The End of the Vietnamese Miracle

So much for the next Asian success story.

HO CHI MINH CITY – In what was once one of Asia's most exciting emerging markets, Nguyen Van Nguyen sees only gloom ahead. Since 2008, his business in southern Vietnam's economic capital has suffered through two volatile bouts of inflation, peaking in August 2011 at 23 percent -- at the time, Asia's highest inflation rate. Now he's only accepting small overseas orders for Binh Minh, his once-thriving bamboo-screen factory in Ho Chi Minh City, to hedge against price fluctuations. He says customers in Australia, Europe, and the United States have decreased their orders following weakening global demand. Production costs across the industry have risen approximately 30 percent while customers are only willing to pay about 10 percent more, says Dang Quoc Hung, vice president of Association for Handicraft and Wood Industry in Ho Chi Minh City. Nguyen's hiring fewer workers for the summer high season and cutting their pay to about $120 a month, down from $200. "We can only work at a slow speed, and things are hard now," he lamented in late June. 

The Communist Party of Vietnam would prefer that investors see cases like Nguyen's as simply one-off local effects of the global economic slowdown, not of a systemic weakening. In the two decades since the Communist Party instituted economic reforms in 1986, annual GDP growth averaged a remarkable 7.1 percent. Indeed, four years ago, Vietnam seemed like the next Asian success story. Before joining the World Trade Organization in 2007, the country's leaders pledged to do even better, speeding up a vast restructuring and privatization of their wasteful state-owned enterprises (SOEs), a process they euphemistically called "equitization." The International Monetary Fund predicted in 2007 that cheaper imports as a result of WTO accession could contain inflation, and that structural reforms could level the playing field between local and foreign competitors. But on Hillary Clinton's visit to the capitol Hanoi earlier this week, Prime Minister Nguyen Tan Dung was forced onto the defensive, promising favorable conditions for foreign investors as he tries to keep the "Vietnam miracle" alive.

Over the past decade, rising labor costs in China meant that its days as the factory of the world were numbered. Stable Vietnam, with its young, cheap workforce and serviceable infrastructure, seemed like the logical next choice. Foreign investment poured in throughout the mid-2000s, with net inflows more than tripling to $9.6 billion in 2008 from two years earlier. Vietnam was the "next Asian tiger in the making," said Goldman Sachs. "Foreign investors didn't care about governance or policy. They were driven by low labor costs," says Edmund Malesky, a political economist at the University of California at San Diego who focuses on Vietnam.

Ignoring the politics, it turned out, was a costly oversight. Few businesspeople predicted the Vietnam of 2012: a country struggling with a weak currency, inflation, red tape, and cronyism that has led to billions of dollars of waste -- and home to a government that makes decisions like building oddly placed ports or roads that serve little economic value.

Things started to turn south when Vietnam embarked on a $100 billion expansion in the domestic credit stock from 2007 to 2010, a program accelerated by the 2008 economic crisis. Instead of being directed towards private businesses, the government channeled the funds to politically connected SOEs, who used them to expand fervently into areas outside of their expertise, creating an increased demand for resources that fedinflation. Flush with cash, they were able to drive out smaller, more efficient competitors. The massive state-run shipbuilder Vinashin, which employed some 60,000 workers and oversaw 28 shipyards, diversified into almost 300 units, including motorbike manufacturing and hotels, after it raised an additional $1 billion from international investors in 2007. Officials hoped it would drive growth like South Korea's semi-public conglomerates.

But in 2010, Vinashin was found to be falsifying its financial reports, and it nearly collapsed under $4.4 billion worth of debt owed to both local and international creditors, a number equivalent to almost 5 percent of GDP. It eventually defaulted on a $400 million loan arranged by Credit Suisse. Prime Minister Nguyen Tan Dung -- who backed Vinashin as his pet project central to the state-run economy -- was forced to apologize before the National Assembly during a painful self-criticism session. Dung's rivals, seeking to protect their own corporate fiefdoms and political offices, had found their scapegoat: Authorities sentenced eight executives last March. But instead of speeding up its much promised and grindingly slow process of privatization initiated in the 1990s, authorities swept the debacle under the rug.

The government went into damage-control mode, refusing to back the $400 million Credit Suisse loan as the conglomerate remained uncommunicative with European creditors. Responding to the crisis, Moody's downgraded Vietnam's sovereign credit rating one notch to B1 from Ba3, signifying a "high credit risk" below investment grade.

Other Vinashin-like breakdowns were in the works, but secretive kickback networks allowed them to cover up their failing books for years, according to several state-employed newspaper editors interviewed in 2011. In May 2012, an ongoing government investigation revealed that the state-owned shipping company Vinalines had defaulted on five loans worth $1.1 billion, and accumulated debt of $2.1 billion, more than four times its equity. Since February, four executives have been arrested for mismanaging state resources; authorities, meanwhile, are on the hunt for its fugitive former chairman.

Foreign investors, facing higher costs of labor and materials, began to worry that Vietnam was losing its low-priced edge. Four foreign investors complained in interviews over the last 2 years that state-owned companies abused their position as government-connected industry gatekeepers. "They're a pain in the ass," said one American business lawyer in Ho Chi Minh City. "Nobody wants to deal with these guys."

While Vietnamese officials are now assuring investors that the worst is over, a government audit released in early July revealed that at least thirty other large SOEs carry worrisome debt burdens. The deeper problem is that in Vietnam, unlike in China, the Communist Party elite are paranoid about sharing the spoils with private, and especially foreign, businessmen. In China, the party has generally kept its markets competitive by bringing private businesspeople into the fold, improving governance, privatizing around 90,000 firms worth more than $1.4 trillion between 1998 and 2005, and more recently purging neo-Maoist gangsters like former Chongqing Party Secretary Bo Xilai. Vietnamese leaders still haven't figured out how to fix their economy without relinquishing some form of political control -- a step they're unwilling to take.

Instead of cleaning up the cobwebs between SOEs and their patron politicians, the power players have launched campaigns against a new generation of nouveau riche entrepreneurs-cum-lawmakers. In late May, the National Assembly voted 96 percent in favor of ousting deputy Dang Thi Hoang Yen, one of only a few non-Communist Party tycoons in the legislature on trumped up charges of lying on her resume.

Yen's real crime: repeatedly calling for fair treatment of private businesses, which comprise nearly half of the economy. "To clean the house is more than the system can handle," says David Brown, a former American diplomat in Hanoi.

In June, the government's tightening of credit helped bring down inflation from 23 percent last August to 6.9 percent. The problem now, complain small factory owners like Nguyen, is that the flood of easy credit has increased the chances of a banking crisis. After two devastating SOE collapses, the government is admitting that something might be fundamentally wrong with its financial system. The country's central bank head Nguyen Van Binh said in early June that about 10 percent of debt at Vietnamese banks is bad. Instead of reforming the economy, the government is suggesting more of the same: One plan is to create a national asset-management agency with $4.8 billion to deal with the debts. But that would mean setting up yet another bureaucracy caught within the patronage networks between the party elites, banks, and companies.

Investors already complain about being overburdened with red tape, and a lot of them are now thinking about moving to Indonesia, Bangladesh, and Myanmar, said Denny Cowger, a corporate lawyer at Duane Morris, an American law firm with offices in Hanoi and Ho Chi Minh City. In the World Economic Forum's Global Competitive Report for 2011 and 2012, Vietnam fell six places to number 65, due to  burdensome regulations, inflation, budget deficits, and strained infrastructure )it commended the country for a fairly efficient labor market and "innovation potential").

The state sector, meanwhile, continues to gobble up as much as 40 percent of GDP. "The bottom line is that Vietnam must undertake some fundamental domestic economic reforms to remain competitive," said Carl Thayer, an emeritus professor at the University of New South Wales. "It is more likely that Vietnam's leaders will use the global financial crisis as an excuse for more of the same."



The Real Housewives of the Syrian Revolution

Behind the lines of the war against Bashar al-Assad.

For more photos of Aysha and other Syrian housewives, click here. 

RAMTHA, Jordan — For Aysha, a 28-year-old Syrian refugee in Jordan, her small Nokia cell phone is a lifeline to a loved one on the front lines of the uprising against Syrian President Bashar al-Assad.

It's the only way she can contact her husband, who goes by the nom de guerre Abu Layla. They talk almost every day. He has joined the ranks of the Free Syrian Army (FSA), leaving her with their three children and making her one of many "rebel wives" keeping the faith on the other side of the border. It has been two weeks since she last saw him.

Aysha often rode on the back of her husband's motorcycle before he went off to war, her black niqab flowing behind her as he drove. Now her world is a lot less glamorous. She spends most of her day at home -- a box-like three-bedroom rented apartment, dotted with mattresses and featuring only one small window -- taking care of her three daughters, mopping floors, and hand-washing the laundry. The apartment was paid for with money scrounged together from local charities, sympathizers, and their Jordanian neighbors, and their daily survival is dependent on this private aid.

The stresses of refugee life, which include hosting her in-laws, have taken their toll on Aysha. She has lost weight since her husband rejoined the front lines -- partly due to worry, partly because she doesn't have enough money to buy food. Sitting on a mattress in her sparsely furnished apartment in this dusty Jordanian border town, she admits she doesn't know when she'll see her husband again.

"My fate is with the Free Syrian Army," she says with resignation.

Aysha is the eldest of her five sisters -- one of three who fled to Jordan due to their husbands' revolutionary activities, while the other two reside in Syria and send money when they can. She lived in the southern Syrian city of Daraa and arrived in Jordan in May 2011, a month after her husband escaped from Syria. Abu Layla, who was a leader of an anti-Assad group in Daraa and distributed machine guns to the rebels, was arrested for two weeks last year for his involvement in the revolt. He bribed an official at the Syrian border to ensure his wife and daughters safe passage into Jordan.

It's a painful story, shared by thousands of other Syrian women who fled the violence. The escalating violence in Syria -- opposition groups place the death toll at over 17,000 -- has resulted in a swelling wave of refugees to Jordan, Lebanon, and Turkey. UNHCR, the U.N. refugee agency, estimates that it has assisted almost 100,000 Syrian refugees in these countries since the revolution kicked off in March 2011 -- more than double the number it had assisted just three months ago. In Syria itself, at least 500,000 people have been internally displaced, according to the Syrian Arab Red Crescent. Many of these refugees inside and outside Syria live in dire conditions, and aid organizations have struggled to bring in badly needed relief.

Jordan may have opened its doors to Syrians -- accommodating 140,000 since the revolt broke out, by its own figures -- but that doesn't mean life is easy for the refugees there. In recent months, hundreds have crossed the border illegally on a daily basis. Once they arrive, they are taken to an overcrowded, run-down shelter in Ramtha known as the "Bashabsheh" -- named after the family that owns it -- before they are sent onward to three other transit facilities. Security and military defectors stay at a different shelter in the northern city of Mafraq, for their own safety. They are only allowed a few days' freedom to see their families.

But there are some upsides to this difficult life. As Aysha coyly admits, the romance with her husband has never been stronger.

"Your cheeks are like honey, and I cannot wait to taste them again," reads a text message from Abu Layla.

When the phone rings -- a call from her husband -- Aysha shifts her cranky 2-year-old off her lap and runs giddily to the back of the room to answer. Alternating between giggles and whispers, she eventually passes the phone to her daughters for a quick chat.

"One day we will sleep on the same pillow and fall asleep looking at each other," she tells her husband as they end the call.

The flirtation is a useful respite from the dull grind of everyday life. Nearby, Aysha's younger sister, Nadia, 25, shares a rented apartment with her parents-in-law, their sons, their daughters-in-law, and their grandchildren. Seventeen people live in the two-bedroom apartment. Sitting with Aysha, along with her mother-in law and sister-in-law, Ruba, Nadia doesn't hide her frustration.

"I haven't adjusted to life here," the mother of three says. "The only reason we came here is because my husband was so worried about us. But I want to return, and I want to be with him even if I get killed."

With tempers and nerves fraying, one thing that keeps Nadia going is the thought of seeing her husband. She is a quiet woman but emphatic when the conversation turns to the hoped-for reunion. "I can't wait to see him," she says. "I want to lose weight, and I want him to see me pretty when he returns."

In the seemingly interminable time away from their husbands, dreams of reunions and thoughts on how best to prepare for them fill the conversations of the rebels' wives. They swap weight-loss tips, discuss whether to highlight their hair, and even compare notes on the best lingerie.

Despite the niqab she wears, Aysha is not a rigid Muslim and loves to tease her more conservative sisters. "No, a sexy bra and panties is better than a negligee when he comes home. Highlight your hair and wear a red dress," she advises the three other women in the same room.

Nadia takes a sideways glance in the mirror and shares her tips with the other women. "I skip meals and no Coca-Cola. I want to lose weight. I want him to return to me looking pretty," she says.

Some of the wives proudly display the cheeky texts their husbands send them from over the border -- a way to keep alive love and perhaps even a little lust in the most uncertain of times. Nadia peels into laughter and starts to share her mobile with the three women, before shyly changing her mind.

But hanging over the lighthearted gossip and girl talk is constant fear. Aysha's husband, who joined the rebel fight after being tortured in a regime prison, promised her he wouldn't seek "martyrdom." But she knows it might find him anyway.

And for those women whose husbands survive, the trauma of the battlefield, imprisonment, and torture can mean the reunion is far from what they imagined. Nadia's sister-in-law Ruba, 25, is happy that her husband is now safe with her in Jordan. But he returned to her a different person, she says, after being taken hostage by the Assad regime in hopes that his brother, considered a major player in the FSA, would hand himself in.

"He was arrested last year for two months and a half in Mezzeh prison in Damascus. He was tortured and insulted," she says, nursing her youngest daughter. "I do not recognize him. He doesn't want to return to Syria."

Ruba's husband comes from a family of rebels. His father helped supply rebels with bullets before fleeing to Jordan last month. His brother -- the same one for whom he was arrested -- is still actively involved in the rebel movement.

"My husband now likes to keep to himself. He doesn't speak much. When he left the prison there were lice all over his body, and it was marked with bruises," Ruba says. "He saw prisoners whose fingers were cut off and others with their nails removed."

Life is hard for their wives, too, many of whom admit they cry themselves to sleep, fearing for their husbands and frustrated at their desperate attempts to fend for themselves and their children alone. As new refugees in a host country that is ailing economically, they have little in the way of options or opportunities. And if their husbands don't make it back, their primary support system will die with them. Most live on private aid donated by Christian and Islamic charities, Jordanian sympathizers, and wealthy Syrian expats from the Persian Gulf. Basics like shampoo and toilet paper have become a luxury. Aysha and her daughters often miss meals.

This state of affairs has, sadly, become the norm. UNHCR's regional coordinator for Syrian refugees noted that roughly three-quarters of Syrian refugees were women and children, most of whom are "entirely dependent" on humanitarian aid. UNHCR's appeal for assistance for these refugees is so far only 26 percent funded.

"We are patient about our husbands' absence, we help them, we raise the children, and we don't tell them how hard life is. We are living on God's mercy," Ruba says.

For other wives, romance is not the only reason they wish to be back with their husbands in Syria. Left far from the front lines, they say they want a chance to contribute to the rebellion directly. "I want to return.… I am waiting for the day of Assad's doom, when we take the squares and palaces," says Yasmine. The youngest of the sisters, Yasmine is tall with wide hazel eyes. Although she was initially welcoming, her frustration spills over quickly -- she slaps one of her children for spilling a cup of coffee and furiously cleans before circling the room and sitting down.

Yasmine's husband has also returned to Syria to fight against the Assad regime, leaving his wife in Jordan. Before fleeing the besieged city of Homs, Yasmine would spend her mornings cooking for rebel fighters. In the afternoons she sat down with her husband and father-in-law to dismantle rebel guns, swabbing them with diesel fuel for cleaning.

These days, Yasmine's hours are filled with the struggle to feed her children. Hummus sandwiches are considered a rare treat, and the monotony of the struggle to make ends meet leaves her cold. "Life is so hard here; I wish my husband can find a job even as a garbage collector. We do not have any money. My son is wearing the same diaper since the morning," she said during an earlier conversation in June, breaking into tears.

At times, the wives' zest for revolution exceeds that of their spouses. Yasmine's neighbor, a 17-year-old refugee named Jamila, relishes the day her husband can go fight the Syrian regime. "He is waiting for a call from the FSA, but he is reluctant … but I am not afraid of death -- it is so commonplace in our home now."

In Syria, Jamila helped shelter rebels and gave them medicine and bullets. Now, watching the conflict from afar, she feels only frustration.

"I am begging him to let me return, even ahead of him."

Tanya Habjouqa