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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

DON'T FORGET VIETNAM

APEC's newest member is also hit hard

By Alejandro Reyes


VIETNAMESE DEPUTY PRIME MINISTER Nguyen Manh Cam has been doing the conference circuit. In October, he was in Singapore to address a major business congress. Weeks later, he flew to Kuala Lumpur to confer with fellow ministers at the annual meeting of the Asia-Pacific Economic Cooperation (APEC) forum. On both trips, Cam had the Crisis on his mind. "Only a short time ago, hardly any of us could have imagined that we would be discussing such a topic," he said in the Lion City. "The Crisis keeps spreading like an oil slick on water." He added: "It has increasingly been felt in Vietnam."

Still, the numbers suggest Vietnam has been spared the worst. This year, the economy is expected to expand 6% - down from 8.8% in 1997, but more than respectable compared with GDP contractions in Thailand and Malaysia. The Pacific Economic Cooperation Council forecasts 5.1% growth next year and 5.8% in 2000. That puts APEC's newest Southeast Asian member among the best performers in the region along with China. Both countries are still relatively closed compared to their Crisis-hit neighbors. They do not have open capital accounts, meaning their currencies were not directly affected by last year's financial meltdown.

Yet Vietnam is hit hard in other ways. In the first nine months of this year, exports rose by less than 5%, after averaging between 25% and 30% for the past five years. Overseas sales this year are not expected to be much higher than 1997's $9 billion. So far, foreign direct investment is running at only about 60% of last year's tally. Actual overseas investments reached only $1.3 billion in the January to September period, compared with $2.4 billion for all of 1997. Next year, the figure may plummet to as low as $500 million. Those numbers should not be surprising: 60% of Vietnam's exports go to Asian markets, while 70% of foreign inflows come from Crisis-battered East Asian economies. Beyond that, Vietnam is saddled with about $11 billion in foreign debt, according to the World Bank, though the government says the figure is more like $8 billion. All this means that Hanoi faces a serious balance-of-payments problem.

Cam blames the drop in foreign investment on the economic turmoil. "But we don't deny that we made mistakes and have shortcomings in implementing our licensing and project-approval procedures," he says. Vietnam's economy was already losing steam before the turmoil. In 1997, economic planners missed their 9% GDP growth target. The dong was devalued twice to maintain export competitiveness. The banking sector began to look decidedly wobbly, with some institutions including Vietcombank, the largest state-owned commercial bank, reportedly defaulting on letters of credit. There are worries now about instability. "The decline of the economy has exacerbated our social problems, particularly unemployment," Cam admits.

Despite the political and social controls put in place by the Communist Party, Vietnam has experienced some unrest. Last year, in the northern province of Thai Binh, police had to move in to put down peasant protests against corruption and high taxes. The demonstrations added to foreign investors' concerns. But their complaints are mostly about government policy. Take the auto sector. Hanoi has let too many players - more than a dozen - into the market too fast. U.S. carmaker Chrysler has already pulled out. Japan's Nissan Motor and Malaysia's Tan Chong Motor have put a $110-million joint-venture vehicle assembly plant in Danang on hold. In September, American power-plant builder Oxbow halted a $360-million project because of an argument over pricing with the state-run electricity company.

Cam, who also serves as foreign minister, insists that the government is working hard to solve the problems. "We can assure foreign investors that our policy is to improve the investment environment," he says. "This is clearly evidenced by the fact that our law on foreign investment has been revised four times. We have to maximize the strength of our domestic economy, while maintaining political and social stability. We need to combine economic growth with social equity. And we need to carry out financial-sector and banking reform." The rationalization of loss-making state-owned enterprises - there are about 6,000 of them - will be speeded up. But Hanoi has delayed the much-awaited opening of a stock market. The government is also said to be less keen to move toward a fully convertible currency.

Vietnam hopes to learn from the experiences of other economies through its membership in ASEAN and APEC. It is also continuing discussions in Geneva on joining the World Trade Organization. But Cam does not expect Hanoi to join for a number of years. There are other priorities. "We must emphasize political stability," he says, "so that investors don't have to worry." That may soothe some of them. In a new Asia where democracy and openness are becoming bywords, however, foreigners will want to see much more than that.


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