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VIETNAM'S
UNCERTAIN FUTURE Saigon - April 30, 1995 I had been back to Vietnam a
month when the Vietnam government put on a great show for the international
media. The celebration of the 20th anniversary of April 30th,
the day South Vietnam fell to the onslaught of the North Vietnamese Communist
Army, was proclaimed as "historic" for weeks before. The Western media
seemed to agree. Army of prominent international journalists and reporters
descended on "Ho Chi Minh" City to cover the event. The streets of
Saigon, which had seen many Westerners in recent years, seemed to have even more
Caucasians walking around with camera and note pads, taking pictures and talking
to local Vietnamese. If one forgot for a moment that this was 1995, the tourist
scene on Nguyen Hue street in District 1 seemed to come straight out of a day in
the early 1970?s. In these early days of
Americans getting reacquainted with Vietnam, everyone was optimistic and sure of
the country's bright future. There were plenty of reasons for optimism. America
had lifted the economic embargo on Vietnam last year. The day after the lifting
of the embargo, Pepsi and Coca Cola rushed to open the Cola war on the new
battlefield. Over the previous two years, many economists and journalists
tripped over themselves to proclaim Vietnam the next Asian tiger. From 1994 to
1996, Vietnam Airlines would do brisk business carrying many businessmen and
investors who came to check out Vietnam. Money seemed to be pouring in from
everywhere. Hanoians and Saigonese took out the cash they've hidden under their
mattresses all these years to build luxury housings for the foreigners who were
pouring in. Prosperity seemed here to stay. On this April 30th
1995 day, the excitement and optimism seemed to be at their peak. The Vietnam
government had planned military parades and several celebrations in the area
near the old South Vietnam Presidential Palace. Hundred of thousands of
Saigonese poured out to the street on their motorbikes and bicycles, hoping to
catch a glimpse of the festive celebration. I made the mistake of giving
in to the excitement of the moment. Instead of resting at home and watching the
show on TV, I hopped on the motorbike and went into the city center to watch the
festivities. It didn't take long for me to regret the decision. For two hours, I
got caught in a massive Saigon traffic jam, one caused almost entirely by
hundred of thousands of motorbikes lining wheel to wheel and handle bar to
handle bar. What did I get to see for spending two hours breathing motorbike
exhaust fumes and burning under the relentless tropical sun? The behind of
thousands of other Saigonese who were caught in the same traffic jam! The Bubble Burst In retrospect, the price of
my mistake that day would be trivial compared to those paid by the many
multinational companies that took the plunge to invest in Vietnam. Three years
later, the optimism about Vietnam economic future had evaporated. By 1998,
Vietnam was engulfed in a deep economic crisis from which it had neither the
will nor a plan to get out. Foreign investment pledges
peaked in 1996 when some $8.6 billion was approved. By 1997, the figure had
fallen to $5.1 billion. The first eight months of 1998 saw pledges worth $1.61
billion. For 1999, the Asian Development Bank warned that the figure could fall
to as low as $500 million, posing serious repercussions for the economy. No American corporation has
turned a profit in Vietnam since the lifting of the embargo in 1994. By end of
1998, between 40% to 60% of American firms in Vietnam had shut their door. It is
difficult to quantify the exodus of foreigners, as no official immigration
figures are available. However, moving companies say privately that they are
moving out six foreigners for every one coming in. The multinational companies
that remained in Vietnam adopt a holding strategy, trying to maintain a presence
and minimize losses, while hoping for a miraculous turn around in Vietnam
fortune. The reasons offered for
Vietnam's economic problems are many, ranging from the impact of the Asian
economic meltdown to pervasive corruption, excessive red tape and an opaque and
unpredictable legal system. Despite these reasons, many observers still believe
in Vietnam's economic potential. With investors? current pessimistic mood, they
say, it is easy to forget that Vietnam has made remarkable progress in a decade
since 1986. Further, the nation and its 78 million people still have promising
long term potential. This belief is the reason why many foreign corporations
have dug in to wait out the Vietnam's economic storm. Does Vietnam have the
will to reform? Underlying the belief that
Vietnam will emerge from this economic crisis is the assumption that the Vietnam
Communist government eventually will find the will and the ability to implement
much needed reforms. A close examination would show that this assumption is
shaky and probably a wish at best. First, it is unclear whether
Vietnam octogenarian Communist rulers will ever agree to commit to substantive
reforms. Not until recently that many economist advising the Hanoi government on
reforms realized belatedly that Vietnam rulers are much more concerned about
"political stability" than they are about economic growth. Vietnam rulers had long
realized that economic prosperity would eventually exact a price they dreaded to
pay, some loss of control or "political stability". As an
authoritarian regime, Vietnam paid close attention to what happened to Taiwan,
South Korea, and Thailand in the early 1990's. The lesson the Vietnam rulers
learned from the fall of the Roh Tae Woo regime in South Korea, the
demonstration against the KMT in Taiwan, and the fall of the military rulers of
Thailand, was that richer and better educated people would be much harder to
control. As people begin to taste some economic success brought about by the
market economy, they would increasingly demand more freedom and changes. Hanoi
coveted the fruit of economic successes, but was unwilling to accept any loss of
control. This attitude explained why there were no substantial reforms
implemented in recent years. The desire to maintain
control was the driver behind many restrictive and unpalatable requirements on
foreign investors in Vietnam. In the period from 1994 through 1997, most
investors could only invest in Vietnam through joint ventures with local state
run companies. Since state owned companies were run by senior Communist party
cadres, the Communist party could be assured that they were informed and could
maintain some control over most, if not all significant economic entities. In
1996, I recalled that there was a requirement from the government that that made
foreign investors in joint ventures quite uncomfortable. The requirement was
that each joint venture must maintain a Vietnamese Communist party cell. In my
company, which was a joint venture between an American consumer product company
and a Vietnam state run detergent company, no one ever really knew who were the
members of the resident Communist Party cell or what they did. However, the mere
existence of the cell hung like a cloud over employees, and pre-empted any
discussions of politics. Furthermore, most foreign invested companies were
required to hire employees screened by government sponsored Labor Bureaus. The
requirement hampered foreign companies from hiring the most qualified employees.
Yet, the Vietnam government insisted on it, because it was another tool for
control. The requirement allowed the government to place candidates it
considered to be loyal to Vietnam into these enterprises. Given this state obsession
with control, it is doubtful that the Vietnam government would find in itself
the political will to implement substantial reforms. Substantial reforms would
mean giving up the many tools of control that the Vietnam government depended on
to maintain its rule. Additionally, substantial reforms would also mean that the
Vietnam bureaucracy, a bureaucracy consisted of the supporters of Vietnamese
Communist regime, would have to be thoroughly changed and revamped. Old,
trustworthy party cadres would have to be replaced by younger, more competent,
but less ideologically inclined bureaucrats. This change would shake at
the very foundation of the Vietnam government's power. Yet, anything short of it
would not yield much results. The Vietnam government understood well the
implications of the many reforms urged by foreign businessmen and international
economists. The lessons from the fall of the authoritarian governments of South
Korea and Thailand weighed heavily on the mind of Vietnam octogenarian rulers.
Until this generation of rulers passes away, and a younger, less paranoid
generation of leaders takes their place, it is unrealistic to expect Vietnam
government to muster the will needed to bring about change. Does Vietnam bureaucracy
have the ability to implement reform? The de facto assumption
"If there is a will, there is a way" may not apply in Vietnam case.
The main reason is that the Vietnam government machinery, the bureaucracy, has
neither the talent nor the organizational structure needed to implement
substantive changes. Ever since they came to
power in North Vietnam in 1954, the Communists have always insisted on placing
party members in all and every position of power. This policy is not restricted
to just the government bureaucracy and the army, but extended to all other
institutions such as high schools, hospitals, and universities. With the
takeover of South Vietnam in April 30th, 1975, this practice extended
to all of South Vietnam. As a young student growing up in Vung Tau in 1976, I
still remembered clearly the appointment of two North Vietnamese Communist party
cadres to be the principal and vice principal of my high school then. Neither of
these men had any credentials in education, nor did they have much education to
start with. Their only qualification for the job was their party membership.
Twenty years later, when I returned to Vietnam to work for an American company
here, the old picture did not change. Virtually all the people in key positions
of our joint venture partner, suppliers, and customers are North Vietnamese with
Communist Party affiliation. The placement of Communist
party members in all leadership positions of every "legal"
institutions in Vietnam served several purposes. The most obvious purpose is to
ensure complete Communist Party control in all aspects of Vietnamese life. The
second purpose is to reward party members for their dedication and sacrifice to
the Communist Party's cause during past revolutionary struggles. These purposes are achieved
at the expenses of competency and any efficiency in Vietnam bureaucracy. The
Vietnamese Communist party members in key positions in all Vietnam institutions
today are veteran revolutionaries, who spent most of their lives fighting in
jungles. Their main education is guerrilla warfare and political indoctrination,
not public administration or economic management. Their lack of real
qualifications in holding these peace time leadership positions was only one of
the several reasons for the inability of Vietnam government machinery to do
anything right other than holding a tight grip on control. In recent years, Vietnam
rulers appeared to recognize the serious lack of competency in its civil
servants. The Communist Party had attempted to remedy this problem by ordering
its officials to go back to school. These officials would still retain their
positions and pay while studying. The program, called "Tai Chuc" in
Vietnamese, is a sort of executive education that we often see in American
business schools. While the idea is sound in theory, it is a dismal failure in
practice. Most of these officials are too old and lack basic educational
foundation to learn anything new or useful. Further, the quality of education
one can get from Vietnam universities today are low to start with, due to lack
of both funding and quality faculty. What the officials often end up doing is
bribing other students to take classes for them or bribing the professors
themselves to let them get their certificates without much trouble. The stories
were told to me time and again by students from the Ho Chi Minh Economic
University. In fact, the "Tai Chuc" program became synonymous with
"stupidity" among the regular student population. Among the cynical
residents of Saigon, a popular saying ridiculing the program in particular and
the state of Vietnam education in general, "Dot tua chinh quy, Ngu nhu Tai
Chuc" (Dumb as the regular (students) and stupid as the "Tai Chuc"),
has attained the status of folk idiom. Besides lacking proper
education and training for their positions, Vietnam bureaucrats, the modern
mandarins, have very similar attitudes and behaviors to the old "Phong Kien"
(parochial) mandarins of the nineteenth century. Specifically, they often made
public decisions on the basis of personal "face" and prestige, rather
than on any considerations for the public good or utilities. A friend of mine, a
Vietnamese American doctor, recently visited several Vietnamese medical schools
and hospital as a member of his medical school delegation. On his return, my
friend, who had not been to Vietnam since 1975, expressed amazement at the
incredible poverty of Vietnam in general, and of the hospitals he visited in
particular. Yet, the event that stuck out the most in his mind was a brag made
by the director of a hospital he visited. The Director indicated that he was
planning to start an in-vitro fertilization program (test tube baby and other
advanced reproductive techniques, e.g. putting sperm and egg directly into the
fallopian tube or uterus) in his impoverished hospital. The Director was bent on
carrying out his ludicrous plan despite the fact that Vietnam had a huge
population growth problem, a strict policy on family size, and multiple, more
pressing family planning and disease control issues. Further, few people in
Vietnam need or can afford in-vitro fertilization and the hospital itself was
turning away untold number of patients who need more common treatments since it
doesn't have the resources to treat them. My friend was shocked at the lack of
any ethical or human considerations in the Director's claim. It reeked purely of
the pursuit of prestige. Yet, after three years of working in Vietnam, I have
come to learn that this basis of decision making was more the rule than the
exception there. Besides not having competent
personnel, the Vietnam bureaucracy is designed specifically for the purpose of
maintaining control and the status quo, not for implementing any changes.
Specifically, the three levels of government in Vietnam, the Central government
based in Hanoi, the provincial or city government, and the local Uy Ban Nhan Dan
(People Committee) at the Ward or District level, all have security organs that
monitor the activities of everyone who is considered "reactionary" or
"potentially dangerous". Further, most, if not all, business
activities have to get permissions from all three levels of government before
they can be executed. This arrangement is the "red tape" bureaucratic
process that has driven many Vietnam investors into utter frustration. Yet, this
arrangement allows as many Vietnamese bureaucrats as possible to get a cut of
any business deal. Given the miserable low official wages of Vietnam civil
servants, (even the Prime Minister's base salary is only 96 dollars a month),
bribery is often viewed as a privilege of office by Vietnam bureaucrats, despite
official denouncements of corruption by Vietnam top leaders. Without the
additional income from bribery, Vietnam bureaucrats would not be able to feed
themselves, let alone their families. Thus, there is a built in institutional
bias against any changes that take away the opportunities to demand bribe by
Vietnam officials at all levels. Until Vietnam rulers come up
with a solution that allows for Vietnam bureaucrats to get at least above
subsistence level of pay, any attempts at reforming the "red tape"
bureaucracy are doomed to fail. The very bureaucrats charged with implementing
reforms would have every incentive to see that reforms do not succeed. Thus,
even if they have the will to carry out significant reforms, the Vietnam
Communist rulers are still caught in a vicious circle. They cannot get more
government revenues, economic growth and foreign investment to come back into
the country until they successfully implement radical reforms. They can't
successfully implement radical reforms unless they have growing government
revenues to pay their bureaucrats at least a subsistence income. And they won't
have growing government revenues until economic growth and foreign investment
come back to Vietnam. Thus, Vietnamese rulers muddle through with their
indecision, while Vietnam slides deeper into economic crisis, and foreign
companies dig in their heels to wait for a miraculous turn around that does not
have any basis in reason. Vietnam's Uncertain
Future: A Degenerative Evolution? As Vietnam approached its 24th
anniversary of the April 30th event and then the next millennium, a
tough question remained unanswered "Where will Vietnam be heading in the
next century?" As late as the end of 1997,
6 months after the Asian economic crisis started in Thailand, Vietnam was still
relatively insulated from the economic pain that was spreading throughout the
region. The reason for the temporary insulation was the non-convertibility of
the Vietnam Dong. Vietnamese officials, still ignorant of the interdependency of
every country in a global economy and the unraveling of foreign investment in
Vietnam itself, arrogantly predicted that Vietnam economy would still grow by 9
percent in 1998. By the end of 1998, the
official bravado was gone. The pain of the Asian contagion and years of economic
mismanagement finally hit home. The three key sources of Vietnam foreign
exchange earnings, export, foreign investment, and tourism, all declined
significantly. Officially, Vietnam indicated its economy grew between 5% to 6%
in 1998. The World Bank estimated it was closer to 3% or 4%. As Vietnamese rulers grapple
with the question of how much control and instability they are willing to
exchange for how much economic growth, three things are clear. First, Vietnam
isn't likely to commit or able to implement any significant reforms for the
foreseeable future. Second, the current state of paralyzed inaction is not an
equilibrium. Some Vietnamese officials have warned that Vietnam's foreign
exchange reserves, a state secret but often estimated at around $2 billion, has
fallen to dangerous level. Most Vietnam's banks are bankrupt by any other
country's standard, while Vietnam's huge loss making state owned enterprises (SOE)
sector continues to bleed its dwindling resources. As Vietnamese rulers continue
to muddle through, the country continues to march toward economic collapse.
Third, the efficiency of the state security organizations in wiping out dissent
and opposition has ensured that there are virtually no prospect of a revolution
or uprisings similar to those in China in 1989 or in Indonesia in 1998. While
some dissenters such as General Tran Do increasingly speak out against the
oppressive policy of the Vietnamese Communist Party, sadly their brave voices
are not backed up by broad based popular support. Most Vietnamese, apathetic and
cowed by decades of oppression and watchful monitoring by Vietnam's security
apparatus, are content to hope for better days rather than risking prison or
trouble by putting pressure on the Vietnam government to change. Unless there are dramatic
changes in any of these factors, the most likely direction Vietnam will be
heading to in the next century is a degenerative evolution. The country's
environment will continue to be damaged beyond repair, as its fast growing
population continues to struggle with any means for survival. Its education and
health care systems will continue to degenerate due to neglect. And the
financial system will eventually collapse under the weight of its bad loans to
the state owned enterprises. Meanwhile, the Vietnam Communist Party will
continue to survive for a long time while the rest of Vietnam population
continues to suffer. The current state of North Korea, where the government
sends rocket blaring songs praising its long dead leader Kim Il Sung into space
while two to three millions North Koreans die of starvation, is an apt
description of the destination Vietnam is heading toward. Certainly, it will be
a very long time before the many foreign companies investing Vietnam are able to
turn a profit. Copyright 1999 Trinh Do April 18, 1999 |