Vietnam’s record-breaking bank rot reeks of 1997-98 – Asia Times

Vietnam's record-breaking bank rot reeks of 1997-98 - Asia Times

Vietnam, which is known for having the largest financial heist of all time, is the target, you must hand it to, because it has somehow managed to create a scandal that dwarfs the 1Malaysia Development Berhad ( 1MDB) scandal.

Asia is still aghast a century later because of the 1MDB disaster. The effects of the theft of at least US$ 4.5 billion from a position growth portfolio continue to stifle parliamentary and business relationships in Putrajaya and Kuala Lumpur.

The Saigon Commercial Bank (SCB) scams that cost more than$ 12 billion caused Vietnam to become a world hot button for all the wrong reasons. The largest corruption case in South Eastern history replaces the “mini-china” myth that featured factory jobs and international financial power gushing at Hanoi.

The incident highlights large cracks in Vietnam’s bank system, spurring calls for tighter regulations, stronger evaluation mechanisms and increased conformity. It’s even a significant blow to the reputation of Communist Party chief Nguyen Phu Trong, whose “burning burner” anti-corruption campaign has defined his rule.

Obviously, his anti- transplant efforts have been at best blended. Next time, perhaps Vietnam’s leader was felled by a corruption scandal, along with a long list of various higher- profile officials. The death sentence handed down to tycoon Truong My Lan, the head of Van Thinh Phat Holdings Group, for her role in the siphoning of SCB funds has n’t been resolved, which raises more serious questions about the extent of Vietnam’s decay.

According to S&amp, P Global Ratings scientist Ivan Tan, the celebration has revealed both major breaches in business management at the provider and decisive action by the central bank to keep sector stability.

It’s possible, Tan adds, that the “central bank’s fast actions contained the fallout from SCB. The lender is now under state control. Before it could escalate and undermine depositors ‘ confidence in the banking sector, the authorities immediately curbed a run on the institution.

According to Fitch Ratings, SCB’s stumble “does not present new contagion risks to the banking system.” The banking sector’s ‘ bb ‘ operating environment score has reflected Vietnam’s evolving standards of corporate governance and financial supervision”.

The State Bank of Vietnam ( SVB), the nation’s central bank, deployed tidal waves of support to SCB. ” SBV’s actions demonstrate its high propensity to provide support to systemically significant institutions, even when a bank’s stress results from its own governance failures“, Fitch says.

However, the market calm may be temporary. ” Although not quite in Bernie Madoff’s league, the scandal ranks as one of the biggest in financial history”, says Tom Miller, analyst at Gavekal Dragonomics.

Truong My Lan, chairwoman of Van Thinh Phat Holdings Group, was sentenced to death on April 11 by the Ho Chi Minh City People’s Court. Photo: X Screengrab

The bank official who was sentenced to death is just “one of 86 people prosecuted”, Miller noted. ” The case shone a second spotlight on Hanoi’s anti- corruption campaign, which last month also brought down Vietnam’s president”.

The timing is rather unwelcome, as&nbsp,” Vietnam is one of the big winners of global derisking, perfectly positioned to gain from US- China rivalry”, Miller adds.

As supply chains continue to diversify away from China, Vietnam’s global share of goods exports is growing. It is moving up the value chain, with sales of phones, electronics and machinery having overtaken those of rice, coffee and T- shirts. Now, the US is wooing it with the promise of investment in semiconductors.

Foreign direct investment is rising, fueled by greenfield investments from China and Hong Kong. ” Behind the FDI statistics, however, the picture is less bright” ,&nbsp, Miller says. ” The anti-corruption crackdown threatens to prevent Vietnam from reaching its economic potential,” the phrase reads.

GDP growth “limped” to 5 % last year, below the 7 % average of the past three decades, Miller notes.

Prime Minister Pham Minh Chinh says “dramatic action” is required to hit this year’s target of 6.5 %, with growth in the first quarter coming in at 5.7 % and slowing down from 6.7 % in the fourth quarter of 2023.

The bigger concern, Miller adds, is that political infighting causes delays in capital projects for several more years as growth deviates. Although Vietnam’s structural outlook is positive, its leaders are not currently implementing the steps required to meet their long-term goals and avoid the dreaded middle-income trap.

The question now, of course, is how Vietnamese officials implement badly needed reforms going forward.

” In the long run, if they can clean up the market, removing toxic and illegal business practices, that will be good for the economy as a whole and something that investors should welcome”, says Le Hong Hiep, a senior fellow at the ISEAS- Yusof Ishak Institute.

That’s a big “if”, though. &nbsp, Vietnam’s smokestack economy, communist politics, dense population, low labor and land costs, near- 7 % annual growth rates over the last 10 years and physical proximity explain the “mini- China” label.

As a result of US tariffs on China and company sanctions, Vietnam’s largest economy was forced out of the country by the dynamic.

Vietnam, however, also has some complex baggage. There is little doubt that Vietnam will eventually have a middle- to upper-income status. Investors are completely aware of how Hanoi will move there because it heavily relies on large, state-owned companies and emulates China’s export-led model.

In its haste to move upmarket, though, Vietnam is still too prone to “pendulum economics”. Investors ‘ opinions on the country’s prospects range from irrationally optimistic to wildly depressing.

The$ 408 billion economy crashes every five years as a result as foreign capital moves even more quickly than it did. Reducing these swings ‘ frequency must be a key area of focus for policy changes heading into 2025.

One reason for this is that exchange rates seem to be a bad thing. The SBV’s obsessive management of the dong often earns Hanoi a place on the US Treasury Department’s” currency manipulator” watchlist. Its trade-dependent economy also finds itself on the frontlines of a burgeoning US dollar, which has left traders buzzing about the ’97-like vibes in the Asian air.

Look no further than Asian central banks, which are easing cycles without warning because they fear their currencies will fall. The longer the US Federal Reserve avoids easing aggressively, as investors expected, the more Asian policymakers will have to recalibrate monetary strategies.

Asian central banks will be cautious in adding to currency depreciation pressures, according to economist Priyanka Kishore of consultancy Asia Decoded,” with higher US interest rates likely translating into a stronger US dollar for longer also.” They will continue paying more attention to the Fed as they begin their easing cycle, even though they will still lean on to market measures to manage foreign exchange weakness.

Vietnam also runs the risk of getting caught in the middle of trade tensions between the US and China.

” In Vietnam’s case, 13 % of all imports are electronics from China, including robots, consumer electronics, home appliances, electronic components and telecommunications equipment”, says Dave Chia, economist at Moody’s Analytics.

” Decoupling risks loom large for these sectors, as illustrated by bans in some of the region’s countries, as well as further afield, on telecommunications equipment made by China’s Huawei Technologies Co out of national security concerns”, Chia says

The government of Chinh’s government needs to revive the process of economic reform. Since 1986, when Hanoi instituted its” Doi Moi” market reform process that skeptically rejected a Marxist command economy, the US-China trade war has had a significant impact on Vietnam’s growing global presence.

Vietnam’s status as one of the world’s poorest countries was changed due to the market reorientation, which made it a lower-mid-income country today. The momentum it generated, according to the World Bank, increased per capita income sixfold in less than 40 years, from less than$ 600 in 1986 to roughly$ 3, 700 now. The poverty rate plunged to 4.2 % at the end of 2022 from 14 % in 2010.

As Andy Ho, chief investment officer of VinaCapital Group, points out, Vietnam’s “rapidly” developing economy means “most of the population is benefitting”.

Andrew Amoils, analyst at advisory New World Wealth, tells CNBC that Vietnam could see a 125 % increase in wealth over the next 10 years. That would represent the largest increase in millionaires and GDP per capita in any other comparable nation.

However, such advancement wo n’t be possible without Hanoi’s periodic swings in the economy. And if Communist Party officials make efforts to improve rather than just grow more quickly. That includes reducing bureaucracy, boosting innovation and productivity, strengthening human resources, and combating the type of institutionalized corruption that the SCB mess exemplifies.

A wider crackdown on corruption might lead to even more uncertainty. Long-term, the anti-corruption campaign to combat illegal behavior should increase economic efficiency and strengthen Vietnam’s reputation as a hub for foreign investment and manufacturing.

An employee piles sheafs of Vietnamese bank notes at a money exchange shop in Hanoi, 13 November 2006. The drive for free trade emerged 19 November as the early focus of the annual Asia-Pacific forum as senior officials opened a week of talks in Vietnam ahead of a summit of leaders from 21 key economies. AFP PHOTO/LIU Jin / AFP PHOTO / LIU JIN
Vietnam’s pendulum economics attract and repel foreign investors. Image: Asia Times Files / AFP / Liu Jin

” However”, says S&amp, P’s Tan,” these efforts may also generate pain points. As the bureaucratic process adapts to the new standards of enhanced scrutiny and accountability, the initiative may slow administration and approval procedures.

Gavekal’s Miller adds that” the campaign has had an unfortunate side effect, throwing sand into the machinery of government. Public procurement has been stalled because officials are too anxious to make decisions out of fear of inciting scandal and imposing penalties.

Before 2017, Miller points out that Vietnam had done a respectable job of building its infrastructure, but the construction has slowed in recent years. ” As in so many emerging economies”, he says,” Vietnam has discovered that a little corruption had helped to grease the wheels of commerce”.

Yet at least one thing is clear: no matter how quickly the economy appears to be moving, the fact that Vietnam just produced a scandal that tops 1MDB by many multiples suggests that all is not well under the hood.

Follow William Pesek on X at @WilliamPesek