Once hailed as the next “Asian Tiger”, Vietnam’s economic growth model is under review as the ruling communists gather against a backdrop of soaring inflation, a struggling currency and a trade deficit.
Experts say the woes are in part the result of the country’s faltering attempt to build South Korean-style business conglomerates, like Samsung, as highlighted by the near-bankruptcy of state-owned shipbuilder Vinashin.
Foreign investors and analysts have pushed for greater state-sector efficiency while warning that the country’s impressive economic growth will be threatened unless the government can restore economic stability.
Inflation is higher than in Vietnam’s neighbours and the currency has weakened — driving up import costs — while others in the region have become stronger because of an influx of foreign capital.
A related factor is that Vietnam spends more on imports than it earns from exports — a discrepancy that has to be financed. The trade deficit last year exceeded 12 billion dollars, official data showed.
A socio-economic strategy for the next decade, to be debated at the secretive Communist Party Congress from Wednesday, pledges to tackle these and other risks while shifting the growth model away from a reliance on natural resources and unskilled labour.
Nguyen Quang A, an economic analyst, calls the trade imbalance the “chronic symptom, or disease” of Vietnam’s economy and says the state-owned enterprises (SOEs) are to blame.
“In fact, they contribute a lot of other macroeconomic imbalances” as well, draining the state budget and treated as tools by the government to intervene in the economy, he said.
“The SOEs generate the trade deficit,” said Quang A.
He said that key domestic private-sector industries such as garments, fishing, rice and coffee produce trade surpluses or small deficits but the balance for SOEs is towards imports, particularly of steel and other materials.
SOEs account for about 26 percent of gross domestic product (GDP), but use close to 40 percent of resources such as loans, he says, adding that their output grows at about half the rate of the domestic private sector and foreign direct investment.
Another Vietnamese analyst said external financial stability was the country’s biggest economic challenge, and agreed that state-owned firms were very much responsible for the economic problems.
“The economy will continue to grow… but how to pay the external debt?” asked the analyst, who preferred not to be named.
The woes have been dramatically illustrated by the case of Vietnam Shipbuilding Industry Group, more commonly known as Vinashin.
The company, whose $4.4 billion debt is about four percent of GDP, reportedly defaulted last month on a loan to international creditors.
Ratings agency Moody’s last month downgraded Vietnam’s government bond rating due fears about the trade deficit, capital flight, reduced foreign exchange reserves, pressure on the dong currency and Vinashin’s debts.
Other agencies have announced similar moves and experts say the scandal could make it harder for the country to get financing for much-needed projects such as infrastructure.
Vinashin, they add, was of several large state groups fostered by Prime Minister Nguyen Tan Dung to emulate “chaebol” — conglomerates which powered South Korea’s industrialisation, backed by state funds but run by families.
An Asian diplomat said Vietnam envisioned a similar structure.
“They want to build their own Samsung. They want to build their own Hyundai,” he said, questioning the implementation of that vision.
Unlike the chaebol, Vietnam’s large-scale groups are state-owned. They include oil and gas giant PetroVietnam and Electricity of Vietnam as well as Vinashin and several others.
“The prime minister has used the conglomerates as a key form of development for Vietnam, and Vinashin has been a spectacular failure,” said Carl Thayer, of The University of New South Wales in Australia.
Observers say Dung was assailed last year by party critics, partly over his connections to Vinashin, but he probably has enough support to keep his job when 1,400 delegates gather at the five-yearly Congress this week to elect the country’s top leaders.
The government vows there will be no bailout for Vinashin, which Southeast Asia analyst Martin Gainsborough at Britain’s University of Bristol sees as a signal to other state groups that budget constraints have been hardened.
“Now the emphasis should be on strengthening the micro and macroeconomy,” he said.
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