Pin the Blame on the Foreigners

Vietnam can be a scary place at times and this seems to be one of those times.

There is a chill in the political air as the horse trading in Hanoi continues to see who will come out on top in the next government reshuffle. While this will not be officially unveiled until next year, the process has already reached a fever pitch.

History tells us that the time leading up to a Party Congress is always tense and public campaigns against "social evils" and perceived "foreign threats" are common.

It is against this backdrop that Vietnam seems to be back pedaling on its commitment to free markets, allowing ugly attacks on prominent foreign invested businesses.

In a country that likes to speak of Us and Them, where xenophobia is never far from the surface, there is a popular game of demagoguery called Pin the Blame on the Foreigners.

The latest pinata in this party game is Jetstar. Step right up and take WHACK!

Jetstar's official sins as listed in the local press are many:

* Using a foreign name and trademark without license or permission
* Betting the wrong way on jet fuel futures (to the tune of a $31 Million loss)
* Cutting corners on maintenance and repairs (according to a couple of disgruntled employees who were let go)

The first charge seems like a bad joke, the second is really an error of business judgment not a criminal matter, while the last allegation seems to rest on dubious foundations.

More likely Jetstar's real sins were:

* Being Foreign invested
* Being Foreign invested and having the temerity to challenge Vietnam Airlines
* Being Foreign and successfully challenging Vietnam Airlines and taking market share and revenues from Mr Monopoly (All while losing money for the state, its major shareholder)

How dare these foreigners compete with us? We should shut them down and teach them a lesson! (Never mind trying to compete fairly on a level field, that's no fun...)

Time Magazine's take:

Jetstar Detentions Raise Red Flags for Investors in Vietnam

In most places, a business deal that goes sour can get you fired. In Vietnam, it could cost you your freedom. For decades, Vietnam's economic growth has been the envy of its developing neighbors in southeast Asia. In the last 20 years, GDP growth has fallen only once below 5%, typically hovering around 8% as the single-party state has attracted tens of billions of dollars in foreign investment and seen poverty rates drop below that of India, China and the Philippines.

But Vietnam's latest debacle involving two senior Australian executives may make investors think twice before getting into business with Vietnam. Tristan Freeman and Daniela Marsilli, the chief financial officer and chief operating officer of Qantas' Vietnamese operation, Jetstar Pacific, have been stranded in Vietnam since authorities prevented them from flying home to their families for Christmas. Earlier in 2009, Vietnam launched an investigation of the high-level executives after the airline, a Vietnamese and Australian partnership, reported a $31 million loss from bad bets on fuel futures, agreements on the future price of oil that committed Jetstar Pacific to paying above market rates for their jet fuel after oil prices dropped. (See pictures from the China-Vietnam border war.)

Freeman and Marsilli have not been charged with a crime yet and are officially being held "to respond to the requests from Vietnam's legal authorities in a timely manner." But Vietnam has strict laws on the books against losing state resources through economic mismanagement, potentially criminalizing the consequences of standard business risks.

News of the pair's interrogation and travel-ban was released last week, and Qantas says Vietnam's investigation into Jetstar Pacific could last months, leaving the two Qantas employees stuck in Vietnam indefinitely. One Vietnamese national, the former Jetstar Pacific general director Luong Hoai Nam, was also arrested for "irresponsibility causing serious consequences," according to state media.

The Vietnamese government's investment arm, the State Capital Investment Corporation, owns 70% of Jetstar Pacific and Qantas owns 27%, until 2007 the airline was fully owned by the Vietnamese government. In other words, Nam, Freeman and Marsilli lost the state a lot of money after investing in fuel futures when oil prices were escalating in 2008, eventually peaking at $147 a barrel in July, before oil prices slumped to a low of just over $30 in December 2008. But Jetstar Pacific wasn't alone in its fuel-hedging bets; other regional airlines such as Cathay Pacific and Singapore airlines also reported losses from similar transactions. Airlines use fuel futures to ensure a predictable fuel price, but they can lose big if the price of oil plummets as it did at the end of 2008. The CEO of Qantas, Alan Joyce, told reporters last week that Freeman and Marsilli did nothing wrong. The fuel hedging, Joyce said, was part of the "normal course of business practice."

Many analysts worry that the detention of Freeman and Marsilli signals a reversal of the Vietnamese government's widely lauded market reforms. With spiraling inflation and the global financial crisis taking a bite out of the country's crucial export sector, some say government hardliners have responded by rolling back economic and personal freedoms. Late last year, Vietnam blocked Facebook and Twitter and arrested a number of pro-democracy activists. Jetstar Pacific, as the only joint venture domestic airline in Vietnam, could have become a target for conservatives who resent giving up control to the private sector — especially as Jetstar has increased its market share at the expense of the state-run Vietnamese Airlines. Carl Thayer, a politics professor at the University of New South Wales, says the Vietnamese government is still "uncomfortable" with private competition and that its treatment of Jetstar Pacific is part of a "backlash against aspects of the globalizing economy."
...

Or for the LOCAL version of what is going on, here is Thanh Nien:

Safety violations exposed at Jetstar Pacific

Also a related article from Time:

China and Vietnam: Clashing Over an Island Archipelago