HO CHI MINH CITY, VIETNAM —
On a busy street here, Nguyen Lai is practically hemmed in by the raincoats and camouflage pants that fill his small clothes shop. He has too much inventory, from polo shirts to umbrellas, much of it imported from neighboring Cambodia. But it’s become much harder to sell merchandise in recent years, unlike several years ago when high sales meant he had a lot more variety in stock.
“Oh, I used to sell so much,” he says one late afternoon, taking a lit cigarette from a friend as a fan blows toward his face.
The good old days were seven years ago. Things have stagnated since then - for Lai and for the country. It was about the same time Vietnam entered what would become its worst slow-growth period in its recent history as a modern market economy.
A World Bank report this week said Vietnam registered 5 percent growth in the first half of 2013. That matches the rate in 2012, which marked the sixth year in a row that gross domestic product has increased by less than 7 percent. It’s the longest period of slow-growth since Vietnam took a capitalist turn with the Doi Moi reforms of the 1980s.
The last time Vietnam’s economy expanded this slowly, in the late 1990s, Asia was in the midst of its toughest financial crisis. Developing Asian countries now average a 7.5 percent GDP increase, according to the World Bank, compared with Vietnam’s 5 percent. That means the country will report growth that lags behind Indonesia and the Philippines in 2010-2013, something that hasn’t happened for two decades.
The bank report went on to warn that a major risk of the economic malaise is that Vietnamese officials might feel compelled to undertake stimulus measures. Those, in turn, could bump up consumer prices, which is a lingering fear because inflation topped out at 23 percent in August 2011. A jump now would threaten progress as Vietnam “enters the third year of relative stability,” with inflation at 6.7 percent in June, the report said.
But despite its cloudy outlook, the report should have given more consideration to the government’s planned reforms of banks and state-owned enterprises, according to Pham Ngoc Bich of Saigon Securities.
“It does take time, anything to do with state reform, tax reform, those take time,” Bich said in an interview. “You cannot implement those reforms in a week, right?”
This month, the central bank is scheduled to roll out the Vietnam Asset Management Company, tasked with cleaning up loans that have gone sour. Officials say non-performing loans make up 6 percent of overall lending. But Fitch Ratings questioned how this newborn bank can handle billions of dollars in bad debts when it has just $24 million to work with.
The World Bank praised the asset management company, entirely state-owned, as “the most visible step” Vietnamese leaders are taking to cure the banking sector. But it said that to be successful, the new bank must accurately audit the level of non-performing loans and buy them at market value, not book value.
The process is part of a larger bank restructuring plan that the World Bank faulted as insufficient. It wrote in its report that “the merger of several weak banks has not necessarily created a new healthy bank and therefore their underlying problems remain unaddressed.”
If Vietnam is to avoid the report’s warning of prolonged slow growth, few believe it can be done without overhauling the communist country’s state-owned enterprises. The monoliths are notoriously inefficient and opaque, but the World Bank said efforts to reform them have so far been slow and fragmented.
Still, such reforms point to options for Vietnam, where not all of the report’s findings were dismal. The country is enjoying a trade balance that’s positive for the first time ever. Reserves that have doubled in two years, and the nation is enjoying its largest current accounts surplus. Now the priority is to tackle the commercial banks and the state-owned enterprises.
“Once the ball gets rolling we’ll have positive economic results in the next three to five years,” Bich said. “I’m more confident now than I was two years ago.”