This section outlines the types of corruption associated with the huge increase in capital expenditure in the budget, how this helps to explain the distribution of power, and its implications for the economic transition under liberalisation. On-budget expenditure increases were driven by the state undertaking large infrastructure investment projects.
There were a number of cases of grand corruption at the central level which were associated with these large public investment projects. Exposure of senior politicians to allegations of corruption was still very tightly controlled. While there were often rumours linking senior central politicians to local corruption cases that were taken to court, there were very few cases where the links were made formally (Gainsborough 2003). An example of this is the PMU 18 corruption case that was widely followed in the media (McKinley 2009). In 2005 it emerged that the head of a Project Management Unit (PMU) within the Ministry of Transport responsible for road and other large infrastructure projects was being investigated for corruption over the use of aid funds. Investigations led to the downfall of the Minister and arrest of the Deputy Minister for Transport,
reason that this case was allowed to be exposed in the media related to high level political manipulation just prior to the elections for the new VCP Central Committee, for which both politicians were standing at the time (McKinley 2009).
At the provincial and district level, politicians involved in corruption are more regularly exposed (Gainsborough 2003). For example, cases that were followed in the media included a case where the former director of the Ho Chi Minh City Department of Transport was accused of accepting bribes from a Japanese construction consultancy company (Duc 2009). Corruption in construction projects in one province, Thanh Hoa, from 2000 to 2006 involved huge losses to the state and implicated a number of provincial level institutions and individuals (Dang 2008). There was considerable evidence in the public domain of on-going corruption surrounding public investment projects throughout the period of liberalisation (World Bank 2009).
In reality, the local and central levels were often inextricably linked in these deals. Many of the investment projects were undertaken at the request of provincial governments based on regional development plan proposals and then developed by SOEs and provincial governments in partnership (Thanh et al. 2008). The central Government had a critical role in giving consent to the largest of these investment projects, yet in many cases there were political pressures for the investment from below to which the state succumbed. One reason for these political pressures at the central level was the political power that different provinces hold over the central decision making process. For example, an important feature of the state’s infrastructure investment was that the projects were scattered across the country in both rich and poor provinces. This suggests that having the political influence to attract central investment in large infrastructure projects was not simply a function of the economic strength of the province but may have depended on political influence within the party structures. Such decision making is not transparent but the fact that major investment projects have been allocated along grounds which appear not to be efficient suggests that the political influence of provincial governments relates to other factors, such as the influence of the leaders of the provinces within the party. Thanh and Dapice present evidence that ‘a disproportionate number of infrastructure projects … are economically non-viable but approved under political pressure with inflated costs.’ (3; 2008).
The pattern of these redistributive demands relates to the construction of the political settlement, as outlined in Chapter Three. The structures of the VCP were institutionalised in the course of fighting the war. During the war, provincial level party structures gained a high level of independence from the central party institutions.
Patterns of political influence within the party structures were created at this time as some provinces produced leaders who played important roles during the war and held considerable influence within the party. This distribution of power survived under liberalisation. The on-going impact of the war on the distribution of power within the party was reflected in the difficulty that Southern politicians had in entering the top power ranks within the VCP (Malesky 2008). Over the period of liberalisation there was a slow shift away from this as the economic power of different provinces diverged. By the mid 1990s, the Party Chairs of the high growth cities, Hanoi and HCMC, had been promoted into the Politburo (Gainsborough 2003).
Possibly the best known examples of large scale on-budget investment projects with dubious economic rationale have been the construction of a number of oil refinery plants. The first oil refinery was proposed for construction at Dung Quat. Construction of the refinery took much longer than initially planned, mainly because the required foreign financing was not forthcoming (Energy Information Administration 2007). The main reason for this was that there were serious concerns about the location of the proposed refinery as it was more than 600 miles from Vietnam’s main oil field at Bach Ho and far from the population centres at Hanoi and HCMC. Construction finally began in 2005 (Thanh and Dapice 2009).
The political influence of Vietnam’s state owned oil company can partly explain the Party’s commitment to building these oil refineries at huge public cost. The state oil company, PetroVietnam held a monopoly position in all segments of Vietnam’s oil and gas industry. It was also the single largest contributor of taxes to the state, in 2007 it contributed 31% of total state budget revenue and in 2008 it accounted for 18% of Vietnam’s exports (Staff 2009). Yet, the influence of PetroVietnam is not the full story.
Another political dynamic related to the fact that that Dung Quat is situated in a poor province that had been the birth place of Ho Chi Minh. Leaders from this province were given a high status within the VCP given their historic role in the independence struggle.
of the country, which is closer to users but very far from the main oil producing areas, and the third at Vung Ro in Southern Vietnam (Energy Information Administration 2007). Both provinces were relatively poor but could exercise significant political power within the party structures based on the distribution of power that was established under the formative socialist political settlement.
Another factor that facilitated transfers from the centre to poorer provinces through capital projects was the centralised control over oil and aid revenues. The fact that the centre had control over high levels of revenue from these sources meant that the political pressure to take resources from richer provinces to support poorer ones could be minimised, while at the same time meeting the aspirations of the poorer provinces for capital investment. The proposal to construct 100 deep sea ports is an example of the political influence of poorer provinces on central investment decisions. These were proposed by provincial level party institutions working with provincial level SOES. The central Government agreed to these investments despite evidence that building a major port in nearly every province lacked economic rationale. Thanh and Dapice (2009) argue that this decision was a result of political pressure to invest heavily in under developed areas to eliminate the gap between richer and poorer provinces. The impact on Vietnam’s economic transition under liberalisation of investment flows determined by demands for redistribution is discussed in section 4.4 below.
4.3.3 Off-budget Funds and the Relationship between SOEs and VCP