What recent changes at the top mean for Vietnam

Don’t expect major shifts in economic or foreign policy. The key challenge is a nest of structural obstacles at home.

Within the span of the last few weeks, a series of major high-level personnel changes have taken place inside the Vietnamese government. On 5 January, deputy prime ministers Pham Binh Minh and Vu Duc Dam were dismissed and replaced by Tran Hong Ha and Tran Luu Quang. Not a fortnight later, Nguyen Xuan Phuc resigned, becoming the first Vietnamese president to do so. Currently, Vice President Vo Thi Anh Xuan is serving as Acting President until the election of a new person to the job, which is expected to take place this week.

Officially, Phuc, Minh and Dam were held accountable for major corruption scandals that happened under their watch during the Covid-19 pandemic. Nevertheless, the reshuffle has sparked concerns among investors and caused some Vietnam watchers to question the nation’s long-held assertion of political stability, which has been a key factor helping Vietnam attract foreign investment over the years.

However, there are strong grounds to believe that these personnel changes will not disrupt political stability in Vietnam, nor will they cause policy changes that would limit Vietnam’s investment potential. After all, this is not a change of the ruling party but to senior leadership positions in the government. As Vietnam is a one-party state, its key policies are controlled by the ruling Communist Party of Vietnam (CPV) and made collectively by its Politburo and Central Committee. There are no indications that these personnel changes foreshadow any forthcoming shifts in the CPV’s governance policies and exercise of power.

In terms of foreign policy, the departure of Western-trained deputy prime ministers Minh and Dam should not be interpreted as Vietnam moving closer to China. Rather, Vietnam has no choice but to continue its foreign policy of “diversification and multilateralisation”, striving to maintain a delicate balance between China and the United States and its allies. This is not only to help Vietnam avoid being entangled in the intensifying US–China strategic rivalry, but also because both the United States and China, as Vietnam’s largest export and import market respectively, are equally important economic partners that play vital roles in helping the CPV fulfill its primary domestic mission of providing economic growth.

That economic growth remains essential to the CPV’s performance-based legitimacy – a kind of social contract under which the Party’s monopoly of power will not be challenged as long as it can deliver socio-economic development and help improve the people’s livelihood. The party and its officials must therefore continue to promote reforms to drive growth, including expanding exports and attracting more investment.

But investors and Vietnam’s partners will rightly ask whether the personnel changes will deliver visible improvements in the country’s governance, as well as the implementation of socio-economic development projects. In recent years, Vietnam’s intense anti-corruption campaign has made government officials especially cautious, causing delays to many public-funded and private investment projects. Officials have been unwilling to sign off on key decisions, especially where land price determination is involved, which in turn has frustrated investors and constrained Vietnam’s economic growth. The delayed disbursement of large public infrastructure projects is particularly worrying, especially in the context of Vietnam’s ongoing credit crunch and falling export orders. Against this backdrop, the injection of new funds through infrastructure projects is essential to the country’s economic outlook.

There is a hope that the new leaders, with fewer legacy issues and a stronger mandate to deliver on economic performance, can help gradually address this challenge.

But three other factors may stand in the way.

First, with the anti-corruption campaign striving to clean up the political system, the Party leadership may now prioritise personal integrity and political loyalty over professional merits and performance. If this is the case, the incoming leaders may be safe political choices but not the most effective in promoting economic growth. If such a trend takes hold, Vietnam’s long-term economic prospects may be adversely impacted.

Second, structural constraints remain in place. Low salaries for public servants and state employees in Vietnam have a demoralising effect, and can fuel problems including corruption or a brain drain of skills in public institutions. Even the best-intentioned leaders will not be able to fulfill their mission without effective personnel at their disposal.

Third, a lack of transparency, entrenched corruption, and the overlapping and inefficient decision-making mechanisms among government agencies, which are often labelled as “system errors” in the Vietnamese context, also hinder progress. As such, many leaders must battle through the bureaucratic maze to make decisions and accomplish tasks. Some officials are even forced to “break the fence” to get things done, which can result in potential legal repercussions for them and their agencies.

In recent years, the CPV has implemented various measures to address these challenges. These include streamlining the bureaucracy to free up financial resources to increase salaries for public servants, and enacting policies to motivate government officials to take initiatives to spur economic growth while protecting them from any negative consequences of mistakes, provided that they are not involved in corrupt practices. Some institutional reforms have also been introduced to improve decision-making mechanisms. Such measures have had only limited success.

Whether the new leaders can bring about positive changes will depend on the CPV’s ability to resolve the structural problems that are constraining both the Party’s governance and the economy’s performance. Rather than focusing on the personnel changes themselves, investors and Vietnam watchers should be looking at how the country is addressing these structural constraints.

By Le Hong Hiep – The Interpreter – February 27, 2023