Yesterday it was South Korea, today it’s Vietnam: the future is looking less and less rosy for the emerging economies of Asia. The cheap, export-based development model that made Asian economies the envy of the world in the 2000s is in for some serious shocks as it enters its second decade of life. An FT profile of Vietnam raises some serious concerns about its ability to sustain its growth:
When one former central bank governor attempted to blame the country’s woes on developed world governments “captured by greedy financial institutions” he received a finger-wagging rebuke. Tran Xuan Gia, a steely former investment minister, urged Vietnam’s leaders to look inward to understand why their country suffers from the highest inflation rate in Asia. He warned that the country was on the verge of a debt crisis and urged the government to reform and sell off inefficient state-owned companies as soon as possible. […]
Domestic overheating, coupled with the deterioration of the global economy, has forced many investors, foreign and Vietnamese, to revise their view of the country’s prospects. Deep-seated problems, such as corruption, poor education and infrastructure bottlenecks – all often overlooked by investors in the boom years – have moved into sharp focus.And with inflation driving wages higher but labour skills not advancing as quickly, fresh questions are arising. Among them is whether Vietnam’s Communist party can force through painful reforms needed to ensure they avoid the “middle-income trap” ensnaring the likes of Malaysia and Thailand, whose economies are a source of cheap labour but not yet makers of higher-value products.
Similar problems are popping up elsewhere, as the transition from an export-based growth model has proven trickier than leaders expected. The sense of pessimism that has characterized recent reports from China is spreading across Asia — the Asian Development Bank’s Asia 2050 report ominously warned that “Asia’s rise is plausible but not preordained.”The inevitability of Asia’s rise has become a fashionable meme for American declinists, but even fashionable ideas plausibly embraced by glib pundits on TV are sometimes wrong.Development models aren’t like undershirts; you can’t just change them because you suddenly feel like it. They are more like tattoos; it usually takes more time and trouble to get rid of one than to apply it in the first place. Asia’s transition is going to be a rough one for many countries. Keeping the peace won’t always be easy.