Vietnam has seen a marked increase in labour disputes in 2011 as the communist state attempts to cope with a high rate of inflation.

By the end of March,Vietnam had suffered 220 work stoppages.   This compares with 216 throughout all of 2010.  Official statistics testify to the severity of the problem.  Consumer prices rose by 17.5% from April 2010 to 2011.   Only Ethiopia and Venezuela saw a higher increase.  Such dismal figures have seen the dong devalued against the dollar six times since 2008.

As prices rise and the value of their wages decline, it is unsurprising that frustrated Vietnamese workers resort to wildcat strikes.  However, the abuse of workers’ rights has also played a role in creating discontent.  A recent survey conducted by the Institute of Workers and Trade Unions found that only 60% of contracts at foreign direct investment firms were compatible with Vietnamese labour laws.  Indeed, even the government recognises that poor enforcement of employment legislation has been a major source of grievances.  Pham Minh Huan, the Deputy Labour Minister, has agreed that the government needs to simplify labour regulations and enforce workers’ rights.

The government is also attempting to tackle inflation.  It is pursuing a package of measures knows as Resolution 11, which, in the words of the State Bank of Vietnam, require it “to implement several monetary and banking solutions to carry out such tasks in 2011 as pursuing a tight and prudent monetary policy, keeping credit growth below 20% and total liquidity of about 15%-16%, and interest and exchange rates at reasonable levels.”
The Resolution demands that private credit is curbed from its current 120% of GDP (up from under 40% in 2001).  In fact, the dong is at risk of becoming the third currency in Vietnam as Vietnamese flock to change their cash to dollars or gold.  Amazingly, in Ho Chi Minh City, DongA bank has unveiled an ATM that dispenses gold bars!

In order to make the dollar less attractive, the government has limited the rate of interest on dollar deposits to a mere 3%.  This compares unfavourably to rates as high as 14% on accounts in the Vietnamese dong.

In addition, the government is attempting to address the problem of waste in public spending.  Resolution 11 requires it to cut back on public investment which ran to 17% of GDP in 2009.  It has also raised energy prices.

Such policies, however, while promising to return a balance to government finances, also have negative side-effects.  For example, a considerable amount of growth has been create by state owned enterprises (SOEs) and real-estate investment (land in Hanoi has been recorded as selling for an astonishing US$60,000 per square metre – higher even than New York or London).  If growth slows as it is expected to there will likely be calls to kick-start credit growth which would in turn encourage inflation.

In short, the immediate future of the Vietnamese economy seems uncertain.  Nevertheless, growth that would be the envy of the developed world is still assured. The Asian Development Bank has recently reduced its forecast for Vietnam’s GDP growth in 2011 from the 7% it predicted in 2010 to 6.1%. Vietnam is also likely to benefit from further investment as the Chinese renminbi appreciates and Chinese wages rise.