Vietnam: political change, economic stability

The sun is rising on Vietnam’s economy. Source: Wikimedia 

The markets have been worried by the Vietnamese Communist Party’s apparent inability to opt for a radical shift in leadership at its recent general assembly but as the dust settles on its reshuffle, its prevailing economic direction remains consistent.

A weeklong power struggle in a country where political debate is deeply limited has ended with Nguyen Phu Trong remaining as the party’s general secretary, the most powerful role in the country.

Much has been speculated about the ejection of Prime Minister Nguyen Tan Dung, the pro-business reformer who was being widely linked with the top job.

There is talk that the more conservative and pro-Beijing Trong, who experienced a troubled relationship with Dung, could reduce moves to liberalise the economy and hamper the ratification of the Trans-Pacific Partnership (TPP) and end the recent rapprochement with Washington.

Much of the discussions about leadership divisions might well be exaggerated, as there is little evidence that there is significant dissent about Vietnam’s economic direction among the ruling elite.

They all know that growth is essential if the population will continue to accept their authoritarian rule. Vietnam is increasingly looking for an open, competitive economy that is more “diversified”, which is code for less dependent on its giant neighbour to the north.

Dung’s demise has sparked frenzied social-media discussion.

Hanoi has tended to avoid single, charismatic leaders, since the death of Ho Chi Minh in 1969.

Andrew Fennell of Fitch Ratings in Hong Kong opined: “Vietnam operates under a consensus-based decision-making framework, and therefore changes in personnel will not immediately alter the policy trajectory.”

Hanoi’s commitment to a structural reform-oriented policy, including a focus on macro stability and market liberalisation, would remain central to its macro outlook, Fennell argued.

With the charismatic, relatively youthful Dung as general secretary role and selecting he protégé as prime minister, he would have been free from many of the checks on power that have ensured stability in Hanoi in recent decades.

Some suspect members of the elite feared that Dung would have shone unwanted light on to their activities, similar to President Xi Jinping’s anti-corruption drive in China.

The allocation of the four top jobs, general secretary, prime minister, state president and national assembly chairman, has dominated attention but statements on economic policy are fully consistent and simple.

Hanoi’s 2016-20 economic plan aims to support the private sector, create access to credit, land and meeting other requirements.

Trong told delegates that the “private sector is an important engine of the economy”.

Hanoi would continue “refining and modernising the financial and banking sector”, further privatise state-owned companies and upgrade Vietnam’s infrastructure, said Deputy Foreign Minister Le Hoai Trung, who was re-elected last week to the powerful central committee of top 200 leaders overseeing the party’s affairs.

“The message is that we will continue with our economic reforms even though we know there are challenges,” Trung said. “The reforms have brought about historic and significant results, so we would go forward with it. It’s also the wish of the public.”

It is clear the leadership aims to harness Vietnam’s legendary work ethic. If the effort and ingenuity shown by the nation during its wars in the second half of the 20th century had been channelled into the economic sphere, the country would look very different today. No other nation can boast that it defeated three of the five permanent members of the UN Security Council – France, the US and China, in that order – in the space of three decades.

Hanoi is aiming for a 6.7 per cent GDP growth and a rise of GDP per capita to a still tiny US$3,750 by 2020 but an increase of 83 per cent from 2014.

The party was also unusually frank about the need to tackle corruption and relax restrictions on democratic activity.

Hanoi seems to be presenting almost unanimous enthusiasm for the TPP to boost manufacturing, attract foreign investment and further integrate into the global economy.

This has been happening for decades, particularly in the south. Samsung and Intel already have offices in Ho Chi Minh City, which has developed a reputation as a tech hub.

Google chief executive Sundar Pichai visited Vietnam in December and, after meeting Dung, announced that the search engine would train about 1,400 Vietnamese IT engineers.

He said Vietnam was becoming one of Google’s most important markets.

“It will easily be in the top 10 countries for many companies and people who are building products. I think you’re in the process of that transition. The transition is under way; just give it a bit more patience,” he said.

Paving the way for further integration, the Communist Party’s central committee has already fully endorsed ratification of the TPP.

Trong said that 30 years of economic reforms had prepared Vietnam to “seize opportunities afforded by the TPP agreement for rapid and sustainable development”. A special committee has been tasked to make sure the pact is formally signed this month.

Vietnam recorded some of the strongest growth in Asean last year with 6.6 per cent. Inflation and the currency were stable and foreign-direct investment, especially in export-oriented manufacturing, rose dramatically. China’s slowdown, however, has increased calls for reform and efforts to move out of its economic sphere.

This economic approach is clearly related to ongoing South China Sea dispute with China, with the party agreeing it needed to take a stronger stand over the islands that Beijing is increasingly dominating.

The party’s central committee took the unusual step of officially recognised the International Tribunal for the Law of the Sea’s recent ruling on the Philippines’ claim against China. This is merely a symbolic move but one that will no doubt irritate Beijing.

While Beijing may well be able to muscle Hanoi out of its South China Sea claims, it might only succeed in pushing it further into the welcoming arms of the world economy.