Reforms in the offing as Party boss apologizes

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Politburo seeks punishment for itself, member, but motion not accepted

  A pedestrian walks past a row of automated teller machines in Hanoi. Given the bleak state of the economy, the Party Central Committee said in a statement Monday that the reshuffle and overhaul of state-owned enterprises and the banking system is imperative. Photo: Bloomberg

Communist Party Chief Nguyen Phu Trong has apologized for the performance of the nation's leaders as the economic meltdown continues to punish the poor and middle class.

Once considered an unusually assertive chairman of the National Assembly - Vietnam's legislature -Trong has become the first Party Chief in a decade to issue a mea culpa in the middle of a term.

Trong's predecessor, Nong Duc Manh, made similar apologies at the end of each of his two five-year terms.

In his closing remarks to a regular meeting of the Party's Central Committee on Monday (October 15), Trong said in a televised speech that the Politburo had "seriously criticized themselves and admitted to major mistakes" in relation to corruption and the immoral lifestyles of "a number" Party members.

The Central Committee is a powerful grouping of 175 senior Party members. The 14-member Politburo is the Party's decision-making body. The meeting was the 6th since the 11th Party Congress was inaugurated at the beginning of last year. Though such regular meetings are usually one week to ten days long, this one lasted two weeks.

Trong said in his speech that the Central Committee had struck down a Politburo proposal to punish itself as a group and an unidentified member, and instead called for actions to rectify the problems.

But the fact that such a proposal was even discussed is significant.

 "It was the first time the entire Politburo had faced such censure," Tuong Lai, a prominent public intellectual who advised former prime ministers Vo Van Kiet and Phan Van Khai, told Vietweek.

Pampered privilege

Besides acknowledging the failure to tackle corruption, Trong said that some senior Party members and their wives and children had failed to behave in an exemplary manner.

The meeting took place against the backdrop of a public backlash against a slumping economy - once seen as an emerging Asian tiger - that has been riddled with rampant corruption, stubborn inflation and debt-choked banks.

In the 2011 congress that charted the country's policy goals, the Party chalked out an ambitious plan to notch up economic growth to 7.5 percent a year until 2016.

But the economy grew an estimated 4.73 percent in the first nine months of this year, slowing from the 5.77-percent annual expansion in the same period last year, Reuters said last month, citing government statistics.

Vietnam's economic growth could reach an annual rate of 5.2 percent over the whole of 2012, way below the target of 6.5 percent, Minister of Planning and Investment Bui Quang Vinh said Wednesday.

To aggravate investors' jitters, Moody's Investors Service last month downgraded Vietnam's credit rating, citing weaknesses in its banks and economic woes.

Given the bleak portrayal of the economy, the Party plenum said in a Monday statement that the government would have to improve the business climate to woo back foreign investment.

It stressed that the reshuffle and overhaul of state-owned enterprises (SOEs) and the banking system was a must.

Experts have blamed Vietnam's economic woes, including 18.13 percent inflation for 2011, on excessive investment in inefficient SOEs, which owe millions of dollars to the banks. Such SOEs have gobbled up capital and strayed well beyond their core businesses to invest into sectors such as property and stocks - both of which have faltered.

The Party communiqué asked that the SOEs halt investment in non-core sectors and switch to the model of joint-stock and limited liability companies. But it also reiterated the core role of SOEs in ensuring the "socialist orientation" of the economy.

For years, the government has followed the South Korean chaebol-style development path, considering SOEs the vanguard of the economy to steer overall economic growth.

But what has been a success story in South Korea has been difficult in Vietnam due to the privileges that the Vietnamese government has dished out to SOEs.

"The key success factor in Korea was the capacity of the government to impose market discipline on the chaebol," said Jonathan Pincus, dean of the Fulbright Economics Teaching Program in Ho Chi Minh City.

"They did this by linking privileges in the home market to export success. If companies did not achieve success in exports, they were not given favorable access to credit," he said.

But Vietnamese conglomerates appear to have easy access to credit and land without having to achieve any performance indicators, Pincus said.

"They enjoy the privileges that the chaebol had but without the market discipline. So it is little wonder that they have not managed to develop their technological capabilities, break into export markets, [and] improve efficiency and profitability."

Not over yet

The speech by Party Chief Trong on behalf of the Politburo was a stepping stone, but Vietnam needs tangible institutional and policy changes for a better future, analysts said.

In the eyes of foreign investors, "Vietnam's most important decision-making body just admitted to large-scale malfeasance," said Edmund Malesky, a political economy expert with Duke University in England.

"Unless Vietnamese authorities take action immediately to show they are serious about enacting real change," he said, "I worry that foreign companies and aid providers are going to think very hard about investing their time and resources in the country, when they have other options."

Foreign direct investment in Vietnam plunged 28 percent in the first nine months of 2012 from a year earlier, the government said.

Meanwhile, FDI inflows rose more than 31 percent in Malaysia and Indonesia in 2011 and an estimated 89 percent in neighboring Myanmar, Bloomberg said, citing the United Nations Conference on Trade and Development.

For Party insiders, though the Politburo and the member slated for punishment survived the motion, the powerful body and each of its members will now have to prove that they deserve it.

"The Politburo and its members must fix their mistakes and shortcomings soon with concrete action," Pham Quang Nghi, a Politburo member and Party Chief of Hanoi, said in a televised interview after the Party meeting.

At a meeting with his constituents in Hanoi's Ba Dinh District on Tuesday, Party Chief Trong, who is also a National Assembly member, said that self-criticism within the Party would continue.

He said if the National Assembly's forthcoming bi-annual plenary session approves a draft regulation that enables lawmakers to cast a vote of no confidence in the country's leadership - including the Prime Minister and the President - on an annual basis, Vietnam would start to do so in the second half of next year.

President Truong Tan Sang, in a meeting with his constituents in Ho Chi Minh City the next day, said the Party Central Committee had weighed all the pros and cons before sparing the Politburo and the Politburo member that were facing punishment.

"But it doesn't mean that the Politburo has made no mistake," he said.

"It also doesn't mean that the comrade member of the Politburo has made no mistake."

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By An Dien, Thanh Nien News (The story can be found in the October 19th issue of our print edition, Vietweek)

(Dinh Phu contributed to this report)

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