Vietnam's New Leadership to Continue Economic Reforms for Growthby
New leaders to continue overhauling state sector and banks
Policymakers seek new development model that's sustainable
Vietnam wants to reassure investors that new leaders chosen last week by Communist officials at its party congress will press ahead with economic reforms as policy makers aim to boost growth to the fastest pace in nine years.
Policy makers will continue “refining and modernizing the financial and banking sector," further privatize state-owned companies and upgrade its infrastructure, said Deputy Foreign Minister Le Hoai Trung, who was re-elected last week to the powerful central committee of top 200 Communist officials who will oversee the party’s affairs.
"The message is that we will continue with our economic reforms even though we know there are challenges,” Trung said Jan. 28 at the close of the party meeting that takes place every five years to chart the country’s direction. “The reforms have brought about historic and significant results, so we would go forward with it. It’s also the wish of the public.”
Vietnam’s Communist party officials gathered last week to choose a new slate of leaders who will lead the country until 2020 and set a growth path that avoids a repeat of past mistakes, including soaring credit growth that saddled banks with bad debt and preferential treatment of state companies that created inefficiencies. General Secretary Nguyen Phu Trong was re-elected to the position for a second term while Deputy Prime Minister Nguyen Xuan Phuc was nominated to replace premier Nguyen Tan Dung when his term ends in July, raising questions whether the political transition will slow the pace of reforms.
“Vietnam operates under a consensus-based decision-making framework, and therefore changes in personnel will not immediately alter the policy trajectory,” Andrew Fennell, Hong Kong-based associate director of Asia Pacific sovereign ratings at Fitch Ratings wrote in a research note released today. Vietnam’s commitment to a structural reform-oriented policy including a focus on macro stability and market liberalization will remain important factors for the country’s macro outlook, according to Fennell.
Still, the new leadership will probably shun bold initiatives and may slow reforms needed to meet the conditions of the Trans-Pacific Partnership trade pact, such as allowing for independent labor unions, said Tuong Vu, an associate professor of political science at the University of Oregon.
“They want stability for regime security,” said Vu. “That does not create an open environment for more reforms or faster reforms. The new leadership is going to tell people to keep believing in the party.”
Vietnam is forecast to expand at 6.7 percent this year and to be among the world’s fastest-growing economies, as rising local demand and surging foreign direct investment are helping the nation counter global threats that’s sparked a wave of stock selling and currency depreciation. A cloud over the country’s economic picture is a trade deficit, widening public debt, and the government’s failure to meet its goal to privatize 289 state companies last year.
During the congress, several leaders including Trong, expressed concerns that Vietnam is at risk of falling behind regional peers. Average growth in 2011 through 2015 was 5.9 percent, lower than the 6.5 percent-to-7 percent target that the government had set. The congress also passed Jan. 26 a five-year socioeconomic plan that calls for supporting the private sector with "equal access" to credit, land and other resources -- the level playing field companies have been seeking for years.
“Equitization of state-owned companies is a very difficult process in any country,” said Trung, adding that Vietnam has made strides in increasing the number of state companies that were privatized and their categories. Policy makers “would go forward” with it, he said.
The socioeconomic blueprint sees the nation targeting as much as 7 percent average annual expansion and gross domestic product per capita at $3,200 to $3,500 by 2020 from the current International Monetary Fund estimate of about $2,170. If Vietnam meets these goals, it will be one of the fastest growing economies in the Asia-Pacific region, according to the IMF.
“We are now trying to change to a new development model that aims for sustainability,” Trung said. “We would continue with our policies of trying to mobilize international resources including foreign direct investment.”
Outgoing Prime Minister Nguyen Tan Dung told the legislature in October that “economic reform is still slow,” including restructuring of state companies, while high budget deficit threatens macro-economic stability.
The government estimates the country will post a trade deficit of $200 million in January after registering a total $3.5 billion shortfall in 2015. The country’s public debt has risen about 20 percent annually in the past five years.