Hanoi's Toughest War: Managing the Market

Vietnam's Communist Party has weathered five wars over six decades, but its latest fight is with a longtime foe willingly let in: capitalism.

Never comfortable with having to adopt free-market ways in 1986 in order to keep popular appeal, the Marxist leaders in Hanoi now face a severe economic downturn, rampant corruption, and rural uprisings.

Last month, they retreated and chose a Communist Party leader well-experienced in military-style discipline.

Gen. Le Kha Phieu, a shadowy party figure who once called capitalism "backward" and ensured communist control over the Army, has since said that Vietnam's difficulties are "very large," especially as foreign investment and markets shrink in Asia.

At a closed-door party conclave in December, a new lineup of leaders decided to return to the same "self-reliance" that helped the party wear down the Americans and other military foes.

That could likely mean more caution in shedding state enterprises and further reforming the rules on trade, investment, and banking. At present, Vietnam does not have a stock market or a convertible currency. In a recent report, the World Bank warned: "Without immediate action, Vietnam's development momentum would be lost."

A boom in foreign investment in the early 1990s faltered last year. Foreign investments dropped 40 percent, its most dramatic decline ever. That threatens the party's hope that rising incomes in Vietnam, one of Southeast Asia's poorest countries, will help keep it firmly in power.

In November, Vietnam also received a warning from Singapore's senior minister Lee Kuan Yew, who transformed his city state into Asia's most stable, success story. He bluntly told Vietnamese leaders that investors came to Vietnam to make a profit, not to reconstruct the country.

"I have spelled out to them the implications for our investors and for all other investors, and that they are killing them," he told reporters. The half-capitalist, half-socialist system has been choked by red tape, corruption, and bewildering rules.

What little is known of the former Army political commissar is that he is a conservative who will maintain party control over Vietnam's political and economic life. But in a flurry of statements, the party and Phieu himself declared in reassuring tones that Vietnam was committed to further reforms to attract foreign investors.

In an interview with the army's official newspaper, Nhan Dan, Phieu said Vietnam will continue its doi moi (renovation) policy begun in 1986. He called on party units to "show strong determination in the fight against red tape and corruption," the paper said.

"They are talking the talk, now we want to see if they can walk the walk, so to speak," says a senior Western ambassador in Hanoi.

"Phieu is an army man, an apparachik," says an Asian diplomat. "The country needs someone who understands economics," he adds.

One defender of the government, Do Du Dinh, a director in the Institute of World Economy in Hanoi, a think tank, says: "In my view, reform will go on normally - neither fast nor slow. He [Phieu] needs to balance the two views in the party."