How deep is Vietnam’s rot?
An anti-corruption drive aims to burnish the Communist Party's image, settle political scores and attract foreign investors
At a meeting of Vietnam’s main anti-corruption body held late last month, the country’s leading politician instructed it to quicken the pace of its investigations into corrupt officials.
Nguyen Phu Trong, general secretary of the ruling Communist Party, applauded the anti-graft body for establishing a list of “urgent cases requiring drastic settlement,” local media reported but also stressed that much more needed to be done.
In particular, Trong told the body to expedite the case of Trinh Xuan Thanh, former head of PetroVietnam Construction, a subsidiary of state-owned PetroVietnam, the country’s largest energy firm. Thanh is accused of losing hundreds of millions of dollars from the firm through mismanagement and corruption.
Tranh’s conviction is clearly important to Trong, who, in May, said he would apprehend the absconded executive “by any means.” It wasn’t hyperbole: Vietnam risked major diplomatic fallout with Germany, its largest European trading partner, after its agents kidnapped Thanh in Berlin in August.
(Hanoi incredulously contends he voluntarily returned, as he “admitted” during a televised confession).
Two Vietnamese diplomats were expelled from the country and Germany later cancelled its visa waiver agreement for Vietnamese diplomats. Germany’s Foreign Ministry has called for Thanh’s return because he was applying for asylum, though this is unlikely now that he is headed to trial in Hanoi.
A month after Thanh’s kidnapping, one of Vietnam’s largest ever anti-corruption trials got underway over alleged corrupt dealings between PetroVietnam and Ocean Bank, a partially state-owned bank.
Fifty-one defendants faced charges of dodgy loans between the two firms, embezzlement and fraud. Since both firms are state-owned – partially and fully – the loss of state finances, even by mismanagement, is a criminal offence under Vietnam’s Penal Code.
Ha Van Tham, a former general director of OceanBank and later head of PetroVietnam, was sentenced to life in prison. Nguyen Xuan Son, a former PetroVietnam chairman and chief executive of Ocean Bank, was sentenced to death, the first time the penalty has been handed down for illegal financial activity in years.
Another 49 bankers and officials were handed a myriad of sentences. Thanh’s fate will be decided by February. Besides the PetroVietnam and Ocean Bank cases, several other major anti-graft investigations are ongoing, with most focused on the activities of state-owned enterprises (SOEs).
Some see Trong’s anti-graft campaign as a high-level bid to appease ordinary Vietnamese angered by the Communist Party’s increasingly visible rot.
“High-profile trials and harsh sentences are carried out to assuage public anger over corruption,” Carl Thayer, a Vietnam expert at the University of South Wales in Australia, wrote in a briefing in September.
But analysts also suspect political intrigue. This is partly due to the fall of Dinh La Thang, the Party’s chief of Ho Chi Minh City, who in May was removed from his post and dismissed from the Politburo, the first person to be sacked from Vietnam’s highest decision-making body since 1996.
The official line was that Thang had made “very serious mistakes” and engaged in corruption when he was general director of PetroVietnam from 2009 until 2011. Thang had appointed Thanh as chairman of PetroVietnam Construction.
But analysts note that Thang was also a close ally of former two-term Prime Minister Nguyen Tan Dung, who was sidelined at last year’s Party Congress. Some think Trong is now in the process of purging Dung’s protégées and uprooting the patronage network Dung had built while in office, which may extend to executives at PetroVietnam and Ocean Bank.
Some commentators suggest the Party has become more conservative since last year’s Congress, a move led by Trong. But Trong is arguably better understood as an “elitist” who wants to return the Party to its historic consensus-based decision making, which the individualistic Dung threatened.
One theory is that this intra-Party schism has overlapped with the government’s emboldened anti-graft campaign. This is disputed by other analysts, who consider them separate trends. What is indisputable, though, is where both are headed.
The next Party Congress, in 2021, will bring a major shakeup of the Party. While pundits predict as much before any Congress, it is guaranteed at the next meeting due to the high number of leaders set to retire.
Trong would have been required to step down last year because of his age had it not been for special permission to continue for an additional term. Trong, 73, is unlikely to get another after 2021, however.
Therefore, it can be expected a new generation of officials will rise to the highest levels of the Party, who may or may not decide to toe the Party’s line. Making sure that they do appears to be Trong’s ambition.
Another explanation for Trong’s ramped up anti-graft campaign focuses on the future of the Communist Party. Corruption, incompetence and embezzlement among Vietnam’s SOEs have cost state finances dearly in recent years.
A report presented to the National Assembly’s Judicial Committee last month claimed at least US$2.6 billion has been lost due to corruption over the past decade, which may be an underestimate judging by the figures revealed in recent trials.
As such, the government is struggling to raise funds for major infrastructure projects needed to sustain high economic growth. Public debt was roughly 64.7% of GDP at the start of the year, while last year the government ran a budget deficit of 4.4% of GDP. Analysts agree that the Party’s unelected legitimacy depends largely on continued fast growth.
An effort to raise revenue through unpopular taxes is one solution; stopping the illegal flow of money out of SOEs is another. But the government’s past efforts to tackle corruption within SOEs and the public sector have traditionally been limited, especially when it comes to reclamation of funds.
Of the US$2.6 billion apparently lost over the past decade, only 8% has been recovered by authorities, according to the report presented to the judicial committee. If recovering lost funds is an unlikely way of replenishing state finances, preventing the loss of future revenue is more achievable.
Indeed, perceptions about the quality of SOEs’ management are of rising importance as the government embarks on a major divestment campaign, including the floatation of big stakes in Saigon Beer Alcohol Beverage (Sabeco), Vietnam’s State Capital Investment Corporation, and Hanoi Beer Alcohol (Habeco).
Officials have said they hope to raise as much as US$5 billion in selling a majority stake in Sabeco on December 18. While foreign investors have shown strong interest in Sabeco and Habeco, the same cannot be said of Vietnam’s other SOEs whose reputations have been stained by years of economic mismanagement and embezzlement.
As such, the government’s latest anti-corruption drive is also likely designed to rehabilitate the reputation of its broad state sector, crucial if divestment is to succeed and SOEs are to attract investors from abroad. But the rot may be too deep to change many SOEs.
“Sentences will have little deterrent effect on endemic corruption in Vietnam,” academic Thayer wrote, “because the root cause is the lack of good governance, including an independent system of audit, investigation and prosecution that is free from political influence.”
He added: “The shock of these sentences, like a booster inoculation, will wear off over time.”