In Vietnam corruption means death, sometimes...

By An Dien, Thanh Nien News

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Tough sentencing - like the capital punishment recently doled out to former state executives - may temporarily deter grand corruption, but fundamental changes are needed to weed it out in the long run, analysts say

Duong Chi Dung (C), 56, former chairman of Vietnam's national shipping company Vinalines, is led toward a courtroom at Hanoi's People's Court. Vietnam, on December 16, sentenced Dung and another former top executive at Vinalines to death for embezzlement as authorities try to allay rising public anger over corruption. But analysts say infrequent but harsh punishment can only serve as a deterrent to contain large-scale corruption in the short run and without a major overhaul of the much-cosseted state sector, corruption will remain endemic. PHOTO: VNA

On November 15, a Ho Chi Minh City court sentenced a former banker and
his business associate to death for siphoning off millions of dollars in a major loan scam that caused the Vietnam Bank for Agriculture and Rural Development VND531 billion (US$25.1 million) in losses.

On December 16, a Hanoi court handed down death sentences to two former bosses of the state-run Vietnam National Shipping Lines (Vinalines) for embezzling $476,000 each in a high-profile corruption scam that rocked the country.

Given that Vietnam's top echelons have repeatedly tried to assuage people's fears of rampant graft, the sentences apparently exhibit the political will to repair shattered public confidence. Three death sentences given to former state bigwigs in a matter of one month is indeed rare in a country where a number of current anti-corruption measures have been dismissed as window dressings.


But analysts say infrequent but harsh punishment can only serve as a deterrent to contain large-scale corruption in the short run. They say without a major overhaul of the much-cosseted state sector, which has proved a drag on a once-thriving economy, corruption will remain endemic.

"Evidence from all over the world suggests the death penalty is not a deterrent to grand corruption," Carl Thayer, a Vietnam expert at the University of New South Wales in Australia, told Vietweek.  "The death penalty for high level corruption might win some publicity and approval from the public. But this feeling wears off when large scale corruption continues."

In Vietnam, where state-owned enterprises (SOEs) will continue to dominate the economy despite their less-than-efficient performance, stern sentencing may be only cosmetic, analysts say.

"[The death sentence] will be a big deal for the government to try to deflect criticism that they are not doing enough about corruption," a Vietnamese economist spoke on condition of anonymity.

"[But] without structural reform, it is not going to change anything," he said. 

How many steps forward, how many steps back?

Duong Chi Dung and Mai Van Phuc, former chairman and general director respectively of Vinalines, received death sentences after the court found the pair guilty of pocketing kickbacks of $476,000 each in the purchase of an old floating dock, which turned out to be inoperable, from a Russian company in 2008. It was manufactured in Japan in 1965.

The case, which caused state losses of $17.3 million, also saw eight other officials slapped with jail terms of between four and 22 years for embezzlement and "intentionally violating state rules on economic management with serious consequences."

Last year, the chairman of the Vietnam Shipbuilding Industry Group (Vinashin) was also jailed for 20 years for violating state regulations on economic management after the shipbuilder giant almost collapsed under poor leadership in 2010.

In its most recent report to the National Assembly, Vietnam's legislature, the assembly's economic committee also blamed Vietnam's lingering banking and economic difficulties, which dent the business climate and demoralize investors, on excessive investment in inefficient SOEs, which gobble up capital and diversify from their core competencies into sectors such as property and stocks with dismal results.

SOEs soak up about 50 percent of state investment, tie up 60 percent of bank lending and account for more than half of the nation's bad debt. But they contribute just around 30 percent of the country's annual gross domestic product growth, according to the Ministry of Planning and Investment.

In that context, the fiascoes besieging Vinalines and Vinashin are emblematic of how inefficient the SOEs are.

Of many SOEs in the throes of debt after years of mismanagement, Vinalines amassed debts of around $3 billion and Vinashin some $4 billion.

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, which have almost unfettered access to credit and land, analysts say.

Analysts had hoped the debacles of Vinalines or Vinashin would be a coup de grâce to the chaebol mold.

Vietnamese leaders have stressed the "most crucial and urgent task" in restructuring the state sector to resuscitate the economy whose growth fell to a 13-year low of 5.03 percent last year. The country's GDP grew 5.42 percent this year.

The Vietnamese government last February approved a broad blueprint to boost its economy through 2020, focusing on overhauling public investment, banks and SOEs while controlling inflation and maintaining growth.

It was also early this year that an early draft of the amended constitution removed a clause saying the state sector must "play the leading role" in the national economy.

But in the fall session of the National Assembly that wrapped up last month, an overwhelming majority of lawmakers approved the wording in the previous version that reaffirmed the state sector's  "leading role."

Analysts say there is nothing wrong with the state taking a major role in the economy. The problem is when, as in Vietnam today, SOEs are allowed to operate in a non-transparent and unaccountable manner.

There had been hope among foreign donors and investors that the SOE problems would be addressed in new reforms along with bank restructuring. But sticking with strong support for SOEs could prompt investors to sit on the sidelines as they wait to see what other reforms the government introduces to jumpstart the economy, according to experts.

"It reminds all of us again that the reform process in Vietnam is a very long drawn affair that requires extensive internal debate," a foreign diplomat told Vietweek on condition of anonymity.

"However, as the global economy becomes increasingly dynamic and fast-paced, Vietnam may not enjoy the luxury of taking so much time to decide on reforms in the future."

'Privatize the profit, socialize the loss'

There has also been little headway made on the equitization of SOEs. Equitization is the term Vietnam uses to describe the process of issuing shares to partially privatize state-owned businesses in which the government will still hold the majority stake.

"The speed of equitization has been reduced over the past years: there were more than 800 enterprises equitized in 2004-2005 compared to 13 equitized enterprises in 2012," said Tran Anh Duc, co-head of the Investment and Trade Group at the Vietnam Business Forum (VBF), a consortium of international and local business associations and chambers of commerce.

"This fact has raised big questions about the speed of equitization progress in the coming years," he said at a recent meeting between the government and the VBF.

But analysts say an even more pressing issue for Vietnamese SOEs is how to get state officials to be more like private entrepreneurs to make their companies run more commercially.

"If you know at the end of the day, you will be bailed out by the state, you will either engage in excessive risk taking or not worry about profits," said Zach Abuza, a Washington-based Southeast Asia analyst.

"In the US, we have a real problem in our financial sector with moral hazard, as there are banks and investment firms that are deemed "˜too big to fail,' i.e. if they went bankrupt, the impact across the financial sector would be too great and too many jobs would be lost," he said.

"They privatize the profit but socialize the loss. I could see this problem in Vietnam."

Apparently, Vietnam has not moved to the concept of motivating an official to act like an owner of a private company. But the fundamental problem of personal motivation has an ironic twist in a country where the practice of giving and receiving bribes is so common it is no longer perceived as bribery. Thus, what is good as a personal motivation for a company leader is not necessarily good for the company itself.

Both analysts and government officials admit that patronage and nepotism have discouraged merit and talent to join the public sector, including at SOEs, where salary is not a key consideration, but incentives and informal sources of income attached to a certain position are.

"There are many informal sources of income for public officials, in addition to the official salary. [This] is a fertile ground for corruption," said Jairo Acuna-Alfaro, anti-corruption policy advisor to the United Nations Development Program in Vietnam.

At an economic conference last September, Tran Xuan Hoa, chairman of the state-owned mining group Vinacomin, bristled at criticism that SOEs were the bane of the nation.

"Most of you here [the conference attendants] all too often lash out at many shortcomings of the SOEs," said Hoa, who is also a lawmaker.

"But let's ask if there is anyone that has never lobbied for your children to land a job at a state company?"

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