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Vietnam Communists' new challenge: managing capitalism

As inflation rises and currency weakens, observers will be watching the Communist Party Congress for clearer signs about the government’s determination to stabilize Vietnam's economy.

Men decorate near a poster promoting for upcoming national congress of the Vietnam's communist party at the national convention center, the venue for congress, in Hanoi on Jan. 10. Vietnam announced that the ruling communist party will organize its 5 yearly national congress from January 12 to 19 where the new leadership of the country will be reshuffled.

Kham/Reuters

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Vietnam’s Communist rulers gathered Tuesday ahead of a party congress that will select the country’s top leaders and set its priorities for the next five years.

The weeklong meeting in Hanoi comes amid uncertainty over the party’s ability to manage one of Asia’s fastest growing economies after a state-owned shipbuilder defaulted last month on $600 million in debt.

Prime Minister Nguyen Tan Dung, a hard-charging former banker, is expected to retain his post despite criticism over his handling of the debt default and rising food prices that have pushed official inflation to 12 percent. Two other senior jobs will become vacant with the mandatory retirement of the country’s president and the party’s secretary general, a key position in the hierarchy.

Since it began opening up in the 1980s, Vietnam has been transformed by rapid economic growth. It has become a darling of aid donors and foreign investors, who continue to pour money into low-cost manufacturing and resource-based industries. But its reliance on deficit spending and inability to control inflation has exposed the shortcomings of its consensus-driven political system.

Vietnam's runaway inflation

While many Asian countries currently fret over rising currencies, Vietnam faces the opposite problem. It struggles to defend its currency, the dong, which is shunned by Vietnamese who prefer to hoard dollars or gold. This has fueled runaway inflation, as the price of imported goods rises, and raised fears of a hard landing after several years of breakneck growth.

“The perception among domestic investors is that when push comes to shove, the government is more interested in growth than curbing inflation,” says a local economist.

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