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Faced with corruption and slow direction, Vietnam under pressure to change

Anh Le TranGlobalPost.com
Tony Hopfinger

Opinion: Since the introduction of doi moi (renovation) policy in 1986, Vietnam’s economic growth has lifted millions out of abject poverty. Increasingly, however, the country’s growth and development trajectories are showing signs of distress. Macro instability, increasing inequality, lurking environmental problems and simmering public discontent are putting Hanoi under rising pressure to change.

Last year, with an inflation rate of 18 percent, Vietnam saw a surge in labor strikes. Despite a GDP growth rate of 5.9 percent, the lives of the poor worsened as their meager income levels could not keep up with rising food prices. In an attempt to ease the public’s anxiety, the government promised bold fiscal and monetary measures to fight inflation.

But the fiscal reforms have not worked because cutting government spending proved difficult in the face of entrenched interests. And tightening monetary measures has put tens of thousands of small and medium firms out of business or in distress; they have trouble getting credit amid high interest rates and preferential treatment reserved for state-owned enterprises (SOEs). The situation is posing a significant threat to the development of Vietnam’s private sector.

It is widely recognized in policy circles that the country’s growth model of relying on cheap labor, natural resource exploitation and capital growth has lost its appeal. Vietnam achieved its middle-income status in 2010, but the country also saw the average income of the top 20 percent income group increased to 9.2 times that of the bottom 20 percent in the same year.

Vietnam’s Prime Minister Nguyen Tan Dung has called for economic restructuring and change in its growth model. To move toward this goal, he emphasizes the need to improve market institutions, an aspiration that is easier said than done. For one thing, the state sector has a leading role in Vietnam’s “socialist-oriented market economy.” As Vietnam strives to become a modern industrialized country by 2020, it will continue to pour resources into state owned enterprises. This means picking winners and Hanoi has not been successful at that; examples are found in shipbuilding and steel, which have performed poorly.

Another issue is corruption. Although the leadership vows to fight this deep-seated problem, the result is not encouraging. According to the latest Corruption Perception Index by Transparency International, Vietnam ranked 112 out of 183 countries and territories surveyed in 2011, performing worse than many of its Southeast Asian peers.

Corruption has not only undermined its efforts to improve market institutions and the legal system, but also has eroded the public trust.

At a recent Communist Party conference, General Secretary Nguyen Phu Trong emphasized the need for party members to engage in serious “criticism and self-criticism” to help redress problems. Still, bold and fast-paced reforms are not expected anytime soon. The challenge in achieving more sustainable and inclusive growth requires greater government accountability and public participation.

Less politically sensitive is the task of raising Vietnam’s productivity growth rate. A recent report by McKinsey Global Institute estimates that Vietnam needs to raise its annual average labor productivity growth rate to 6.4 percent from 4.1 percent to achieve an annual average GDP growth rate of 7 percent.

Sustained productivity growth requires more investment in human capital through reprioritizing its resource allocation by diverting state investment, now going to inefficient industries, toward vocational training, health, and education.

Improving property rights in land is another area of opportunity. Vietnam’s current land law, which stipulates “land belongs to the entire people with the State as the representative owner,” has many loopholes and thus creates a fertile ground for corruption. Changing the law to provide more well-defined and well-protected rights will help reduce corruption and land disputes, and boost commercial agriculture.

As top-down reform has proved difficult in the face of well-entrenched interests, a bottom-up approach could provide momentum. Policymakers and advisors that favor reform, as well as international development institutions, should advocate for the adoption of grassroots politics. These have been shown to promote more market-based development and citizens’ participation in governance. The idea is to move political leadership toward consensus by presenting evidence of what works but does not unduly threaten the central government.

Relaxing media control is also vital to the reform process. Recent experiences show that the media plays an important role in exposing corruption and abuse-of-power cases. Benefits of a more independent media run both ways: it helps the central government monitor the activities of provincial and local governments, but it also effectively communicates the people’s concerns and desires directly to top leaders, putting them under more pressure to act.

Although the political will of the Hanoi leadership will largely determine Vietnam’s direction and pace of change, it can still be shaped by the country’s stakeholders through targeted and active advocacy and well-thought-out pressure.

Anh Le Tran is a professor at Lasell College in Newton, Massachusetts. He has written commentary on Vietnam development issues in both Vietnamese and English-language publications. His views are is own.