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Vietnam’s reforms on the line

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As Vietnamese Prime Minister Nguyen Tan Dung returns from his hat-in-hand trip to the United States, at home he faces a fast deteriorating economy, rising social unrest and now behind-the-scenes opposition over his leadership style and economic policies from inside his own ruling Communist Party.

Vietnam’s sudden and spectacular economic meltdown – witnessed in a 26.8% inflation rate in June, a spiraling current account deficit, the world’s worst-performing stock market so far this year, and most recently rumors the government has requested an International Monetary Fund bailout package – is generating unseen but discernible ripples inside the secretive ruling party, according to political analysts who closely monitor party personalities and maneuvers.

Dung’s inability to rein in inflation and calm market jitters has provided a wide opening for conservative party elements to make a case against the reformist premier, who is known to have irked party elders and provincial leaders through his individualistic and non-consensual leadership style. Analysts now wonder whether those divisions could widen enough to reverse some of Dung’s more ambitious economic and financial liberalization initiatives, including more openness to foreign investors.

To be sure, all of the party’s central committee members and elites are believed to have benefited immensely from the country’s recent rapid economic growth, which is still expected to hit 7% this year. It is therefore unlikely any conservative figure will in the near term present a direct challenge to Dung’s position, which he earned after a long period of apprenticeship under his reformist predecessor, Phan Van Khai.

But the tensions now straining party unity are believed to be the most intense in over a decade and will likely be aired behind closed doors at the next central committee plenary session in July. There is also growing speculation that an emergency mid-term party conference might be called for the first time since 1994, a year when intra-party divisions also ran rife over the country’s economic reform direction. A mid-term meeting would provide a crisis management venue for senior cadres to debate Dung’s performance and represent a potential platform for conservatives to reassert influence over economic policies and reforms.

Vietnam’s youngest prime minister under Communist Party rule, Dung, 59, has established strong progressive credentials since taking office in 2006, witnessed in the various trade and investment liberalization policies he has pursued, most notably the country’s January 2007 accession to the World Trade Organization (WTO). As part of reforms passed in 1992 aimed at devolving more responsibility from the politburo to individual ministers, the prime minister’s office has grown in both size and importance in recent years.

In light of Dung’s relative youth and roots in the country’s more capitalistic southern region, many expected him to serve two five-year terms on his appointment. His elevation was widely interpreted then as the Communist Party’s endorsement of faster and wider-reaching economic and financial reforms, which true to form have aggressively implemented.

Now, with sudden new fears of a financial collapse and the concomitant risks of widespread social unrest, Dung’s reappointment as premier at the next national party congress in 2011 seems suddenly in doubt. Moreover, the position of party progressives took a hit with the recent death of former prime minister Vo Van Kiet, a liberalization stalwart who maintained sway over a group of party officials, including to some degree Dung, who promoted his reform ideals even after his retirement. With his passing, the progressive camp has lost a powerful behind-the-scenes patron.

Spurned conservatives
At the same time, Dung has made some powerful party rivals during his two-year-old tenure, many of whom are known to be irked by his move away from the party’s past consensus-driven policymaking and his perceived penchant for showmanship in a political culture that has traditionally emphasized nameless collectivity. He also faces criticism for moving to eclipse the influence of party secretary general Nong Duc Manh, the highest-ranking official on the party’s 14-member politburo.

Chief among Dung’s conservative rivals are three old-guard deputy prime ministers, Truong Vinh Trong, Pham Gia Khiem and Nguyen Sinh Hung, all of whom rose to political prominence at the party’s national congress in 1996. Dung attempted and failed during a 2007 cabinet reshuffle to transfer Hung laterally and have Khiem stripped of his concurrent post as foreign minister.

Spurned by the elder ministers’ respective political camps, Dung moved to dilute their influence by expanding the number of deputy premiers from three to five and appointed young technocrats, Harvard University-educated Nguyen Thien Nhan and former Electricity of Vietnam senior manager Hoang Trung Hai, to the newly created posts.

Dung’s individualistic style has also weakened the relative influence of several key central committee conservatives, including Minister of Public Security Le Hong Anh, Minister of National Defense Phung Quang Thanh, Minister of Information and Communications Le Doan Hop and head of the State Inspectorate Tran Van Truyen, according to University of New South Wales professor and Vietnam expert Carlyle Thayer.

Other analysts wonder whether the ambitious southerner Anh, currently the second-ranking official on the politburo, might move to capitalize on Dung’s troubles and make a run for the premiership at the next national party congress in 2011. It is not clear now whether Anh has the numbers needed to mount a conservative challenge to Dung’s position, but if the country’s galloping inflation, including a 74.3% jump in food prices in June, morphs into a full-blown financial crisis, the veteran politician would be among the frontrunners to take over.

The central committee is still the heart of political power in Vietnam and is currently split among three generational groups, of which the youngest and mostly progressive camp accounts for 45% of its membership; since their election in 2006 they have led the way in implementing Dung’s reform programs. Beyond the politics of age and personality, there are also commercial reasons for intra-party dissent.

At a plenum meeting held under Dung’s watch last year, the party, army, police and mass organizations were ordered to begin divesting their substantial and lucrative commercial enterprises. As of early 2007, Vietnam’s army ran 140 different enterprises and earned US$2 billion in revenues, or 3% of gross domestic product, in 2006, according to Thayer.

Reform test
Commitment to those and other liberalization initiatives will be put to a crucial test in the coming months and will be determined by deliberations at party meetings, including the possible mid-term national congress. Dung is known to have the support of the country’s economic and financial elites, but as the meltdown gathers pace, he now vulnerable to conservative pressures on various policy fronts, analysts say.

Many have pointed in particular to his government’s support for rampant and ill-advised lending to state-owned enterprises (SOEs), most of which have struggled to reform into market-oriented conglomerates geared to compete for global markets, as one major cause for Vietnam’s runaway inflation.

Those fast and loose lending practices, encouraged under Dung’s watch, are now coming under heavy international scrutiny. One sovereign analyst with a major international credit rating agency told Asia Times Online that a major SOE he visited last year failed even to keep accounting records of its annual profits and losses.

Dung’s government’s inability to manage the inflationary effects of rapid foreign capital inflows is also a point of criticism. The government’s recent decision to temporarily limit gold imports, which local punters were hoardi
ng as a hedge against inflation, has sparked investor concerns that the central bank may soon move to impose some sort of capital controls to keep foreign money locked in and curb downward pressure on the local currency, the dong.

The central bank considered that restrictive option in 2007, then to cool off an overheating stock market, but backed away on fears the controls would send the wrong signal to the long-term foreign investors the government was courting to build factories. Dung has strong command over the central bank, but conservative calls to stop the economic rot at all costs could soon drive him into more restrictive policies that prioritize local over foreign interests. At particular risk, one analyst suggests, are the 100% foreign-owned branches granted to select foreign banks, including Standard Chartered, earlier this year.

Experts note that is what happened in the early 1990s, when the party first opened the doors to foreign investment and then abruptly closed them due to xenophobic concerns among party elders. In the run-up to the central committee’s meeting next month, Dung will no doubt try to play up the recent trade and investment agreements he earned in Washington this week after high-profile meetings with US President George W Bush and former Federal Reserve chairman Alan Greenspan.

Yet as Vietnam’s economic and financial problems mount, it is not clear that Dung’s pro-globalization credentials will have the same cache at the upcoming party meeting as they did last year, when the country triumphantly entered the WTO.

According to academic Thayer, even with the intra-party tensions, it is still more likely that the central committee will adopt a face-saving compromise that accommodates both progressives, including Dung, and conservatives.

What is more clearly at stake is the individualistic and high-profile leadership style Dung has leveraged to push through tough economic and investment reforms, which are now at risk of being reined in by party conservatives bent on re-exerting collective control over economic reforms and the national leadership. Vietnam’s economic future now hangs in the political balance.

Shawn W Crispin is Asia Times Online’s Southeast Asia Editor. He may be reached at swcrispin@atimes.com.

Written by tristhefall

June 30, 2008 at 8:21 am

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