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More room to manoeuvre

Mounting economic and political pressures could help Vietnam's prime minister push ahead with vital economic reforms.

HANOI - Eight months ago a frustrated Communist Party cadre decried the "radical weaknesses" of Vietnam's economy. Poor productivity, competitiveness and quality--especially at the state-owned enterprises--bore the brunt of his criticism. It wasn't a voice from the political wilderness. The dour assessment came from none other than the prime minister, Soviet-trained economist Phan Van Khai, in a speech last year to the national assembly, Vietnam's highest legislative body.

Khai has won some acclaim for promoting economic reforms, in particular expanding Vietnam's private sector. But since he took office in 1997, he has failed to muster enough political clout to implement many of the government's economic initiatives. Now, as the 68-year-old Khai heads into a new second term, there's a good chance that he will have more room to manoeuvre. Khai's position has been strengthened precisely because the party leadership is reeling from internal and external pressures that make his job harder, but also give him a stronger mandate. This time around, the leadership is grappling with a high-profile corruption scandal and struggling to digest the consequences of imminent trade liberalization. It's also locked into an ambitious reform timetable reflected in the new bilateral trade agreement with the United States that came into effect in December 2001.

With competition looming from the Association of Southeast Asian Nations' Free-Trade Area and World Trade Organization accession just around the corner, the party is counting on Khai more than ever to correct the economy's "radical weaknesses." Khai certainly appears to have a better shot this time at slimming down the nation's 5,650 state enterprises, a prerequisite to recapitalizing the overburdened state-owned commercial banks. In August the government will begin to dole out more generous cash payments to workers who volunteer to leave their state jobs, as part of a new "social safety net" programme. The private sector, meanwhile, is showing greater ability to absorb surplus workers. Thanks to a recent law that has made it easier to set up a business, 2,000 new companies are being launched each month. But Khai must succeed in abolishing hundreds more licences standing in the way of start-ups, and pump credit into the private sector.

That's crucial because Vietnam's prospects for navigating the WTO will depend on the ability of the private sector to meet external demand with internationally competitive quality and prices, says a new report from Vietnam's state-run Central Institute for Economic Management. The report warns that if Vietnam doesn't accelerate domestic reforms while it opens itself to external markets, most of the WTO benefits will accrue to Vietnam's trading partners.

Positive impact

The party views Khai as the right man for the job. The central committee did consider at least two younger candidates to step in as Khai's successor. But as party leaders weighed their political maturity, experience and economic savvy, they were unable to reach a consensus. Ultimately Khai was seen as the most reliable choice to reconcile internal party divisions and accelerate economic reforms. "A younger person's capacity to cope with resistance is weaker," notes one Hanoi party watcher. "He wouldn't have the political experience in handling party factions, and defusing conflict of interest among various forces."

Reconsolidating the leadership is a top priority. A corruption probe tainted with underworld scandal has punctured the party's complacency and spurred public demand for strict punishment. Of course, corruption is not a new problem in Vietnam. Every year, thousands of low-level cadres are dismissed or punished for alleged wrongdoing. But this time the rot has apparently reached as high as the party's central committee. In July, two central committee members were expelled. "How can Vietnam change and grow stronger after this?" questions one Vietnamese political analyst. "It's not just a matter of personnel changes, it's the system."

The system's vulnerability is clear. The state-run media in recent months has chronicled the dismissal of a high-ranking public-security official, two prosecutors, dozens of policemen and a media tsar from the Voice of Vietnam, the state-run radio. They are all suspected of shielding Truong Van Cam, known as "Nam Cam," a Ho Chi Minh City underworld boss accused of running gambling and protection rackets and ordering the murder of a rival gangster. Nam Cam was arrested last December and the corruption probe is expected to conclude in August. Trial dates have yet to be announced.

Khai will also face pressure from a small but tireless group of pro-democracy dissidents. They have protested at the sporadic pattern of harassment and arrest by the nation's security forces. The latest victim, Hanoi writer Nguyen Vu Binh, was detained shortly after he e-mailed his testimony to a United States congressional human-rights caucus. In a July 6 letter to the Vietnamese leadership, Binh and 16 other dissidents charged that "this is one of the darkest periods in the history of the Communist Party of Vietnam in the areas of culture, ideology, [and] reasoning." Will Khai and his new team prove them wrong? While the door remains shut to a multi-party political system, the team's main challenge lies in reviving the credibility of both the government and the party. That means scouring the ranks and moving beyond vague promises of economic and legal reforms. Some party insiders believe that Khai is determined to help younger, better-educated cadres move up in key ministries and curb the turf battles bogging down the government machinery.

Khai is not the only one to shoulder the burden of cleaning up government and pushing economic reforms. That job also falls to Communist Party General Secretary Nong Duc Manh and President Tran Duc Luong, both of whom also won another five-year term in July. But Khai and his new team of ministers--to be announced this month--will have the day-to-day responsibility of arm-twisting the bureaucracy to obey high-level policy directives. "For some time, there have been good signs from the political leadership," observes one European diplomat. "But beneath them you have a very thick layer of middle-level decision makers who have everything to lose, and nothing to gain, from implementing change."

One cabinet change that could make a difference is the expected promotion of former Trade Minister Vu Khoan to deputy prime minister. Khoan, 64, brings the team much-needed economic and diplomatic sophistication, grounded in deep knowledge of issues linked to China and the U.S. As Vietnam's chief negotiator on the U.S. trade agreement, he worked closely with affected ministries to pinpoint priorities and danger spots.

The trade picture is worrisome. Although the World Bank estimates relatively healthy GDP growth of 5.2% this year, export earnings dropped nearly 6% year on year in the first half of the year. Foreign direct investment approvals plunged 55% year on year during the same period. The good news is that lawyers and business consultants report that more foreign investors are showing interest in Vietnam again; actual foreign investment grew a year-on-year 11% to $1.05 billion in the January-June period.

The World Bank and the International Monetary Fund are counting on greater support for the private sector, as well as progress in banking and state-enterprise reforms, as mandated by commitments hammered out in 2001-02. "There is very impressive momentum right now," says Andrew Steer, head of the World Bank in Vietnam. Steer notes the benefits of "having a team that knows the programme, authored the programme and has reasons to make sure it's implemented." With potential investors waiting in the wings, the clock is ticking.

By Margot Cohen - The Far Eastern Economic Review - August 1st, 2002.