Inflation tests stability in Vietnam

By Roberto Tofani

HANOI - Buffeted by persistent double-digit inflation, slowing economic growth and rising worker unrest, Vietnam's economic reforms are at risk of coming undone. While Prime Minister Nguyen Tan Dung emphasized this month the need to maintain ''quick and sustainable'' growth, questions are rising whether Vietnam can have both amid global economic and financial turbulence.

Consumer prices were up over 17% year-on-year in January, marking one of the highest inflation rates in emerging Asia. At the same time, once rapid economic growth is tapering off, falling to 5.9% last year from 6.8% in 2010. While other regional countries have lowered interest rates to spur growth and cushion their economies from an extended slowdown in the US and Europe, high inflation means Vietnam's policymakers have less space to

Dilbert

 

loosen monetary policy. Vietnam's benchmark interest rate is now 15%.

Pham Chi Lan, a Vietnam economy expert, noted in a recent academic article that the government invested 253 trillion dong (US$12.3 billion) in just 22 public enterprises last year in a bid to pump prime the economy. That was three times more than the 81 trillion dong cut in state spending announced but never implemented by the National Assembly, according to Lan.

Meanwhile, the central bank estimates overall credit grew by 7% last year; independent analysts believe that figure was considerably higher. While the government ramped up spending, the currency, the dong, fell against the US dollar, dipping by more than 7% at a time many other regional currencies appreciated against the greenback. Central bank governor Nguyen Van Binh has warned that the dong could weaken further in 2012.

Until now Vietnam's reform-driven transition from a command to market economy has been widely lauded. Since 1986, when the so-called doi moi (renovation) reforms were first launched, economic growth and poverty reduction rates have by certain measures been unparalleled among transitional economies, with average annual growth of 7% and the number of people living on a dollar or less per day reduced from 63% in 1993 to 22% to 2006.

With accession to the World Trade Organization (WTO) in 2007, Vietnam has become an important manufacturing hub at both a regional and international level, with multinationals Intel and Canon making major investments in the country. In 2010 foreign direct investment reached over US$10 billion as more global manufacturers established factories to take advantage of the country's low wages and hard-working labor.

However economists like Pham Chi Lan argue that the rewards of decades of fast economic growth have failed to sufficiently trickle down to the grass roots while other analysts contend that as inflation outstrips wage growth the country now risks rising levels of social unrest. ''Vietnam very much failed to contribute to its own people, let alone to its fellow WTO members,'' wrote Lan in a recent article in the Vietnam Financial Review.

In particular, his critical analysis points to shortcomings in the industrial sector, where a class of mostly non-specialized workers were previously unaware of but now waking to various pro-worker rules and regulations designed to protect them from capitalist abuse.

According to the Ministry of Labor, War Invalids and Social Affairs there were nearly 900 strikes staged across the country in the first 11 months of last year, more than double the number recorded over the same period in 2010. The ministry found that the majority of the strikes were motivated by enterprises that ''did not respect labor laws.''

Workers in chains
Between 1.3-1.5 million new job seekers enter the Vietnamese work force every year, with most ending up in the manufacturing sector. Now, as exports slow due to economic weakness in the US and Europe, the government is guarding against a possible surge in unemployment and worker unrest.

''The necessity to respond to the needs of the new industrial work force is recognized by the authorities as a key priority at a time of economic crises and volatile inflation, which threaten the life of the weakest,'' Do Ta Khanh, project manager at the Institute for European Studies (IES) in Vietnam, told Asia Times Online.

IES recently conducted a joint survey of the industrial districts of Hai Duong, Hanoi and Vin Phuc where it interviewed 745 workers employed by foreign companies, joint stock companies and private enterprises operating in garments, automotives and automotive support industries. The study identified various challenges that Vietnamese authorities will need to quickly address to avoid future and more widespread worker protests.

According to the survey, most workers - especially female and migrant workers in garment and other private enterprises - are not aware of their basic rights and obligations in labor relations. Nor were they familiar with the laws that regulate strikes or procedures for requesting interventions from the trade unions. In some cases, particularly in foreign-invested enterprises, workers have to pay for the privilege of landing a job and are often forced to work overtime beyond the legal limit of 200 hours per year.

The government's management of the economy has also arguably contributed to worker angst. With aggressive fiscal spending pushing inflation over 18% by late last year, the government shied away from raising minimum wages and further stoking price pressures. Nearly 63% of the workers interviewed by IES said they worked overtime to earn higher incomes, while 32.2%, especially in Foreign direct investment-invested enterprises, did so because they were forced to by management.

Either way, as prices rise faster than wages, Vietnam's workers are increasingly squeezed in the middle. Over the past four years commentators and policymakers in both developed and developing countries have blamed mostly international market forces for their economic woes. In the case of Vietnam, however, the feeling among many workers surveyed was that the root of their problems is more internal than external.

While many Vietnamese recognize the country's great untapped potential, frustration is mounting over perceptions that only a small group of people, usually associated with the ruling Communist Party, are enjoying and exploiting that potential. Combined with fast rising prices, the social stability that until now has underpinned Vietnam's growth, reform and attractiveness as an investment destination can no longer be taken for granted.

Roberto Tofani is a freelance journalist and analyst covering Southeast Asia. He is also the co-founder of PlanetNext (www.planetnext.net), an association of journalists committed to the concept of "information for change".

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