Vietnam’s ongoing reform process has hit a rocky patch with the battle to curb inflation. This has forced the prime minister to lower growth targets for 2008 to from 8.5% to 7.0%. Many companies, especially in the export sector, are struggling to raise wages in step with inflation and there is an increased risk that wage-related strikes will continue, and possibly even spread. This could potentially develop into a serious threat for the Communist Party regime, as protests against high inflation evolved into all-out challenges. Nevertheless, Vietnam continues to forge a position for itself in regional security with alliances with traditional allies and other regional partners in Southeast Asia.

It has also looked further afield with strengthened military ties with India. This has been carried out in tandem with a reform of the Vietnam People’s Army (VPA) with an aim to create a more professionalised force. The move is part of the government’s larger policy to consolidate all state-owned enterprises and the government has decreed that all military-owned defence industries will be managed by the government by the end of 2012. Despite its formidable fighting history, Vietnam’s local defence industry is smaller than that of its neighbours, including Thailand and Singapore. Added to this, the country faces stiff competition in terms of technology from more established regional players. On the upside, the US is in talks with Vietnam about two-way trade with Vietnam on non-lethal defence systems. There are opportunities here for Vietnam to develop an export market for small arms and light weapons in the longer term.