Previous Quarterly Editions
Expropriation Risk: 38 38 38 41 Political Violence Risk: 38 37 36 39 Terrorism Risk: 15 15 15 18 Exchange Transfer and Trade Sanction Risk: 56 54 51 51 Sovereign Default Risk: 52 54 52 53
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The general secretary of the ruling Communist Party of Vietnam (CPV), Nguyen Phu Trong, is intensifying the country’s anti-corruption drive, with the highest-ranking police official in the Ministry of Public Security (MPS) sacked in August. The focus on MPS officials signals a shift in the anti-corruption campaign. Since 2016, the crackdown has largely targeted politicians, bankers and executives linked to Trong’s rival, former Prime Minister Nguyen Tan Dung, who was accused of abetting corruption. The new move against the MPS comes amid a major restructuring of the ministry, which controls the police force and parts of the country's cybersecurity and intelligence units. Hundreds of divisions have been scrapped in a move that the government says will make it more efficient. The extension of the anti-graft push to the MPS, which was hitherto largely unscathed, may be aimed at undermining President Tran Dai Quang, a former MPS chief, whose office ranks third in the politburo behind Trong and the prime minister. Quang’s death in September should see Trong move to take the presidency as well, although he does so at the risk of creating further resentment. Senior MPS officials reportedly linked to Quang have been implicated in several scandals and more are likely to face dismissal or perhaps criminal charges. Vietnam's state-owned enterprises (SOEs), which account for about one third of GDP in industries such as shipbuilding, food processing, energy, and finance, continue to bear the brunt of the anti-corruption campaign. They are run by opaque bureaucracies, which makes them prone to corruption. The corruption crackdown may be a deliberate precursor to a new privatisation push as part of the government’s divestment strategy, although a substantial improvement in efficiency will also be needed. The CPV may be looking at SOEs with an eye to improving its position in the Regional Comprehensive Economic Partnership, a proposed trade bloc involving ASEAN and its six major partners. Although ties with Washington have improved rapidly under the Trump administration, with an American aircraft carrier visiting Hanoi in March, relations with Moscow remain extremely strong. Gazprom and Rosneft are active players in Vietnam's offshore oil and gas fields. In May, Rosneft Vietnam began drilling in a Vietnamese offshore energy concession that lies within the 'nine-dash line' used by China to make its claims in the South China Sea. Beijing indicated its displeasure, but in contrast to Hanoi’s willingness in March to halt a similar drilling operation by a consortium including Repsol when China complained, this time Vietnam has reiterated its support for the Russian operation. Vietnam now accounts for just under 75% of Russia's regional arms sales as Moscow assists with its military modernisation, supplying submarines, warships and aircraft intended to deter Chinese aggression in the South China Sea. Growth for 2018 is expected to equal the 6.8% achieved last year as a strong trade performance and broad macroeconomic stability continue. Manufacturing, construction and services are the main contributors to growth, while agricultural output and tourism are both strengthening. The government is bringing work conditions closer to international standards, the minimum wage is rising, and more regulation of overtime is expected.
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The recently passed cybersecurity law, which goes into effect at the start of 2019, requires foreign technology companies entering the market to set up registered offices in Vietnam. Foreign investors have specific worries about its data localisation requirements, as well as more general concerns about greater government control of online content. The law is likely to create barriers to foreign participation in a thriving digital economy in which more than half the country’s population of nearly 100 million has access to the internet. Foreign technology companies will be reluctant to serve a government surveillance programme, particularly after last year’s revelation that it has a 10,000-strong cyber unit tasked with combatting dissenting political views. Although the government insists that the law is necessary to combat cyber threats, Hanoi may amend sections of the law before its implementation in response to foreign disquiet about its provisions.
Although it has tight rules governing free speech and public gatherings, Vietnam has fewer controls over the internet than China, with users usually able to access Facebook, Twitter and Google. In June, the National Assembly approved the new cybersecurity law, which will increase government control over online content from the start of next year, despite street protests against the law and an unusual degree of criticism from former ministers about the implications for freedom of speech. As popular protests are rare in Vietnam, and usually require the authorities' tacit consent, the demonstrations against the cybersecurity law may have caught the government by surprise. The demonstrations were also directed at Hanoi's plans for more special economic zones, which many see as an invitation for increased influence from China, which remains unpopular with most Vietnamese. Hundreds of demonstrators were arrested and there were allegations of excessive force by police.
TREND ▲ OUTLOOK ►
Although widely criticised by human rights groups, the extensive reach of the Vietnamese security apparatus has been extremely successful in deterring and preventing terrorism.
TREND ► OUTLOOK ▲
After a sharp devaluation at the end of 2016, the dong has remained largely steady and looks likely to remain so for the rest of 2018, even if the central bank takes a tentative step towards greater exchange rate flexibility. However, the economy’s reliance on FDI inflows and export earnings means a significant degree of vulnerability to any disruption in global trade. Inflation is still comfortably below the central bank’s target of 7% but has reached 3.6% and is creeping up.
Public debt has now reached 62.5% of GDP and the cost of debt servicing is close to becoming a significant drain on state revenues. The government is counting on greater tax revenue, including from new fuel taxes, as the economy strengthens. Its plan to reduce the fiscal deficit from 3.7% to 3.5% during 2018 still looks feasible. Total reserves have been rising fast recently and should end the year above 50 billion dollars.
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