ASIA HAND Vietnam's reforms on the line
By Shawn W Crispin
As Vietnamese Prime Minister Nguyen Tan Dung returns from his hat-in-hand trip
to the United States, at home he faces a fast deteriorating economy, rising
social unrest and now behind-the-scenes opposition over his leadership style
and economic policies from inside his own ruling Communist Party.
Vietnam's sudden and spectacular economic meltdown - witnessed in a 26.8%
inflation rate in June, a spiraling current account deficit, the world's
worst-performing stock market so far this year, and most recently rumors the
government has requested an International Monetary Fund bailout package - is
generating unseen but discernible ripples inside the secretive ruling party,
according to political analysts who closely monitor
party personalities and maneuvers.
Dung's inability to rein in inflation and calm market jitters has provided a
wide opening for conservative party elements to make a case against the
reformist premier, who is known to have irked party elders and provincial
leaders through his individualistic and non-consensual leadership style.
Analysts now wonder whether those divisions could widen enough to reverse some
of Dung's more ambitious economic and financial liberalization initiatives,
including more openness to foreign investors.
To be sure, all of the party's central committee members and elites are
believed to have benefited immensely from the country's recent rapid economic
growth, which is still expected to hit 7% this year. It is therefore unlikely
any conservative figure will in the near term present a direct challenge to
Dung's position, which he earned after a long period of apprenticeship under
his reformist predecessor, Phan Van Khai.
But the tensions now straining party unity are believed to be the most intense
in over a decade and will likely be aired behind closed doors at the next
central committee plenary session in July. There is also growing speculation
that an emergency mid-term party conference might be called for the first time
since 1994, a year when intra-party divisions also ran rife over the country's
economic reform direction. A mid-term meeting would provide a crisis management
venue for senior cadres to debate Dung's performance and represent a potential
platform for conservatives to reassert influence over economic policies and
reforms.
Vietnam's youngest prime minister under Communist Party rule, Dung, 59, has
established strong progressive credentials since taking office in 2006,
witnessed in the various trade and investment liberalization policies he has
pursued, most notably the country's January 2007 accession to the World Trade
Organization (WTO). As part of reforms passed in 1992 aimed at devolving more
responsibility from the politburo to individual ministers, the prime minister's
office has grown in both size and importance in recent years.
In light of Dung's relative youth and roots in the country's more capitalistic
southern region, many expected him to serve two five-year terms on his
appointment. His elevation was widely interpreted then as the Communist Party's
endorsement of faster and wider-reaching economic and financial reforms, which
true to form have aggressively implemented.
Now, with sudden new fears of a financial collapse and the concomitant risks of
widespread social unrest, Dung's reappointment as premier at the next national
party congress in 2011 seems suddenly in doubt. Moreover, the position of party
progressives took a hit with the recent death of former prime minister Vo Van
Kiet, a liberalization stalwart who maintained sway over a group of party
officials, including to some degree Dung, who promoted his reform ideals even
after his retirement. With his passing, the progressive camp has lost a
powerful behind-the-scenes patron.
Spurned conservatives
At the same time, Dung has made some powerful party rivals during his
two-year-old tenure, many of whom are known to be irked by his move away from
the party's past consensus-driven policymaking and his perceived penchant for
showmanship in a political culture that has traditionally emphasized nameless
collectivity. He also faces criticism for moving to eclipse the influence of
party secretary general Nong Duc Manh, the highest-ranking official on the
party's 14-member politburo.
Chief among Dung's conservative rivals are three old-guard deputy prime
ministers, Truong Vinh Trong, Pham Gia Khiem and Nguyen Sinh Hung, all of whom
rose to political prominence at the party's national congress in 1996. Dung
attempted and failed during a 2007 cabinet reshuffle to transfer Hung laterally
and have Khiem stripped of his concurrent post as foreign minister.
Spurned by the elder ministers' respective political camps, Dung moved to
dilute their influence by expanding the number of deputy premiers from three to
five and appointed young technocrats, Harvard University-educated Nguyen Thien
Nhan and former Electricity of Vietnam senior manager Hoang Trung Hai, to the
newly created posts.
Dung's individualistic style has also weakened the relative influence of
several key central committee conservatives, including Minister of Public
Security Le Hong Anh, Minister of National Defense Phung Quang Thanh, Minister
of Information and Communications Le Doan Hop and head of the State
Inspectorate Tran Van Truyen, according to University of New South Wales
professor and Vietnam expert Carlyle Thayer.
Other analysts wonder whether the ambitious southerner Anh, currently the
second-ranking official on the politburo, might move to capitalize on Dung's
troubles and make a run for the premiership at the next national party congress
in 2011. It is not clear now whether Anh has the numbers needed to mount a
conservative challenge to Dung's position, but if the country's galloping
inflation, including a 74.3% jump in food prices in June, morphs into a
full-blown financial crisis, the veteran politician would be among the
frontrunners to take over.
The central committee is still the heart of political power in Vietnam and is
currently split among three generational groups, of which the youngest and
mostly progressive camp accounts for 45% of its membership; since their
election in 2006 they have led the way in implementing Dung's reform programs.
Beyond the politics of age and personality, there are also commercial reasons
for intra-party dissent.
At a plenum meeting held under Dung's watch last year, the party, army, police
and mass organizations were ordered to begin divesting their substantial and
lucrative commercial enterprises. As of early 2007, Vietnam's army ran 140
different enterprises and earned US$2 billion in revenues, or 3% of gross
domestic product, in 2006, according to Thayer.
Reform test
Commitment to those and other liberalization initiatives will be put to a
crucial test in the coming months and will be determined by deliberations at
party meetings, including the possible mid-term national congress. Dung is
known to have the support of the country's economic and financial elites, but
as the meltdown gathers pace, he now vulnerable to conservative pressures on
various policy fronts, analysts say.
Many have pointed in particular to his government's support for rampant and
ill-advised lending to state-owned enterprises (SOEs), most of which have
struggled to reform into market-oriented conglomerates geared to compete for
global markets, as one major cause for Vietnam's runaway inflation.
Those fast and loose lending practices, encouraged under Dung's watch, are now
coming under heavy international scrutiny. One sovereign analyst with a major
international credit rating agency told Asia Times Online that a major SOE he
visited last year failed even to keep accounting records of its annual profits
and losses.
Dung's government's inability to manage the inflationary effects of rapid
foreign capital inflows is also a point of criticism. The government's recent
decision to temporarily limit gold imports, which local punters were hoarding
as a hedge against inflation, has sparked investor concerns that the central
bank may soon move to impose some sort of capital controls to keep foreign
money locked in and curb downward pressure on the local currency, the dong.
The central bank considered that restrictive option in 2007, then to cool off
an overheating stock market, but backed away on fears the controls would send
the wrong signal to the long-term foreign investors the government was courting
to build factories. Dung has strong command over the central bank, but
conservative calls to stop the economic rot at all costs could soon drive him
into more restrictive policies that prioritize local over foreign interests. At
particular risk, one analyst suggests, are the 100% foreign-owned branches
granted to select foreign banks, including Standard Chartered, earlier this
year.
Experts note that is what happened in the early 1990s, when the party first
opened the doors to foreign investment and then abruptly closed them due to
xenophobic concerns among party elders. In the run-up to the central
committee's meeting next month, Dung will no doubt try to play up the recent
trade and investment agreements he earned in Washington this week after
high-profile meetings with US President George W Bush and former Federal
Reserve chairman Alan Greenspan.
Yet as Vietnam's economic and financial problems mount, it is not clear that
Dung's pro-globalization credentials will have the same cache at the upcoming
party meeting as they did last year, when the country triumphantly entered the
WTO.
According to academic Thayer, even with the intra-party tensions, it is still
more likely that the central committee will adopt a face-saving compromise that
accommodates both progressives, including Dung, and conservatives.
What is more clearly at stake is the individualistic and high-profile
leadership style Dung has leveraged to push through tough economic and
investment reforms, which are now at risk of being reined in by party
conservatives bent on re-exerting collective control over economic reforms and
the national leadership. Vietnam's economic future now hangs in the political
balance.
Shawn W Crispin is Asia Times Online's Southeast Asia Editor. He may be
reached at swcrispin@atimes.com.
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