Funeral bells toll for the Vietnamese dong

Vietnam’s Communist Party is resisting pressure for economic and social reform in the light of the economic crisis in south-east Asia. Foreign direct investment in Vietnam fell by half last year to £2.5bn. The country’s currency, the dong, is now virtually worthless at 14,000 to the dollar lower even than the Indonesian rupiah. So far […]

Vietnam’s Communist Party is resisting pressure for economic and social reform in the light of the economic crisis in south-east Asia.

Foreign direct investment in Vietnam fell by half last year to £2.5bn. The country’s currency, the dong, is now virtually worthless at 14,000 to the dollar lower even than the Indonesian rupiah. So far this year foreign direct investment is down 20%.

The World Bank and aid donors are having little success in getting Hanoi to reform state enterprise and banking. The party hierarchy has no intention of relinquishing power or lucrative positions in state companies.

The government, as in China, knows that it must reform its incompetently run state enterprises. Nevertheless, their continued protection ensures employment for many.

Tran Xuan Gia, planning and investment minister, said: ‘The number of new projects licensed in the year to March dropped 23% from the same period in 1997 and the inflow of capital from previously approved investments fell 20%.’ Nevertheless, he said Vietnam had licensed 93 projects worth £880m and realised £465m in actual capital. He forecast that economic growth in 1998 would be about 4%.

Overseas firms operating in Vietnam face a number of major obstacles. Official data shows that almost half the joint ventures and independents are carrying cumulative book losses a total of nearly £240m. Most are in heavy industry or tourism, with others spread through manufacturing and services.

The 1998 edition of Asia Pacific Profiles says a growing reliance on short-term capital to finance the current account deficit is a dangerous trend.

That some of these factors are becoming obvious to the government is shown by the recent agreement to allow state-owned furniture manufacturer Savimex, which last year had a turnover valued at £4.7m, to sell shares overseas.

Japanese firm Nissho Iwai has been granted permission to establish manufacturing lines in an existing local factory without direct Vietnamese participation.

Rice exports suffer

Vietnam’s neighbours are also badly affected. Indonesia recently cancelled a contract for 400,000 tonnes of rice because it could not obtain letters of credit. This money was earmarked for long overdue urban transport upgrades in Saigon.

Vietnam had planned to export 4 million tonnes of rice this year, up from 3 million in 1997. To alleviate the situation, the World Bank granted loans of £113m to Vietnam to improve urban transport and rural roads, to finance agricultural projects that have been postponed, and improve higher education.

One area that remains in the doldrums is the automotive sector, with 14 joint ventures licensed since 1991 to assemble cars, with a statutory 10% local content. Total capacity is several times the most optimistic assessment of demand new cars cost several years’ salary for most Vietnamese.

Notwithstanding the difficulties at home, Vietnam has invested £6.6m in a score of overseas projects, according to the Ministry of Planning and Investment. Half the projects and three quarters of the capital are in maritime transport, light industry and mining; the largest are in joint ventures in Russia.

Ed Weiss