by Vu Kim Chung
Senior Vietnamese officials on June 14, 1999 pledged to address some concerns that foreign investors say impede growth in the communist-ruled country.
"There were two proposals from the Vietnamese side which were very positive," said Wolfgang Bertelsmeier, chairman of the so-called Private Sector Forum (PSF) which groups foreign business associations in Vietnam in a dialogue with the government. He was speaking after a half-day meeting between the officials and foreign business groups in the northern city of Hai Phong. Two government/foreign business working groups would be formed to address banking and legal issues, added Bertelsmeier, who also heads the International Finance Corporation in Vietnam, the World Bank's commercial lending arm.
A fragile, restricted banking sector and an inconsistent legal framework have in recent years been recurring themes in investor complaints.
Investor Concerns Presented to Vietnam
Foreign investors, in the meeting with the Vietnamese government, outlined a list of concerns they said should be urgently addressed if Hanoi was to improve its dimming economic prospects. The meeting was part of a process initiated by the World Bank Consultative Group of Donors to communist-ruled Vietnam. Multilateral and bilateral donors met the government on June 15.
The following is a summary of main concerns raised by the so-called Private Sector Forum, which groups foreign business associations in Vietnam:
* Enforcement of rules and regulations. Investors complain that enforcement is often inconsistent.
* Banking sector reform. Vietnam's nascent financial sector is under-capitalised and over-regulated.
* Increased transparency, including audits of state-owned enterprises. Few state firms, which hold a privileged position in the economy, have been audited.
* Foreign exchange. Foreign companies are severely limited in their access to foreign exchange, and in some cases spot sales of forex are mandatory.
* Voting rights in joint ventures. Minority local partners in foreign-invested joint ventures still hold the power of veto in some decision making.
* Income tax. Income taxes for both Vietnamese and foreign employees are too high.
* Removal of dual pricing. Foreign firms and individuals are forced to pay higher rates for some services such as utilities, transport and advertising.
* Utilities costs. Costs for items such as telecommunications and electricity are too high.
* Dollar denominated salaries. Salaries for Vietnamese workers in some foreign-invested firms are required to be stated in U.S. dollars.
* Direct labour hire. Foreign firms are barred from hiring workers directly and are required to go through state labour agencies.
* Rules for Build-Operate-Transfer (BOT) investments. This key form of investment remains mostly unattractive due to restrictive rules and regulations.
During the meeting, Hanoi agreed to the formation of joint working groups with foreign investors on banking and legal issues. Concerns would also be further considered and passed on to the country's legislature, participants said. PSF members spoke to media at the end of the meeting, which had also been attended by representatives from the Communist Party, Vietnam's nascent private sector and the country's bilateral and multilateral donors.
Vietnam's economic prospects have dimmed since 1997 and 1999 saw new foreign investment approvals slow to a trickle. In the first five months Hanoi approved new projects worth $541 million, 54.3 percent down on the same period of 1998, official figures show. Tran Xuan Gia, planning and investment minister, told the meeting that in the past year Hanoi had taken concrete steps to improve the business climate and that he found regular dialogue with foreign investors beneficial.
Bill Magennis, a lawyer with Australian firm Philips Fox who co-presented a paper on behalf of the U.S. and Australian business groups, said the government had indicated it was to review unpopular laws on dollar-denominated salaries and voting rights within joint ventures, but that there remained problems.
"There was some misunderstanding of our positions (by Hanoi), said Magennis. "There were bone fide disagreements with some...and a lack of understanding of others."
PSF members said Hanoi had indicated it may revise a widely condemned labour law that limits the right of foreign firms to directly hire workers, but that the law had been defended by Gia.
The PSF meeting, which took place in Hai Phong, 105 km (62 miles) east of Hanoi, was under the umbrella of the World Bank Consultative Group of Donors to Vietnam. Analysts say Hanoi is backsliding on promises to liberalise its economy and investors routinely complain of official discrimination against foreign firms, non-tariff barriers to business, and an arcane bureaucracy that breeds corruption.
Disappointed Donors See Vietnam Slowing Reforms
International donors expressed discontent with Vietnam on June 15, despite the pledges from the communist-ruled country to further economic and political reform.
"We are disappointed," said one western ambassador during a break in a mid-year meeting between the Hanoi government and its foreign backers. "There was a reaffirmation that the state sector would keep a dominant role in the economy."
Donors and foreign investors have in recent years become increasingly critical of Hanoi's perceived backsliding on promised reforms, including the promotion of the country's small but hamstrung private sector. The meeting, held in Hai Phong, 105 km (62 miles) east of Hanoi, heard called for quick action to arrest the country's economic slide.
"There's so much sympathy (for Vietnam) among the heads of delegations but the statements today seemed like a throwback in time," added the ambassador. After a decade of stellar growth, the country's economic prospects have dimmed since 1997 as growth slows and other key indicators stall or turn negative.
The meeting gathered Vietnam and the World Bank Consultative Group (CG) of bilateral and multilateral donors in a mid-year review of reform and official development assistance (ODA). Andrew Steer, director in Vietnam for the World Bank, said Hanoi had marked impressive progress since it launched tentative reforms in the late 1980s, but those gains could possibly be reversed.
"Last year [1998] we met at a time when we were very concerned," said Steer. "Today the situation is more serious than it was last year."
One participant in the meeting said many donor calls for concrete reform in key areas were rejected.
"The Vietnamese totally rebuffed any approaches...on most sensitive issues," he said.
Deputy Prime Minister Nguyen Manh Cam, who is also foreign minister and sits on the Communist Party's elite Politburo, told donors reform was needed to support economic growth. He said efforts were being made to overcome problems arising from low efficiency and poor competitiveness, the Asian financial crisis, natural calamities and persistent management and administrative weaknesses, but gave few details. Donors remained critical.
"There is no willingness to engage in a full dialogue," said one participant.
Since 1993, Hanoi has been pledged some $13.1 billion in development aid -- of which around $5 billion has been disbursed -- but donors say stalling reforms and other political problems may force conditionality on future pledges. Planning and Investment Minister Tran Xuan Gia told donors that Hanoi was attempting to address 17 issues that the CG had devised, but that problems -- internal and external -- remained. The issues could be grouped under the four main areas of developing the private sector, agricultural development and poverty alleviation, effective management, and effective aid and partnership relations, Gia said, adding that some progress had been made.
"We understand that there remain some problems in the implementation of investment projects, but those problems were not only from our side but also from outside," he said. He did not elaborate.
Minister Tran Xuan Gia told the news conference at the end of the meeting that Hanoi was committed to reform and highlighted measures it had taken to free up the restricted private sector.
"There's one major policy, a policy that has a revolutionary nature," he said. "At the beginning of this month the National Assembly adopted the Enterprise Law. I believe this is a major policy change."
This law, which for the first time aims to give equal treatment to both the state and private sectors, has been broadly welcomed. But donors and investors say it does not apply to foreign-invested firms. They also pointed to new restrictions on direct local labour hire by foreign firms as evidence of Hanoi's reluctance to embrace market economics.
Gia said the government was willing to listen to concerns about the ruling but did not say if it would be repealed. Western ambassadors expressed frustration at Hanoi's reluctance to commit on specifics. And Vietnamese officials said privately that they did not expect the dialogue to result in Hanoi quickly adopting fresh specific measures.
Participants in the meeting said no new pledges of aid would be made, but that recommendations on implementation and long-term development assistance would be devised for further consideration at the next full annual donors' meeting due in December 1999.