Vietnam forges new links with Eastern Europe

Vietnam forges new links with Eastern Europe

By John Rogers

HANOI (Reuter): Despite a hefty debt burden and not much investment money in the bank, Vietnam and ex-communist countries of Eastern Europe are starting to forge new relationships on the back of old friendships.

Vietnam remains communist-ruled but is grafting a market economy onto its old command system, and the new relations with Eastern Europe are not political.

"These relations will be based on totally new foundations, mutual benefit and equality," said Nguyen Van Khieu, in charge of relations with Eastern Europe and ex-Soviet Central Asia at the Foreign Ministry. "It's not the way it was before."

And the Vietnamese say both sides have agreed not to let Hanoi's debts stand in the way.

"The governments have agreed that the debt issue will not affect bilateral relations," Khieu said.

New links will be based on increased trade and, Hanoi hopes, more investment flowing from the old East Bloc into Vietnam's emerging market economy.

Shipping, transport, construction, clothing and other light industry, food processing and possibly oil and gas exploration are among areas in which deals could be done.

Hanoi had close economic and political ties with Eastern Europe under the Moscow-centered Comecon trade grouping, now defunct.

But the old friendships marked time after communist regimes in Eastern Europe fell in 1989-90 and democratically elected governments took power.

While these were finding their feet, Vietnam was busy building up its links with non-communist Asia and the West.

Now, both are ready to revive relations on the basis of old political capital, which includes thousands of Vietnamese officials and professionals trained in Budapest, Warsaw, Prague or Bucharest and 30,000 students, workers and traders still living in Eastern Europe.

Hanoi set the ball rolling with a tour late last month by Deputy Prime Minister Tran Duc Luong to Hungary, Rumania, Poland and the Czech and Slovak republics.

It uncovered prospects for trade, which sagged to $50 million last year from $200 million in the late 1980s.

Luong signed agreements on investment promotion and protection with Hungary, Rumania and Poland, on avoidance of double taxation with Hungary and Poland, and on trade with the Czech republic.

"The importance of the visit was that we prepared a new legal foundation for new cooperation and relations in the future," Khieu told Reuters.

The problem of debt has dogged Vietnam's relations with all its former allies in Comecon. But the 500 million "transferable roubles" it owes the East European countries is only a 20th of its debt to Moscow and looms less large in overall relationships.

Vietnam owes Poland only $7 million to $8 million, for instance, Polish diplomats say.

The transferable rouble was a non-convertible Comecon trading currency, and the problem is how to convert it into U.S. dollars now that the Russian rouble, on which it is based, has been devalued to more than 2,000 to one dollar.

Since 1992, Vietnam has serviced its debt to the East Europeans in kind, mainly coffee, rubber and other agricultural products, at a rate of eight million to nine million transferable roubles a year to each country.

"In general the debt question is under consideration in a spirit of mutual understanding and friendship," Khieu said. Experts will work out solutions.

With Hungary, for instance, plans are afoot for part of a debt incurred for construction of a lightbulb factory in Vietnam to be written off in exchange for equity in the concern.

Hanoi owes its biggest East European debt to Hungary, with nearly 300 million transferable roubles outstanding, diplomats said.

Lack of East European capital for investment is a major problem in building a new economic relationship. The region counts for a tiny 0.3 percent of the total $10 billion pledged in foreign investment to Vietnam since 1988.

But Luong's talks made a start, at least, in seeking areas for joint ventures and increased trade.

In Poland, the biggest regional trading partner, Luong held out the prospect of Vietnam's using Polish shipyards, ports and the offshore oil exploration firm Petrobaltic, according to the Polish news agency, PAP.