FACTBOX-Five political risks to watch in Vietnam

HANOI, Nov 3 (Reuters) - Vietnam has weathered the global economic crisis relatively well, but the country is still seen as a risky and relatively opaque investment destination.

Following is a summary of key risks to watch in Vietnam:

CORRUPTION

Corruption is endemic in Vietnam at all levels of government, and acts as a major barrier to foreign investment. The authorities had announced aggressive plans to fight corruption, and encouraged the media to act as a watchdog, but these efforts lost steam after several journalists were detained for reporting on major corruption scandals. Progress on corruption will remain a key determinant of investment attractiveness.

Key issues to watch:

-- Vietnam's rank in corruption perceptions rankings. A strong improvement or decline would influence investors. Major scandals could also make waves.

EXCHANGE RATE POLICY

Vietnam's fixed exchange rate policy frequently causes economic pressures to build. The dong VND= has been at or beyond the weak end of its trading band for a year now, and last week it dipped to a low for this year.

The central bank is likely to continue to slowly weaken the currency to try to ease pressures by edging the reference rate down, but many economists expect that it may have to eventually take the more drastic move of widening the dong's trading band or doing a one-off devaluation. The bank itself has said it will not devalue, despite a recent fall in foreign exchange reserves.

The dong's chronic weakness and the expectation of further weakening has led to dollar hoarding, which in turn creates more weakness and stokes expectations of further weakening. The central bank has responded with FX rationing, which has been mildly successful at keeping the exchange rate relatively stable.

In late October, demand for dollars rose suddenly as gold smugglers circumventing a ban on imports sought the currency to buy gold abroad and sell it in Vietnam, taking advantage of a spread of several percentage points between onshore and international market gold prices.

For now, the risk of a balance of payments crisis is not high, economists say. As the economy turns, the inflow of foreign currency is likely to increase which could change the picture.

Key issues to watch:

-- Markets are closely watching for any clues to the likelihood and timing of changes to the exchange rate.

GOVERNMENT EFFECTIVENESS

Corruption, lack of accountability and transparency, and burdensome bureaucracy all impact the effectiveness of the government in formulating and implementing policy. Economic reform and the restructuring of inefficient state enterprises are vulnerable to being undermined by entrenched interests and conservative elements in a government more focused on security.