Vietnam Hasn't Stopped Reforming, but the Progress Is Slow

By Philip Bowring - International Herald Tribune

HANOI - The U.S.-Chinese agreement on the World Trade Organization may prove as much a catalyst for Vietnam as for China. That, at any rate, is what liberalizers earnestly hope after recent setbacks to market opening.

Zhu Rongji's visit here this week should strengthen the position of those in the leadership, notably Prime Minister Phan Van Khai, who were rebuffed in October when the Politburo, under the influence of retired heroes of the revolution and some entrenched socialist bureaucratic interests, declined to sign off on a deal that would have normalized trade relations with the United States.

Rejection entrenched the sense of frustration among foreign diplomats and investors with the snail's pace of change.

Foreign investment has been falling and companies have been closing representative offices. The one big deal which might spark a revival of interest, a huge offshore gas project, is moving slowly toward realization.

Attempts at the November Central Committee plenum to clean up the system by removing some high-profile figures, including a deputy prime minister, are seen by pessimists as more an indication of political infighting than of reform. There was scant sign from the plenum that the leadership was planning to use the Party congress due in 2001 to launch a second stage of doi moi, the reform movement.

Particularly disappointed are those foreigners who had been assuming almost since doi moi began a decade ago that the intelligent, hardworking Vietnamese could emulate Chinese reform and quickly move toward ''economic tiger'' status.

The problem is that Vietnam is not China. In the longer run it has many ingredients - the country is compact, homogeneous, coastal - which could enable it to surpass China. But rapid change from the era of war to that of commerce is held back by several factors.

They include a collective leadership and evident lack of a Deng Xiaoping; the absence of a cultural revolution to react against; lack of a large, rich and trusted overseas Vietnamese community to spur investment and trade; a shortage of highly trained people to direct policy-making; a consensus approach to decision-making at all levels and hence an aversion to risk; the prickly nationalism of a small country which has suffered much at foreign hands; the proximity of the triumph of revolution (1975, not 1949).

Maybe only time and state funerals can remove these obstacles, and the leadership will eventually reflect the fact that most of the population was born after the war.

But the gloom may be overdone. It is anyway a foreign perspective. From a Vietnamese one, economic reform is continuing, albeit cautiously. The currency, inflation and the overall economy were stable through the Asian crisis, and slower growth has been due more to external circumstances than to domestic failings. Socialist planners note that foreign capitalists misjudged the market. Much investment of the mid-'90s was speculative or produced gluts of hotel rooms, beer and motor bikes.

Farm output remains buoyant, and the remarkable reduction (according to the World Bank) in rural poverty achieved since doi moi began continues.

Despite suppression of dissent, even the political system is not entirely moribund, with some measure of accountability being evident at the National Assembly. Failings - particularly of the loss-making, credit-guzzling state enterprises - are acknowledged even if rectification is, as in China, frustrated by bureaucratic vested interests and fear of unemployment.

The private sector is growing, albeit from a small base. Banking reforms exist on paper at least. The problem: Change is too slow to raise the pace of development to anything like the potential. Which is why the normal-trade-relations deal with America is so important.

Lack of competitive access to the U.S. market for manufactures is not only a huge disincentive to investment. The fine print of the deal will require Vietnam to open up some hitherto closed sectors to foreign investment. It will speed the removal of various nontariff barriers to trade, and this, as in China, will pressure the state sector.

A U.S. agreement is likely to have more impact than the liberalization that Vietnam is supposed to undertake under its ASEAN commitments.

''Too far, too fast'' was the reaction of a consensus-seeking Politburo that still has its share of Marxist true believers as well as heroes of the war with America. They fear for the role of the party as well as for social stability should the pace of change accelerate. Nor were they swayed by the argument that Vietnam should sign now and quibble about implementation later.

The Politburo is unlikely to change its mind immediately. Nor is there any prospect of Washington sweetening the deal as it did for China. The Vietnam market is scant attraction.

Hanoi will watch to see whether China gets through the final WTO hoops. If the collective leadership can agree toa change of heart, the pace of change will begin to pick up again, reinforcing a favorable turn in the business cycle.

If not, slow progress will remain the order of the day. Vietnam could miss a chance to narrow the development gap with its neighbors and to strengthen its economic links with Asian countries, which would contribute to its security.