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With inflation soaring, Vietnam’s factories are feeling the pinch. Are a raft of government reforms too little too late to prevent an economic crisis?
With the streetlights warming to a low glow outside as dusk turns to dark, Trang Hoang Yen is still running t-shirts through a sewing machine as most of her staff leave for home.
“Normally we have a lot more workers, but the past year has been very hard for our sector,” she says, stopping work for a few minutes to talk.
Trang Hoang Yen's small factory, on a side street in Ho Chi Minh City, has seen better days. Down from 30 to 14 staff year-on-year, she says the company’s input costs “have gone up, and production costs have doubled.”
Inflation in Vietnam hit 23 percent in August, although it has since dropped off a little to just under 20 percent. The Vietnamese government has responded with a number of countermeasures in an attempt to cool an economy in danger of overheating, although some analysts say the lid is already bubbling off the pot. Vietnam's foreign exchange reserves are on the slide, and the country faces a trade deficit of $10 billion in 2012, according to the government.
So, will the reforms, including credit restrictions and interest rate hikes, be enough to cool things? Some analysts think not.
In comments delivered at a donor conference in Hanoi on December 6, International Monetary Fund resident representative Sanjay Kalra was clear on the issue, saying, “The authorities need to move rapidly and decisively to ensure financial sector soundness while re-establishing macroeconomic stability.”
Other remarks delivered at the forum focused on the need for reform of the banking sector, privatization of state-owned enterprises and the curbing of corruption. Vietnam was ranked 112 out of 182 countries surveyed in the latest Transparency International global graft index, published last month.
Some donors spoke about Vietnam’s poor record on human rights and freedom of expression, with lawyers, writers, bloggers, activists, journalists and protesting civilians regularly being arrested and jailed. Norwegian Ambassador Stale Torstein Risa told Vietnamese Prime Minister Nguyen Tan Dung that loosening political restrictions in the one-party state could contribute to a sounder economy.
Vietnam now seems to be at an economic watershed, perhaps reminiscent of the 1980s, when it introduced its much remarked upon doi moi ‘opening-up' of the country's economy to foreign investment, following China down the authoritarian-liberalization political economy path. Normalization of relations with the United States in 1995 brightened Vietnam’s “rising star” status, culminating in Hanoi joining the World Trade Organization in 2007.
Speaking at a November 28 Hanoi business lunch for Irish investors in Vietnam, Deputy Minister for Planning and Investment Cao Viet Sinh said there are 13,450 investment projects in Vietnam, adding that the government hoped to attract more in the coming years.
Brands such as Intel, Honda and Nike have all opened large plants in Vietnam, whose attractiveness for investing companies is partly rooted in its cheap labor force, estimated to be the second-lowest in Asia after Cambodia by the European Chamber of Commerce in Vietnam, and thus a major pull for investors in labor intensive sectors such as clothing and footwear.
Photo Credit: Christian Haugen
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Industrial Policy
One of the best reasons to work in IT, is arguably the money. Information technology is known as a career that pays fairly well, across many areas.
huyhoang
A government is legitimate only when it has the consent of the governed.
Does CPC or VCP fall into this definition?
Whores by any other name
Vietnam is one of the most corrupt countries in SE Asia today.
The banksters are front men for the government,the wealth of the nouvue
rich is sickening. Bentley only parking, cell phones for $15,000
and their is such a gulf between rich and poor. They send their children to
good schools abroad and the weekly allowances are $2000 a week.
This is why the new boom will bust with fake real estate and bubbles.
Land in Vietnam is worthless crap selling for the prices of Moscow and
Paris.
yang zi
Vietnam is a Confucious culture society, it has many similarities with China. VCP political reforms are actually much further than CCP.
I read somewhere Chinese loaned 10b RMB without interest to Vietnam this year. and numerous other low interest loans for projects. China is wise to support Vietnam.
One thing I found interesting is, Vietnamese are gadget lovers and they love the best of them. Chinese likes them too but most are more practical and just buy cheap and functional ones. Vietnamese love for the best is a waste of money and not efficient for the poor state of economy. Hint, buy Made in China. The whole world does, why not Vietnam? Too proud? Have too much money?
DAVID SHELLENBERGER
Vietnam needs economic, as well as civil and political freedom. The government stands between the people and the prosperity they could enjoy.
As to inflation, this reflects the central bank’s predictable mismanagement of the money supply. Along with privatizing state industries, deregulating the economy, and removing barriers to trade and investment, the government should close the central bank in favor of free banking.
Tom Tran
Lot of talk but I bet any of you were ever in Vietnam, experienced the things Vietnamese people did, felt, struggled to barely live out of a tightening noose of the VCP. The entire ordeal lays in the way the politics intertwined with family tradition (much like China, North Korea, Cuba or most still communist countries now). Under this atmosphere, there is nothing more than a bunch of crooks holding onto power (and a lot of wealth) by enslaving the population. My parents are still member of the VCP, but you know what, after monthly meeting, they cursed everything they could about the party, the BS propaganda. China fares pretty well due to its size and economy of scale. Even a small problem could spiral out of control rapidly, thus the CCP did a pretty good job in moving the nation forward, keeping everyone on the same boat, advance the economy, military, national pride and national unity. The situation with the Viet is entirely different. Vietnam is relatively small, and manageable. Its internal security and military is extremely well established, nurtured (and if maybe you want to call, brainwashed) to protect the party. Thus, the threat to the VCP is never from a collapsing economy. In the worst time, they could always shut the door down, put a lot of guns in the streets, and the opposite voice become silent. So to be afraid of economic crisis? maybe a big time for the population, but not for those in power, if there was ever a real crisis. It may be a turning point in the next few years, whether they could adopt a civil society by the rule of law, only by then it could mobilize resources from the people, or they keep procrastinating and risk an Arab style coup in the future. My take is that there is no incentive for the system in power to change itself, given that its position is well protected and financed by both the historical context and by a rather obedient society.
nirvana
@Tom Tran,
As I see it, the difference between VCP and CCP is that the VCP has established a clear legitimacy of leadership during the 3 successive Indochina wars. It is in peace time economic “struggle” that the VCP is definitely (and understandably) incompetent.
Also, if your parents are old enough, ask them whether the Vietnamese are naturally obedient people.
Yeu Nhac Vang
@nirvana
“… the difference between VCP and CCP is that the VCP has established a clear legitimacy of leadership during the 3 successive Indochina wars…”
You know nothing, absolutely nothing about Vietnam by ignoring the inconvenient truth that half of the current Vietnam was seized by the VCP by force! Yeah, ‘legitimacy’ over the barrel of a gun!
The problem of inflation in Vietnam, unlike China, is that Vietnam hops on the bandwagon of over-consumption, speculations of all sorts by the noveau rich, corrupted officials, and “industrial policy” day dreamers among its economic planners. In short, ordinary people are made to suffer as a result of the country’s elites wanting to run before they have learned how to walk.
China’s inflation problem is the result of her post-industrial development (for the lack of a better word, I use the term ‘post-industrial’ for now), Vietnam’s inflation problem is just the reverse, it’s the result of their trying to run before they have learned how to walk.
nirvana
@Yeu Nhac Vang,
>>”You know nothing, absolutely nothing about Vietnam by ignoring the inconvenient truth that half of the current Vietnam was seized by the VCP by force!”
—
The truth would not be complete if you don’t mention that it was that “half”, the South Vietnam, which refused to hold the general election for reunification of North-South in 1956, as stipulated in the Geneva accords (1954). It was the South military that assassinated its first president Ngô Đình Diệm in 1963, leading to a military dictatorship and a full-scale US army involvement. De-classified documents show clearly that president Ngô Đình Diệm was probing for a negotiated solution with the North when he was assassinated. Three weeks later, it was president Kennedy’s turn to be assassinated. He too was contemplating a de-escalation of the war.
When the Paris Peace Accords were signed in 1973, both the South and the North were prepared for the last stand-off and both sides violated blatantly the armistice. And then the South was defeated militarily in two years time.
From your screen name, it is obvious that you were a citizen of the defunct Republic of Vietnam of the South. I understand your feeling. But history shows that righteousness is not on the side of your government. In fact, most historians would say that this government did not have the majority support of the South Vietnamese population, at least not at the same level as enjoyed by the VCP in the North, at that time of the war. Now, it appears that you want to keep that wound permanently open. That is for you, there can not be a unified Vietnam, forever.
Cam
@Nirvana,
I have to disagree with you on “the VCP has established a clear legitimacy of leadership during the 3 successive Indochina wars”. It is the patriot of Vietnamese people, which has been hijacked by the VCP all along during the last Indochina wars. With their skillful propaganda machine, the “legitimacy” has been polished by any means to make it look better. Please remember, there were non-Communist people from all walks of life joined the Viet Minh during 9 years of the war against the French for independence. For example, my great grandpa was a landowner from the South. He supported the Viet Minh (communist) by giving up his lands so it could be divided among those of his poor peasants and by sending his own French educated sons to join the Viet Minh fighting the French. And what he got in return? He was accused as landowner, and one of his sons was executed by the Viet Minh as they suspected he was a spy for the French.
And you also ask any of former NLF (National Liberation Front) veterans of the Vietnam war how they feel now if some are still alive. They were non-Communist Vietnamese from the South, who joined with Communist North Vietnamese fought against their southern brethrens and Americans. After the war, they were just nothing “but a walking shadow, a poor player, that struts and frets his hour upon the stage, and then is heard no more; it is a tale told by an idiot, full of sound and fury, signifying nothing” . here is Truong Nhu Tang, one of the famous NLF veteran for your reference.
http://en.wikipedia.org/wiki/Truong_Nhu_Tang
The north has “the righteousness” on their side, because of their skillful diplomacy and the super propaganda, where communism was a dream, a “paradise of the blinds”, even for the bright and avant garde such as Jean-Paul Sartre. Obviously, the North Vietnamese were brainwashed by the VCP but what about the south vietnamese? Unfortunately, the corruption of military dictatorship, the presence of American soldiers and allies in large number (made the South look like the occupied land), the tiredness of war casualties finally took a toll on the democratic infancy of Republic of Vietnam. After the war, people from both side realize they were just a fool, espeically for people from the North. Duong Thu Huong is one of examples of the former VCP.
http://en.wikipedia.org/wiki/Duong_Thu_Huong
I totally agreed with Tom Tran’s comment above. The VCP is just a bunch of crooks trying to hold on power and wealth, which is created by their power. The only solution for a free and prosperity Vietnam is to get away from the shadow of the CCP and give back to power to the people. From what I am seeing now, not much would change significantly in 10 years given the nature of the communists, they can kill their own people, just to prove they are right all along.
Cam
Sorry for not puting William Shakespeare after the quoting. I wasn’t intended to steal his work though.
nirvana
@Cam,
I am sorry that your family was victim of violent abuses during the first Indochina war. I think that it was not the result of some excess by zealous members of the VCP but a consequence of the Maoist “class struggle” doctrine that prevailed for a certain time in this period. Let it be clear. It is not my intention to glorify every aspects of the VCP governance, past or present.
The three Indochina wars were all lengthy wars that have demanded incredible sacrifices from the Vietnamese. It is undeniable that the VCP did not provoke any of these wars. Hostilities were imposed on them. You have to acknowledge this. It is difficult to believe that a raw propaganda from an illegitimate clique can gather consensus in a population to fight un-rightful, lengthy, successive wars. And each time, they came out victorious. Not once, three times in a row. You can not fool people thrice, certainly not the Vietnamese. The counter-examples can be found precisely in the several attempts to form “nationalist” governments to counter the VCP in the first two wars. There were simply no credible “alternatives”, IN THESE TIMES OF WAR.
Now, in today’s peace time (let’s cross our fingers that it lasts), would the VCP form of government be the one desired by the Vietnamese? Let me quote a French politician “People have the form of government that THEY deserve”.
William
@TomTran
The advantage that the VCP has over the CPC is that they have a lot more legitimacy than the CPC, and have the history to prove it. Yes the CPC has done a better job, because they have too. The next Chinese leader is going to be the first one that has not been chosen by Deng Xiao Ping. Vietnam has gone through 7 leadership transitions since the death of Ho Chih Minh. If China was to have the problems Vietnam is facing, there will be major protest.