The recent change of leadership in Vietnam suggests an emphasis on political and economic stability that is increasingly absent in the rest of the Asean region, as a new 19-member politburo and 27-member cabinet make for a more amorphous and less centralised power structure than before.
However, this emphasis on stability in part reflects the fragility of Vietnam’s macroeconomic boom.
Official figures show that the economy continues to grow at more than 6 per cent a year, making Vietnam a rare bright spot in Asia. Interest among foreign investors in Vietnamese real estate, equity, debt and consumer markets is at its highest level in a decade.
The problem is that recent growth has to a large extent been driven by an expansion of domestic debt at a rate that has exceeded GDP growth for the past three years.
Similarly, nearly two-thirds of the growth in exports that has provided crucial support to the economy has been driven by foreign-invested manufacturers rather than domestic companies.
With bank lending rates having fallen by half since 2011, from about 15 per cent to about 7.5 per cent, credit growth has resumed, especially to sectors such as real estate.
This has helped drive a boom in share prices of developers such as Vingroup, as the first chart shows.
Although risk management in Vietnam’s banking sector has generally improved, particularly among the bigger banks, there have been few incentives to adopt more prudent lending standards among smaller banks.
An urgent priority is to manage the country’s delicate fiscal balance. The government’s budget deficit remained at the equivalent of over 6 per cent of GDP in 2015, while public debt is equal to more than 62 per cent of GDP.
The government has mandated that debt cannot exceed 65 per cent of GDP but at current trends it may break this threshold by next year, in part due to the difficulty of cutting recurrent expenditures in the state sector such as salaries, pensions and fiscal transfers.
In response, the government is likely to raise the rate of value-added taxes in the next 12 months and seek additional revenues from major foreign-invested manufacturing projects.
A survey of 1,000 Vietnamese consumers by FT Confidential Research, a unit of the Financial Times, found that sentiment towards both the economy and the political outlook, while generally positive, became more neutral in the first quarter of 2016, even though bullish sentiment towards real estate remains at its highest in years.
This year’s changes at the top of government seem designed expressly to maintain economic stability following the triumph of Nguyen Phu Trong, party secretary, over Nguyen Tan Dung, the former prime minister, in an intensely contested leadership battle in January.
Vuong Dinh Hue, the head of the central economic committee, and Nguyen Van Binh, the former central bank governor, were promoted to the politburo, while Dinh Tien Dung, finance minister, retained his position, underlining the importance of these three roles.
Meanwhile, the former ministers of defence and public security have been elevated to the highest ranks in the politburo, above that of Nguyen Xuan Phuc, the new prime minister.
The question is whether this new structure can implement and deliver more efficient and aggressive reforms, relative to the previous administration when political power was centralised to a greater extent under Nguyen Tan Dung.
Other key appointments include that of Dinh La Thang, former transport minister, as party secretary for Ho Chi Minh City (HCMC). He also takes a place on the politburo.
Many see this appointment as an attempt by Hanoi to improve revenue collection from Vietnam’s largest city — an estimated 70 per cent of the city’s tax revenue goes to the central government.
Although seen as an outsider in HCMC, his experience at transport is seen as crucial to the oversight of the ongoing build out of the city’s urban metro transport lines.
original source: http://www.ft.com/cms/s/0/e7267ab4-1da9-11e6-b286-cddde55ca122.html#axzz49EPLy2Qt