Washington Post
April 29, 2000

A Suspicious Vietnam Thinks Twice About Reforms
By Rajiv Chandrasekaran
Washington Post Foreign Service
Saturday , April 29, 2000 ; A01

HO CHI MINH CITY, Vietnam; When Khoung Thi Bich Lien opened her rental car company in 1995, offering customers their choice of a dark green Hyundai minivan or two white Toyota sedans, business took off.

Foreign businessmen, who had descended on Vietnam after the government began to embrace free-market reforms, booked her cars almost every day to drive around Ho Chi Minh City, a bustling metropolis still known to most people as Saigon.

But these days, the Communist government's reluctance to continue liberalizing the economy has led Lien's foreign clients to pack their bags. Now she has to tell customers it's the minivan or nothing. "I had to sell both Toyotas," she said dejectedly.

Twenty-five years ago tomorrow, the first North Vietnamese tanks rumbled onto the grounds of the presidential palace here, the last Marine helicopters lifted off from the roof of the U.S. Embassy, and the South Vietnamese government finally surrendered to its Communist northern neighbor, ending a war that claimed the lives of more than 58,000 Americans and approximately 3 million Vietnamese.

Now, in a world where Cold War politics have given way to the forces of globalization, Vietnam is once again in conflict. After a decade of enacting economic reforms that have given rise to a small but vibrant free market, Vietnam's government is unsure just how many more Western influences it should embrace, and just how much more Marxist-Leninist ideology it should shed.

As a result, Vietnam has effectively ground to a halt on the path from communism to capitalism, confused and suspicious about whether to keep going, turn around or simply stop where it is.

That indecision has dashed hopes here and abroad that this nation of 79 million largely well-educated, hard-working people would quickly become Asia's next economic tiger and the biggest new market for foreign investors after China. In 1994, dozens of large corporations poured money into Vietnam after the U.S. government lifted its trade embargo. Now, those same firms are pulling back, shuttering their factories, abandoning joint ventures and calling employees home. Foreign investment, which peaked at $8.6 billion in 1996, fell to $1.4 billion last year.

"The euphoria is gone," lamented one Western banker here. "Everyone is throwing going-away parties."

Vietnam won broad praise for its initial round of economic reforms, which began in 1986 as an experiment dubbed "doi moi," or renovation. Farmers were allowed to grow what they wanted and sell their crops at market prices. Urban residents were permitted to open small businesses, a freedom tens of thousands of families availed of, transforming parts of their homes into cafes, hair salons and boutiques. The newfound disposable income unleashed a mini-wave of prosperity, allowing people to trade in their bicycles for motorcycles, their black-and-white televisions for color models and their drab dungarees for comparatively hip threads.

But the reforms never permeated the upper reaches of the economy. Large factories are still state-owned. So are banks. Businesses complain of onerous regulation and taxation policies. Internet content is regulated by the government, and access is available only through the state-run post office, whose connection speeds are maddeningly slow.

At the root of the problem, say academics and other specialists who follow the country, is a deep-seated fear that opening up to the West will undermine the Communist Party's currently unchallenged grip on power. There are no large organized opposition or dissident groups in the country, and there are no perceived threats to central authority, such as the Falun Gong spiritual sect in China. Further reforms could change that dynamic, some leaders here fear, causing them to lose in the global marketplace what they fought so hard for on the battlefields a generation ago.

Vietnam's Communist Party chief, Le Kha Phieu, who heads a 19-member Politburo whose collective psyche has been shaped by the country's long struggle for independence, warns bluntly that Western nations still present a threat. "They continue to seek ways to completely wipe out the remaining socialist countries," he said in a February speech. "We should never relax our vigilance for a minute."

The most clear sign of Vietnam's wariness of further reform, political observers here and abroad say, has been the country's unwillingness to sign a formal trade agreement with the United States. After agreeing in principle to a pact last summer, Vietnam's leaders began to have doubts about the deal, questioning whether the requirements for economic reform would challenge too many state enterprises and vested interests, effectively weakening central government control.

In essence, the draft agreement has stoked old fears that the United States is out to recapture economically what it couldn't get militarily. "They don't believe that if you give up something in a trade agreement, you can still benefit in the long run," said Thomas J. Vallely, the Vietnam program director at the Harvard Institute for International Development. "They don't believe in a win-win scenario."

Vietnam, which had relied on the Soviet Union for economic advice and financial aid, "doesn't understand the realities of the new world order," Vallely said. "They are unaware that globalization has replaced the Cold War and become the operating system of the world."

Economists warn that Vietnam cannot afford to dither. Unemployment already stands at 7.4 percent, according to official statistics, and every year 1.2 million new workers are entering the job market. To absorb them, analysts say, the economy must grow by 8 percent a year – almost double this year's forecasted rate.

Cautioned Carlyle A. Thayer, a Vietnam expert at the Asia-Pacific Center for Security Studies in Honolulu: "Unless Vietnam enacts a new round of accelerated reforms, it stands to lose what it has gained over the last 14 years."

Reversal of Fortune

Lien, the rental car businesswoman, already has lost.

After working in a state-run printing plant for 20 years, Lien thought Vietnam's emerging private sector would be the ticket to a better life for her family, allowing her to buy new appliances for her house and pay for her daughter's university education. Using her savings, and money from her brother and sister who live in the United States, she opened her business in 1995.

In just a few months, Lien's monthly profit hit $400, allowing her to shop in supermarkets and take her family on vacations to Thailand and China. She splurged on cosmetics and massages.

Now that she has had to sell both Toyotas, her monthly income is less than $200. She no longer uses the five air conditioners in her house. Shopping is done at a traditional outdoor market, where she bargains with the vendors. The other luxuries she had grown accustomed to are also out of the picture.

"Business has gotten very tough," lamented Lien, 46. "Things are not nearly as good as they were before."

Lien attributes her reversal of fortune to the government's slow pace of reform and the resulting economic stagnation. "Only small improvements have been made," she said. "The government needs to make bigger changes or our situation will get worse."

That is a sentiment shared by many of Ho Chi Minh City's small-business owners, who chafe at the regulations and taxes imposed by the government. "It's okay if you are small," said one furniture store owner. "But if you want to expand, to hire more people and get a bigger building, that is very difficult."

Others say they know about economic growth in Vietnam's Asian neighbors and wonder why they are being left behind. "China has been able to balance Communism and capitalism," said the owner of a small clothing store. "Why can't we do that?"

Vietnam still has a nonconvertible currency, a primitive banking system, no stock market and few laws designed to protect businesses and consumers. State-owned businesses continue to be given preferential treatment over private-sector counterparts. And much of the capital used to start small businesses comes not from the government or local banks but from Vietnamese living overseas, who last year sent an estimated $1.2 billion back home.

Vietnamese government officials offer plenty of cautionary examples to justify their slow pace of change. They point to the chaos that enveloped the economies of the former Soviet Union and Eastern Europe when they tried to switch to a free-market system almost overnight. And they note that the economies of many of Vietnam's Asian neighbors cratered a couple of years ago because of excessive dependence on international financial markets.

"Vietnam needs time to develop itself," said Nguyen Dinh Mai, deputy director of the Department of Planning and Investment in Ho Chi Minh City. "It is not so easy for a baby to run fast. We must be cautious. We do not want to create a system where only a small group of people benefit."

But according to some economists, that is already happening. With its scooter-clogged streets and trendy cafes, Ho Chi Minh City is a unique bastion of prosperity, a city that accounts for only 6 percent of the country's population but more than one-third of its tax revenue. Just a 45-minute drive from downtown, farmers toil in rice paddies and live in huts made from palm fronds.

More than 80 percent of Vietnam's population lives in the countryside, many in impoverished conditions. In fact, even when urban wealth is taken into account, Vietnam's per-capita income is only $350 a year, according to the World Bank, making it one of the world's poorest nations.

For now, peasants – some of whom have held rallies in Ho Chi Minh City to protest corrupt practices by local officials – appear to take the wealth gap in stride. "We accept our fate," said Dang Thi Hien, 57, who sells clay pots on a roadside south of this city and lives in a shack. "Everyone has different living conditions."

'A Long Way From 1975'

Despite the glacial pace of economic reforms, Vietnamese officials contend – and outside observers agree – that the nation has made amazing strides in the wake of the war, which left large sections of the country littered with land mines, flattened by bombs and denuded by Agent Orange.

The nation has gone from suffering severe food shortages to becoming the world's second-largest rice exporter. More than 90 percent of the population can read. And poverty has been reduced faster than in almost any other country in the world – from 58 percent of the population in 1993 to 37 percent in 1998, according to the Asian Development Bank.

"This is a country that has come a long way from 1975," Thayer said.

But political analysts say the country's continued stability will depend on its ability to provide opportunities to the more than 1 million young people who enter the work force every year, many of whom have been schooled in the sciences and engineering but are reduced to clerical jobs – or unemployment.

"Vietnam may have the most unused scientific potential of any country in the world," said Harvard's Vallely. "They just need to put it to good use."

Analysts, diplomats and business executives who closely follow this country are divided on when it will start picking up the pace of reform. Some believe it could happen in a year or two, when the reality of the corporate exodus and the pinch on unemployment become more acute. Others say it will take much longer.

"It's a matter of the leadership dying off," said one American business executive who has worked here for five years. "They're too set in their ways to change. These were the guys who fought the great Communist revolution. They're not going to give up now."