Wall Street Journal
February 2, 1999
Hanoi Wants More State ControlBy REGINALD CHUA and SAMANTHA MARSHALL
In Wake of Asia's Financial Crisis
Staff Reporters of THE WALL STREET JOURNAL
HANOI, Vietnam -- Vietnam's Communist leadership says it has learned its lesson from the Asian financial crisis: It needs even more control of the economy.
It's not as if Hanoi has a particularly loose grip now. State-owned enterprises continue to dominate industry and an army of bureaucrats wields tremendous power through a maze of often-unclear and constantly changing regulations. But in a rare interview, Prime Minister Phan Van Khai argued that the main lesson of the crisis is that Vietnam needs to build an economy that maximizes the advantages of the country and plays down the importance of exports -- an approach that requires even more careful state supervision.
"We have to pay attention to the state management of the macroeconomy," the 65-year-old Mr. Khai said. "We should make the priority which areas we should invest in and which areas we should keep an eye on things."
This probably isn't exactly the message international donors, foreign investors and overseas economists were hoping the government would take home from Asia's problems. They've argued that Hanoi needs to loosen, not tighten, its hold if Vietnam is to avoid a deeper and more protracted economic crisis than the one battering the rest of the region.
But Mr. Khai -- a Russian-trained technocrat regarded as a relative liberal in Vietnam on economic issues -- didn't appear anxious to accelerate the opening of the economy. In an hour-long interview in the Prime Minister's Palace, a complex of buildings a short walk from the mausoleum of founding father Ho Chi Minh, Mr. Khai returned regularly to the need for government regulation and supervision.
Asked whether Hanoi should shift more quickly away from its policy of protecting domestic industry to encourage competition, the prime minister said Vietnam wasn't yet in a position to do so. "The economy of Vietnam is still in a weak position. If you [open the economy] in a hasty way, it may come to a collapse."
He also suggested the government shouldn't focus too much on exports. Instead, he said, Vietnam should look to the domestic economy to spur growth. "Given a population of 80 million people, the domestic market is very important if we create an appropriate market so that purchasing power is high and [we] consume a lot of products and so stimulate production inside the country."
But it isn't clear how Vietnam's largely rural population, with a per capita income of around $300, is going to boost its purchasing power significantly. Foreign investment, a key source of growth over the past few years, is slowing; one foreign lawyer notes his firm has already cut its professional staff in Hanoi by half.
Still, Hanoi may be able to stave off pressures to accelerate reform for some time. The international donor community's agreement in December to provide Vietnam with $2.2 billion in loans and aid may buy the government some breathing room. "Change slows when the Party has the budgetary outlays to maintain the status quo," said Adam Fforde, a fellow of the Research School of Pacific and Asian Studies at Australia National University, referring to the Communist leadership.
To be sure, the government is still striving to hit economic growth targets of 5% to 6% this year, Mr. Khai said. But even the World Bank, usually one of Vietnam's more upbeat donors, now expects growth of 3% to 4% and a further slowdown. Mr. Fforde forecasts growth of just 1% to 3% this year and next.
Nothing short of fundamental economic changes will stop Vietnam's slide, economists say. "If Vietnam hasn't made deep structural reforms it will be even less competitive once the rest of the region recovers from its economic crisis," said Carlyle Thayer, a professor of Asian Politics at the Pacific Center for Security Studies in Honolulu. "Vietnam's leaders are living in a fool's paradise if they think they are going to be isolated."
That means Vietnam must make the tough choice between economic reform with the risk of short-term political instability, or political stability at the even greater peril of falling further behind its neighbors once the region recovers from the economic crisis.
By comparison, India is a nation that survived years of nearly stagnant growth without too much political upheaval. "But then India is a democracy," said Ari Kokko, an economist at the Stockholm School of Economics. Governments like Vietnam's, which aren't based on pluralism, need prosperity to maintain political legitimacy, he said.
Focus on Corruption
One way may be to root out corruption, and that's been a recurring theme in recent regular meetings of high-level Communist Party officials. In the interview, Mr. Khai pledged to "severely punish" dishonest government officials regardless of their rank.
In another move against corruption, Mr. Khai said the government is planning to raise the salaries of civil servants to lessen the temptations of graft and additional payments to officials in such areas as customs, tax and law courts. "We are also thinking about a form of yearly subsidy in order to keep them clean," he said, although he also noted that even rich people were sometimes corrupt.
Still, that doesn't mean the government will tolerate the airing of the Communist Party's dirty linen. Last month, Tran Do, a retired general and former senior party official, was expelled from the party for speaking out against high-level corruption.
"If Mr. Do has different views he can air them within the Party organization or send his views to the party leadership; that's no problem," said Mr. Khai. "But he has different views and he disseminates them abroad and inside the country. So we have to deal with him and let him out of the party because he broke the rules."
Asian Wall Street Journal
February 1, 1999
AWSJ:Excerpts From Interview With Vietnam's Premier KhaiDow Jones Newswires
The following are excerpts from The Asian Wall Street Journal's interview with Vietnamese Prime Minister Phan Van Khai:
On lessons learned from Asia's financial crisis:
The most important lesson we learn from the situation is that we need to build an appropriate economic structure in conformity with our economy's advantages. This is because some economists say that some Asian economies are just bubble economies. Appropriate economic structure is important whereby we can make full use of the potential of the country and the advantages of the work force.
Following the international trend of globalization in the world we cannot separate ourselves from international economic institutions. In order to be successful in the integration process in international organizations, the decisive factor is the quality of our products. We will certainly come to a point in the future where there will be commercial and trade liberalization; therefore the quality of our products is very important. Therefore due consideration is made in order to make decisions about which factories we will build, which products we will turn out, because the quality of the products is decisive.
In the past some countries could not control the loans they were borrowing from foreign countries. The state of some other countries allowed the private sector to borrow too many loans from abroad and let them invest in real estate. Another matter in other countries is that transparency is not enough. The private sector or other sector in the economy didn't have transparent reports to the government or to the state. Therefore the government is not aware enough of the situation in their country and it comes to the stage of defaulting on loans.
Therefore ... we have to pay attention to the state management of the macroeconomy. We should make the priority which areas we should invest in and which areas we should keep an eye on things.
The state must control the loans borrowed from foreign countries, both from private and state sectors. We need to inspect the loans they borrow, which areas they are investing in, which products they are going to produce, to see their capability of repaying the loans. We also need to control which technology, which machine or equipment they are going to import into the country, whether such imported equipment can produce high-quality products at a reasonable competitiveness.
On whether Vietnam should liberalize trade faster:
The economy of Vietnam is still in a weak position. Therefore we have our own road map for this. In the current trend no country can close its doors. But if you do it in a hasty way it may come to a collapse.
On the balance between economic reforms and maintaining political stability:
We still push our reforms in every field.
The development of our economy, the improvement of the people's living standard, the improvement of their lives in general, is the base for political stability in Vietnam. We need to do more to let the people have a better life politically, economically and this is the base for political stability. Only if we do so can we ensure the leadership of the party and the government. We also must devise a way to make the state machinery cleaner."