Vietnam’s Communist Party apologized to the nation and decided against punishing one unnamed senior leader, leaving Prime Minister Nguyen Tan Dung in charge after rare online attacks. Stocks rose the most in a month.
“The Politburo and Secretariat for many terms now have made some big mistakes, especially having not prevented and remedied corruption and the deterioration among some party members,” General Secretary Nguyen Phu Trong said yesterday on state radio and television. “Some senior officials, those currently in office as well as former ones, have occasionally not been morally good role models through their lifestyles and those of their families. They have significantly impacted the prestige of the party and the state.”
The 175-member Central Committee, which has the power to dismiss top leaders, spared the 14-member Politburo and the one member it said was deserving of punishment, Trong said. Stocks gained for the first time in four days after the announcement, which marked the end of a two-week meeting to assess the performance of the party and leaders including Dung.
Vietnam’s leaders are struggling to implement pledges to reduce the government’s role in the economy as bad debts at state-owned firms contributed to a credit rating downgrade. The outcome leaves Dung chastened and signals more turbulence ahead for the one-party state, according to Carlyle Thayer, professor of politics at the Australian Defense Force Academy in Canberra.
‘Pound of Flesh’
“The default position in Vietnam is always to maintain stability,” said Thayer, who has written about the country for three decades. “Removing Nguyen Tan Dung would’ve been terribly destabilizing and that would’ve made the economy worse. So people got their pound of flesh, but they weren’t allowed to draw blood.”
The benchmark VN Index (VNINDEX) on the Ho Chi Minh City Stock Exchange rose 1.6 percent to 397.92 as of the 11:30 a.m. break, the biggest advance since Sept. 14. The dong was little changed.
“Some uncertainty has been removed from people’s minds, so the market is bullish as there is a clearer picture now and investors can look ahead in terms of policy and investments,” said Attila Vajda, Ho Chi Minh City-based analyst at ACB Securities.
Moody’s last month cut Vietnam’s government bond rating by one level to B2, five steps below investment grade, on an “elevated risk” that the government would need to bear the cost of recapitalizing banks. The economy is set to grow at the slowest rate since 1999 after years of cheap credit left banks with the highest levels of bad debt in Southeast Asia.
The nation needs to overhaul its banking system and stabilize the economy as it pushes to improve the investment climate, Trong said. The Central Committee called on state-owned enterprises to end non-core investments and the government to sell stakes in companies in which it owns less than 50 percent by 2015.
State-owned companies must be re-organized into joint stock or limited liability companies, Trong said. The Central Committee reiterated a growth forecast of 5.2 percent this year and year-end 2013 inflation at 7 percent to 8 percent.
The economic woes have led to attacks against Dung, 62, for failed oversight of state-run companies. Last month he ordered ministries to tell employees to avoid reading the Quan Lam Bao and Dan Lam Bao blogs, which carried posts critical of Dung and his family.
After Dung took power in 2006, gross domestic product expanded 6.5 percent on average over the next five years as credit growth “far exceeded” economic expansion, Moody’s said. The former central banker has faced criticism after Vietnam Shipbuilding Industry Group, the country’s biggest shipbuilder known as Vinashin, and Vietnam National Shipping Lines, known as Vinalines, became saddled with debt.
The Central Committee’s lack of oversight led state-owned companies, especially Vinashin and Vinalines, to “operate inefficiently and commit violations that resulted in large losses and very serious consequences,” Trong said in his address. “Restructuring plans of state companies and commercial banks still contain many problems that need to be studied and addressed,” he said.
Police last month arrested the former chairman of Vinalines for falsifying contracts, part of moves to hold executives accountable for mismanagement at state-owned companies. In August, they arrested Nguyen Duc Kien, who helped found Asia Commercial Bank, Vietnam’s largest non-government owned lender by assets.
Yesterday’s decision signals that a power struggle between Dung and his opponents would continue, potentially complicating efforts to shore up the financial system, according to Joshua Matthews, a senior investment analyst at Fundamental Value Partners in Hong Kong.
“The risk of nobody coming out clearly on top is that we just continue as before,” he said by phone. “It’s policy that does not have the full backing of the state, for example, where one arm of government is trying to clean up the banking sector, but a lot of people are standing in the way. If you were connected enough to get a banking license, you’ve got a lot of friends to help you defend it.”
Dung’s two main rivals, President Truong Tan Sang and General Secretary Trong, are using the latest economic downturn to challenge his leadership, according to Tuong Vu, associate professor at the University of Oregon. Competing networks in the party are vying for power and money that come from resources sales, construction projects and monopoly licenses in industries such as banking and energy, he said.
“Factional struggles have always existed in the party, but they have never gone public,” Vu wrote in an e-mail. “To some extent the Internet is responsible, but more important is the fact that patronage networks are now large and involve major economic entities.”
Last year, the government sector accounted for a third of the economy, down from about 38 percent in 2005, with state-run firms investing more than private-sector local businesses, according to the General Statistics Office. Government-run enterprises produced about 21 percent of total budget revenues through the first nine months of the year, the data show.
Ho Chi Minh helped found the Communist party, at a 1930 meeting in Hong Kong, and steer it to power through wars with France and the U.S. that killed millions of Vietnamese. The constitution calls the Communist party “the force leading the State and society.” Through organizations spanning the local and national levels, the party dominates the 499-member National Assembly, which elects the president and the prime minister.
The party’s ability to produce a better life for almost 90 million people is central to its aim of maintaining legitimacy as it stifles dissent. Five journalists and 19 bloggers are in jail in Vietnam, including two sentenced in August to six years in prison for spreading propaganda, more than in any other country except China and Iran, Reporters Without Borders said last month.
“Citizens are more tolerant of single-party regimes when they consistently produce growth, jobs and access to social services,” said Eddy Malesky, Associate Professor of Political Economy at Duke University. “Historically, regimes that have failed to live up to this bargain have encountered political instability.”
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