Good Morning, Vietnam

The last phase of the Vietnam War is ending. Despite Vietnam's military victory, the United States has achieved its broadest objectives. With the country mired in deepening poverty, Vietnam's Communist government is undertaking a swift transition to a market economy. Meanwhile, U.S. corporations, clamoring for the U.S. government to lift its economic embargo against Vietnam, have become the most significant force pushing for normalization of relations between the United States and Vietnam. They fear losing opportunities to exploit Vietnamese markets and natural resources to companies from other countries.

United States-Vietnam relations

The United States imposed an economic embargo against North Vietnam in 1964, and extended it to all of Vietnam in conjunction with its 1975 military pullout from the country. Fifteen years later, relations between the two countries are thawing and prospects are good that the embargo will be lifted in the near future.

The United States has demanded that two issues be resolved before relations are normalized, however. "The first is a just and stable settlement of the conflict in Cambodia," according to Richard Solomon, assistant U.S. secretary of state for Asia. "Second, but no means second in terms of order of precedence, is a resolution of the fate of the nearly 2,300 missing Americans from the Vietnam war period."

In addition to pointing to the reality that the United States imposed economic sanctions against Vietnam for fighting a war of national liberation, critics complain that the specific conditions are unfair. The original U.S. demand regarding Cambodia was that Vietnam withdraw its troops, they note. Now that Vietnam has withdrawn, the United States is requiring that Vietnam help ensure a "stable settlement" to Cambodia's conflict. The U.S. position on its missing-in-action troops is also unfair, they argue, and ignores the good-faith efforts of the Vietnamese to locate missing-in-action U.S. soldiers. Many more Vietnamese are missing from the war than U.S. troops. Moreover, Senator Richard Lugar, R-IN, reports that Vietnam's Foreign Minister says his government is overwhelmed by peasants who bring in bones to government offices, claiming they are the remains of U.S. soldiers. The peasants apparently hope to be rewarded for their "discoveries."

Yet despite the unfairness of the U.S. conditions, it appears they will soon be met. Solomon says that normalization could be carried out "in two years or less, if the processes that are now underway are in fact actively supported."

If the United States does resume normal ties with Vietnam, it will be a very different country than the one it would have encountered had normalization occurred in the late 1970s, as Jimmy Carter proposed for a short period of time.

The economy

Since 1986, Vietnam has undertaken a program of doi moi or "renovation." Begun in full force in 1988, the program involves the creation of private property rights, reliance on markets to allocate goods and set prices, privatization of government operations, emphasis on attracting foreign investment, strict monetary policy and limitation of government spending and the government's role in the economy. Essentially, it is the equivalent of the International Monetary Fund (IMF) and World Bank's austerity or structural adjustment programs.

In fact, the program was designed with the advice of the IMF. The World Bank has had an influence too. Funded by the United Nations Development Project, it is providing technical assistance to Vietnam.

Two factors prompted Vietnam's economic reform effort First, since the late 1980s, the Soviet Union has sharply curtailed its aid to the country. Second, the country is desperately poor. According to the Vietnamese government, annual per capita income averages between $200 and $210, one of the lowest in the world. Vietnam owes $3.5 billion in convertible currencies and another large sum in rubles. "In a sense, we're looking at a country that has won the war, but lost the peace," says Nicholas Ludlow, managing director of Development Bank Associates, Inc.

Doi moi has had some success. Throughout the 1980s, the country was hurt by hyperinflation. In 1987 and 1988, the inflation rate was approximately 1,000 percent, according to David Dollar, country economist for Vietnam at the World Bank. The government's harsh austerity measures, including price liberalization and high interest rates, virtually eliminated inflation by 1989. It reappeared in 1990, however, hovering around 50 percent, Dollar says.

Rice production improved dramatically under the government's economic reform policies as well. The government undertook a massive decollectivization of state farms and removed its strict price controls on rice. Rice production shot up, and the country went from being a major rice importer to the world's third largest rice exporter in 1989.

The government's austerity measures, however, have high costs as well. Approximately one-fifth of state enterprises have been ordered to close for failing to show a profit. Nearly one-half million state employees lost their jobs in 1990. Overall, the government estimates 1.6 million people are unemployed; the Hong Kong-based Vietnam Newsletter cites sources who place the actual total at around 6 million. T

The future of the economy

Despite some social costs, Vietnam plans to forge ahead with its marketization. In December 1990, the government adopted a 10- year plan. It is not an effort to tightly coordinate all aspects of the national economy, however. Dollar says "it is not a plan in the old sense, but more in the spirit of South Korean plans." Notably, Vietnam's leaders emphasize the importance of deepening the country's reliance on the market. Pham Van Khai, director of the country's State Planning Commission, told the Communist Party newspaper that "the market is the base and also the object of planning."

The plan establishes ambitious goals: doubling national income and increasing exports five times by 2000. Even the government acknowledges that sacrifices will be necessary to achieve such ambitious goals with a market economy. "Our country's socioeconomic situation will be very difficult in 1991," stated Radio Hanoi in December. "We must continue to restrain inflation, strengthen financial and currency management." But the government claims that increases in national income will improve people's standard of living.

The country hopes to resume full membership in the IMF and World Bank. Vietnam's relationships with these multilateral lending institutions were cut off in 1979. Loans from the IMF and World Bank, the Vietnamese government believes, are crucial to rebuilding the country's tattered infrastructure. They will also signal foreign banks and investors that investing in Vietnam is a safe.

Attracting foreign investment is a key component of Vietnam's plan. The country is looking to foreign business to exploit its natural resources, develop light industry, rebuild its infrastructure, transfer technology and fuel the nation's growth. The government has even begun construction of an export processing zone, a site which will provide special incentives for foreign-owned enterprises to assemble and manufacture products for export.

There are, however, major obstacles to doing business in Vietnam. Probably the most severe barrier is the country's weak infrastructure. In some parts of Ho Chi Minh City, electricity is available only three days each week. The telecommunications system is "obsolete," says Thanh Van Tran, president of Henry, Bowie and Associates, Inc, a consulting company. Tran says that it can take up to one week to complete a call from Ho Chi Minh City in the South to Hanoi in the North. These problems are compounded by the effects of the U.S. embargo: Macintosh computers and Xerox machines, for example, cannot be brought into the country. Contradictory and unclear legal guidelines for foreign investors add further to foreign companies' difficulties.

Still, the country offers a number of attractions to foreign business. First, it has abundant natural resources, especially oil and gas. Vietnam produced 2.5 million tons of crude oil in a joint venture with the Soviet Union in 1990, and expects to produce 3.5 million tons in 1991.

Second, labor costs are incredibly low. Wages range from $10 - $25 a month, although the government sometimes forces foreign companies to pay higher wages. Additionally, despite Vietnam's poverty, the workforce is well educated and relatively healthy, a tribute to the country's socialist economy which is overlooked by free market advocates. Accordingly, says Roger Manring, vice president of Nathan Associates, a consulting company, prospects for foreign investment in light industry are very good. The country has "high productivity relative to [its] wages, which means that there are all kinds of opportunities for labor- intensive assembly and manufacturing operations," Manring states.

Third, the country will probably rely on foreign companies to develop its infrastructure needs in areas ranging from telecommunications to road-building. Tran says the "potential [in infrastructure] is huge for U.S. corporations; North America has the capacity to put back the infrastructure."

Finally, the country could be host to a significant commercial tourist industry. Currently, it has only 2,000 hotel beds, so the possibilities for growth are substantial. Vietnam is eager to develop the tourist industry as a means to gain hard currency.

Who will capitalize on Vietnam's capitalism?

Many U.S. businesses worry that opportunities in Vietnam will pass them by. They note the growing involvement of European, Southeast Asian and, of greatest concern to them, Japanese companies in the Vietnamese economy, and fear that the best business opportunities will be taken by the time the U.S. government lifts its embargo against Vietnam.

U.S. companies and business associations are lobbying for normalization and preparing for its eventuality. The American Chambers of Commerce in Hong Kong and Thailand have called for the United States to lift the embargo. Forty U.S. companies and law firms, including AT&T and Merrill Lynch, have formed the U.S.-Vietnam Trade Council to collect information on Vietnam. On December 5, 1990, four business consulting firms held the first conference in Washington, D.C. to discuss prospects for U.S. business in Vietnam since the Vietnam War ended.

U.S. business lobbying efforts have had some results. Senator Richard Lugar has become a forceful advocate for normalization. On October 29,1990, he co-authored a letter with seven other senators calling for the embargo to be lifted. "Strategic, economic and humanitarian interests argue for prompt removal of the U.S. embargo on non-strategic trade with Vietnam," the senators wrote. And they pointed to Japanese and European threats to U.S. corporate interests: "European and Asian businesses are now enjoying unilateral advantages.... Once again, the United States risks forfeiting a market to our foreign competitors, particularly the Japanese and the French."

In fact, multinationals in other countries are beating the United States into Vietnam. Corporations have committed $1.4 billion to 200 foreign investment projects in Vietnam. According to the Vietnam Newsletter, France has committed $234.9 million to 17 projects, Britain $143.9 million to eight ventures, Hong Kong $134.9 million to 61 projects, many of them in light manufacturing industries such as garment assembly, and Japan $89.2 million to 11 projects.

The majority of foreign capital which has already been invested in Vietnam is oil-related. As of December 1990, Vietnam has issued nine exploration licenses to oil companies, including British Petroleum, Royal Dutch Shell and France's Totale.

Japanese investment in Vietnam has been limited because Japan, following the U.S. lead, maintains an embargo against Vietnam, though it is not strictly enforced. Trade between Japan and Vietnam reached $630 million in the first nine months of 1990. Japanese companies that have invested in Vietnam have reportedly done so largely through front companies. Some of Japan's largest corporations are poised to dramatically increase their presence in Vietnam as soon as relations between the two countries are normalized. Sanyo is scheduled to open an office in Vietnam soon; Toyota is planning to begin assembling passenger cars in Ho Chi Minh City; and Honda is reportedly preparing to produce motorcycles in Ho Chi Minh City. Other Japanese companies hope to win contracts for infrastructure development which they anticipate will be funded by Japanese aid.

U.S. corporations are not likely to be denied a share of Vietnam, however. Mobil has been the most public of U.S. corporations jockeying for position in Vietnam. The company has entered into discussions with Soviet and Vietnamese officials about a three-way joint venture to drill for oil in the South China Sea off the coast of Southern Vietnam. Currently, a Soviet-Vietnamese joint venture, Vietsovpetro, is drilling in the region. Vietnamese and Soviet officials are reportedly interested in working with Mobil because the U.S. company was the first to discover oil in the South China Sea. Mobil drilled for oil in the region in the early 1970s and has technical data which could increase the productivity of current operations there.

More significant than the current efforts of U.S. corporations to prepare themselves to enter the Vietnamese market is the Vietnamese government's commitment to developing strong ties with the United States. The government has, for example, reserved some potential oil sites for U.S. companies. Lugar says that this is a sign of Vietnam's desire to develop a "strategic relationship" with the United States. He reports that Vietnam's Foreign Minister told him that, as the Soviet Union withdraws from its commitments to Vietnam, Vietnam is hoping the United States will adopt the role of "protector" against Asian powers China and Japan.

The China syndrome

The economic path marked out by the Vietnamese government is fraught with danger. The market-based, export-oriented, open economic model it is adopting has had mixed results even where it has been most successful, in neighboring Southeast Asian countries. For most of the Third World, however, it has been an unmitigated disaster, impoverishing people and ceding control of national economies to foreign banks and multinational corporations [see "Brutal Banking," Multinational Monitor, April 1990].

The free-market model may impose especially high costs on the Vietnamese people, since their government is proposing the liberalization of the economy only. It has expressed little or no willingness to democratize its authoritarian political system. In fact, Vietnam seems to be adopting the Chinese approach to development. There the consequences of the combination of an unregulated economy and political authoritarianism shocked the world in June 1989 as Tiananmen Square erupted.