Hanoi Pain

Divisions within Vietnam's ruling Communist Party have widened in the wake of the nation's continued economic downturn, threatening the nation's long term political stability.

The party's key Central Committee last week held an emergency meeting in an attempt to bolster the fight against rampaging inflation, continued labour unrest and a widening trade deficit.

It is no secret that conflicting views about the root cause of Vietnam's precipitous economic malaise, and about how best to tackle it, have spread through the party's ranks from the topmost leaders in the Politburo down to the rank and file grassroots in the provinces. Party leaders themselves remain divided between those who continue to back Prime Minister Nguyen Tan Dung's expansionist high-growth policies and a widening group around Party General Secretary Nong Duc Manh who favour consolidation and slower, more sustainable growth rates.

Intertwined with these economic ideological differences are longstanding personal grievances over Dung's accelerated promotion of technocrats and fellow southerners to the exclusion of other senior figures, notably from the nation's central region. Compounding the splits are the lacklustre anti-corruption campaign, personally led by the PM, as well as recent crackdowns on journalists and members of the Catholic Church.

Party insiders and diplomatic sources say that there is growing speculation that if the splits become more severe, they may precipitate a leadership crisis in the near future.

Last week's plenum in Hanoi, an unprecedented third meeting this year of all 160 members of the party's central executive committee, was hurriedly called to try to stave off public bloodletting and concentrate minds on the economic crisis that has begun to threaten social stability and party control.

Traditionally, the party holds only two annual meetings of the committee, but following this year's first plenum in January, a second was hurriedly called in July to try to decide what to do about the economic collapse. Now comes a third in October.

Professor Carlyle Thayer, a Vietnam expert at the Australian Defence Force Academy, said: "A third plenum signals that something very significant is being discussed."

Officially, the talk at the three-day conclave centered almost entirely on socio-economic matters and in particular on how to prevent the already depressed economy from sinking further as a result of the financial turmoil in the United States.

Nguyen Tran Bat, chairman of the Investconsult Group, one of Vietnam's largest business advisory companies, commented: "This plenum was very important because it focused on how to deal with inflation and how to react to the downturn in the US market."

But this is nothing new, at both previous plenums this year, party leaders essentially discussed exactly the same topics, each time with rising alarm and trepidation – and with increased backbiting among themselves over who was, or was not, proposing the right course of action.

At the last meet, Central Committee members, who were losing patience with the government as inflation soared to nearly 30 per cent, gave the Politburo responsibility for oversight of the economy until the end of this year. The 14-member Politburo is the party's topmost body. And this decision to take away control of the economy from Dung's government was a highly portentous move that has effectively sidetracked the cabinet and the PM's economic team.

There was little Dung and his cohorts could do about it since they remain a minority in the Politburo, where supporters of the more cautionary, consolidationist party boss Nong Duc Manh dominate.

The July meet was not necessarily a signal of lack of faith in the relatively new PM, but it was an indication that many Central Committee members remain unconvinced that he is the right man to run the country during these troubled times. And the fact that they called yet another crisis meeting last week clearly indicates that they are still not convinced.

Indeed, just a day before the plenum convened, PM Dung reiterated his standard tocsin about how ministries and financial bodies must give priority to controlling inflation, stabilising the macro-economy, ensuring social security and maintaining suitable growth.

His words have had little notable impact, but he continues to push for a robust growth rate of around 7 per cent this year, which many feel is unattainable.

But it is at least more realistic than his government's original goal of 9 per cent. The Asian Development Bank and other institutions are now forecasting a figure of around 5 per cent.

And at last week's plenum, the party wisely couched its own forecast in very general terms, stating that "the growth rate should be kept at an appropriate and sustainable level." Gone for the foreseeable future are those 8 per cent rates that Vietnam registered over the past decade.

Dung also instructed economic ministries and agencies, particularly the State Bank of Vietnam, to pay attention to fluctuations in global and US financial markets so that Vietnam can take remedial measures to ensure the viability of the country's banking system. According to Dung, who was briefly – and rather inauspiciously – once head of the central bank himself, the US financial crisis has not had a significant impact upon Vietnam's economy, so far.

However, while he cautioned that Vietnam must remain on guard, his words were still seen as rather too complacent. Soundings in the business community suggest that there is an overwhelming sense that the US downturn will seriously affect Vietnam's already swooning economy.

Nguyen Tran Bat said: "Obviously, the US downturn will affect the party's social and economic objectives and it may be necessary to readjust our long term targets."

The US market is vital for many of Vietnam's exports, notably textiles, seafood, footwear, furniture and many low-end goods. And it was Manh rather than Dung who stressed the need for a new and greater urgency to push exports while concurrently controlling imports to try to reduce the burgeoning trade deficit.

Furthermore, there will be fewer remittances from hard-hit overseas Vietnamese (Viet Kieu) in the US, Europe and Australia. And there is sure to be less follow-through on many promises of US investment.

Dung's cautious optimism contrasted with party boss Manh's opening remarks at the plenum the following day. Their language may have been polite and on the surface the words not too dissimilar, but underneath the contrast was stark.

Manh noted that despite export growth and investment promises, there are still major shortfalls and weaknesses, including surging inflation, a ballooning trade deficit and continued labour unrest. In other words, the masses remain uneasy and discontented – and that could lead to major problems for the party if it is not sorted out soon. He urged the Central Committee to find out the causes and take action.

The fact that the party boss should need to reiterate – a year after the crisis first hit Vietnam – that they still need to determine the causes, let alone the solutions, was ominous.

Over the past year, things have gone from bad to worse for Vietnam's export-driven economy, and now, with its biggest export market tilting towards recession, things are likely to get even bleaker, especially for low-income and middle-class citizens who face new hikes in utility prices.

The Deputy Trade and Industry Minister Bui Xuan Khu said last week that Vietnam would begin raising its government-controlled electricity prices by some 20 per cent next year in order to attract more investment into the nation's woefully inadequate and inefficient energy sector. "Recently, we have maintained low retail prices with the goal of containing inflation, but the price will rise starting in 2009."

Such moves are likely to exacerbate public discontent and labour unrest, as well as fuel divisions within the party about the merits of such actions. Already, the party has officially conceded that the earliest possible date for a return to single-digit inflation will not be until 2010.

As well as wrestling again with these thorny matters, last week's plenum also discussed the next session of the National Assembly which will soon be convened in Hanoi.

Party leaders know they must try to formulate economic policies that meet the expectations of the assemblymen and thus forestall the kind of pungent criticism they received in January when inflation, at round 14 per cent, was only just beginning to bite and the trade gap and labour unrest seemed relatively normal.

That is not the situation now, and, as in January, legislators from Vietnam's rural provinces are likely to be particularly prominent in assessing the government as they recount the financial pain caused by inflation among farmers in their constituencies.

Whether last week's "'wake-up call" plenum will galvanise party leaders into more action – and into more cohesion – remains to be seen. If not, there is liable to be yet another plenum, or perhaps even a mid-term Congress, in which the senior leaders, including Dung and Manh, may find themselves laterally shifted or even moved out.

As Manh warned in his closing address to the plenum: "It is particularly important to gain consensus among the party, the people, the army and all sectors and branches."

Not only is the party fearful of internal splits, but it is also wary of any social trouble or political opposition. Hence the recent crackdown on journalists and Catholics. Several well-known journalists have been detained over the past months, and two of the nation's crusading anti-corruption reporters are about to be put on trial for exposing malfeasance among party leaders in the notorious PMU18 scandal two years ago.

Members of the Catholic church, including the archbishop in Hanoi, have also been warned to stop protesting over the confiscation of their property in the aftermath of the Vietnam War. Calling recent protests "'absolutely unacceptable," PM Dung said: "If those activities do not come to an end, they will have an adverse impact on the good ties between the state and the church."

The Prime Minister recently met with several bishops, but the land issue was not resolved and remains a key block to the restoration of diplomatic ties between Hanoi and the Vatican.

Local party officials, particularly those aligned with veterans like Manh, party Secretariat boss Truong Tan Sang and Public Security Minister Le Hong Anh, are known to be chafing at the bit to take more robust action. They believe that the US and other Western nations are too distracted by the current global turmoil and the US elections to pay much attention to the religious and media crackdown in Vietnam.

Others, mostly within the PM's more conciliatory camp, argue that the best course of action would be for both sides to cool down.

Said Nguyen Tran Bat: "Although the local authority clearly can't return land to the Catholic Church because there is no legal framework to do so at present, I still favour adopting a moderate stance to resolve the dispute."

Professor Thayer added: "A hard line against the Catholic Church is never a good idea and in the midst of an economic crisis it is an even worse idea. Nonetheless, the conservatives will voice their concern over political stability."

Indeed, the clampdown on the media as well as the action against the Catholics were also topics discussed at last week's plenum because, like the economic downturn, they impinge on the party's obsession with political stability and the continuation of its one-party rule.

Dr Nguyen Quang A, director of Hanoi's Institute of Development Studies, said: "The communists always use the fear of instability as an excuse not to democratise and they will continue to do that."

Party leaders regard Vietnam's political stability as the cornerstone of its attraction to foreign investors, especially as instability continues to plague competitor nations in the region like Malaysia, Thailand and the Philippines.

Earlier this summer, Michael Pease, chairman of the American Chamber of Commerce and General Director of Ford Vietnam, said: "Vietnam's success in attracting foreign investment has largely been built on the expectation of economic and political stability."

A report early this year by Business Monitor International Ltd, listing Asia Pacific nations by their political risk, rated Vietnam equal second with Hong Kong, after Singapore, for short term political stability.

Naturally, party leaders, both the staid and the forward-looking, relish such reports and seek to ensure that the current economic turmoil, and religious and media issues, do not disturb that rosy assessment – which some fear it is already starting to do.

Party veteran Vu Mao, a former chairman of the National Assembly's external relations committee, said: "I have mixed feelings when I hear that Vietnam's short term political stability is rated so highly. The assessment is over-rated in my view and does not take account of Vietnam's many festering problems over land rights, rural poverty and the quality of life of low-income workers."

Added Thayer: "There is certainly growing discontent among urban residents about rising prices, pollution, traffic jams and corruption."

Indeed, when it came to the assessment of long term political risk, Vietnam did not fare well in the report and was near the bottom, only marginally ahead of countries like Laos and Myanmar.

Of course, even factoring in the current party infighting at the top, few believe that the communist regime in Vietnam is going to collapse because of the present economic meltdown and the actions of some feisty dissidents, journalists and priests.

But certainly its current leadership is under pressure and would not have held last week's crisis meeting otherwise. The final ramifications of that meeting are still unfolding.