Vietnam Communists' new challenge: managing capitalism

As inflation rises and currency weakens, observers will be watching the Communist Party Congress for clearer signs about the government’s determination to stabilize Vietnam's economy.

Vietnam’s Communist rulers gathered Tuesday ahead of a party congress that will select the country’s top leaders and set its priorities for the next five years.

The weeklong meeting in Hanoi comes amid uncertainty over the party’s ability to manage one of Asia’s fastest growing economies after a state-owned shipbuilder defaulted last month on $600 million in debt.

Prime Minister Nguyen Tan Dung, a hard-charging former banker, is expected to retain his post despite criticism over his handling of the debt default and rising food prices that have pushed official inflation to 12 percent. Two other senior jobs will become vacant with the mandatory retirement of the country’s president and the party’s secretary general, a key position in the hierarchy.

Since it began opening up in the 1980s, Vietnam has been transformed by rapid economic growth. It has become a darling of aid donors and foreign investors, who continue to pour money into low-cost manufacturing and resource-based industries. But its reliance on deficit spending and inability to control inflation has exposed the shortcomings of its consensus-driven political system.

Vietnam's runaway inflation

While many Asian countries currently fret over rising currencies, Vietnam faces the opposite problem. It struggles to defend its currency, the dong, which is shunned by Vietnamese who prefer to hoard dollars or gold. This has fueled runaway inflation, as the price of imported goods rises, and raised fears of a hard landing after several years of breakneck growth.

“The perception among domestic investors is that when push comes to shove, the government is more interested in growth than curbing inflation,” says a local economist.

In the run-up to the congress, which is the equivalent of an election in Vietnam’s one-party state, policymakers have shied away from taking tough decisions on the economy for fear of being blamed for any negative publicity. This includes measures to support the wobbly currency and to cut a budget deficit that stood at an estimated 6 percent of gross domestic product (GDP) in 2010, according to the International Monetary Fund.

“People are too frightened to take decisive action. Individuals don’t want to tighten interest rates and cut spending,” says Jonathan Pincus, an economist with the Harvard Kennedy School who resides in Ho Chi Minh City.

What's to come

Analysts say party delegates, who represent the party’s 3.6 million members, will likely grill Mr. Dung over his economic record. He has publicly acknowledged that mistakes were made at VinaShin, the indebted shipbuilding company, whose default has hurt Vietnam’s credit rating. Large state-owned companies like VinaShin enjoy access to cheap credit but critics say their rapid expansion has crowded out private companies and saddled taxpayers with the bill.

But the party’s powerful central committee is unlikely to shift from its state-led model of industrialization. Documents presented in the run-up to the congress suggested a fine-tuning of policy rather than a serious review, say analysts.

Nor is there any appetite for rethinking Vietnam’s one-party system, which imposes strict limits on public debate. Last week, the US government complained after an attack on a diplomat who visited a dissident Catholic priest in central Vietnam. Human rights groups say detentions of democracy activists, bloggers, and other critics have risen ahead of the party congress.

At a press conference Monday in Hanoi, Dinh The Huynh, a central committee member, defended the Communist Party’s monopoly on power. “Vietnam has no demand [for] – and is determined not to have – pluralism or a multiparty system,” he said, according to Agence-France Presse.

Experiments with democracy

However, the party has experimented with internal democracy and allowed local members to select their delegates to the five-yearly congress. Vietnam’s National Assembly, for which elections will take place in May, has also become more assertive under its current speaker, Nguyen Phu Trong, who is expected to move to the more powerful post of party secretary-general. In contrast, the position of president is seen as largely ceremonial in Vietnam.

Members of the party’s central committee compete for seats on the politburo, whose line-up is normally announced at the end of the congress. In 2006, the names of those chosen were read out in descending order of the votes cast for them, which revealed their standing in the party, says Carl Thayer, an expert on Vietnam at the University of New South Wales in Canberra, Australia.

“Younger delegates are demanding a choice. The system is becoming more responsive,” he says.

But Mr. Pincus points out that the generational divide in Vietnam doesn’t always correspond with political viewpoints. Some of the government’s most prominent critics are party elders, including military veterans, who have highlighted issues such as corruption in the ranks. In 2009, war hero General Vo Nguyen Giap lent his support to a public campaign to stop bauxite mining in the central highlands.

“Some of the most rigid, doctrinaire party hacks are young people. I don’t see a clear dividing line between young and old in terms of ideology,” he says.