Vietnam's economy loses its roar

BAT TRANG, Vietnam (AP) ? Four years ago, Le Van Tho borrowed $200,000 to build a new ceramic factory on rice fields bordering Hanoi. But with the economy slowing, orders have slumped this year and she recently laid off almost half her workers.

It's also a grim picture down the road: bowls, statues and flower vases gather dust in export showrooms as shoppers in a recession-hit Europe and sluggish United States stop spending.

Once seen as an emerging Asian dynamo racing to catch up with its neighbors, Vietnam's economy is mired in malaise, dragged down by debt-hobbled banks, inefficient and corrupt state-owned enterprises and bouts of inflation.

Vietnam's one-party Communist government has promised reforms, but it appears unwilling to give up the reins of an economy that has delivered fortunes to top officials and their business partners.

House prices have crashed by up to 50 percent in some places from the boom years and jobs are reportedly drying up for school leavers. Foreign investment has dropped 34 percent this year over the same period last year, according to government figures, put off by the economic instability, poor infrastructure and rising wages.

Small and medium-sized enterprises like those in Bat Trang are struggling to stay in business, their stock piling up and unable to get credit.

"Things aren't as good as we hoped for," said Tho, as she supervised a team of workers carving statues, dipping mosaic tiles in glaze and firing up a gas-fired kiln.

The slowdown is adding to pressures on the Communist Party, whose legitimacy is in large part staked on its ability to deliver ever greater prosperity to the country of 87 million people.

While few predict economic meltdown or that the slowdown could weaken the party's grip on power, authorities have stepped up a crackdown on dissidents, bloggers and trade union activists over the last year, according to international human rights activists.

The government is also at pains to appear that is tackling corruption and impunity. The state-controlled media have been unusually direct in highlighting cases of corruption involving party officials and their families. President Truong Tan Sang has made a series of interviews and speeches pledging action.

"It is the command of the people," he told Tuoi Tre daily recently. "We even have to accept painful measures because it is the survival of the party, of the regime and the bright future of this country."

Until 2010, the economy had been growing by more than seven percent on average from 2001, lifting millions out of poverty and leading some to predict the country would follow countries such as South Korea and Singapore in leaping to developed world prosperity within a generation.

The boom transformed what had been a mostly rural nation scarred by war and economic isolation into one dotted with busy towns and cities, their streets clogged with motorbikes and other signs of rising prosperity.

But growth was just over 4 percent in the first half of 2012, and is predicted to be around 5 percent for the next two years. That rate would be the envy of many developed economies, but in Vietnam it means treading water given that average incomes are still low, inflation often far outpaces growth and the country lacks decent schools, hospitals and other basic infrastructure.

"We are seeing a step down from the dynamism over the past decade or so," said Christian de Guzman, a Moody's Investors Service analyst on Vietnam. "The development of the banking sector and some of the institutions that are associated with more developed, market-oriented economies have not come into fruition," he said, predicting "relatively sluggish" growth unless the government reforms pick up pace.

The cracks in the economy were exposed last month when authorities arrested two former senior executives at one of the country's largest banks for financial crimes, triggering a run on the lender.

The central bank pumped cash into the system to ensure the bank was able to pay its customers, and fears of contagion were averted. But not before the stock market swooned as investors worried they were seeing the start of a banking crisis or destabilizing power struggle within the secretive political elite.

The current problems in part date back to the 2009 and 2010, when the government encouraged state-owned enterprises ? which account for up to 40 percent of the economic activity in the country ? to borrow money during the global economic crisis to try and create jobs.

But the conglomerates, many of them run by politically connected officials, expanded into areas where they had little expertise and speculated in the property market, which has since crashed. A government commission has said that the level of bad debt in the banks has reached around 10 percent, though many outside analysts believe the figure could be higher.

In 2010, state-owned ship builder Vinashin came close to collapse with debts of $4.5 billion, dramatically underlining some of the pressure points in the economy. Last week, authorities arrested the former head of another large indebted state-owned enterprise after an international manhunt.

Still, many analysts remain skeptical the government has the will to fully clean up.

"Can you separate political influence from economics? Until you can, you are not going to get reforms," said Prof. Carlyle Thayer, an expert on Vietnam from the University of New South Wales. "It's a pessimistic view, but if the bankers are friends with the higher-ups, then implementation will be difficult."

The country's leaders have for the most part tried to blame the downturn on the global economic crisis. They have, for now, succeeded in taming inflation, which has hit over 20 percent two times in the last three years. The exchange rate is stable and foreign exchange reserves have increased.

But the property market has yet to show signs of recovery.

Like many other Vietnamese, Nguyen Quang Nam thought he could make some quick money in property. Two years ago, he borrowed from the bank to buy two plots of land near Hanoi for $700,000. But he now can't sell for less than half that, and has trouble keeping up with his loan repayments.

"I wanted to sell to cut my losses, but it's difficult to find someone with that much money to buy," he said. "The property market does not look very good in the coming months or even years."

For businesses in Bat Trang, change can't come soon enough.

Factory manager Phan Anh Duc said that four years ago up to 40 containers a day used to leave the area, heading to overseas markets. Now just one does, he said.

"No one is buying, either at home or abroad," said Hien, a women at an export showroom who didn't want to give her full name. "It's been so long, I can't remember when the last order was."

Source: http://news.yahoo.com/vietnams-economy-loses-roar-050511705--finance.html

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