Vietnam's Economy Exposed (Portfolio)
Video Transcript:
Video Transcript:
The Vietnamese stock market was still down on Aug. 22 although showing some signs of recovery after a massive drop on Aug. 21. The drop was directly related to the General Police Department of Crime Prevention's announcement of Nguyen Duc Kien's arrest. Kien, a banking tycoon who helped to start the Asia Commercial Bank, one of the country's largest private banks, was arrested for supposedly manipulating bank stocks for hostile takeovers. This arrest highlights some of the current political and economic stresses that plague Vietnam, underlining its economic challenges and exposing its endemic corruption problems.
At the Sixth Party Congress in 1986, Vietnam officially adopted its Doi Moi policy, a policy that promoted the marketization and liberalization of its economy, following China's blueprint for economic opening. The effects of Doi Moi started to really develop in the mid-1990s when official growth rates were often around 7 percent on average.
However, much like China's impressive growth, there are underlying troubles in Vietnam's state-centered economy, which became especially apparent after 2010 as the global economy slowed. The recent arrest of Kien highlights some of these problems. Vietnam's Doi Moi policy, centered on state-driven economic growth, fostered an environment where political patronage is paramount to economic success. Kien had built connections to the current prime Minister and former governor of the State Bank of Vietnam, Nguyen Tan Dung. This likely gave him an edge in the growth of his own personal wealth and influence.
Prime Minister Dung himself has been under fire for mismanaging the economy, and the exposure of several scandals involving state-owned enterprises. There are even rumors that he may face a vote of no confidence in October, pushing him out of office later this year or early in 2013.
According to Vietnamese economist Dr. Vuong Quan Hoang, the problems facing the Vietnamese economy are four-fold: First, the frozen bank credit market, which showed a negative growth rate in the first half of 2012. Second, the free fall of the real estate market in both prices and scale of transactions. Third, the deterioration of the already poorly performing SOE sector. And finally, skyrocketing bad debts. Vietnam has the highest number of bad debts in Southeast Asia, with non-performing loans reaching 8.6 percent by the end of March.
A recent survey of Vietnam's General Statistics Office released in June 2012 indicates that 8.4 percent of the enterprises surveyed were bankrupt or had closed, and the domestic private sector failures were closer to 9.1 percent. Dr. Hoang suggests an even direr situation. Recent tax records indicate that out of 623,000 businesses formally registered by the end of 2011, only about 400,000 enterprises continue to operate. Some of the reasons for these failures include rising inflation, limited access to loans, increasing transport costs, unreliable electricity supply and abrupt changes to economic policies.
The mounting problems in Vietnam parallel many of the problems that China is facing and despite efforts to privatize state-owned enterprises in both countries, vested interests in these industries remain a formidable challenge, stalling reform both politically and economically. State-owned enterprises in both countries are given preferential treatment especially for bank credit and land acquisitions, and their ties to powerful leaders ensure they have a continued sway in policy-making.
Further, in both Vietnam and China, factional infighting deters meaningful reform. Within Vietnam, there is ongoing factional warfare between pro-China and pro-business camps, led in part by Prime Minister Dung, and nationalization or anti-corruption camps, headed namely by President Truong Tan Sang. Prime Minister Dung until recently had the upper hand, but the Kien arrest may indicate a shift towards Sang's "clean" government push.
Nevertheless, these factional debates lead to competing solutions to Vietnam's economic woes and there is no firm agreement politically on how to move the country beyond its current economic hardships.
