Vietnam to persist with own pace of reform

By Yoke Har Lee

Vietnam, which since 1986 has embraced its own brand of reforms, called Doi Moi, is resisting international pressure to speed up the pace of reform.

The former New Zealand Trade Commissioner to Vietnam, Gavin Young, said that Vietnam's market reforms would be gradual at best.

"I don't think we will see rapid changes. In the early 1990s, there was high expectation by international investors that Vietnam was in the process of opening up and that it would be quite rapid. I am not sure that was ever the agenda of the Government."

He said he believed that reform pace would pick up in the coming years as Vietnam is forced to attract foreign investment to build up domestic production capacity.

And when things did get moving, Vietnam would be a market New Zealand could not afford to miss. It has a population of 76 million, more than 60 per cent of whom are under 26 years.

To understand Vietnam, one must understand its history of being dominated, first by the Chinese, then the French, he said. Later, the country was ravaged by what the Vietnamese term the American wars.

"That has led them to the conclusion that what they fought for was for independence - that they want to control their own destiny. They don't want to give that up. They have also looked at the impact reforms have had on society, such as that in the former Soviet Union, and have said they want to keep their social fabric together by doing things at their own pace."

The impact of too open an economy, demonstrated by other Asian nations in crisis, also brought home the point to Vietnam - there was virtue in staying closed. Because the Vietnamese dong was not convertible, the currency had been largely shielded from speculators.

Despite Vietnam's reform pace, Mr Young said he had seen tremendous changes in his years in Ho Chi Minh City, the business hub.

How foreigners approached Vietnam had also changed. In the past, the rule was to get a local joint venture state-owned company as a partner. Now, foreigners go almost 100 per cent on their own.

And those who have fumbled in Vietnam might have done so because they did not build a good commercial base. Vietnam, like most of Asia, has corruption and its own cronyism tied to protection for state-owned companies.

Having been in Vietnam since the NZ Trade Development Board first set up a post there in 1995, Mr Young has seen New Zealand exports there grow from less than $30 million to over $100 million as at end March.

"Some New Zealand export sectors have been hit harder [by the Asian crisis] than others and there has been a realignment in the product and service mix being sold to Vietnam. We are doing well in food, in consultancy, in education and training, but we have declined in building materials and some manufactured products as the market has tightened," he said. Trade figures masked the services content of New Zealand's export to Vietnam, which Mr Young said was quite significant. Two major services companies, Hawkins Construction and Duffill Watts & Tse, have representative offices in Vietnam.

For New Zealand services companies, World Bank and Asian Development Bank-related projects have been the way in. Contracts at pegged rates have been the key to success.

The other reason New Zealand has made headways in Vietnam is because of the industrial content of our goods going into Vietnam's export industries. In the area of education services, New Zealand is also becoming well-known as a safe place, providing quality international education for a reasonable fee.

And with New Zealand official aid focused on providing education and training, strong ties were being forged with Vietnam, Mr Young said.

But Vietnam remained a difficult market.

"Because of the changes taking place, the operating environment is difficult. It is not a place for beginners, but the market offers good potential for companies with a long-term outlook. Vietnam's time will come in the 21st century," Mr Young said.

The International Monetary Fund (IMF), in an assessment of Vietnam done in May, expressed the need for the country to take on bolder reforms. But it also maintained that there was merit in keeping the pace gradual to maintain stability in Vietnam.

The IMF said that reforms at Vietnam's state-owned enterprises (SOEs), which competed with the private sector in the market, had been slow. It said official data for 1997 suggested that 60 per cent of the SOEs were loss-making or only marginally profitable despite high trade protection.

Among others, Vietnam had been told it needed to reduce barriers for foreign entry and unload regulatory burdens for private enterprises.

And for foreign investors to return, Vietnam would need to provide greater transparency with respect to how the market was regulated and to provide better data.

According to IMF and Vietnamese projections, the country's GDP was likely to grow 3.5 per cent this year after an estimated 3.5 per cent growth in 1998 and the 8.2 per cent growth seen in 1997.

While there was the threat of Vietnam pulling down the hatches on reforms, it would get back on track once Asia's economic recovery flowed through, Mr Young said, adding that the state-owned banks were also undergoing the beginnings of reforms.