WORLD

A 'new road' for Asia's latest tiger economy

After a decade of reform, the regime is cracking down on vice

MICHAEL STEINBERGER July 29 1996
WORLD

A 'new road' for Asia's latest tiger economy

After a decade of reform, the regime is cracking down on vice

MICHAEL STEINBERGER July 29 1996

A 'new road' for Asia's latest tiger economy

WORLD

VIETNAM

After a decade of reform, the regime is cracking down on vice

Steve Lee was just eight years old when his family fled Ho Chi Minh City, formerly Saigon, soon after it fell to Communist North Vietnam in 1975. Following his graduation from California’s Whittier College in 1992, Lee returned to Ho Chi Minh City for the first time. What he saw shocked him. “There were no cars, hardly any motorbikes, and the people were just so poor,” he recalls. “I was wearing shoes, which made me pretty unique. They’d look at me and say that I didn’t look Vietnamese.”

But only two years later, encouraged by Vietnam’s rapid economic growth, the Lees opened Ho Chi Minh City’s first fast-food outlet, a Baskin-Robbins. The family now owns three ice cream shops in the booming southern metropolis and another two in Hanoi, Vietnam’s capital. They expect to add two to three stores annually. With his parents still residing in California, Steve Lee directs the day-to-day operations. He marvels at the changing face of the clientele: ‘When we first opened, 75 per cent of the customers

were expatriates and tourists. Now, 75 per cent are locals.”

That comes as no surprise to Huynh Buu Son, who worked for South Vietnam’s central bank before the fall of Saigon. Son, now deputy director of a semiprivate bank in Ho Chi Minh City, believes that things are better than ever for Vietnam.

“People are happier than they were 10, 20, even 30 years ago,” Son says. “Now, we have peace. Everybody is doing his best to improve his life and contribute to the economy.”

Foreign investment has already flowed in to the tune of nearly $27 billion over the past 10 years. Billions more will be needed for further development, in addition to a $2-billion World Bank loan earmarked for the agriculture, transportation and tourism sectors. Canadians, involved mainly in gasoline retailing and real estate,

have 12 projects worth a total of $50 million, but are in only 23rd place among foreign investors in Vietnam. That low ranking frustrates Canadian consul and trade commissioner Ian Burney in Ho Chi Minh City. He notes that Canadian companies are understandably reluctant to commit resources to a former command economy now in flux. So Burney and other officials steer Canadians towards joint ventures with firms from Singapore, Taiwan and other Asian countries: they have local knowledge while Canadians tend to have better technology.

Even so, overseas investors are often stymied by mountains of red tape, widespread corruption and what Westerners would consider an inhospitable business climate. Both the Harvard Institute for International Development and the London-based International Institute for Strategie Studies recently warned that Vietnam’s ambivalence about pursuing free market reforms is endangering its bid to become an Asian “tiger” economy, alongside South Korea, Taiwan and Singapore.

Most of those concerns went unanswered at last month’s Communist party congress, the country’s most important policy event, which is held once every five years. Before the meeting, there were reports of a conser-

vative backlash within the party elite and predictions of a showdown between governing reformers and old-style hardliners who prefer to put the brakes on doi moi, (“new road”), the country’s decade-old industrialization drive. Many had expected at least one member of Vietnam’s ruling troika— Communist party chief Do Muoi, President Le Duc Anh and Prime Minister Vo Van Kiet, all in their 70s —to resign in order to placate old-guard dissenters. But that did not happen. For now, stability seems to be the party’s primary aim.

In truth, Vietnam’s regime has no choice but to proceed with the economic reforms if it is to survive. The real question is the pace of change. An unofficial translation of the party’s policy blueprint held pledges that a stock market would be set up and the rights of the private sector enshrined. But it ruled out privatization of state-owned enterprises, viewed by the party as levers of rapid growth.

Nonetheless, there have been municipal leadership changes that bode well for doi moi. Shortly before the congress, the party bosses in Ho Chi Minh City and Hanoi were replaced by dynamic young reformers. “There is a new generation of younger business people and politicians who have been trained in market economics,” says Huynh Son Phuoc, deputy editor of Tuoi Tre (Youth News). “They are the natural successors.”

Still, capitalism is an acquired taste even for today’s most ardent reformers. Doi moi was born of necessity, not choice. In the early 1980s, Vietnam was desperately poor. Rural provinces faced starvation. Then, Vietnam’s longtime patron, the Soviet Union, began to unravel. Hanoi came to realize that only by ditching Marxist economics could it hope to avoid history’s dustbin. While careful to couch the decision in ideologically orthodox terms, the Vietnamese swiftly executed a U-turn to get the ailing economy going. The regime cut subsidies to thousands of state-owned enterprises, lifted price controls on food and ended collective farming. It welcomed new trading partners to replace the Eastern Bloc countries.

Ten years on, Hanoi’s gambit has paid handsome dividends. Before doi moi, Vietnam imported most of its rice; now it is among the world’s top exporters. Its gross domestic product has averaged a robust 8.2per-cent annual growth rate since 1990. Industrial production is increasing 13 to 15 per cent annually while agricultural output is growing by seven per cent—crucial in a country where three-quarters of the labor force still works the fields.

The success is largely due to an influx of Asian money, led by Japan, then Taiwan, Hong Kong, and Singapore. Many of the

deal makers are Viet Kieu, or overseas Vietnamese. Some ethnic Chinese who left Vietnam two decades ago—including at least a few of the estimated 150,000 Vietnamese who ended up in Canada—have also filtered back to revive old businesses or start new ones. Exact figures are hard to get since many of the Vietnamese-Canadians prefer to downplay their new identities.

Vietnam may be under one flag, but national reconciliation remains an elusive goal. Returnees often fear appearing too successful lest they incite old resentments. For their part, some Vietnamese officials admit they do not wish to be too dependent on ethnic

Chinese investors. North-South suspicions have likewise never diminished. The children of those who served the South Vietnamese regime have often suffered limited educational and job opportunities. For others on the winning side, the sight of Westerners again holding court in Ho Chi Minh City’s upscale cafés and bars awakens old hatreds. “It’s not good when our people see all this foreign money,” said Dr. Duong Guynh Hoa, who in the late 1970s served as health minister in the provisional revolutionary government. “Foreigners should invest in production, not restaurants and golf. That pushes people into materialism, which is very dangerous.”

Try telling that to the young people who cruise urban streets on Honda scooters, with cellular phones tucked into their Levi’s. Viet-

nam’s populous “me” generation is both ambitious and industrious. Peace gave Vietnam its own baby boom: more than half the country’s 75 million people were born after the war. They are comfortable in their Nike sneakers, emulating their new TV idol, American basketball superstar Michael Jordan.

But the aging revolutionaries in Hanoi are not surrendering to the MTV generation without a fight. The regime is currently waging war against the seamier side of doi moi. Police have cracked down on a booming sex industry. Nightclubs have been told to turn off Western music. In a high-profile operation several months ago, cultural hit squads fanned out across the country to paint over signs advertising foreign brands such as Pepsi and Panasonic. The campaign against “social evils” and “spiritual pollution” was motivated partly by political considerations; no cadre could afford to be seen as soft on decadence around the time of a party congress. But the effort to stamp out Westernstyle consumer excess is largely genuine. Like their Chinese counterparts, Vietnam’s leaders are alarmed by many of the social changes ushered in by economic reform. Alcoholism, drug abuse and crime are on the rise.

Foreign investors have not escaped the crackdown. In June, police ransacked the Ho Chi Minh City office of the Hong Kong investment bank Peregrine Brokerage; authorities last week charged the director of the office, and his wife, with tax evasion. The case has sent chills through the expatriate community, but British consultant Ken Atkinson, active in Vietnam for six years, says the regime has legitimate concerns. “No one wants to see Ho Chi Minh City become another Bangkok, ^ which is always the danger when you t; start to liberalize in a poor country,” he g said. Vancouver native Peggi Peacock, j¡ Ho Chi Minh City representative for I the J. Walter Thompson advertising I firm, believes the Vietnamese apis proach to growth is a sensible one. “They are taking it a bit more slowly, but in doing so they are ensuring that the country is not overwhelmed,” she said. Peacock believes Vietnam will stay the course. “The genie is out of the bottle. Everybody has had a taste of a successful market economy and Vietnam is ready to take the next step forward.”

Vietnam may be able to avoid mistakes made by other developing countries in the region. But a steady improvement in living standards is bound to bring one byproduct that Hanoi will have trouble sidestepping: the desire for greater political and social freedom. Sooner or later, Vietnam’s 75 million people, already smitten with consumerism, will demand the right to choose their leaders. For East Asia’s late bloomer, the toughest challenge is yet to come.

MICHAEL STEINBERGER