, a Haiphong businessman
and party member. In this light, some reform is
inevitable.
Ultimately, many Vietnamese view autonomy as a
means to inject municipal leaders with a fresh sense of
accountability. No more finger-pointing at Hanoi and
shrugged shoulders. Says one Ho Chi Minh City
businessman: "Hopefully, some of these people will
realize that they have to serve the public, not the other
way around."
By Margot Cohen - The Far Eastern Economic Review - September 6, 2001.
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