Magazine article Business Asia

No Cause for Hope in Hanoi

Magazine article Business Asia

No Cause for Hope in Hanoi

Article excerpt

Attempts to be positive about Vietnam are stymied by the bare, unpalatable facts

One would like to be optimistic about Vietnam's economic future. In the early 1990s when foreign investment in Vietnam started to gain momentum there was great enthusiasm both within Vietnam and the foreign investment community.

Today, that enthusiasm has waned. Hanoi and Ho Chi Minh City are confronted on a daily basis by recently completed hotels which have yet to host a guest and abandoned building sites begging for renewed interest. Foreign capital has retreated from Vietnam and private domestic capital is yet to show its potential. The state continues to subsidise state-owned enterprises and the Communist Party's grip on policymaking appears to be strengthening.

The challenges for Vietnam are indeed formidable.

It appears that at least for the next five years the economic prospects in Vietnam will not improve substantially. There are serious signs of equivocation with respect to reform. A recent key indicator is the delay in finalising the trade agreement with the US. Despite ongoing negotiations, President Bill Clinton's proposed Vietnam-US trade agreement has not yet been signed. We still only have agreement in principle.

The agreement would have meant substantial trade and investment advantages for Vietnam but less direct control, which is a dining element of integration into the global economy. The younger members of the Vietnamese negotiating team proposed a deal which unsettled the older generation. This generational contradiction will not be overcome quickly.

The problems evident in Vietnam today are not solely a consequence of the 1997 financial crisis which ravaged other economies in the Asia region. As a consequence, Vietnam will not bounce back as quickly as other economies such as South Korea.

In fact when data for Vietnam are examined carefully, it is clear that the drop off in foreign investment started in 1996 -- an indicator of broader troubles within the economy at large. …

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