'Burning Furnace' Purge Stoking New Faith In Vietnam

Credit must be given to Trong's swift and bold actions in the removal of discredited Party officials. The Party widely acknowledges that the elimination of corruption is essential to foster a conducive and equitable business environment, including for international investors.

Recently, Vietnam has taken vigorous action in the case involving the Van Thinh Phat Group property developer. Although the US$12 billion fraud scandal has generated public and international attention and had some short-term impacts, in the long run, it will help promote healthier development of the financial system.

Specifically, the State Bank of Vietnam has acted swiftly to reassure depositors, enhance control and increase transparency in the banking system amid the scandal, which saw Van Thinh Phat Group's chairwoman sentenced to death for her role in the massive banking fraud.

The burning furnace campaign builds on previous anti-corruption efforts. The Central Anti-Corruption Steering Committee (CACSC), established in 2013, has directed investigations and prosecutions of more than 800 corruption cases, according to a study .

However, that is not to say that politically connected firms do not benefit more from the anti-corruption campaign compared to the non-connected. But recent analysis shows that the anti-corruption drive is helping broadly to enhance public sector investment efficiency.

The problem, to be sure, isn't new: the concept of corruption was recognized officially in the documents of the 6th National Congress in 1986. Then, corruption was considered a social evil that could be prevented by rigorous inspection methods.

By 2003, Vietnam signed the United Nations Convention against Corruption (UNCAC). The ratification was completed in 2009 but the country had already participated in the Corruption Action Plan for Asia.

According to the 2021 Provincial Competitiveness Index (PCI) survey completed by the Vietnam Chamber of Commerce and Industry, the rate of businesses paying unofficial fees or what is sometimes referred to as“red envelopes”, had dropped from 70% in 2006 to 41.4% in 2021.

Trong's current anti-corruption initiative builds on that progress and has reinforced the Communist Party's credibility at home and abroad. And it has arguably had little to no impact on Vietnam's commitment to liberalizing reforms, as the government continues to implement policies that support growth of the economy, capital markets and banking sector.

Meanwhile, Vietnam continues to scale the value-added ladder. Vietnam's primary export to the United States has moved past textiles and garments to high-tech products, with numerous Apple products now manufactured in Vietnam.

The nation's exports of high-tech goods increased from 13% in 2010 to 42% in 2020, according to Long S Le , a lecturer at the Leavey School of Business at Santa Clara University.

Despite facing global geopolitical headwinds from the war in Ukraine and the conflict between Israel and Gaza, and ongoing worries about recession in developed countries, the World Bank forecasts that Vietnam's economy will still grow by 5.5% in 2024 and 6% in 2025.

After the birth of the Democratic Republic of Vietnam, Vietnam's then-president Ho Chi Minh offered an early warning to citizens about greed, anticipating that it could become a serious national problem.

“Doi Moi”, or Renovation, the nation's path toward creating a socialist-oriented market economy first initiated in 1986, created many new opportunities for bribery and fraud.

The glaring economic inequalities brought by the transition from centralization to free trade and a market economy caused a huge chasm in salaries between the public and private sectors.

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Now, bribery is still rampant across Vietnamese society, with payoffs often made to police, school admissions departments and for employment opportunities.

Among public officials, there's one clear reason for corruption: stubbornly low salaries. For example, the basic monthly salary for a provincial judge is $253 while a school teacher earns only $100 a month. Researchers have underscored how poor salaries continue to contribute to corruption.

Low wages contribute to Vietnamese corruption. Image: Facebook

Trong's anti-corruption campaign has now had a significant cooling effect on the real estate sector and related industries, which account for at least 16% of GDP. The unprecedented number of criminal cases in Vietnam's property sector has broadly impacted real estate markets across the country.

However, changes in the global supply chain favoring Vietnam, including the US drive to decouple from China, have at the same time led to a boom in factory land demand.

Vietnam's ambitious anti-corruption efforts have prompted top-level resignations, spurred renewal among Party officials and ultimately are building confidence in the Party and Vietnam's broad business environment.

The campaign has effectively alerted the sclerotic bureaucracy that overarching authorities are closely monitoring their actions. The resulting unease among officials and the public writ large just might pave the way for more political reform to eliminate the long-time underlying causes of corruption.

James Borton is a non-resident senior fellow at Johns Hopkins/SAIS Foreign Policy Institute and the author of Dispatches from the South China Sea: Navigating to Common Ground.