Vietnam's hard lesson
November 3, 2996
Vietnam's fast growth, low labour costs and industrious population have made it one of east Asia's biggest recent economic success stories and a darling of foreign investors, which are pouring money into the country. However, a deepening dispute between ABN Amro and Vietnamese authorities threatens to sour the love affair and rub the sheen off the economy's prospects.
Incombank, a state-owned lender, alleges it lost $5.4m as a result of unauthorised foreign exchange speculation by one of its employees, who carried out the trades through the Dutch bank. Two of ABN's local staff have been jailed and two others arrested, without charges. Nguyen Tan Dung, prime minister, recently raised the stakes by urging speedy prosecution of the case. But he also hinted that the ABN staff might escape criminal charges if the bank compensated the state for the loss.
ABN insists it has done nothing wrong. Although much about the case remains murky, the bank appears to have made the mistake of assuming that business conduct considered normal and legal elsewhere is acceptable in Vietnam. In doing so, it has fallen foul of an archaic national law that makes causing economic losses to the state a criminal offence, potentially punishable by death.
The law is a damaging anachronism. As well as being a deterrent to foreign investors, it is a serious obstacle to Vietnam's economic development. By tying the hands of government officials in negotiations with prospective private investors in power generation projects, it has already contributed to delays in plans for the capacity expansion needed to relieve Vietnam's worsening electricity shortages.
Officials' fears of dire personal consequences if they violate the law can also only impede Vietnam's efforts to overhaul its antiquated banking system and reform the state-owned industries that still dominate much of its economy. That will seriously handicap their ability to withstand an influx of foreign competition after entry into the World Trade Organisation next year requires the country to lower its trade and investment barriers.
An obvious solution is faster privatisation. But that option is ruled out by a Communist leadership that insists on bestriding the commanding heights of the economy - even though its growth is powered largely by foreign investors and local entrepreneurs. The only alternative, if Hanoi wishes to maintain state control, is to accept that all business entails risk, and as a result the state is obliged to take responsibility for losses as well as profits.
The law should be scrapped. Retaining it will, ultimately, hasten the disappearance of the state enterprises that Hanoi is so keen to preserve. Meanwhile, seeking to make foreign investors scapegoats for Vietnam's own problems only advertises how much the country still has to learn about the realities of market capitalism.