Vietnam's Prime Minister Tackles Inflation

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Prime Minister Nguyen Tan Dung in Hanoi.

When Nguyen Tan Dung became Prime Minister of Vietnam two years ago, the former central bank governor was widely viewed as a progressive who would continue to drive the communist country's remarkable transition from moribund planned economy to a booming capitalist one. But this year, Vietnam's outlook has dimmed. While GDP growth remains strong at more than 7%, the inflation rate has rocketed to 25%, there have been a large number of outbreaks of labor unrest and the stock market has plunged by nearly two-thirds since January, making it the worst-performing in the world.

Dung, 59, has taken steps to curtail inflation and cool the overheating economy. But he freely admits he's seeking more answers. Starting June 24, he visits the U.S. with plans to meet with President George W. Bush and former U.S. Federal Reserve Chairman Alan Greenspan, among others. Although Dung rarely speaks to the press, in a June 20 interview with TIME senior editor Jim Erickson and correspondent Martha Ann Overland, he talked about his upcoming visit and the challenges facing his country, from rampant corruption to human rights. (The following Q&A is based on Dung's translated answers to live questions. For clarity, some of Dung's written responses have also been included in edited form.)

How can you bring down double-digit inflation without dampening growth?

There are many factors leading to the current difficult economic situation. Due to the high degree of openness of our economy, Vietnam is greatly affected by global inflation. Vietnam has been a member of the World Trade Organization for only a little more than a year, and so promptly responding to adverse impacts of the global economy is a relatively new matter for us. The government values and is willing to learn from the experiences of other countries and from experts in this area.

We've already adopted many measures [to bring down inflation]. Monetary policy is being tightened. At the same time liquidity and the money supply will be reduced for banks. Our second major policy is to reduce government spending and [wasteful] investment by state-owned enterprises. We will cut about 25% from the government's budget and from spending by state-owned enterprises. Inflation in the first five months of the year was still very high but it is coming down gradually. GDP growth during the first five months was still more than 7%, and our exports grew 27%.

But if you cut spending, how will that impact important infrastructure projects? You have said yourself you would like to see electrical generation capacity doubled in the next several years.

Let me assure you that public investment in important infrastructure — for example, electricity, power, highways, seaports — will continue. We will cut investment in unimportant projects like [government] buildings, headquarters and cultural houses. And especially, low-efficient projects of state-owned enterprises will be cut.

What do you hope to accomplish on your trip to Washington?

I'm going because of the invitation by President Bush. My aim is to further strengthen the friendship, the constructive partnership and the multifaceted cooperation between the two countries on the basis of equality and mutual benefit.

As a major agricultural producer, Vietnam is aware of the government subsidies paid to European and American farmers and how this might contribute to food price inflation. Is this one of the things you'll be talking about in Washington?

I am going to raise that issue. Vietnam is the world's second-largest rice exporter. This year we have already exported 2.2 million tons of rice, up by 20% compared with the same period last year. This morning I had a conversation over the phone with Thailand's Prime Minister [Thailand is the world's largest rice exporter] and we agreed to further promote rice exports to international markets to help stabilize food prices.

We understand you will meet with Alan Greenspan on your trip to Washington. What are you going to talk about?

I knew him before, when I was the governor of Vietnam's central bank. I would like to hear his assessments of the U.S. economy, the global economy and the Asia economy. I would also like to get his advice on the Vietnamese economy.

Is there concern that the current economic difficulties will make foreign investors less confident about building factories and otherwise investing in Vietnam?

The basic factors that drew investors here are still being maintained. The government has continued its efforts to create a business environment that is more attractive, open and transparent. The reality is, many investors still have a positive assessment of Vietnam's mid- and long-term development prospects. Foreign direct investment in the first five months of 2008 was $15.3 billion, up by 134.1% compared with the same period last year. We face temporary difficulties and effective measures have been taken. I believe that wise investors will continue to invest in Vietnam.

When you were first named Prime Minister, you announced one of your primary goals was to fight corruption. What progress has there been and what can you do to continue the fight?

Corruption is not a problem just for some countries; this is a global issue. And we understand that to fight corruption, we need to have very strong and comprehensive measures. We know our legal institutional framework needs to be further improved. We need to strengthen our financial markets and make them more transparent. We need to speed up administrative reforms relating to public servants — salaries of public servants must be increased, so that they have better incomes and stay away from problems. Corrupt behaviors must be severely punished. And we also need to improve the publicity and transparency in corruption cases in order to better involve the public, including the mass media, in the fight.

The arrest of two reporters who covered a high-profile corruption scandal within the transport ministry has been seen as a blow against anti-corruption efforts.

The arrest of the two journalists has nothing to do with the fight against corruption. Vietnam is a rule-of-law state, in which all citizens are equal before the law, protected by the law and their violations shall be punished in accordance with the law, no matter who they are.

The U.S. State Department has removed Vietnam from its list of countries that it says are violating religious freedom. Do you think Vietnam can make similar progress on other human rights issues?

It is [the government's] top priority to respect and protect human rights, seeing the people as a central factor for achieving sustainable development and the goal of building Vietnam into a strong country with wealthy people and a just, democratic and civilized society. Vietnam stands ready to talk with the U.S. on issues of mutual concern. The U.S. side has acknowledged positive progress in Vietnam. I am convinced that we need to increase contacts and dialogues in order to enhance mutual understanding on issues of differences.

Obama or McCain? McCain has more history [with Vietnam] but Obama spent part of his childhood in Indonesia. Who would you prefer as U.S. President?

[Laughing] We hope to work closely with whomever is President.