Vietnam political battles heat up as economy falters

Posted on August 26, 2012

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Banking tycoon Nguyen Duc Kien

HANOI, Vietnam – The arrest of one of Vietnam’s top banking tycoons reflects a wider power struggle among the Communist rulers over how to tackle the country’s deepening economic troubles, experts say.

Flamboyant multi-millionaire Nguyen Duc Kien, a shareholder in some of Vietnam’s largest financial institutions and a founder of Asia Commercial Bank (ACB), was detained on Monday, and ACB’s ex-head officially joined him in custody three days later.

The arrests, for unspecified economic crimes, caused public panic, wiping some $5.0 billion in value from Vietnam’s stock markets and triggering a bank run as depositors rushed to pull hundreds of millions of dollars out of ACB.

But “the bigger concern is the potential for political instability… Kien’s arrest could signify increasing discord among political elites and factions”, according to a report by intelligence group Stratfor.

Football-mad Kien, an instantly recognisable 48-year-old financier with a shock of white hair, is widely reported to have close connections to Prime Minister Nguyen Tan Dung and his daughter, a Swiss-trained private banker.

Since the 1990s, as Vietnam opened up economically, power moved from the communist party to the state — and, since he assumed the post in 2006, to Dung, who is said to be the country’s most powerful prime minister ever.

Dung, who was reelected to a second five year term in 2011, has used this power to aggressively push for high growth rates and champion a South Korean chaebol-style development path, relying on huge state-owned companies to drive overall economic growth.

At first, Vietnam was notching up seven percent-plus annual growth rates and quickly became a favourite of foreign investors including global banking giant Standard Chartered, which owns 15 percent of ACB.

But with economic growth now just 4.4 percent year-on-year in the first half of 2012, foreign direct investment down nearly 30 percent in the same period and toxic debt in the fragile banking system at “alarming levels” according to the central bank, there has been increasingly vocal criticism of Dung.

“Never has Vietnamese society faced so many upheavals which weaken the Party’s leadership and threaten the survival of the whole political regime,” a retired National Assembly deputy told AFP.

“Some party leaders have lost patience, and feel it is time to act to eliminate these potential threats and regain public confidence,” he added, speaking on condition of anonymity.

In a scathing op-ed on Thursday, President Truong Tan Sang — one of Dung’s main political rivals — said that “Vietnam is now under insignificant pressure because of broken state-owned enterprises.”

He criticised “the degradation of political ideology and the morals and lifestyle” of officials — a swipe at wealthy tycoons like Rolls Royce-driving Kien — and called for economic reform and a new anti-corruption drive.

A new round of factional fighting has begun and “the main battleground is economic reform and probity including the state-owned sector and the banking sector and weeding out entrenched large-scale corruption”, said Vietnam expert Carl Thayer.

“Sang and Party Secretary General Nguyen Phu Trong are now repeating an old but true refrain that corruption is one of the major threats to the legitimacy of Vietnam’s one-party system,” Thayer said.

Public discontent over official corruption has bubbled over into violent protests several times this year.

The case of a farmer who used home-made explosives to fight forced eviction by corrupt local officials dominated the front pages in January.

Thayer pointed to the significance of a decision earlier this month to remove control of the anti-corruption steering committee from the prime minister and hand it back to the party.

Dung has previously come under pressure for corruption scandals in the state-owned companies he promoted, and in 2010 was forced to accept personal responsibility for the near-collapse of state shipping giant Vinashin.

While the moves against Kien are not expected to force Dung from his post, more of the prime minister’s allies are likely to be targeted, observers predict.

Kien “may be the most prominent and wealthy” thus far, but he was not the first nor will he be the last, said Thayer, emeritus professor at the University of New South Wales in Australia.

Dung himself, in what experts see as an effort at self-protection, has praised the police efforts to investigate corruption in bank reform and called for punishment of culprits “no matter who they are.”

AFP

Rampant, nationwide corruption in Vietnam; how people fight back on the web

Systematic Corruption ruptures Vietnam with inequality

Since the mid-1980s, the time when Vietnam launched the ‘Doi Moi (industrialization)’ project to boost the national economy, Vietnam has recorded remarkable GDP increase rate, 7 to 8% a year. However, the economic inequality gap and government debts are huge, and show no sign of shrinking.

Primary reasons for the problems lie in the structure of the ‘industrialization’. The only legal political party, the Vietnam Communist Party, utilized state owned enterprises(SOE) as useful tools which enable the government to take a firm grip on the state economy. In a rare thesis discussing the privatization of the Vietnamese economy, Fredrik Sjöholm pointed out that it’s actually a state takeover of economy in disguise of ‘privatization’; about one-quarter of state revenues come from SOEs and the state can take control of any SOEs by having ‘minority state ownership share’(Sjöholm, 2006)

Commonplace collusion between politics and economy, interwoven through shares, squandered bailout money and venal practices in the name of ‘industrialization’, generated astounding breeding ground for corruption and rapidly increasing debts. The ‘industrialization’ process had few constructive plans behind it, which produced obfuscated ownership responsibility while working on ad hoc economic strategies. This opened the door for private, often political, actors to ‘hijack’ the real control of the firms.

This came into reality with the help of centralized economy which has kept the circles of corruption intact. The level of centralization is cited in the cable 09HANOI809 that high politicians in VCP have power over economy sectors equal to no one else; for example, the Prime Minister Ngyen Tan Dung has the only right to appoint the chairman of the board of directors. This collusion is also a major cause of immense gap in economic inequality; namely the gap between those who get both political and economic power and those who do not.

Vietnamese dissents fight back through web; a war against government-led cyberattacks

According to an article from AP news in 11th February, the Vietnam government went further after it blocked Facebook in November, 2010. At least two prominent dissident sites got attacked, one completely disappeared.

This strong reaction was followed after the ever-growing effects of both websites. One of them,blogosin.org, launched on 2008, focused on corruption and government incompetence. It was shut down early this February.

Another one was bauxitevietnam.info, started by a group of dissidents critical on the government-led bauxite mine development plan with Chinese company, in Vietnam’s sensitive Central Highlands. Lots of people worried about the possible environmental problem it might bring. The website already got 17 million hits, which denotes a striking level of attention considering that 20 million people in total use Internet in Vietnam.

According to an article from AFP, blogger Nguyen Hue Chi, who administered the Bauxite Vietnam website, he said in Jun, 2010 that he was under attack from unknown hackers, which he believed to be the government. Chi worried that the government now doesn’t just block access, but was trying to shut down the website completely. In 2010 alone, at least 24 websites had been disrupted in this style.

Would the web in Vietnam be kept silent? As many others try aiming to quell freedom of expression merely through stuffing technical ‘gates’, this doesn’t seem to be effective. Lots of Vietnam Internet users immediately started to teach themselves how to reach the blocked Facebook by simply Googling it. The Vietnam government must have one thing in their mind before going after the ‘China-like’ strategies – that the Internet is not a technology, but a spirit; a resistance. Want the most effective way of quenching the dissents in Internet? Act in a more just way, heading toward more open governance, where the very concept ‘dissent threatens national security’ doesn’t exist. The Vietnam government might succeed in closing the voices down; they would never be able to silence the spirit, the overwhelming desire toward truth.

WL Central

Viewing cable 09HANOI809, 2011 LEADERSHIP TRANSITION: LEADING CONTENDERS FOR GENERAL SECRETARY AND PRIME MINISTER

If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Reference ID Created Released Classification Origin
09HANOI809 2009-09-10 07:19 2011-08-30 01:44 CONFIDENTIAL Embassy Hanoi
VZCZCXRO2193
OO RUEHDT RUEHHM RUEHPB
DE RUEHHI #0809/01 2530719
ZNY CCCCC ZZH
O R 100719Z SEP 09
FM AMEMBASSY HANOI
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0125
INFO ASEAN REGIONAL FORUM COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCNDT/USMISSION USUN NEW YORK 0002
RUEAIIA/CIA WASHINGTON DC
RUEHHM/AMCONSUL HO CHI MINH CITY 0021
CO N F I D E N T I A L SECTION 01 OF 04 HANOI 000809  

SIPDIS  

E.O. 12958: DECL: 2019/09/10 
TAGS: PGOV PREL PHUM ECON ETRD VM
SUBJECT: 2011 LEADERSHIP TRANSITION: LEADING CONTENDERS FOR GENERAL  SECRETARY AND PRIME MINISTER    

REF: HANOI 60 (FEW CHANGES AT THE 9TH PARTH PLENUM)  HANOI 330 (IDEOLOGY RESURGENT? THE GENERAL SECRETARY’S NEW CONCEPT  AND ITS IMPLICATIONS)  HANOI 413 (IN VIETNAM, CHINA AND BAUXITE DON’T MIX) HANOI 537 (BAUXITE CONTROVERSY SPURS LEADERSHIP DIVISIONS, VIBRANT NATIONAL ASSEMBLY DEBATE)  HANOI 672 (BEHIND VIETNAM’S LATEST CRACKDOWN)   

CLASSIFIED BY: Michael Michalak, Ambassador; REASON: 1.4(B), (D)  

1. (C) SUMMARY: Preparations are already underway for major  leadership changes in Vietnam as the Communist Party gears up for  its Eleventh Party Congress in January 2011. As many as six of the  Politburo’s fifteen members are expected to retire, including the  General Secretary, State President, and National Assembly Chair.  Conventional wisdom identifies CPV Standing Secretary Truong Tan  Sang and Prime Minister Nguyen Tan Dung as the frontrunners to  replace Nong Duc Manh as General Secretary. If Dung does not  become General Secretary, odds are he will remain as Prime  Minister. Politburo members since 1996, Dung and Sang have amassed  unparalleled influence in Vietnam’s Party-state apparatus; they are  arguably the two most powerful political figures in the country  today. The problem is that, though rivals, Dung and Sang are also  too alike for comfort -- both are Southerners, both former HCMC  Party Secretaries. Vietnam’s enduring regionalism argues that one,  likely Sang, will be frustrated in 2011. If Dung keeps his seat as  PM, the two strongest contenders for General Secretary are current  National Assembly Chair Nguyen Phu Trong and -- more radically --  the Politburo’s newest member, the conservative head of the CPV  Ideology and Education Commission, To Huy Rua.   

2. (C) COMMENT: Neither PM Dung nor Standing Secretary Sang is a  champion of political reform in the manner of the late PM Vo Van  Kiet. But they are known commodities: pragmatic, market-oriented,  and in favor of steady, incremental advances in Vietnam’s  relationship with the United States. Trong has adopted a similar  approach as NA Chair. Rua may be a different story altogether.  His elevation to the Politburo both reflects and reinforces a  hard-line trend that has been increasingly evident since the  crackdown on journalists reporting on the PMU-18 corruption scandal  almost exactly one year ago. What role he plays in Vietnam’s  leadership transition will say much about whether political  liberalization -- on hold for now -- will resume after 2011 or will  remain stifled. END SUMMARY AND COMMENT.     

Preparations Underway for the 2011 Party Congress   
--------------------------------------------- ----     
3. (C) Unlike the Ninth Party Plenum, which installed new members  of the CPV Politburo, Secretariat, and Central Committee (ref. A),  the Tenth Plenum, held this July, produced virtually no new  personnel or policy decisions. Instead, according to contacts with  access to the Central Committee, the Plenum focused mainly on  preparations for the Eleventh Party Congress in 2011. Following  the Plenum, the CPV announced that the once-every-five-year  Congress would be held January 2011, a somewhat earlier date than  usual to allow for National Assembly elections later in the year.  More importantly, our contacts said that the Congress finished  assignments to various subcommittees, including bodies responsible  for drafting the Congress’s main written product, the “Political  Report.” Initial drafting on some of the sections, including the  portion on Vietnam’s foreign relations, began several months ago,  according to XXXXXXXXXXXX.     

4. (C) Of the subcommittees, the one subject to most fervid  speculation is the Subcommittee for Personnel Appointments.  Chaired officially by General Secretary Nong Duc Manh, but under  the day-to-day supervision of the Central Committee’s  Organizational Affairs Department Chair, Ho Duc Viet, this  subcommittee is charged with preparing the list of candidates for  the Eleventh Central Committee and, ultimately, the next Politburo.  Viet began the formal process at a “national conference” in Hanoi,  August 25-26, in which he instructed grass-roots cadres to begin  organizing local and Provincial- level Party Congresses. The  actual work of the Appointments Subcommittee is kept extremely   

HANOI 00000809 002 OF 004    

close hold, particularly as it affects upper-level personnel, and  will be subject to change until the Tenth Central Committee’s final  plenary session, immediately before the January 2011 Congress  itself. As a sign that ideological conservatives continue to  consolidate their position, the Subcommittee will take as its  guidance directives put forward in the Ninth Plenum, including  admonitions about the pernicious effects of Western-oriented  “self-evolution” (ref. B), sources familiar with the Plenum’s  internal deliberations say. Additionally, the Tenth Plenum  instructed Provincial Party Secretaries to compile reports  explaining how changes over the past ten years had either  contributed to “perfecting socialism” or “regressing into  capitalism,” according to the new Can Tho Party Secretary.    

Retirements Will Leave Key Openings   
----------------------------------     
5. (SBU) The Personnel Subcommittee will have several important  vacancies to consider. The CPV’s Ninth Congress (2001) established  an age limit of 60 for first-time Politburo members and 65 for  those returning for a repeat term. The latter limit was increased  to 67 just prior to the Tenth Congress as an exception to allow  Manh, who at the time was 66, to return as General Secretary.  Nearly all of our contacts predicted the present leadership would  adhere to these age limits in 2011. If the limits are respected,  five key Politburo members face mandatory retirement: General  Secretary Manh (age 71 in 2011), State President Nguyen Minh Triet  (69), National Assembly Chair Nguyen Phu Trong (67), DPM and  Foreign Minister Pham Gia Khiem (67), and DPM Truong Vinh Trong  (69). In addition, a sixth member of the Politburo, CPV Inspection  Commission Chair Nguyen Van Chi, will be 66 and is reported to be  in extremely poor health. A minority view among our contacts held  that the 67-year age exception would be extended to NA Chair Trong  if he were selected as General Secretary.     

Consensus Front Runners: Truong Tan Sang and Nguyen Tan Dung   
--------------------------------------------- ---------------     

6. (C) Most observers identify PM Nguyen Tan Dung and the head of  the powerful CPV Secretariat, Standing Secretary Truong Tan Sang,  as the leading contenders for Secretary General in 2011. In terms  of experience, authority, and potential career longevity, Dung and  Sang stand head and shoulders above their counterparts on the  Politburo. Both have achieved dominant positions in what many now  consider almost as competing wings within the Party- state  apparatus: Dung through the Office of Government, government  ministries, and his control over Vietnam’s largest state-owned  enterprises; Sang through the Central Committee Commissions. Dung  and Sang are also in the best position to provide the continuity of  leadership that the Party has consistently said it needs. The two  entered the Politburo in 1996, which gives them the longest tenure  of any member likely to serve through 2011. At the same time, at  60, they are relatively young and would be eligible to serve two  terms as General Secretary, were the 67-year age-limit exemption  invoked.     

7. (C) Of the two, Sang is more frequently mentioned as a  replacement for GS Manh. As Standing Secretary, Sang is  responsible for the day-to-day running of Party affairs and, our  contacts say, has consolidated his hold over the CPV’s Central  Committee commissions, which retain an important role in setting  broad policy goals and in personnel decisions. Though his tenure  as HCMC Party Chief was somewhat tainted by the “Nam Cam” organized  crime scandal, Sang is now widely acknowledged as the Party’s  primary power broker on a wide range of issues, including on  economic matters. Meeting with a delegation of industry  representatives from the U.S.-ASEAN Business Council in May, for  example, Sang was able to comment authoritatively, in detail and  without notes, on topics ranging from civilian nuclear cooperation  to energy pricing to regulations on tenders and procurement. Sang  has also intervened to stop, at least temporarily, several business   

HANOI 00000809 003 OF 004    

deals that were rumored to be corrupt and that had aroused public  criticism.     

8. (C) Sang has in some respects already eclipsed the General  Secretary, according to XXXXXXXXXXXX. Others agree  that Manh has ceded authority to Sang, but offer a slightly  different interpretation. XXXXXXXXXXXX emphasized that Manh  himself remains in overall command, but has removed himself from  most policy decisions, choosing instead to focus on internal Party  building. Ambassador Mitsuo Sakaba, who accompanied Manh on his  April visit to Japan, told us that the General Secretary appeared  disengaged in his meeting with Japanese PM Taro Aso, reading  verbatim and in a monotone a 30-minute prepared statement passed to  him by a staff-member; the General Secretary only really showed  interest when he was taken to an agricultural site outside Tokyo.  Whatever the cause of Manh’s detachment, our contacts agree that  Sang has already assumed many of Manh’s normal responsibilities as  General Secretary.     

9. (C) While PM Dung has frequently been mentioned as a contender  for General Secretary, a series of setbacks may have frustrated his  ambitions to ascend to the top spot. Dung appears to have been  stung by criticisms over his early advocacy for Chinese investment  in bauxite projects in the Central Highlands (ref. C), a  controversy that has been led publicly by General Vo Nguyen Giap,  but which insiders say has been exploited by Sang and others as a  proxy to undermine Dung (ref. D). In the most recent Plenum, the  Prime Minister reportedly also came under criticism for his  government’s poor performance on corruption, education, and health  care. Ultimately, Dung’s biggest weakness is the simple fact that  his power base derives from efforts to strengthen the government/  state, according to contacts such as XXXXXXXXXXXX. Dung’s efforts to consolidate power within the Office of  Government have alienated many in the Secretariat and the  commissions of the Central Committee, the CPV’s traditional centers  of power, according to Eastern European diplomatic contacts with  regular exposure to the upper/middle ranks of the CPV hierarchy.     

10. (C) Nevertheless, most contacts suggest that Dung remains well  positioned to remain Prime Minister; indeed, this may have been his  goal all along. Though stung by criticism, the Prime Minister has  developed an unprecedentedly tight hold over the state bureaucracy.  Just as critically, Dung -- a former wartime military medic and  police official -- retains strong backing within the Ministries of  Public Security and Defense, support that has likely only been  reinforced during the most recent crackdown on political dissent  (ref E). Perhaps as an effort to showcase this, Dung has over the  past months made several well-publicized visits to military  commands and has addressed MPS functions. Dung also maintains  extremely close contacts with MPS Minister Le Hong Anh, though Anh  may not continue in his present position past 2011 (septel).     

Regionalism: Why the Conventional Wisdom Might be Wrong  

 --------------------------------------------- ----------     

11. (C) If conventional wisdom prevails, Southerners would for the  first time occupy the two most important positions in Vietnam’s  Party-state structure, and would be in a position to keep their  jobs for an additional ten years -- an untenable situation from the  standpoint of the CPV’s traditional power brokers in the North.  Since Party strongman Le Duan’s death in 1986, the General  Secretary has always come from the North, the Prime Minister from  the South; there has been an additional effort, less consistently  applied, to have the third position in Vietnam’s traditional power  troika, State President, come from the Center. XXXXXXXXXXXX argue that regionalism is less  and less correlated with ideological differences and of late has   

HANOI 00000809 004 OF 004   

 faded in importance. Additionally, XXXXXXXXXXXX and others maintain, there  are important factional divisions among Southerners themselves:  Sang, Dung, and State President Triet may all be former HCMC Party  Chiefs, but they are not necessarily allies. There is much truth  to this; however, our assessment is that having both the PM and  President come from the South was an extremely hard pill for many  Northerners to swallow in 2006, made palatable only because the top  spot was held by a Northerner. Losing the positions of both  General Secretary and Prime Minister would be too much for some to  contemplate. (Comment: It is also important to keep in mind that  factionalism, of which regionalism remains the most potent fault  line, increasingly is no longer about ideology -- it is about  power, patronage, and wealth. End comment.)     

The Dark-Horse Contenders   -------------------------     

12. (C) Neither Sang nor Dung is likely to step aside without a  struggle. If one is forced to sacrifice his ambitions, it is  likely to be Sang. If Sang does not become General Secretary, a  frequently mentioned alternative could be National Assembly Chair  Nguyen Phu Trong, who has ably managed Vietnam’s increasingly  assertive national legislature and is a known commodity, having  also served credibly as Hanoi Party Secretary. XXXXXXXXXXXX confided that Trong  is lobbying to have the 67 limit apply not just to the position of  General Secretary, but to each of the “four pillars”: GS, PM, State  Secretary, and NA Chair.     

13. (C) A more radical choice could be the newest Politburo  member, the hard-line chair of the CPV Ideology and Educational  Commission (IEC) To Huy Rua. It would be unusual for a recently  appointed Politburo member to ascend to the top of the CPV  apparatus so soon; however, Rua has developed a formidable  curriculum vitae. Rua has been a member of the Secretariat since  2006, which puts him at the heart of CPV policy making; as the  long-serving IEC Chair and as a former head of the Ho Chi Minh  Political Academy, he has impeccable ideological credentials; and,  perhaps most importantly, as the former Party Chair for Haiphong,  Rua has “executive experience” running a major provincial-level  city. We have no information to corroborate an assertion by  Australian academic Carlye Thayer that Rua is an ally of Sang.  Rather, Rua is considered to be a protege of fellow Thanh Hoa  stalwart, the hard-line former General Secretary Le Kha Phieu.  Whatever the case, Rua’s public profile has risen appreciably in  the weeks after the most recent Plenum. On August 3, for example,  Rua’s views on “self-evolution” made the front-page piece in the  leading CPV daily, Nhan Dan. On August 30, state media lavished  extensive coverage on his visit to HCMC, where he exhorted the  country’s youth to follow the example of Ho Chi Minh. Rua was also  shown chairing regional organizing meetings laying the groundwork  for provincial Party Congresses.     
14. (C) If Dung, on the other hand, is unable to retain his seat  -- and Sang, in turn, ascends to the position of General Secretary  -- this would likely produce a reversal of the normal regional  balance, with a Northerner becoming Prime Minister. But here the  field is, if anything, even narrower. For the past 20 years,  Vietnam’s Prime Ministers have come from the ranks of serving  Deputy Prime Minister: of Vietnam’s five current DPMs, only three  are on the Politburo, and of them, two are scheduled to retire in  2011, leaving only Standing DPM Nguyen Sing Hung. Hung is a  Northerner and an economic technocrat, and has the additional  advantage of being one of PM Dung’s bitterest rivals, according to  several contacts. However, Hung is himself an unpopular figure.  When the newly convened National Assembly met in 2007 to formally  ratify the Party’s selections for PM, DPMs, and government  ministers -- normally a perfunctory ritual -- only 58% voted to  approve DPM Hung, a shockingly low figure considering that 92% of  the NA’s deputies are Party members.

 

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