Thayer Consultancy

ABN # 65 648 097 123

Background Briefing: Vietnam: Reform or Die Carlyle A. Thayer July 5, 2012

[client name deleted] Q1. At a recent party convention, party members announced that the CPV should Reform or die, what has the CPV done to try implementing this new slogan, has it done much in terms of liberalization or democratization? ANSWER: Reform or die was a slogan first heard in the 1970s when Vietnams Soviet-styled system of state planning failed badly in distributing goods and services to the peasants and urban workers. Reform in Vietnam does not mean liberal democracy or even tentative steps towards democratization. It means adjustments to the socialist economic and one-party political systems to keep the current regime in power. Party delegates were mainly focused on how to end widespread endemic corruption which has been identified as the main threat to the partys political legitimacy. And they were also focused on the state-owned sector which is privileged by special loans and inflated land prices. Reform of state-owned enterprises has stalled, and large state-owned conglomerates, such as the national ship building group, Vinashin, and the national shipping line, Vinalines, are badly in debt, over diversified in their activities, and rife with corruption. Reform or die in the current context means getting Vietnams internal house in order, especially its economy, so Vietnam can compete profitably in the global market place. Q2. What are the main power centers in Vietnam? Are they held by provincial party members, the army or the government? How diffuse is power in this country? How does it affect the political scene? ANSWER: Vietnams power centers are given bloc representation on the party Central Committee and these sectors (as I label them) have been consistently represented since 1982. There are four power centers: the party apparatus itself including the Secretariat and various Central Committee commissions; the state apparatus divided between the Government (Cabinet) and the National Assembly; the armed forces; and provincial government. There is a dynamic tension between wielders of power at the center (national level Hanoi) and local level (five independent municipalities and the provinces). Party and state leaders at the center have to deal with independent kingdoms at local level. This means that the application of national law may sometimes be evaded. One of the best examples of the dynamic tension relates to the commitment by Vietnams government leaders to

2 the United States to respect freedom of religion including the halt to force renunciation of religion. Despite national laws and decrees local officials are still able to find a pretext to suppress independent religious movements such as the Protestant house church movement in the Central Highland and the Hmong ethnic minority Christian movement in the north western provinces. Q3. Who is more of a reformist? Is it the Prime MInister or the President? And how is this affecting the country? ANSWER: Both the prime minister and the president were party leaders in the south and Ho Chi Minh City in particular. They promoted economic reforms that permitted private enterprise to flourish and drew in foreign investment. The differences between them are more personality rather than policy clashes. Nguyen Tan Dung has broken the mould of the collective leadership and emerged as a quasi-popular leader. He has a high media profile both in the country and abroad. Dung is in his second term as prime minister. Truong Tan Sang is relatively new to the post of state president, having been appointed in 2011. Prior to that he headed the party Secretariat. Sang and some allies led the charge against the Prime Minister during his first term in office when Dungs economic policies led to very high inflation. Vietnams growth prospects were further affected by the 1997-98 global financial crisis. I am not sure reform: quite captures the political dynamics at play. Sang and his cohort were concerned that if economic policies were not altered there would be social unrest. So the Prime Minister was reined in by the Politburo. Vietnam adopted an orthodox stimulus package and weathered the global crisis. The main political dynamic is that the state president wants more power and to be involved in a greater number of issues. Sang and Nguyen Sinh Hung, the Chair of the National Assembly, both share an interest in checking and balancing the prime minister. Q4. I read that the new Corruption Board was now headed by party? Isnt that a bad sign? ANSWER: When Nguyen Tan Dung was first elected prime minister he set up an AntiCorruption Steering Committee with himself as head. He pushed all the buttons to speed up police investigations and judicial proceedings against those charged with major corruption. Over time the rubber hit the road, friction developed, and the anti-corruption impetus slowed. The prime minister has had to bear responsibility for massive corruption scandals in two large government conglomerates over which he has direct oversight. Late last year he went before the National Assembly and accepted personal responsibility for Vinashins default on overseas loans. This year he is under pressure to accept responsibility for appointing an official, previously dismissed, to head Vinalines. The prime ministers inability to get a grip on corruption has resulted in the party removing him from his Steering Committee and placing party appointees in control. One problem in cracking down on major corruption is that it involves political allies of the top leaders.

3 Q5. Since 2011, there has been a crackdown on internet users and activists, the government is planning new constraining laws on the use of internet. How serious is that issue in Vietnam? ANSWER: From the point of view of security authorities and party conservatives, the use of the Internet by bloggers and social networks to raise political issues and criticize the government is a major threat to their ability to control information and its dissemination. The Internet led to the emergence of a national pro-democracy coalition network known as Blocs 8406, named after its founding date 8th April 2006. Key activists were arrested and imprisoned. Bloggers became active in a major social movement opposed to bauxite mining in the Central Highlands, a pet project of the prime minister and involving Chinese investment. More recently, bloggers and social activists have begun agitating against China over the South China Sea dispute. This taps a deep vein of anti-Chinese nationalism. The party-state feels threatened because this undermines nationalism as the basis of legitimacy for one-party rule. Despite the fact that the US has repeatedly warned Vietnam that their bilateral relationship cannot go to the next level unless human rights issues are addressed, Vietnam continues to crackdown on bloggers. In other words, the issue is viewed by some party conservatives as so serious they are willing to jeopardize ties with the US (and thus Vietnams ability to counter balance China) in order to meet the internal threat. The collapse of socialism in Eastern Europe in 1989 and the disintegration of the Soviet Union two years later remain vivid lessons that one-party socialism is vulnerable to change. The later colour revolutions and Arab Spring only adds to these concerns. Q6. How well has Vietnam dealt with the economic slowdown and rising inflation? Do you think that economic pressure might push people into the streets similarly to what the Arab world has witnessed? ANSWER: Vietnam has had mixed results. It has a reasonably high economic growth rate, just under 6%, and inflation has been brought down from a high of 23% in 2008. Vietnam exports to markets in Europe and North America that have ceased to grow at previous rates. Inflation mainly affects the urbanites and the partys new rich as well as state cadres. Grievances have built up over continual traffic jams, pollution, power brown outs and the cost of living. But there is no real evidence that those dependent on the regime will take to the streets. They have benefitted from the system. The system is not all that oppressive from their point of view. Vietnams political system brings about an orderly generational transition. Party and state leaders must retire at 65 and can only stay in high office for two terms. Vietnams regime propagandists latch on to unrest overseas as an object lesson to their citizens too much change will lead to chaos and instability and undermine their hard won living conditions. Q7. How much has Vietnams foreign policy evolved in recent years and more particularly towards the US? ANSWER: Taking a very broad view, Vietnams foreign policy has changed radically. Vietnam once had a binary view of the world the forces of socialism versus imperialism. It was a do or die struggle captured in the slogan who will win? After the collapse of the Soviet Union Vietnam adopted a policy of diversifying and

4 multilateralizing its foreign policy to become a reliable partner to all countries. If this sounds trite look at the results: by 1991 China and Vietnam normalized relations after a decade of confrontation over Cambodia; Japan restored overseas development assistance; and in 1995 Vietnam and the US normalized relations and Vietnam joined ASEAN. Vietnam was unanimously chosen as Asias candidate for non-permanent membership on the UN Security Council and was overwhelmingly elected by the General Assembly. Regarding Vietnam-US relations: since normalization they have signed a Bilateral Trade Agreement and are currently negotiating membership in the Trans-Pacific Partnership. The US is Vietnams largest market. The most recent Quadrennial Defence Review identified Vietnam as a potential strategic partner. In 2010, when Secretary of State Hillary Clinton visited Hanoi she called for taking the bilateral relationship to the next level and both sides began discussing a strategic partnership. Negotiations are currently bogged down on human rights issues. US-Vietnam defence relations have slowly evolved since 2003 when it was agreed to exchange alternate visits by defence ministers every three years. Secretary Panetta just visited Vietnam. Since 2003 the US Navy has been permitted to make one port call a year. In 2010 the US and Vietnam conducted their first annual naval activities (not exercises which involve combat skills). Vietnam and the US last year raised their strategic dialogue between their defense ministries to deputy minister level and agreed to a Memorandum of Understanding on defence cooperation. During Secretary Panettas visit he was permitted to visit the former US base at Cam Ranh Bay. For several years Vietnam has quietly conducted repairs on five US Maritime Sealift Command vessels. These are not warships, they are logistic ships crewed by civilians. The last three repairs were carried out in the commercial part of Cam Ranh Bay. When Panetta met his Vietnamese counterpart in Hanoi, Vietnam announced it was opening up three areas for MIA recovery missions that had previously been restricted. This was for political effect back in the United States. One of the flies in the defense cooperation ointment is US legislation that prevents the sale of lethal military equipment and arms to Vietnam and which also restricts the provisions of many military services to Vietnam. Vietnam is able to purchase some non-lethal military equipment and military services on a case by case basis. Vietnams Prime Minister and Defence Minister requested removal of these restrictions when they met Secretary Panetta.

Suggested citation: Carlyle A. Thayer, Vietnam: Reform of Die, Thayer Consultancy Background Brief, July 5, 2012.