SUNS  4249 Thursday 9 July 1998

Vietnam: Rising unemployment puts brakes on market reforms



Hanoi, Jul 7 (IPS/Kalinga Seneviratne ) -- Past efforts to liberalise its economy had brought Vietnam improved productivity and impressive growth rates, but Hanoi these days is not in a mood to speed up reforms.

The Indochinese country is now facing a serious unemployment crisis because of the drive to privatise state-owned enterprises (SOEs), lift productivity and modernise.

Thus, while the World Bank and international donors want Hanoi to further accelerate the privatisation of SOEs and the liberalisation of the investment regime, the government seems to be playing deaf.

Instead, Hanoi is concentrating more on how to help its people find jobs - even overseas. Indeed, it has already set a goal of exporting 150,000 workers to foreign labour markets by 2000.

In 1996, Vietnam's unemployment rate had stood at 5.8 percent, a considerable drop from the 1990 levels of nine to 10 percent.  Today, official statistics show unemployment in Hanoi and Ho Chi Minh
City at about 11 percent while that in the provinces is as high as 18 percent.

"One of the greatest ironies of Vietnam's rapid economic development is that one worker's improved productivity makes his co-worker redundant," observes Dao Nguyen Cat, editor-in-chief of the 'Vietnam Economic Times' (VET). "Unfortunately, new businesses are not opening quickly enough to hire enough of the newly unemployed," he said.

Cat says Hanoi is now in a dilemma. "For Vietnam to realise its full economic potential," he says, "it must reform its state-owned enterprises. Any reform, however, carries the heavy price of  urgeoning
unemployment, which the government cannot afford to cushion with unemployment benefits".

"The other option, continued protection of state-owned enterprises, would keep many people employed, albeit in inefficient factories whose continued operations would pose a substantial drag on the economy," he adds. "It is an option that Vietnam can ill afford to bear."

Since Vietnam began to gradually liberalise the economy in 1986, it had posted consistent annual growth rates of nine percent. The economy's strong showing was attributed to the drastic improvement in worker productivity, which in turn was the result of privatising state enterprises.

But as productivity increased, demand for agricultural labour dropped accordingly. By 1995, rural employment growth was down to one percent. Last year, it was already in the negative.

Between 1991 and 1995, reforms in the industrial sector helped create new enterprises and increase employment by five percent. In the last three years, however, unemployment in the sector has grown rapidly as the SOE privatisation began, thereby increasing productivity. At the same time, many businesses that were unable to withstand competition have gone bankrupt.
      
Dr Kazi Matin, the World Bank's chief economist here, says the problems Vietnamese workers are facing are inevitable side effects of the reform process.

He and other experts theorise that if Hanoi implements the necessary free market reforms, private entrepreneurs will set up new highly productive enterprises to absorb workers made redundant by changes in the economic structure.

This is why, they say, the World Bank and other donors want more SOEs privatised.

It is an argument that fails to convince the likes of Dr Nguyen Minh Tu, a director at the government think-tank Central Institute of Economic Management. He says if Hanoi lets SOEs go on their own, most will go under and thus make the unemployment situation much worse.
One issue uppermost in Hanoi's mind at present, adds Tu, is how to develop a social security net using the country's own financial resources. This inevitably will mean increased taxes where the rich will have to contribute a higher percentage.

But raising local resources in that fashion to protect its own redundant workforce is something Matin of the World Bank rejects. "Taxation," he says, "just means more problems further down the line.
It's certainly no solution."

Matin also says donors are willing to supplement state resources in providing a safety net, if Hanoi fully embraces the reforms they have recommended. But he notes, "Because Vietnam is not embracing the reforms frontally, it is not getting the donor support it requires."

Hanoi, however, seems too engrossed with finding a solution to Vietnam's growing unemployment to listen to such reasoning. About one million young workers enter the job market each year. The government plans to create at least 1.5 million jobs annually to overcome what it sees as a potential social time bomb.

Among the state schemes being drawn up to achieve this target includes bank loans to small-scale investment projects and increased training opportunities for job-seekers.

But the export of labour appears to be among Hanoi's top solutions to the unemployment problem, with the government even envisioning the creation of a permanent force of 400,000 labourers working abroad.

Government sources see this strategy as a win-win situation. As 'Business Vietnam Monthly' points out, labour export is lucrative for not only for the foreign partners who will have access to cheap labour, but also for Vietnamese workers who will earn higher income overseas.

The government also views labour exports as a cost-free way of getting their workers trained in both technical and foreign language skills.

Vietnam's programme of labour exports began in the 1980s when some 300,000 labourers, mostly seamen and technical experts, contributed 300 million dollars to the national budget. By 1996 to 1997, that contribution had increased to one billion dollars.

The largest markets for Vietnamese workers so far have been South Korea, Japan, Laos, the Czech Republic, Russia and Kuwait. With South Korea and Japan especially hit hard by the East Asian economic crisis, though, Vietnam is looking at new labour markets as Taiwan, Singapore,
Brunei, Cambodia, Saudi Arabia, Oman, Iraq, United Arab Emirates and even South America.

Over the next two months, 1,300 Vietnamese workers will depart for Kuwait under three agreements signed in January between the two governments.