Hanoi realises it must introduce competitive reforms or be left out, writes Barun Roy
Vietnam provides yet another proof - and there are many - that, even with the best intentions, foreign investments won't flood in if a government keeps too many loose ends in the system. On paper, Vietnam has perhaps one of the most liberal foreign investment policies. Full foreign ownership is permitted even for the domestic market. There is no limit on investments and a minimum local equity is prescribed. Rights to repatriate capital and profits are guaranteed. Tax incentives, exemptions, and preferential rates apply to both fully foreign-owned and joint venture projects. And there is a solemn government promise that foreign-invested projects won't be nationalised for 50 years, or even 70 years, if necessary.
For a while, it looked like the government had got it right and was going to hit it big. Annual foreign direct investment (FDI) commitments rose from $2 billion in 1992 to $6 billion in 1995; and by December 1998, 10 years after the introduction of the Foreign Investment Law, investments worth $35.1 billion had been booked for 2,488 projects. But a slowdown could be seen even as the picture looked apparently rosy. Actual disbursements over the decade came to no more than $10 billion. In 1998, new FDI commitments fell to $4 billion and no more than $600 million was actually disbursed.
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The Asian economic crisis of late 1997 was only partly to blame for the receding investor enthusiasm. Party ideology created confusion by questioning if the economy should be opened up too much too soon.
Customs, tax, supervision, inspection and auditing procedures remained cumbersome. Little effort was made to streamline the review and approval process: the project-by-project approach was too bureaucratic. Banking infrastructure was, and remains, poor. Laws, decrees, and regulations concerning taxes, trades, land, labour and industrial property rights were ill defined. Bribe-taking became a common practice.
The situation was so exasperating that Singapore's elder statesman, Lee Kuan Yew, came out in a bitter attack against government dithering during a 1997 visit to Hanoi. `Investors are not here to rebuild your country,' he bluntly reminded Vietnamese leaders. `Either you plug in to grid or you pull out and say