‘Do-nothing’ bureaucrats hold back Vietnam
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‘Do-nothing’ bureaucrats hold back Vietnam

Public servants reluctant to approve anything for fear of being fingered for corruption

Vehicles travel along a road in the city centre of Pleiku, Vietnam. (Photo: Bloomberg)
Vehicles travel along a road in the city centre of Pleiku, Vietnam. (Photo: Bloomberg)

Vietnam’s Communist Party is growing alarmed about a new mantra taking hold among bureaucrats: Do a lot, get in trouble for a lot. Do less, get in trouble for less. Do nothing, get in trouble for nothing.

Increasingly, they’re choosing the last option — and it is weighing on one of Asia’s fastest-growing economies.

Civil servants are wary of signing off on investment projects for fear they could be implicated next in a wide-ranging anti-graft campaign that has taken down three of the country’s top-ranking officials already this year, according to multiple bureaucrats who asked not to be identified for fear of retribution. Once-routine approvals for real estate developments or infrastructure spending are increasingly getting held up, they said.

One bureaucrat who oversees infrastructure approvals said he’d rather get scolded for doing nothing than risk being put in jail for making any perceived missteps. Another said the worry is most acute among local-level officials since they’re the ones who must sign off on projects and legal documents.

“Nobody in Vietnam wants to be on the record of approving anything right because they don’t know whether it will come back to them in the anti-corruption campaign,” said Albert Park, chief economist at the Asian Development Bank. Even his research department is struggling to get the necessary approval for a project, he said.

Representatives from the prime minister’s office and the foreign affairs ministry could not be reached for comment.

Communist Party Chief Nguyen Phu Trong, the anti-graft campaign’s chief architect, has defended the years-long effort as tough medicine needed to promote Vietnam’s long-term stability.

When the campaign first reached markets in March 2022, arrests of high-level business and securities officials spooked domestic investors but didn’t cause panic because the purge was touted as a way to tackle stock manipulation.

But when market regulators started cancelling bond offerings a month later, investors paused to reassess the damage. Those worries deepened in January, when the anti-graft campaign claimed its three biggest casualties — President Nguyen Xuan Phuc and two of Prime Minister Pham Minh Chinh’s deputies.

The cumulative push alarmed lower-level bureaucrats for fear they could be implicated next in a probe that ensnared more than 500 Party members in 2022 alone.

Working on bottlenecks

The prime minister is now seeking to jolt the bureaucracy back into action to limit the economic fallout. In recent weeks, he has organised high-level meetings with lenders, property executives and other key stakeholders to discuss ways to fix what they call bottlenecks in the market, such as resuscitating corporate bond issuance.

He has also vowed to ease property stress, ensure economic stability and scolded ministers for not disbursing funds already approved for critical infrastructure projects.

“Officials are under pressure now to expend more state budget to meet the target and improve their economic management performance,” said Linh Nguyen, lead analyst for Vietnam at Control Risks.

Whether Chinh succeeds will depend not only on his ability to ease anxiety among bureaucrats, but also to convince investors that Vietnam remains a stable and pro-business economy.

Trong, Vietnam’s most powerful leader, has given no indication for when the recent headline-grabbing investigations will ease. The state-owned Voice of Vietnam dismissed reports looking at the economic fallout as “slanderous” and “being made for unscrupulous reasons as opposed to being based on facts”.

From banking to property, many business sectors have already faced mounting setbacks. Real estate firm closures in 2022 surged by nearly 40% while the country’s benchmark VN Index became the world’s second-worst major stock gauge after Russia.

The Asian Development Bank has lowered its 2023 growth forecast as disbursement of public funds for health-care, parks, infrastructure and other spending has ground to a halt.

Traders say that finalising a rewrite of the country’s bond issuance rules could help restore confidence in markets and get lending moving again, especially to the battered real estate sector.

Chinh is reviewing a proposal to allow bond issuers to extend maturities by as much as two years, while Ho Chi Minh City officials have vowed to address any paperwork delays in the property sector quickly.

Some foreign investors remain bullish on Vietnam’s long-term prospects as a supply-chain alternative to China. The EuroCham Business Climate Index said that businesses moving their operations from China to Vietnam increased to 41% in the fourth quarter of last year even as the anti-graft campaign continued.

Oliver Massmann, a lawyer at Duane Morris Vietnam LLC who has been helping businesses set up in the country for over 20 years, said that a friendly and attractive business environment is still among top priorities for Vietnam.

“The party cleanup is political and might be at the expense of those who are foreign-investment friendly,” he said in an email. “However, in the long run, clean companies will benefit more from this anti-corruption campaign while state related companies/projects might face more slowdown.”

Low-level graft in Vietnam has long been a concern among diplomats and investors, in part because — similar to other nations in the region — informal payments are a lifeblood to civil servants who routinely complain about low wages.

But the strength of the government’s anti-graft campaign created its own bottlenecks for capital flows as paperwork stopped moving through Vietnam’s already-onerous bureaucracy.

Among the biggest complaints from foreign businesses is the widespread delay on licences and other permissions. Nervous government agencies disbursed only 70% of planned funds last year, the lowest level since at least 2017, according to December data released from the finance ministry.

That has prompted Chinh to order them to accelerate spending. Some 17 ministries and provinces even handed out less than 50% of what the central government had originally assigned.

Banking risk

Banking is another sector that’s facing risks. In a jarring scene in October, scores of people flooded branches of Saigon Commercial Bank to pull out their savings amid rumours the lender was tied to a real estate conglomerate under investigation for fraud. The central bank spent the week calming markets and depositors as the bank raised interest rates to lure customers back.

But the hardest hit by far has been the property industry, which has seen many firms reporting a liquidity crunch, temporary halts in operations and mass layoffs. Even Novaland Investment Group — the country’s second-largest listed developer — has struggled to pay back bondholders after claiming that lenders are demanding additional collateral, according to a local media report.

“The halting of projects has happened almost everywhere and impacts all property companies,” Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association, said in an interview. “Your project will just sit there. You can’t do anything with it.”

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