Vietnam's Communist elite have begun preparing for a leadership reshuffle next year and factional jostling for power in the coming months could raise the risks for businesses and possibly trade with the United States. The party chief, state president and several others are expected to retire at the 11th Party Congress, slated for next January, creating a chain of plum vacancies that will be filled through a secretive process of factional horse trading. “The jockeying for positions starts now and will intensify as the year goes on, and as a result the real business of government, of developing policy, will suffer,” said Jacob Ramsay, regional analyst at the consultancy Control Risks. The macroeconomic risks are seen as small because the party is unified in its interest in stable economic growth and subdued inflation. Those statistics will be watched as a kind of “report card”, said one well-connected Vietnamese source. Still, the stakes are high. One question some businesses and analysts are watching is whether Prime Minister Nguyen Tan Dung will stay on, which has a bearing on the level of continuity one of Asia's most dynamic economies can expect after the congress. It may be impossible to calculate the economic cost of what one Western analyst referred to as the Party's “primary season”, drawing a parallel with the start of the US election cycle. The congress happens once every five years. But with policymakers and their factions increasingly preoccupied with the pending reshuffle, executives and politics experts anticipate things like approvals and licensing for new businesses or major projects will get more difficult to obtain. In October, party chief Nong Duc Manh felt the need to implore the party's top 160 members, the Central Committee, to “absolutely not neglect guiding production, stabilizing and raising the livelihoods of the people... because of preparations for the Party Congresses”. Vietnam's ties with the United States, its biggest single investor and export market, could also face new hurdles with potentially negative implications for the economy. For most portfolio investors, Vietnam is seen as a risky “frontier market”. Sovereign 5-year credit default swaps for Vietnam are trading at a spread of around 244, implying the second-highest level of risk in the Thomson Reuters Emerging Asia Index after Pakistan. If history is anything to go by, the perennial conflict between economic conservatives in the leadership and those pushing for more reform and integration with the global economy will bubble up this year. Ahead of the 8th Party Congress in 1996, frictions spilled into the economic arena when anti-foreign sentiments sparked a campaign against foreign logos and advertising, said Vietnam expert Carlyle Thayer of the University of New South Wales. “In a dramatic move, local officials in Hanoi swept through city streets and painted over billboards and offending advertising signs. Efforts were also made to restrict further the operations of foreign representative offices,” he said. Conservatives also cranked up pressure that year on South Korean firms reportedly mistreating Vietnamese workers, and tried to delay the opening of the country's stock exchange, he said. One foreign businessman who has been in Vietnam for more than a decade and worked with a wide range of foreign and local companies recalled that the government even suspended issuing visas to foreigners for about a month before a recent congress. As in past years, he expects investments requiring high-level government support or involving staged approvals over time, like real-estate and infrastructure projects, to be vulnerable. “The main source of concern is among investors who are at critical stages of their investments,” said the businessman, who declined to be identified out of concern that commenting on the country's sensitive political process could hurt his work. “It can throw a monkey wrench into the works because you've got this one year period of uncertainty when it was supposed to be business as usual,” he said. Businesses on the factional battlefield may be at risk, too. A litany of woes has befallen budget airline Jetstar Pacific, 27 percent owned by Qantas, making many in the foreign business community here nervous, and raising questions about the business environment during a sensitive year. The airline, launched in mid-2008 in a deal that privatised failing state-owned carrier Pacific Airlines, has in recent months had its safety record scrutinised, been denied fuel by the state-run jet fuel monopoly and ordered to change its logo. Most troubling to some, however, was an economic police probe into loss-making fuel hedging at Jetstar that led to the detention of an executive and the decision to bar two Australian officials from leaving Vietnam. The case is still pending. Vietnamese and foreign observers speculate that Jetstar's troubles have roots in personal and turf battles that the long shadow of the coming congress may be exacerbating. The case “reflects the tensions in the party that will surface as socio-economic policies for the next 10 and 20 years are hammered out”, said Thayer. Political observers also point to things like the wave of convictions in political cases, a heightened tone of paranoia in state newspapers and the blocking of Facebook as linked to political posturing and jockeying before the congress. Few argue that the congress alone is responsible, and many note that the Party is worried about new challenges that have cropped up in the past couple of years, like public protests against China's claims to disputed maritime territory.
