atans1

Vietnam: “A toxic cocktail”

In Vietnam on 22/09/2012 at 3:17 pm

From the September issue of the ISEAS ASEAN monitor

“A toxic cocktail” – the words of economist Le Dang Doanh – aptly describe Vietnam’s situation for the fourth quarter of 2012. The ingredients are economic stagnation, banking scandals, political insecurity caused by Party rectification and anti-corruption drives, and challenges to Vietnamese sovereignty in the South China Sea. Party rectification aims to curb abuses of power and corruptive behaviour by government officials in cahoots with businesses to enrich both sides. Politician banker, Nguyen Duc Kien, and the head of the Asia Commercial Bank, Ly Xuan Hai, have been arrested. Notably, while the rumour mill has for years linked Kien to Prime Minister Nguyen Tan Dung, the Chief of Police has declared that it was the Prime Minister himself who directed the arrests. Earlier reports gave credit to the Minister for Public Security but the order probably came from the Political Bureau.

The arrested pair of Kien and Ly could reveal the extent of illegal activities in the banking sector. Rumours are pointing to imprudent bank loans arranged by Kien, as well as his role in the merger/acquisition of another bank, an act perceived as political bullying. In the next two months there will be an intense struggle over how the official reports regarding Party rectification should be written. Individual leaders would want to avoid blame, and most important, retain their positions. Party rectification would also go down to provincial level and lower. Greater conservatism and caution in officials’ behaviour, if only to avoid making mistakes, leading to riskaversion,is to be expected.

The economy has not lived up to earlier optimism. Imports have decreased and analysts note that this would impact negatively on exports in the next quarter. Credit growth is at an unhealthy low while the burst of the real estate bubble has turned speculation into locked investments. Speculators are not realising losses and banks are unable to recover loans. Close to 100,000 companies, mostly from the private sector, have ceased operations.

On this downward spin, there are yet no signs of external help, be it from a buoyant world economy or the IMF. The stagnation is expected to be relieved slightly as the end of the year usually sees a rise in consumption, but the overall trend is a downward one.

Key points: While Vietnam and China appear to have reached a quiet and uncomfortable détente over the South China Sea, expect more bilateral problems as the fishing season resumes this September.

Economist on Vietnam

Vietnam’s banks are in dire shape; and that corruption and waste pervade the economy.

This was never a secret, but during the boom years in the middle of the past decade, when the economy was growing by 8% a year and foreign investment was pouring in, nobody much cared. Now, with slower growth, huge business debts and more competition from places such as Cambodia, Indonesia and Myanmar, the problems loom large. It did not help when, two months ago, the central bank admitted that bad debts amounted to up to 10% of all bank loans, double the level previously admitted to. The real figure could be two or three times that.

The hitch in Hanoi

And so confidence in the Vietnamese economy, especially among Western investors, is tumbling. Foreign direct investment (FDI) into Vietnam, at $8 billion for the first seven months of the year, is a third lower than a year earlier. Japan accounts for fully half of all the inflows.

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