With inflation soaring, Vietnam’s factories are feeling the pinch. Are a raft of government reforms too little too late to prevent an economic crisis?
With the streetlights warming to a low glow outside as dusk turns to dark, Trang Hoang Yen is still running t-shirts through a sewing machine as most of her staff leave for home.
“Normally we have a lot more workers, but the past year has been very hard for our sector,” she says, stopping work for a few minutes to talk.
Trang Hoang Yen's small factory, on a side street in Ho Chi Minh City, has seen better days. Down from 30 to 14 staff year-on-year, she says the company’s input costs “have gone up, and production costs have doubled.”
Inflation in Vietnam hit 23 percent in August, although it has since dropped off a little to just under 20 percent. The Vietnamese government has responded with a number of countermeasures in an attempt to cool an economy in danger of overheating, although some analysts say the lid is already bubbling off the pot. Vietnam's foreign exchange reserves are on the slide, and the country faces a trade deficit of $10 billion in 2012, according to the government.
So, will the reforms, including credit restrictions and interest rate hikes, be enough to cool things? Some analysts think not.
In comments delivered at a donor conference in Hanoi on December 6, International Monetary Fund resident representative Sanjay Kalra was clear on the issue, saying, “The authorities need to move rapidly and decisively to ensure financial sector soundness while re-establishing macroeconomic stability.”
Other remarks delivered at the forum focused on the need for reform of the banking sector, privatization of state-owned enterprises and the curbing of corruption. Vietnam was ranked 112 out of 182 countries surveyed in the latest Transparency International global graft index, published last month.
Some donors spoke about Vietnam’s poor record on human rights and freedom of expression, with lawyers, writers, bloggers, activists, journalists and protesting civilians regularly being arrested and jailed. Norwegian Ambassador Stale Torstein Risa told Vietnamese Prime Minister Nguyen Tan Dung that loosening political restrictions in the one-party state could contribute to a sounder economy.
Vietnam now seems to be at an economic watershed, perhaps reminiscent of the 1980s, when it introduced its much remarked upon doi moi ‘opening-up' of the country's economy to foreign investment, following China down the authoritarian-liberalization political economy path. Normalization of relations with the United States in 1995 brightened Vietnam’s “rising star” status, culminating in Hanoi joining the World Trade Organization in 2007.
Speaking at a November 28 Hanoi business lunch for Irish investors in Vietnam, Deputy Minister for Planning and Investment Cao Viet Sinh said there are 13,450 investment projects in Vietnam, adding that the government hoped to attract more in the coming years.
Brands such as Intel, Honda and Nike have all opened large plants in Vietnam, whose attractiveness for investing companies is partly rooted in its cheap labor force, estimated to be the second-lowest in Asia after Cambodia by the European Chamber of Commerce in Vietnam, and thus a major pull for investors in labor intensive sectors such as clothing and footwear.
Photo Credit: Christian Haugen