Vietnam's choice

Vietnam has been conspicuous by its absence from the economic turmoil affecting Asia, but it is by no means isolated from the crisis.

Analysts predict that a severe downturn will hit the country hard unless drastic market reforms are undertaken immediately. The question is whether the new man at the helm of the Communist Party has any appetite for measures which the World Bank and the International Monetary Fund have been urging on Hanoi for years. What little is known about Le Ka Phieu does not encourage the hope that the old order is about to change.

He is a shadowy figure, a three-star general who quit as the army's most senior commissar to replace the aging Do Muoi. There are signs that he may be more pragmatic in office than his previous image suggests. But he cannot be seen as a radical, which is what the country needs if it is to stave off the worst effects of the regional slump.

To date, privatization of Vietnam's lumbering state-owned enterprises (SOEs) has proceeded at snail's pace. The economy is crumbling under the weight of 5,700 largely unproductive industries, many owned by the military and burdened with out-of- date machinery and mounting debts. The currency is said to be about 30 percent overvalued.

Where factories have been hived off in joint ventures with foreign firms, there has been a dramatic turnabout in their fortunes, though they make up only 5 percent of the country's revenue. Seventy percent of foreign investment comes from within Asia, but that can no longer be relied on.

The banking sector, which accounts for nearly half the state budget, has continued to pour money into the SOEs, 300 of which Mr. Phieu has indicated will remain at the heart of the economy. He speaks of leaner, more efficient industries through mergers, bankruptcies and advanced technology. Economists doubt whether his reforms will go fast enough or far enough.

Too many vested interests are profiting from the old system to want to see it changed, but there may not be much choice. A regime which values stability above all else could find unrest increasing as growth slumps, and exports dwindle under pressure from devaluation in competing countries.

-- South China Morning Post