The power struggle at the top of the Communist Party of Vietnam (CPV) appears to have been resolved sufficiently to reduce the risk of an open rift in the regime. Nevertheless, Prime Minister Nguyen Van Dung has been weakened in the process. In addition, he still faces serious challenges in the form of a stalling economy, a debt-ridden banking sector, and a public increasingly impatient with corruption.

Against that backdrop, the government has invited all citizens to submit comments on a new draft constitution, a process that has sparked a fairly lively debate, at least among those with access to the internet. However, while the CPV is prepared to remove overt references to the “leading role” of the public sector, neither the political structure nor the current economic-development model is likely to be altered in any immediately significant way.

Indeed, the latest multiyear economic program unveiled earlier this year sticks to familiar themes, including a commitment to increase private-sector participation in targeted sectors of the economy, starting with the defense industry and the provision of essential services. Likewise, economic policy will continue to be guided by the objective of maintaining a healthy balance between growth and inflation, with a particular focus on promoting the expansion of the export sector and keeping a lid on spending growth.

The delay of "Circular 2" reforms could be an indication of disagreement among top party figures about how to proceed.

The central bank’s decision to delay the implementation of new banking reforms for until June 2014 is further evidence of the government’s bias in favor of caution when it comes to policy changes. The “Circular 2” package of reforms is designed to force banks to prepare for the clearing of non-performing loans, and the delay could be an indication of disagreement among top party figures about how to proceed.

Independent analysts suggest that the total value of non-performing loans could be double, or even triple the official estimate of $7.8 billion (or roughly 6 percent of outstanding loans). This discrepancy has significant implications for the cost of the debt-clearing process.

The central bank has proposed allowing a single foreign investor to own up to 30 percent of a local bank, up from the current cap of 20 percent. This will only be allowed in cases where it is necessary to save a struggling bank, as determined by the prime minister.

Implementation of the proposal has not been confirmed. And the details of a plan to overhaul 52 state-owned companies that was due to be released in June are also unclear.


The PRS Group
About The Author The PRS Group
The PRS Group is a leading global provider of political and country risk analysis and forecasts, covering 140 countries. Based on proprietary, quantitative risk models, the firm's clientele includes financial institutions, multilateral agencies, and trans-national firms.

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