- The Washington Times - Wednesday, April 19, 2000

Red tape, graft and delays drive foreign investors away

HANOI Massive festivities this month celebrating Vietnam's progress since the reunification of the country 25 years ago mask the unhappy fact that, in many ways, the country's economy and political system are regressing.

Touted as the next Asian tiger when it introduced its policy of "doi moi," or economic opening, in the late 1980s, Vietnam has never achieved sustained high growth rates and is on the verge of what David Dapice of Harvard's Institute for International Development has called "an economic catastrophe."

The World Bank predicts Vietnam's economy will expand 3.5 percent this year, a far slower rate of growth than many other emerging Asian states. Foreign investment peaked in 1996 and has spiraled downward since.

Foreign direct investment fell 67 percent last year, and multinationals such as Chrysler, initially eager to tap a market of 80 million people, have canceled plans in Vietnam. Abandoned half-built hotels and office towers dot the skylines of Hanoi and Ho Chi Minh City, formerly Saigon.

"Vietnam has a large, hardworking labor force, but foreigners just don't want to deal with the excessive red tape, graft and delays here … when other countries make it so much easier to make a profit," said Joshua Levine of Vietnam Business Journal.

"Look around Hanoi and you see how many fewer foreigners there are here now than two years ago."

Even usually reticent Vietnamese officials have conceded that red tape and corruption are deterring investors.

"The economic weakness came from … the ineffective public sector," Prime Minister Phan Van Khai told reporters.

Echoing Mr. Van Khai's sentiments, a high-ranking government adviser told Vietnam Investment Review that "slow progress in furnishing the country with a proper investment environment" was to blame for economic woes.

Yet Vietnam's rulers have neither taken opportunities to break into lucrative markets nor allowed economic experts the freedom to revamp Vietnam's investment regulations.

Though Vietnam and the United States have spent years negotiating closer trade ties, a long-awaited deal faltered last year when Hanoi refused to sign the final draft.

And while the 1999 State Department Report on Human Rights in Vietnam noted "some measurable improvement in a few areas," economists and politicians still question Communist Party doctrine at their own risk.

Retired war hero Tran Do last year was fired from the party and put under house arrest for circulating writings critical of government policies.

Security officials have harassed other people who spoke out on social and economic matters, such as novelist Duong Huong. With foreign investment withering, domestic firms cannot create jobs for Vietnam's skyrocketing labor force.

Vietnam has one of the highest birthrates in East Asia, and millions of farmers have migrated to urban areas in the past decade. Migrants comprise more than one-fifth of Ho Chi Minh City, where unemployment tops 18 percent and cardboard slum dwellings are multiplying.

The bloated, inefficient state sector, which still accounts for 50 percent of gross domestic product, cannot absorb the roughly 1.1 million new job seekers each year, and domestic entrepreneurs are as badly hampered by red tape as foreign companies.

If they find jobs at all, many migrants wind up in the illegal economy. The International Labor Organization reports that child labor and juvenile prostitution are rising precipitously in Vietnamese cities.

In central Vietnamese towns that were ravaged by winter floods, more than 700,000 migrants' tenuous dwellings have been washed away, and starvation looms.

According to a recent World Bank report on Vietnam, "widespread poverty and severe malnutrition remain entrenched problems [and] about 45 percent of children under 5 suffer from stunted growth."

Vietnam does not have much time to cure its ills, since investors are returning to its leaner, more efficient neighbors.

"The recovery of Southeast Asia from the economic crisis is going to put additional pressure on Vietnam," said Dennis de Tray, representative of the International Monetary Fund in Hanoi.

Sensing the country is on the verge of marginalization, some of Vietnam's younger leaders have announced plans to accelerate social and economic change.

To woo back investors, the government in recent months has purged almost 1,000 corrupt officials, reduced telephone charges, licensing fees and land rents for foreign companies and replaced aging central bank governor Nguyen Tan Dung with Le Duc Thuy, regarded as a reformer.

Some foreign businesses have responded. Last week, Compaq hosted a seminar on the Internet in Ho Chi Minh City, and the company is considering expanding its investments in Vietnam.

To demonstrate its willingness to listen to independent-minded economists and political thinkers, the Communist Party has begun a massive "self-criticism" campaign calling on members to admit their faults and seek out public opinion.

"If we don't make a serious effort … our nation will be at stake," said party Secretary-General Le Kha Phieu in a party newspaper late last year.

But many Vietnamese fear these are just cosmetic changes.

"Who will engage in self-criticism? Vietnamese know the government hasn't changed, and those who criticize today will be in jail tomorrow," said one high-ranking professor at a Vietnamese university.

Without a major overhaul of the country's labyrinthine bureaucracy and opaque legal and political systems, investors will stay away, and it will be business or no business as usual in Vietnam, he said.

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