The American Spectator

Until the beginning of July it had been exceptionally hot and dry in north-central Vietnam. In the south’s usual sub-tropic environment the temperatures hovered at the expected humid 90 degrees, with perhaps a bit less than the usual afternoon rainfall. Then came the monsoons and floods. Confused weather is hardly this nation’s only problem. Just look its confused economy, where nothing runs smoothly or can pass for normal.

There’s a party congress coming up in six months and a great deal of hard work to be done beforehand. Before its regular congress, the Vietnamese Communist Party usually does everything it can to “cook the books” in an effort to show progress. Who says Hanoi doesn’t breed some clever capitalists?

The problem is that GDP targets can be manipulated rather easily if a state-controlled economic system allows inflation to rise commensurate with those targets. Such trickery does not go unnoticed, and the nation’s borrowing ability is on the edge of being submerged well below the negative investment grade at which it is already pegged.

Hillary Clinton, who arrived in Hanoi yesterday for a much anticipated two-day visit, had better have stuffed her diplomatic bags with U.S. dollars, preferably in high denominations. That’s the currency everyone wants these days in Vietnam. Whether it’s the little shop on what ex-GIs remember as Tu Do street — now known as Dong Khoi — or the State Bank of Vietnam, the Yankee dollar is once again highly sought after.

The Viet Kieu, those 4 million Vietnamese living abroad, usually send back about $2.5 billion each year. Official figures state that 500,000 Viet Kieu return to visit each year, bringing their hard currency with them. But the weak world economy has hit tourism and financial repatriation hard this past year.

Of course gold is always good to have around, as any merchant in Ho Chi Minh City will affirm. But it’s not as easily convertible or transportable as the greenback. The economic liberation program known as Doi Moi has succeeded in the last two decades in reintroducing Vietnam to the world of international trade and finance, but in doing so has also made it vulnerable to this same global free market.

As is often repeated, however, from one end of Vietnam to the other — and, yes, Vietnam still has two very distinct north and south cultures — according to official sources, the country’s gross domestic product calculation rose over five percent while the rest of the world financial system was tanking. Interestingly, none of these bureaucrats ever allow themselves to be identified by name.

Vietnam is actually attempting to accomplish two goals at once. In the first instance the political echelon wants to hold on to its old socialist system of central government control. At the same time it wants the benefit of gaining investment, foreign and domestic, as a result of accepting a market-based commerce. It’s the Vietnamese perception of how the Chinese success has been created. Unfortunately for Hanoi’s communist capitalists, the Chinese model is not that easy to transfer.

China accumulated hard currency by being able to create well-made basic goods competitive with those produced in the U.S. and Europe. Vietnam can do the same, even in competition with other developing nations, but not until what it exports to the West far outstrips what it needs to import from the West. The dollar imbalance creates continuing pressure on the Vietnamese dong that in turn edges inflation forward.

While some government economists support the idea that a depressed Vietnamese currency actually aids exports paid for in dollars, the result is an internal economy that cannot immediately participate in the benefit of the overall export product increase. Interest rates have been raised to battle inflation and that has diluted the rate of investment.

The typical Vietnamese businessman reacts, not unjustifiably, with considerable pessimism at the government’s ability to manage the broader aspects of the nation’s economy. In reaction, converting to and hoarding U.S. dollars is his only protection. The government has had to take drastic action.

With a trade deficit that reached $6.7 billion in the first six months of 2010, the Ministry of Finance is tightening controls over imports of not only consumer goods but also basic commodities. The State Bank of Vietnam has instructed commercial banks to restrict lending in foreign currencies that fund the import of a broad list of products, which includes everything from mobile phones and salt to steel and fertilizer.

On second thought, maybe the climate is easier to figure out than Vietnam’s economics.