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Viet Prime Minister Under Threat

Written by David Brown

Thursday, 13 September 2012

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Dung in trouble?

Intra-party rivals may pull him down

Prime Minster Nguyen Tan Dung's grip on Vietnam's government is weakening. The Vietnamese premier is under attack by intra-party rivals who don't like his rich friends and fault his management of the economy. If Dung goes down, important changes in Vietnam's management of economic and social issues are likely to follow.

As a rule, Vietnam's Communist Party doesn't wash its dirty linen in public. Its spokesmen work hard to maintain the party's aura of competence and infallibility. Party members don't gossip with outsiders about party matters. Decisions made by the party's Politburo or its Central Committee are portrayed as unanimous.

Article 4 of Vietnam's constitution is very clear about the Communist Party's monopoly of political power: the CPV "is the force assuming leadership of the State and society." About one Vietnamese in 30 -- some 3 million altogether -- are members. There are party committees in every village and every city neighborhood.

The CPV renews its leadership at party congresses that cap months of alliance-mending and horse-trading. Typically this is not a winner-take-all event, but rather one that aims at updating the internal balance among factions and interests while retiring aging leaders bloodlessly.

In the run-up to the 11th Congress held early last year, according to diplomats and a number of Western academics, senior party official Truong Tan Sang mounted a vigorous bid to supplant Dung as prime minister. He failed and the congress granted Dung a second five-year term. Sang's consolation prize was the largely ceremonial post of president. National Assembly chairman Nguyen Phu Trong was named CPV general secretary.

Now there are signs that Sang and Trong are maneuvering to break Dung's grip on the levers of policy and patronage. The two can point to a lengthening list of mishaps and failures. They can channel public exasperation with bouts of inflation and the excesses of the nation's nouveau riche.

Many years have passed since the CPV led victorious wars, first against France, Vietnam's colonial master, and then against a rival southern regime heavily backed by the United States. For a new generation, the party's claim to lead rests heavily on its ability to deliver social stability and economic growth. It succeeded brilliantly after its 1986 decision to implement "market socialism" -- policies which under the general term doi moi or "renovation" gave birth to a thriving private sector and Vietnam's emergence as one of the world's workshops.

National income grew at an annual rate of seven percent for two decades, quintupling per capita incomes and planting the notion that any smart and adaptable young person could prosper.

In recent years, however, growing pains have become evident. In his National Day message on September 2, President Sang frankly acknowledged some of them:

“Our economic development is unsustainable and the balance of our macro economy unstable, while the quality of the growth rate, productivity, efficiency and economic competitiveness remains low,” he said. “Coupled by these weaknesses is the limitation in mobilization and effective use of available resources for development. Our economic growth tends to develop widely, though not deeply.”

Regarding culture and society, he continued, “there remain many challenges, some of which have become hot topics. The environment is polluted…Limitations in the quality of human resources and infrastructure hinder our development. There remain many hidden factors that can potentially cause political and social instability and threaten our national sovereignty.”

Most foreign financial analysts would endorse Sang's critique. At least since Fitch Ratings slashed Vietnam's credit rating in July 2010, citing "deterioration in the nation’s finances and a banking system increasingly vulnerable to systemic stress," analysts have tended to be bearish on their one-time favorite.

Dung's critics, domestic and foreign, single out his failure to bring the managers of state-owned enterprises to heel. The prime minister was much taken by the notion that Vietnam could become world-competitive in sectors such as coal and minerals, oil and gas, shipping and shipbuilding. Large loans by state-controlled banks were channeled to state companies in these sectors, which, though reorganized as conglomerate monopolies, preserved a corporate culture and bloated payroll reminiscent of Soviet heavy industry.

These companies expanded rapidly and then, overextended, were hammered by the 2007-09 global financial crisis. The shipbuilding corporation Vinashin required rescue in July 2010. Two years later the giant state shipping company and port operator, Vinalines, was failing under a similar mountain of debt.

These two conglomerates are just the standouts. Most state-owned firms are deeply indebted to the nation's banks, both state-owned and private, which with government encouragement flooded them with funds, particularly in 2009. Hanoi sought to avoid a recession by expanding credit. It got instead a vicious bout of inflation that is only now being brought under control. Meanwhile, bad debts on banking sector books are unofficially estimated now to be ten percent or more of total loans.

Nor were the banks victims. They were collaborators, as is becoming particularly clear in the wake of the August 18 arrest of Nguyen Duc Kien, a banking and finance tycoon known as a confidant of the prime minister. Though formal charges are still pending, Kien is said to have engaged in "illegal trades."

The general feeling in the financial sector is that Kien is hardly unique; in fact, the sort of very highly leveraged deals that he favored are said to be common in Vietnam's interlocked, thinly capitalized and remarkably opaque financial markets. "Misconduct is …a generalized characteristic of [Vietnam's] financial institutions large and small," said Jonathan Pincus. Pincus in particular should know -- he and his colleagues at the Harvard Kennedy School Vietnam Program have been advisors to Dung's government for years. Their advice has been listened to politely and then largely ignored.

Another strand in the web that seems to be tightening around the prime minister is the Politburo's decision, announced in June, to transfer institutional responsibility for combating corruption from the government to the party itself. This lines up nicely with a party internal criticism and self-criticism campaign that was launched in February to identify and weed out members exhibiting "degraded political ideology, ethics and lifestyles."

A last bit of circumstantial evidence is provided by the remarkable rise of an online blog that calls itself Quanlambao and says its mission is to "wipe out corrupt cliques that monopolize the nation's economic and political life." The blog's authors are unknown, its tone is stridently populist, and its stock in trade is blistering Prime Minister Dung and his close associates -- in particular retired police general Nguyen Van Huong, identified by the blog as Dung's chief agent for dirty tricks.

The Quanlambao blog first appeared in early June. By mid-July, it was reporting 10,000 "new visitors" daily. It was the first to break news of the banker Nguyen Duc Kien's arrest, twelve hours before the National Police made their own announcement. In the next 10 days, daily hits on Quanlambao reached just short of a million, an unheard of level in Vietnam's blogosphere.

Inevitably, the appearance of this remarkable blog and the apparent failure of the agency charged with such things to take "counter-measures" has prompted speculation that the people behind it are intraparty enemies of Dung or Chinese intelligence services, or perhaps both.

What might follow if these diverse phenomena do in fact foreshadow an attempt to remove Nguyen Tan Dung as Prime Minister?

To oust Dung, his critics would have to muster a majority of the 14 member Politburo which in turn would have to be confirmed by a vote of the party's Central Committee, a 175 member, broadly representative group. That would be a seismic event -- turnovers of power normally come in the course of party congresses held every fifth year. Nor is it at all sure that Dung's critics could prevail in a showdown. Many of the party elite owe their positions to the patronage of the prime minister and his allies.

In this scenario, Dung's opposition would portray themselves as reformers determined to rein in corruption and influence-peddling. Their common conviction would seem to be that "instability" will follow if the party and government cannot restore ordinary citizen's belief in the essential decency of the regime, in its ability to manage economic challenges and to distribute the fruits of growth fairly.

Instability is their bete noire -- it means to CPV leaders political protest that is organized outside of regime control and turns against the party. Though the Vietnamese have watched developments in Burma with interest bordering on amazement, Dung's ouster would not presage a loosening of political controls. The opposite is more likely -- both Sang and Trong are regarded as conservatives, leaders who see the notion of political "opening" as a Western-sponsored plot to overthrow the leadership of the Communist Party.

(David Brown is a retired US diplomat with wide experience in Southeast Asia, particularly Vietnam.)

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dir of asia research
written by sam baker, September 06, 2012

Hi David, excellent article. i've heard rumors that Vietnam may be forced to go to IMF for bailout package given weakness of domestic banking sector. what do you think is likelihood of Vietnam going to the IMF and then of negotiating an IMF bailout package. Would the political infighting you describe make it harder for Vietnam to make a deal with the IMF?

Vietnam's constitutional political crisis
written by Prof Adam Fforde, September 07, 2012

David Brown's admirable piece throws considerable light on the politics of the moment and the conflicts between senior politicians. What he does not argue is that this shows that Vietnam is displaying all the attributes of a 'Land without a King'. In political communities where there is clear domestic sovereignty, the disputes would not be played out as they are. Rather, and we know this from the Constitution of the Socialist Republic, led by the Party General-Secretary such insubordination by the senior state official - the Premier - would not have been tolerated and would not have happened. The Vietnamese Communist Party has traditionally been one where decisions have been taken 'by the book'. That this is not happening shows that the country is facing a major political crisis, which can only be resolved by some mechanism that confers adequate political authority, and so people no longer feel that their's is a 'Land without a King'.

Titles "prime minister" are empty positions
written by PeterK, September 07, 2012

Titles like "state president", "national assembly chairman" and "prime minister" are empty positions in Vietnam. As for who is really in charge, the only hit that outsiders get is Politburo lineup. Truong Tan Sang is No. 1, Defense Minister Phung Quang Thanh is No. 2, Prime Minister Nguyen Tan Dung in No. 3, and National Assembly Chairman Nguyen Sinh Hung is No. 4. Trong is party chairman, not National Assembly chairman, as the article claims. He is only No. 8 on the Politburo, so it is unlike that he is player.

Old News
written by Steve Jacob, September 07, 2012

While I agree that Dung has made many mistakes, I have to question whether there is reason to think he will be deposed anytime soon. He was reconfirmed as the Prime Minister only last year, and most of the ills that are cited in this article were already made public at that time. Despite that fact, Dung was reconfirmed and his economic policies given, in effect, a stamp of approval. In the last year, whether due to any policies of Dung's or otherwise, the inflationary crises has essentially abated. The issues with the SOEs like Vinashin and Vinalines were already public and, while they will create a drag on the economy, policies have been put in place to prevent similar problems from reoccurring. The bad debts weighing down the banking sector are not new either. They've been a growing problem for years. No, I don't think Dung is in trouble anytime soon. The Politburo reconfirmed him knowing all of this. They're behind their man and Dung is probably secure until the next Party Congress.

Old News 2
written by Minh Nguyen, September 07, 2012

If nothing else, David Brown is predictable. The reference to "political protest that is organized outside of regime control and turns against the party" is wishful thinking. While there's certainly lots to criticize about Vietnam, I don't think David's ever written anything critical about the country he served for so many years as a foreign service officer and that has been the cause of so much suffering in Vietnam and elsewhere, including, most recently, Iraq and Afghanistan. Even though he's retired, he still toes the (US government) party line. (Just read the Wikileaks cables that originated in Vietnam.) If you're reading this, David, please correct me, if I'm wrong.

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Why now?
written by Thomas Jandl, September 07, 2012

What the article doesn't tell me is why the PM would be replaced NOW. The Party hates instability and it could have removed Mr. Dung at the Congress. What NEW events have occurred, what new information has come to the fore to alter the situation dramatically enough to overturn the Party Congress's decision, with all the public display of disunity that would come with such an action?

Old News 2 by Minh Nguyen
written by Liem Nguyen, September 11, 2012

Minh Nguyen comments (above),.."about the country he served for so many years as a FSO and that has been the cause of so much suffering in Vietnam..." I wonder whether the cause of the suffering in Vietnam and elsewhere has been the US or David Brown's services to the US? Not very clear, huh!

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Response to Liem Nguyen
written by Minh Nguyen, September 11, 2012

I think it's pretty clear if you have a good command of English: "that" refers to "the country he served for so many years as a foreign service officer." It's the US that has caused so much damage around the world, including in Vietnam, not David Brown. Mr. Brown was just a cog in the machine.

Comment on Comments
written by nworbd, September 11, 2012

All - Thanks for your comments, and apologies for not replying until now. @sam baker: Vietnam's external payments seem at last to have come into rough balance, which improves the State Bank's chances of managing a workout of bad debts without recourse to the IMF. @adam fforde: Dung arguably has become the most powerful head of government in the SRV's history, with corresponding diminuation of party muscle. And, as you suggest, there's evidently an effort afoot to restore government subordination to party on important policy issues. @PeterK: I identified Trong correctly as general secretary of the CPV. @Steve Jacob (& Thomas Jandl): I agree that it's unlikely that the Politburo and Central Committee will go so far as to dump PM Dung, though there's noticeably rising concern about 'social instability.' I disagree that the fundamental issues posed by the SOEs and the debt burden on the banking sector are yet on their way to solution (nor am I optimistic that they can be solved by rebalancing the troika). @Minh Nguyen & Liem Nguyen: Yes, I see things from an American perspective -- I've never attempted to hide my roots . The current political debate in the US, ironically, is also marked by concern about the excessive political influence of rich people and arguments over the incumbent's management of the economy. FYI, I ceased to be a 'cog' in the US State Department machinery 16 years ago, and since then have done a lot of things I like better. I doubt the current set of cogs would consider me their uncritical lackey.

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Reinstitution of basic Human rights
written by Thanh Pham, September 13, 2012

Reinstitution of basic Human rights,including the morality of the Vietnammese people by ending the extortion of the "economic people for working out countries" who left in Vietnam man and woman .Allow them to return from countries all over the world and live as they did previously with no interventions from the government.and Conversion of the present communist government into a Republic ruled by the people of Vietnam.Constitute a political power as that of democracy to give the people the right to govern the country impartially by casting votes.Thank you for Mr Dung may I hopp see issue concerning the release of all.