Two months ago, the investment firm Peregrine Capital Vietnam got an unannounced visit from the government business inspectors. The inspectors, representing the People's Committee of Ho Chi Minh City, carted off documents as part of a check on the company's compliance with Vietnamese law.
Although Peregrine officials later described the visit as "not unusual," some observers saw an ulterior motive.
Several months earlier, the same company had issued a report critical of Vietnam's economic reform process, warning that official "overconfidence or apathy" could threaten economic development. The report was the most brazen indictment of Vietnam's doi moi (renovation) policy yet.
American and other foreign investors in Vietnam face a crisis of confidence. The euphoria that greeted the end of the US trade embargo 18 months ago has now been replaced by a more sober assessment of the country's potential.
At its recent congress, Vietnam's ruling Communist Party tried to assuage investor concerns, but mixed signals like the Peregrine affair muddy the picture.
"The bloom is generally off some," says Michael Scown, chairman of the American Chamber of Commerce in Ho Chi Minh City. Within the Vietnamese government, "There seems to be an unwillingness to accept the seriousness of the problem."
WANING investor confidence has taken a toll. Foreign businesses committed only half as much money to Vietnam during the first four months of this year as in same period in 1995. (Last year saw a record $7.2 billion in new commitments.)
Also, implementation of projects is slowing, frustrated by "inefficiency in the regulatory, legal, and financial investment environment," the Peregrine report says. Vietnam is counting on some $40 billion in new investments, half foreign money, over the next five years to meet its goal of becoming an industrialized country by 2020.
In the past year, firms such as France's Total and P&O Australia have announced plans to pull out of multimillion dollar projects because of unpalatable conditions from the Vietnamese side. Shifting rules in the automotive sector caused Chrysler and Mercedes to reevaluate planned investments.
The problems were compounded in February, when overzealous enforcers of a "social evils" campaign targeted foreign advertisements. Soon after, the Communist Party's Central Committee called for state-sector production to rise from 40 to 60 percent of total economic output. The committee report also called for establishing party cells within private firms and foreign-backed joint ventures.
Seeking to rebuild trust, Vietnamese officials have plans to make it easier to invest and get construction permits. Trevor Rowe, chairman of Salomon Brothers Hong Kong, says new rules should eventually boost business confidence.