Oct 15, 2012

Thailand - Bad reviews for Vietnam’s one-man show

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Today marks the end of a much anticipated meeting in Vietnam, once the roaring tiger of the Asean group, and a growth rival of Thailand less than two years ago.

The sixth meeting of the 11th Communist Party of Vietnam Central Committee (CPVCC) opened on Oct 1 and has been widely watched by the world community, if not the Asean community in particular.

It was not the agenda of the event that was creating above-average anticipation among those who follow affairs in Vietnam. Rather, they were looking for developments that might shed some light on the fate of the 62-year old Prime Minister, Nguyen Tan Dung.

Mr Dung, a former central banker, has been the leading figure in the drive to reform the country since he was appointed in 2006. But over the past few years he has been facing challenges that neither he nor his associates had anticipated.

The economy did boom for a while, but then came the global crash of 2008. At the same time, Vietnam was grappling with inflation that topped 20%. Meanwhile, other problems were being ignored, notably reckless spending by incompetent state enterprises that seemed to have blank cheques from badly run local banks.

Leading the attack on Mr Dung is none other than President Truong Tan Sang, who has built support in light of the scandals that have beset the premier and his government. The sluggish economy, inflation, corruption revelations and banking turmoil in recent weeks have all been negative for Mr Dung.

But it’s unlikely that Mr Dung will be removed from power immediately — he was given a second five-year term in July last year — as that would expose the weakness of the party.

What investors have started to ask questions about, however, is how Vietnam intends to reform now that the weaknesses of Mr Dung’s one-man-show approach are out in the open.

Vietnam until recently was much feared by Thais as a country that could soon overtake Thailand in terms of growth and attractiveness to investors. Questions were asked about whether Thailand’s political unrest would sink the country and leave it behind Vietnam. We don’t hear those questions these days — though not because Thailand is doing anything different.

But what needs to be asked is whether the Asean way of doing things is the right way. One man in Vietnam has managed to change the course of the country’s economy, for better or worse. We see a similar concentration of power in a single personality in the Philippines, Cambodia and Myanmar, where Benigno Aquino, Hun Sen and Thein Sein respectively, are the driving forces.

Come to think of it, one can argue that seven of the 10 Asean economies are driven not by the fundamentals of the country but by policies dictated by the ruling party or strongman.

This monolithic approach to government may offer policy stability, but in the long run it can also create political risk. We saw the results in during the 1997 economic crisis.

During the 1997-98 crisis, regimes that were delivering much-needed economic benefits to their populations managed to survive but the likes of the President Suharto fell from grace as he was unable to deliver in Indonesia any more.

Having a strongman to dictate policies can be good as long as the good times last, but the approach also carries the risk of reversal of the policies if things go south.

The facade of stability also gives rise to social ills such as corruption and nepotism which eventually lead to bigger problems in the future.

These problems are seen in the form of lack of prudence in areas that matter, such as prudent lending practices in the financial sector. Just ask the Vietnamese.

Like Vietnam, Myanmar witnessed a run on a bank last week when false rumours spread that its chairman, a crony of the former junta, had been arrested. It was not a pleasant experience.

The region’s largest economy, China, is similarly under a lot of stress from its financial system because of crony lending that has led to a bubble in the property sector.

Dangerous and corrupt practices seem to stay under the radar when the economy is booming, but they come out in the open when the music stops. Asean economies should not let the expensive lessons of the 1997 financial crisis go unheeded.

The next crisis, if one occurs, might be specific to an emerging economy such as Vietnam or Myanmar, and might not affect their Asean neighbours. But the impact on sentiment could still be enormous and the current attractiveness of the region could be wiped out.

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