Vietnam’s anti-graft efforts is credit positive, Moody’s Investor Service stated in its latest report.

Former PVN Chairman Dinh La Thang (L) and former PVC Chairman Trinh Xuan Thanh (R) in the dock (Photo from VnEconomy)

Last week saw the trial of 22 executives, including a former Politburo member, begin over corruption and economic mismanagement at the State-owned oil company PetroVietnam and at Ocean Bank. The trial expresses the government’s increasing focus on addressing broad-based corruption among State-owned enterprises (SOEs) and follows a number of trials of officials last year.

Such efforts are credit positive because they will strengthen the management of Vietnamese corporations and improve the country’s relatively weak institutional framework through enhanced accountability and transparency. Sustained over time, investment flows and the economy have the potential to grow further.

An improving operating environment has driven a steady increase in investment flows since 2009. Net foreign direct investment (FDI) increased to 6.5 per cent of GDP in January-September 2017 from an average of 5.2 per cent between 2014 and 2016. FDI flows are a chief driver of headline GDP growth and a key credit support.

However, corruption remains a key challenge for investors. The World Economic Forum’s Global Competitiveness Index cites corruption as the third most problematic factor in doing business in Vietnam. Transparency International ranks Vietnam 113th out of 176 countries in corruption perception, while Worldwide Governance Indicators show that Vietnam’s control of corruption rankings has consistently remained below those of similarly rated countries.

Improved governance and control of corruption would contribute to preserving Vietnam’s competitiveness as a market-based economy and help sustain foreign investor interest, even in a scenario of shocks to global demand.

Efforts to reduce corruption are also tied to the equitization agenda. Partly in an effort to contain fiscal deficits and rein in a high debt burden, the government has been particularly focused on the equitization of SOEs.

Owing to various factors, including their large size, the process of equitization has been gradual, although the number of wholly government-owned SOEs fell to 506 in 2016 from more than 1,300 in 2011. Strengthening SOEs’ governance practices and transparency and disclosures, and subjecting them to broader public scrutiny, would contribute to faster equitization.

Vietnam’s top prosecution body on January 11 called for a notorious fugitive oil executive to be sentenced to life in prison and a former Politburo member, Ho Chi Minh City Party Chief, and PetroVietnam Chairman to receive 14-15 years in prison for their involvement in a massive corruption scandal at the oil giant.

The Supreme People’s Procuracy has accused Dinh La Thang, former Chairman of the State-owned PetroVietnam, of “deliberately acting against State regulations on economic management, causing serious consequences”, and the runaway Trinh Xuan Thanh of the same charge plus embezzling property.

The PetroVietnam trial opened on January 8 and is expected to last two weeks, taking place at the same time as a separate trial in Ho Chi Minh City where a $400 million fraud case involving the Vietnam Construction Bank (VNCB) and Sacombank is being heard.

VN Economic Times