Recently published research from Business Monitor International, "Vietnam Defence & Security Report Q3 2013", is now available at Fast Market Research

Boston, MA -- (SBWire) -- 08/20/2013 --Vietnam's economic problems appear to have slowed its military modernisation effort, and are making it harder for Hanoi - which already spends much less on defence than its South East Asian neighbours - to keep pace with the rising military outlay being seen around the region. As a result there has been very little procurement activity so far in 2013. The country's banking crisis may now be over the worst: the establishment of a new debt management agency in Q213 is expected to restore liquidity to the financial system, although further market reforms will be needed to restructure the banking sector fully. These issues matter greatly from a security perspective, since economic pain - and the potential for social unrest arising from it - is arguably the greatest threat to the country's stability at present.

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Externally, Vietnam's territorial dispute with China is its currently foremost concern. While the dispute has been kept to a manageable level in 2012 and 2013, tensions in the relationship are still apparent. Delivering the keynote speech at one of Asia's most important foreign-policy platforms, the Shangri-La Dialogue in Singapore, in May 2013, Prime Minister Nguyen Tan Dung remarked pointedly that "somewhere in the region, there have emerged preferences for unilateral might, groundless claims and actions that run counter to international law". This was a barely concealed reference to China, and Nguyen's choice of theme pointed to the unease that Hanoi still feels about Chinese activities in the region.

There have been signs of progress in the bilateral relationship: China and Vietnam conducted their first-ever joint border patrol in March, and the two sides held their seventh joint security dialogue in Beijing in May. However, neither side is willing to give ground on sovereignty issues. With the Association of Southeast Asian Nations (ASEAN) failing as a forum for dialogue on territorial issues, Vietnam has announced plans to set up a new maritime patrol force tasked with patrolling its South China Sea territories, even as China makes similar moves. So while relations between Beijing and Hanoi remained relatively calm in the first half of 2013, the potential for another flare-up certainly remains.

Without substantial procurement funds thanks to the country's economic problems, Hanoi has been concentrating on forging new defence industry partnerships: Indonesia emerged as the latest potential partner for the Vietnamese defence industry in Q2, with France, Italy, Sweden and the UK among the countries it has also been holding discussions with. The prospect of the US ending its arms embargo on Vietnam could also open up an important new avenue of military equipment, although it is questionable whether Hanoi will be able to afford US equipment while its economy continues to struggle. Continuing human rights concerns may also dissuade Washington from lifting its arms ban, at least for the time being.

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