Vietnam – Steady Policy Course

The death of President Tran Dai Quang in September 2018 delivered an opportunity for Nguyen Phu Trong, the secretary-general of the ruling CPV, to consolidate his position of authority in the command structure of the single-party state. Trong had previously won a power struggle with former Prime Minister Tan Dung, who stepped down in 2016, and by personally filling the presidential vacancy, he has now gained supervisory oversight in the areas of national defense and public security, which will facilitate an ongoing anti-corruption campaign that critics contend is being used to side-line political rivals.

That said, the actual powers of the presidency are rather limited, and both Prime Minister Nguyen Xuan Phuc and National Assembly leader Nguyen Thi Kim Ngan show no sign of being intimidated into silence. As such, comparisons between Trong’s assumption of a dual leadership role and Chinese President Xi Jinping’s steady consolidation of political power are likely overdrawn.

The national agenda laid out by Trong reflects a continued commitment to relying on orthodox economic policies to generate the improvements in living standards that underpin the popular acceptance of single-party rule. Under Trong, the government will also maintain the multi-pronged approach to foreign policy evident in the country’s agreement on a $1 billion arms deal with Russia and its role as host of the recent US–North Korea summit. The government has approved the CPTPP, and the creation of an 11-nation free trade area will benefit Vietnam especially, as one of the most competitive producers for export in the bloc.

But political considerations will take priority over creating the most attractive climate for investors. Fear of China exploiting proposed special economic zones in the border region prompted the government to delay their introduction, with very little being mentioned on the topic since, it appears that the idea has been quietly shelved.

The disappointing response to the listing of state-owned Vinalines on the Hanoi Stock Exchange has sown doubt about the efficacy of pushing ahead with an ambitious privatization program at a time when the global economy is slowing. Weaker demand for exports will pose an obstacle to sustaining real GDP growth above 7%, but expansion of 6.5% will be keep Vietnam among the top performers in the region and will limit the risk of a retreat from the long-term strategy of cautious economic liberalization.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

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