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Huw Watkin

Reformers appear to be gaining the upper hand over doctrinaire conservatives in a Vietnamese communist party grasping for ways to get the country's stagnating economy back on track.

 Planning and Investment Minister Tran Xuan Gia politely rejected calls to accelerate economic change in December, saying the party leadership would modernise at its own pace.

 But since then, a string of key personnel changes and other signals are leading observers to suggest that the leadership is convinced speeding up reform is the best way to ensure the party's power remains unchallenged.

 In recent months Vietnam has seen the appointment of a new governor of the central bank, new foreign and trade ministers, and a change of leadership at a key economic organisation, which one observer described as the 'best news for accelerating market reforms in two years'.

 In December, Le Duc Thuy, regarded by several resident foreign bankers as a strong advocate for strengthening the country's banking system, replaced central bank governor Nguyen Tan Dung.

 Last month, Foreign Minister Nguyen Manh Cam surrendered the portfolio to Nguyen Dy Nien to concentrate on his duties as deputy prime minister, and Vu Khoan took over the Trade Ministry from Truong Dinh Tuyen.

 'Both [new] ministers are worldly and urbane, both have excellent English and both have reputations for being fixers and smoothers,' said one Western diplomat.

 'Both are around 60 years old so they could be seen as representative of a new generation of senior leaders,' he said.

 In addition, Truong Tan Sang, a politburo member recognised as a strong advocate of economic reform and party chief of Ho Chi Minh City, has been chosen to head the party's influential Economic Commission.

 Although the secretive nature of the party conceals the exact motivation for the changes, foreign diplomats and other observers claimed a widening gap between rich and poor, the higher economic expectations of a growing younger generation and the party's obsession with power were contributing to what appears to be growing momentum for reform.

 'There is concern . . . about the rising youth generation and the nation's inability to provide employment for them,' said prominent Vietnam watcher Carl Thayer of the Asia-Pacific Centre for Security Studies in Hawaii.

 'It's beginning to dawn on the leadership that the goal of becoming a modern and industrial country cannot be attained with a large pool of unemployed manpower.'  Official unemployment increased last year from 6 per cent to 7.4 per cent, but several big urban centres recorded a rate closer to 10 per cent. More than a million new job seekers enter the labour market each year and underemployment is acknowledged to be a major problem.

 And with more than half the population below the age of 30 and demonstrably more materialistic than their parents, unemployment is beginning to emerge as a significant political issue.

 The government announced plans last month to bring the jobless rate down to 7 per cent this year, but the fundamental weakness of the economy means that will be a difficult task.

 Following record growth averaging 10 per cent through much of the 1990s, economic expansion has averaged just 4 per cent over the past two years, and that from a small base in regional terms.

 One estimate suggests that Vietnam will require annual GDP growth of 10 per cent for the next 20 years for its economy to match that of Thailand today, but the World Bank projects growth of just 3.5 per cent this year and, without immediate reform, just 3 per cent next year.

 According to the World Bank, the inefficient state sector still dominates the economy and last year produced close to 50 per cent of GDP.

 Household business and small private farms produced 34 per cent, while small-to-medium private enterprise and foreign invested companies produced just 7 and 10 per cent respectively.

 With limited domestic capital and a shortage of arable land forcing greater migration to the cities, modernisation and expansion of industry through foreign investment seems to be the only realistic way forward.

 But therein lies the crux of the present party debate. Essential foreign direct investment (FDI) has been in decline since 1995 and nosedived last year by more than 67 per cent compared with 1998 to its lowest point in nearly a decade.

 That is the grim backdrop as manoeuvring ahead of next year's Party Congress gains pace and recent developments indicate that, 14 years after Vietnam's first tentative steps towards opening its economy, a second wave of reform may be imminent.

 Mr Thayer suggests that outcome will be clearly signalled by Vietnam signing the stalled US trade agreement within the next two months which will commit Hanoi to take steps towards World Trade Organisation standards.

 He admits that his 'is a lone voice' and the lack of transparency which largely defines Vietnam's political process allows Mr Thayer's position to be easily dismissed as speculation.

 But a front-page report in the state-controlled Vietnam Investment Review quoting an adviser to the premier lends credence to the idea that the momentum for reform is gathering pace.

 Contrary to the usual practice of blaming the regional crisis for the drop in FDI, the report pinned the blame on the 'slow progress in furnishing the country with a proper investment environment'.

 'The non-state sector has not been encouraged. It has even been blocked from doing business with FDI entities,' the report said.

 The article came amid a series of proposals and legislative initiatives aimed at cutting red tape and boosting the export sector, but the failure of Vietnam to meet expectations following the decision to open its economy in 1986 has created a deeply entrenched cynicism among the foreign community.

 And, according to one diplomat, the intensity of that cynicism means that even immediate reform is unlikely to encourage a quick return of investor confidence.

 'It seems pretty clear that the debate between the conservatives and reformers is intensifying, but we still don't know who will prevail,' he said.

 'As for the personnel and legislative changes, well, are they for real, or is the whole thing just another exercise in presentation?' VIETNAM 



Reformers gain in bid to fix economy