1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Dangerous downturn

Rodion Ebbighausen / sbNovember 26, 2012

A little over a decade ago, Vietnam had a booming economy. An economic crisis and mismanagement on all levels have driven the country to the brink of ruin. It's up to the government to save what's left.

A worker climbs on a scaffolding at the construction site of a residential apartment in Hanoi November 1, 2012(Photo: REUTERS/Kham)
Image: Reuters

Tuan is a young, educated and ambitious Vietnamese from the city of Hanoi. The country's economic golden days of recent allowed him to set aside a small fortune - at least enough for a house for his family. He had even considered buying a car. As an official working for the regional government, he had a decent income. In addition, he invested in real estate and in a television engineering company.

But his optimism has recently become overshadowed by fear and uncertainty. He has now given up the thought of purchasing an automobile. He is worried he will lose his savings and that the real estate market will collapse.

"I don't know how things will turn out. The national debt is weighing heavy on our country's shoulders. In the end, we all have to bear the brunt."

Real estate prices have fallen by 30 percent. Inflation continues to grow; in October 2012, the inflation rate was seven percent. The Vietnamese stock exchange index HNX is at the lowest point it a year. Ratings agencies such as Moody's and Standard & Poor's have downgraded Vietnamese bonds as "highly speculative."

Dangerous downturn

The country's economic growth has slowed down to between four and five percent. That is not enough to create jobs for the rapidly growing population and the rising number of people entering the job market.

"The slowdown is significant for a regime which couples its legitimacy with economic growth," according to Adam Fforde of Victoria University in Melbourne, Australia.

Vietnam economic indicators (DW)

Fforde estimates that around one million people have lost their jobs within the past two years - a development expected to have implications in a country lacking a social welfare system.

Government rescue?

"I really hope the government finds a solution to the economic troubles," Tuan said, showing cautious optimism.

Vietnam expert Fforde - along with many others - is skeptical about the government's capabilities to find a solution, as it was the government itself who was responsible for a large part of the country's economic trouble in the first place; the "Doi Moi" program, which was introduced in 1986 to politically and economically open up and reform the country, has proved to be not very sustainable.

"In 2007, the balance just fell apart," according to Fforde. "In the end, the sad truth came to the fore: the government might not have as much control as it appears and that everything up until now might have just been good luck."

Prime Minister Nguyen Tan Dung gestures at the opening session of the new legislature in Hanoi, Vietnam on Thursday, July 21, 2011. (AP Photo/Tran Van Minh.)
Nguyen Tan Dung has admitted to making "economic mistakes"Image: AP

Crisis management criticized

Vietnam - with a strong emphasis on its export market - was hit hard by the international economic crisis of 2007. Decision makers in Hanoi introduced expensive stimulus packages. But a large portion of that money got lost in corruption and mismanagement. All that's left is a huge deficit. Credit institutes are now stuck with up to 15 percent of toxic debt.

Party leadership has closed ranks after months of internal power struggles - a symbol that government has "understood just how serious the situation is," Vietnam expert Jörg Wischermann told DW. For the party leaders, it was first and foremost about securing their own power, then, about dealing with the country's issues.

Fforde sees the solution to Vietnam's current crisis in the development of a middle class. For that, investment would be necessary in the education and health sectors as well as in infrastructure. Reforms in the agrarian sector, which have not been updated since 1986, were also of vital necessity.