The media was awash last week with stories about Vietnam’s dire economic situation, which, as the Wall Street Journal noted, “is going from bad to worse”.
On Tuesday, the local Tuoi Tre newspaper revealed that the powerful banking mogul, Nguyen Duc Kien, had been arrested for financial violations.
Kien is among Vietnam’s 20 richest and best-connected businessmen – he is close to Prime Minister Nguyen Tan Dung and co-founded the Asia Commercial Bank, one of the nation’s largest.
News of his jailing caused Vietnam’s already moribund stock market to suffer its biggest drop in four years and resulted in panicky depositors mobbing ACB branches to pull out their savings.
Some $400 million was withdrawn over the next two days and the central bank had to dispatch truckloads of cash to prevent commercial banks from running out of funds.
A brief semblance of calm was then shattered on Thursday when news outlets like the Agence France Presse headlined: “Second tycoon arrested amid bank run in Vietnam.”
Ly Xuan Hai, the ACB’s chief executive, joined Kien in the slammer for alleged financial irregularities and that led to yet more bank runs and a disastrous $4-billion slide in the stock market.
The picture was darkening ominously, as was evident from a front-page New York Times article headlined: “In Vietnam, Growing Fears of an Economic Meltdown.”
Those fears were reinforced when the official Vietnam News Agency reported mid-week that prices had begun to creep up again.
Not long ago, in order to curb rampaging inflation which had hit 30 per cent, the government radically curtailed credit and restrained growth.
It worked and the rate of inflation came down to single digits this year; but the cost was severe.
Youth unemployment soared, infrastructure projects were postponed or scrapped, serious power shortages ensued, wildcat strikes spread and the property market slid into its current comatose state.
As the New York Times article reported: “Vietnam’s major cities are now scattered with hundreds of abandoned construction sites.”
As well, after multiple currency devaluations and rising prices, people pruned their spending; the sale of produce and general goods in stores, for example, has recently plummeted by 20 to 30 per cent.
Making matters worse, foreign investment for the first half of this year was only one-quarter the amount during the same period three years ago.
As a result, with GDP growth now down to barely 4 per cent and falling, Vietnam has the region’s worst-performing economy and faces the harrowing prospect of an inflationary depression.
As the Associated Press reported, there are now “doubts about the financial stability of a country once seen as an emerging Asian tiger economy”.
Last week’s jailings follow the conviction of Pham Thanh Binh, formerly head of state-owned shipbuilder Vinashin, whose financial misdeeds saddled the company with debts of $4.5 billion.
Concurrently, Duong Chi Dung, the ex-boss of state-owned shipping giant Vinalines, recently fled into hiding after racking up debts of $2 billion.
Both Binh and Dung were political acolytes of senior party men, none of whom have been punished, of course, just as none of the mentors of Kien or Hai have been targetted – as yet.
But political storm clouds are growing, as discontent over the nation’s economic mismanagement mounts, even within the ruling Vietnam Communist Party itself.
PM Dung, whose daughter Nguyen Thanh Phuong partnered Kien in banking endeavours, is now openly being challenged by his long-term rival, President Truong Tan Sang.
Sang is supported by party boss Nguyen Phu Trong and Deputy PM Nguyen Sinh Hung, which means the PM’s days could be numbered.
In a devastating article last week, Sang slammed both the inefficient state-owned enterprises and the corruption, irresponsibility and moral degradation of Dung’s government. He could well have aimed his criticism at the party as a whole.
To paraphrase Winston Churchill, the economic debacle may not herald the end of the VCP, but it is perhaps the end of the start of the party’s demise.
Contact our regional insider Roger at [email protected]