HO CHI MINH CITY, Vietnam — Construction crews got as far as the first
floor of what was to be Saigon Residence, a high-end apartment building in the
center of Ho Chi Minh City. All that remains today of the abandoned project are
piles of moldy bricks, rusting steel rods and a small team of security guards
who have transformed the cement foundation into a parking lot for motorcycles.
In Vietnam’s major cities, a
once-booming property market has come crashing down. Hundreds of abandoned
construction sites are the most obvious signs of a sickly economy.
A senior Vietnamese Communist Party
official, speaking in the ornate drawing room of a French colonial building,
compared the country’s economic problems to the market crash 15 years ago that
flattened many economies in Asia.
“I can say this is the same as
the crisis in Thailand in 1997,” said Hua Ngoc Thuan, the vice chairman of the
People’s Committee of Ho Chi Minh City, the city’s top executive body.
“Property investors pushed the prices so high. They bought for speculation —
not for use.”
Vietnam’s economic problems
appear less severe than those of the 1997 financial crisis — the economy is
still growing, albeit relatively anemically, at a rate of about 4 percent — but
the country’s list of problems continues to grow.
The arrest this week of Nguyen
Duc Kien, one of Vietnam’s wealthiest businessmen, set off a 4.8 percent plunge
in the country’s stock market index Tuesday, the biggest drop in four years.
The charges against Mr. Kien are vague. The state news media said he was
accused of illegal business activity.
The opaque way that his case is
being handled underlines a key aggravating factor for the country’s woes: The
awkward marriage between a secretive Communist Party leadership and a
capitalist economy is clouding recovery prospects for the country of 91 million
people.
Investors are skeptical of the
government’s economic management and question the reliability of statistics.
The country’s central bank says borrowers have stopped paying back 1 out of
every 10 loans in the banking system, but Fitch Ratings said the percentage of bad
loans might be much higher.
If the 1997 crisis was often
blamed on “crony capitalism,” Vietnam’s problems could be described as crony
capitalism with a communist twist. State-owned companies are stacked with
friends and allies of the Communist Party hierarchy.
“The state is being manipulated
by people within the state to make money,” said Jonathan Pincus, the dean of
the Fulbright Economics Teaching Program in Vietnam.
“Getting the Communist Party out
of the management of these companies, that’s what is required,” he said. “I
don’t see that on the table.”
Like property bubbles in other
parts of the world, investors in Vietnam took advantage of free-flowing credit
to construct buildings with the hopes of flipping them for a profit. One key
difference is that some of the largest property speculators in Vietnam are
state-owned corporations with top connections in the Communist Party and access
to cheap money. Those companies are now grappling with unsustainable debt
levels, or in the case of Vinashin and Vinalines, two large government
conglomerates, flirting with insolvency.
Ho Chi Minh City is still buzzing
with energy, swarmed by tourists and plagued by traffic jams — all signs of the
city’s economic vitality. But that masks the symptoms of the nationwide
economic woes: Young people are finding it harder to find jobs; nearly 20
percent of small and medium-size companies have gone out of business during the
past year; and municipal infrastructure projects are being delayed or canceled.
Le Dang Doanh, a prominent
economist and a former top official at a government research organization, said
he was worried about the timing of the country’s problems, coming just as the
global economy is bogged down by debt and Europe grapples with the existential
dilemma of the euro.
“The problem in Vietnam is a
very, very toxic cocktail from the European debt crisis, the stagnation in the
U.S. economy plus a very critical situation in the domestic economy,” Mr. Doanh
said. “It’s a very dangerous mixture.”
The private sector is helping
keep the economy moving — Vietnam is a major exporter of clothing and footwear
to the United States — but foreign money flows have slowed. Commitments by
foreign investors were $8 billion for the first half of this year, one-quarter
the level during the same period three years ago.
The consequences of Vietnam’s
economic problems are far-reaching. The revenues of municipal governments are
shrinking across the country because property-transfer fees made up a large
chunk of their income. Ho Chi Minh City’s first subway line is now scheduled
for completion in 2016, a year later than planned, according to Mr. Thuan, the
Ho Chi Minh City senior official.
In the central city of Da Nang,
which has thrived during the past decade, officials have been forced to cancel
development projects on the outskirts of the city. Tran Van Son, the vice
director of the Da Nang Department of Planning and Investment, said he was
“very worried” that the city would have to scale back further because tax
revenue was lagging even more than projected.
Young people are finding good
jobs more elusive. On the outskirts of Hanoi, the capital, Nguyen Duy Huong,
the 21-year-old son of rice farmers, spent the early part of the year searching
in vain for work in computer repair shops.
“Every place I went to said they
were looking for really strong technicians,” Mr. Huong said. “They weren’t
taking interns.”
Like many other young people in
Vietnam, Mr. Huong lives on the frontier between information technology and the
peasant economy. He has worked part-time at a photo-printing shop, using
software to whiten faces and remove blemishes, but his family’s main income
comes from planting and harvesting rice by hand. In the quest for full-time
work, he recently began taking software programming courses run by Reach, a
nonprofit organization created by Plan International, a British charity.
The problems facing young people
are nothing near the scale of the Spanish and Greek unemployment crises, but
finding a job is no longer as automatic as a few years ago.
“Companies have more choices
now,” said Nguyen Thi Van Trang, who helps run the training program. “They
don’t have to take kids off the street anymore.”
The government has battled the
country’s problems with classic macroeconomic tools: tightening the supply of
money to choke off double-digit inflation and then slashing interest rates this
year to energize the economy.
Yet banks remain very cautious,
partly because of the growing number of customers unable to pay back their
loans. The supply of credit in the economy is shrinking and consumption is
flat; supermarkets, for example, have reported reductions in sales of 20 to 30
percent.
Mr. Doanh, the economist, said
Vietnam needed much more than just an injection of money at lower interest
rates.
The inefficient state-owned monoliths
like Vinashin, which expanded wildly into businesses they were ill-qualified to
operate, need to be dismantled, privatized or scaled down, Mr. Doanh said.
“Now is a good time for creative
destruction,” he said, referring to the concept of established companies’ being
replaced by more innovative competitors.
As in the United States,
Vietnam’s return to economic health rides in part on the revival of the real
estate market.
There is so much excess supply of
office space in Ho Chi Minh City that rents in the most desirable neighborhoods
are half the level of three years ago, said Nguyen Duy Lam, the director of
Pacific Real, a construction and real estate company.
In the hopes of drawing more
foreign buyers, officials in Ho Chi Minh City have submitted a formal proposal
to the central government to open up the property market to overseas
Vietnamese, according to Mr. Thuan, the Communist Party official.
For now, though, real estate
agents like Mr. Lam report that activity is freezing up.
“Everyone wants to sell, but they
can’t, even if they lower the price,” Mr. Lam said in an interview on the roof
of a hotel in Ho Chi Minh City. “There are no customers.”
Mr. Lam is counting on the
long-term prospects of the city. As he spoke, a contrasting picture of Vietnam
emerged. The dark outlines of an unfinished skyscraper loomed overhead, but
another construction site nearby was bucking the trend: On a Sunday evening,
lit by floodlights, a crane swung back and forth as workers put up another
building destined to fill out the skyline of Ho Chi Minh City.
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