Why Vietnam's Political Reshuffling Won't Fix A Struggling Economy

Sarcastic observers joked that the scene — the monotonous non-event held every five years that has become Vietnam's 11th National Party Congress — summed up the obsolescent state of the communist party itself. For a week starting last Wednesday, 1400 delegates gathered in the capital of Hanoi to set the party's strategy and voted out some older members of its gray-haired leadership. The outcome? Much of the same, but with a few younger faces — an increasingly rare species in a country where many business-oriented youth no longer join need to join the party. A third of the party's 15-man politburo, the most powerful committee in the country, stepped down, some citing their ages and health concerns.

The prime minister, 61-year-old Nguyen Tan Dung, was re-elected to the central committee, a body comprising of the party's top 175 officials who elect the politburo, the highest-ranking of all party groups. That means Dung, widely seen as a market reformer, will likely win the post for a second five-year term as prime minister, a vote to be decided at a National Assembly session in May. But a 66-year-old ideologue reportedly close to China's communist party, the politically moderate Nguyen Phu Trong, was picked on Tuesday to be the new general secretary of the party, on paper the most powerful position in the country. In practice, however, the prime minister wields more clout, so it's unlikely Trong's victory will lead to policy shifts, analysts say.

The leadership changes were announced a week after a pointed session of self-criticism as the Congress kicked off, in which leaders attacked their own party's handling of the nation's economic woes despite a decade-long stretch of growth in this "tiger economy." Though last year the country achieved its highest level of growth since 2007 at 6.8% — a terse rebound from the economic crisis — inflation has offset the benefits of growth for many of Vietnam's 90 million people, especially those who live in poverty. For months now, officials have been juggling double-digit inflation, a weak currency, and, of particular concern in the halls of power, the collapse of a megalithic state-owned shipbuilding company, Vinashin. Thanks to canceled orders after the 2008 economic crisis and faulty management, the conglomerate has amassed $4.4 billion worth of debt, equivalent to 5% of the $102 billion economy. Policymakers have acted slowly to address the gloom, a stance that isn't likely to change with key leaders keeping their posts.

At Vinashin, whose expansive state-run model is seen as central to the Vietnamese economy, the situation hasn't been improving. In August, several executives were arrested and detained on allegations of mismanagement. Last month, the group defaulted on a $60 million payment to international creditors, partially prompting Moody's to downgrade Vietnam's credit rating. Vietnamese have jokingly dubbed the shipbuilder "Vinasink."

Three weeks ago, Dung issued some assistance to the beleaguered group, offering it interest-free government loans to continue to pay its workers. But in the months leading up to the Congress, analysts say the debacle threw policymakers into a pickle. "This is a damned if you do, damned if you don't situation," says Eddy Malesky, a political science professor at the University of California at San Diego. He says a default could raise the costs of international borrowing for Vietnamese companies, potentially limiting access to capital that's needed for long-term economic growth. On the other hand, a bailout could send a message that state-backed conglomerates may not have to face the consequences of risky behavior.

For the prime minister and his supporters, the quandary brought its own trouble. His reformist troupe has touted Vinashin as a model for development akin to South Korea's chaebols, or conglomerates such as Samsung and Hyundai, a stance that dampened their political platforms as the company has flailed. In November, Dung acknowledged on national television that he was partly responsible for Vinashin's near collapse, and that he and other ministers were conducting a "self-criticism." Opponents have also attacked Dung for his support of a plan that a Chinese company mine bauxite in the central highlands, a scheme they argue is environmentally unsound.

Dung held onto his power base despite attacks. "The bottom line is that his detractors could not muster sufficient support to oust him," says Carl Thayer, a Vietnam expert at New South Wales University in Australia. "Despite Dung's shortcomings, he has achieved remarkable success while in office." Thayer points to his taming of inflation in 2007 and 2008, and a stimulus package that helped pull Vietnam out of the 2008 economic crisis. Now, policymakers are again under pressure to cool inflation, even if it means purposefully slowing the country's strong growth.

Thayer also suggests that, despite the Vinashin debacle, the Party's preference for large state-owned enterprises will continue, citing strategies laid out in party documents before the congress began. Despite their cumbersome bureaucracies, questionable business practices, and tendency to crowd out smaller and international competitors, supporters argue that the stalwarts are still stable — and still compromise 40% of the GDP. But many party leaders advocate more open markets balanced against a socialist system. On Wednesday, for example, delegates approved a measure that will allow private business owners to join the communist party, a full nine years after China enacted a similar policy.

Despite talk of modernizing the economy, leaders signaled early during the congress that they won't tolerate discussions of liberal democracy. Outgoing party general secretary Nong Duc Manh claimed last Wednesday that "hostile forces" are using human rights to attempt an overthrow of socialism. His statements follow a censorship crackdown before the congress began, when, among other things, many Internet users reported difficulty accessing Facebook. "The biggest challenge I have to face every day is censorship," laments one newspaper editor in Ho Chi Minh City who did not want to named for fear of retribution. "The newspaper has not produced any significant investigative reporting for a long time." Since October 2009, authorities have convicted or arrested 39 political dissidents, according to the U.S. State Department. A week before the congress began, much to Washington's displeasure, police officers wrestled down and drove away a U.S. diplomat who attempted to visit a dissident Catholic priest in central Vietnam.

But for many of Vietnam's rising middle class, politics is too abstract a worry compared to their very tangible economic problems. Nguyen Phuong, a blogger in Ho Chi Minh City who used to write anti-government blog posts, stopped publishing his ideas online two years ago. "It's not that we're scared," he says. "Right now, most of us have to focus on earning money for food and rent, rather than thinking about free speech and voting." It's an attitude that mirrors the self-criticisms and strategies laid down during the party congress, where banter about open markets — but not open politics — made the much-anticipated political gathering resemble any other.