Japan has temporarily suspended official development aid to Vietnam over a bribery case, officials said Tuesday, dealing a possible blow to Tokyo's efforts to shore up its relationship with Hanoi.
Fresh yen-loans and funding for an ongoing urban railway project have been halted after six Vietnamese railway officials were detained over allegations of corrupt payments, the foreign ministry said in a statement.
The scandal emerged in March when Japanese media reported that the national tax agency had flagged up 100 million yen ($100,000) - worth of payments that could not be properly accounted for.
Japan Transportation Consultants Inc. (JTC) which is involved in several official development aid programs, is suspected of having paid the money to officials in Vietnam and Uzbekistan and Indonesia, the reports said.
Vietnamese investigators later arrested six people, including Tran Quoc Dong, a deputy general director of Vietnam Railways, reports said.
On Monday, Japan said development aid would be resumed following an investigation in Vietnam, and if measures are put in place to avoid a repeat, a foreign ministry official told AFP.
Japan has also suspended official aid to Uzbekistan over the same case, and is in discussions with Indonesia, the official said.
The suspension of aid from Vietnam's biggest donor country comes as Japan's ties with Vietnam are warming, with Tokyo offering support to Hanoi in its escalating standoff with China over disputed waters.
The relationship-building, spearheaded by Japanese Prime Minister Shinzo Abe, is aimed at forging a regional counterweight to China, which many local actors see as being increasingly aggressive in its various territorial claims.