(Bloomberg): Disagreements between elected leaders and central bankers are common, but rare in a one-party communist state. When they do happen, it’s usually a sign of a power struggle.
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That seems to be the case for Vietnam, which is currently in recession, and is unlikely to hit its 6.5% target for full-year gross domestic product (GDP) growth. Anything close to this would be the envy of many emerging nations, but failure to meet the target could damage Prime Minister Pham Minh Tinh’s career, according to people familiar with the situation. .
Chin, 64, earlier this month ordered government agencies to accelerate public spending to boost growth to 9% in the second half of the year. He has called on the National Bank of Vietnam to ease access to loans and cut policy interest rates for the fifth time this year. In response to the latter’s request, the deputy governor argued that a rate cut would not be a “magic wand,” an unusual response in a country where the central bank governor is effectively a member of the cabinet directly reporting to the prime minister.
The resistance is a particular concern for Mr Chinh, who was ousted two deputies in a corruption purge earlier this year, and Nguyen Xuan Phuc, who was once seen as a potential successor to take over the Communist Party’s top seat from General Secretary Nguyen. The former president was also ousted. Hu Chong is currently 79 years old.
Two years ago, Chong secured a third term, making him the longest-serving leader in post-war Vietnam. After the president was sacked in January, one of the general secretary’s closest allies, Vo Van Thuong, the youngest member of the Politburo at 52, took the post and will be the top Vietnam official at the next party congress. became a strong candidate to become In 2026.
power play
Le Hong Hiep, a former foreign ministry official and now a senior researcher at the Vietnam Institute, said: “They need to reach an agreement on a successor, possibly eliminating those who might disagree with Chong’s choice. I need it,” he said. program at his ISEAS-Yusof Ishak Institute in Singapore. He added that some officials may want Mr Chin out of office. “Because if he’s still in power, he might be an obstacle.”
All of this puts additional pressure on Chin, who holds one of Vietnam’s four most powerful positions. And meeting his gross domestic product (GDP) growth target is seen as a key indicator of his success, people familiar with the matter said.
Vietnamese officials did not respond to repeated requests for comment.
Mr Chin’s impatience is partly due to the second confidence vote in the party’s leadership in October, scheduled for October. The prime minister is expected to win the vote of Communist lawmakers, but a bad result could severely undermine his authority.
Once a picture of vibrant and enduring economic growth, export-dependent Vietnam is now experiencing turmoil as global demand declines. Exports fell for the fifth straight month in July, the longest slump in 14 years. Pouchen, the world’s largest athletic footwear maker, has cut more than 8,000 jobs in Vietnam this year after falling orders, according to media reports.
slow growing
Darren Oh, senior country risk analyst at Fitch Group’s BMI Research, said it was “highly likely” that Vietnam would miss its 2023 GDP target. “The economy needs to recover very sharply in the second half of the year, but I think that is unlikely.”
Vietnam’s GDP grew by 3.72% in the first half of the year, the slowest pace of growth for the period in at least a decade, excluding the pandemic years of 2020 and 2021. Instead of lowering the full-year target, Chin put pressure on the government. and central banks to achieve their goals.
In Vietnam, the state bank reports directly to the prime minister and must get his approval for decisions ranging from key policy rate adjustments to lending regulations. The central bank has resisted further rate cuts, but has taken other steps, including pressure on lenders to cut deposit rates out of consideration for Chin.
Although July’s figures were encouraging and growth could pick up to 7% in the second half of the year, weak demand and slowing credit growth have pushed the prime minister’s June-December target to “It’s still a bit overwhelming,” he said. Mohamed Faiz Nagsa is an economist at BofA Securities.
bright spot
“Whatever stimulus is put in place today, it will take time for it to have an impact on the real economy,” Nagsa said.
Domestic political tensions are casting a shadow over Vietnam’s bright spots. The benchmark stock index, which underperformed relative to peers in 2022, is up about 19% this year. July inflation was 2.1%, slower than many other countries.
Vietnam is also turning into a gaming powerhouse to profit from a market estimated to exceed $300 billion next year. And the country continues to benefit from efforts by many Western companies, including major suppliers to Apple, to reduce their dependence on China. President Joe Biden said he plans to visit soon.
However, the economy faces significant risks, from uncertainty in the real estate sector to potential delays in policy implementation after the crackdown on corruption. A weaker currency could also deter further rate cuts, complicating the prime minister’s push for growth.
To stimulate and expand trade, authorities are stepping up their attraction offensive abroad. President Tuong recently visited Austria, Italy and the Vatican, and Chinese President Xi Jinping said he was ready to boost imports after meeting with President Chin in June. Vietnam is aiming to strengthen ties with Australia and the United States, following the agreement it reached with South Korea last year. On Monday, Vietnam renewed its bilateral economic pact with Singapore for the first time in nearly two decades.
But despite the country being touted as a potential winner from the U.S.-China economic tensions, foreign investment has been pretty subdued so far this year, according to BMI. According to government data, the total registered capital of foreign companies in the first half of 2023 fell by 4% year-on-year and by 14% from the same period in 2021.
Vietnam also risks losing its edge among foreign investors already in the country, as bottlenecks such as strict visa rules and power shortages disrupt industrial parks in the northern states. . European business confidence in the Vietnamese market fell 4.5% in the previous quarter, according to a survey released by the chamber in July.
“Vietnam’s government should not make a mistake and should not take for granted that investors who are already in Vietnam will remain in Vietnam,” said Gabor Fruit, president of the European Chamber of Commerce in Vietnam. Ta. “To send a clear signal to the investors who are already here, they need to keep working on improving the business environment.”
None of this is good news for the prime minister.
“He’s under pressure to get the economy spinning again,” said Hiep of the ISEAS Yusof Ishak Institute. “This is a kind of effort to save his political career by economic means.”
–Supported by Nguyen Dieu Tu Uyen and Nguyen Xuan Quynh.
(Updates economic cooperation agreement with Singapore in paragraph 19.)
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