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Mar 31st 2012 | HANOI | from the print edition

Vietnam

Hero to zeroThe Communist Party sticks to its principles and the

economy stalls

AMID the bustling trade and raucous traffic of the Vietnamese capital,

innumerable banners exhort citizens to Celebrate the Spring,

Celebrate the Party. These days, Hanoians do not have much to

celebrate. Not long ago, Vietnam was one of the developing worlds pin

-ups. Now it is lagging badly.

The most immediate concern is

inflation, which last year rose to above

20% for the second time in three years(see chart). Vietnam now has Asias

highest inflation rate, a fact that

government censors have asked local

journalists to stop reporting. Thousands

of businesses have gone bankrupt,

property prices have collapsed and

banks and state-owned enterprises

(SOEs) are riddled with bad debts.

The reversal has been sudden. Vietnams GDP increased by more than8% a year from 2003 to 2007, when the country attracted a surge of

foreign investment. Now the World Bank is predicting that growth will

average 6% a year in the five-year period up to the end of 2012.

McKinsey, a consultancy, argues that unless Vietnam boosts its labour

productivity by more than half, growth is likely to dwindle to below 5%.

That will be well short of the governments target of 7-8%. As McKinsey

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argues, the difference sounds small, but it isnt. By 2020, Vietnams

economy could be almost a third smaller than it would have been had

economy continued to grow at 7% a year.

Everyone, even communist leaders, agrees on the main reasons for the

slowdown. The poorly run, corrupt and wasteful SOEs, which accountfor about 40% of output, weigh the economy down. The formula of low

-wage, low-cost manufacturing no longer works as it once did.

Countries such as Cambodia and Bangladesh now undercut Vietnam in

cheap manufactures. Yet the country has failed to move up the value-

chain into more productive activities and higher-tech goods.

Frustratingly, however, realising this and doing something about it

seem to be two different things in the minds of Vietnams communist

rulers. A few optimists were hoping for changes at a three-day meeting

of senior party cadres last month. Alas, there was a lot of breast-

beating and little else. Nguyen Phu Trong, the general secretary of the

Communist Party, urged the party to reform if it wanted to avoid an

existential threat. But although his speech was made public, the rest of

the meetingin time-honoured fashiontook place behind closed

doors.

Calls by the party to reform or die are not new. Theyve been saying

that for 20 years, says Carl Thayer, an expert on Vietnamese politics

at the Australian Defence Force Academy in Canberra. What is missing,

now as in the past, is any detailed plan about how to implement

reforms such as restructuring the clunky state-owned sector,

streamlining public investment and improving transparency. Nine

executives from Vinashin, a debt-ridden state-owned shipbuilder, went

on trial on March 27th charged with mismanaging state resources. It is

the biggest case of its kind for several years, but the politicians who

encouraged and financed the companys grandiose expansion, including

the prime minister, are not likely to be held to account.

Even if there were a change of mind at the top, it would still be difficult

for leaders to implement change throughout the system. Power in

Vietnam is more dispersed than in neighbouring China, and vested

interests in business and politics are bigger obstacles to change.

Moreover, whereas Chinas Communist Party has had some success in

reinventing itself as an Ivy League-style networking club for the elite,

its comrades in Vietnam appear stuck in the past. The legitimacy won


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from the print edition | Asia

by military victories more than a generation ago is fading into distant

memory, and Vietnamese leaders claim to economic competence is

increasingly difficult to sustain.

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