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What’s really happening in Vietnam?

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JET DELA CRUZ-UNSPLASH

Last week, Vietnam’s national assembly elected a new president, To Lam, who is the former minister for public security, and a national assembly chairperson, Tran Thanh Man. The week before, it announced four new members for the politburo, the highest decision-making body within the Communist Party of Vietnam (CPV), which has run the country since reunification in the 1970s.

The appointments were necessary because Vietnam’s leadership ranks have been decimated in recent years by the anti-corruption “blazing furnace” campaign initiated in the mid-2010s by CPV general secretary Nguyen Phu Trong. Senior officials that have been removed include Deputy Prime Ministers Pham Binh Minh and Vu Duc Dam in 2022; President Nguyen Xuan Phuc in 2023; and Tranh Tuan Anh, President Vo Van Thuong, and National Assembly Chair Vuong Dinh Hue in 2024. Before the announcement of the four new politburo members, its number had gone down to 12 from 18.

The anti-corruption campaign has its roots in the country’s economic crisis in the late 2000s to early 2010s. After the 2007-2008 global recession brought about the financial crisis in the US, Vietnam’s government implemented a stimulus program worth about 6.8% of GDP, which was larger than most emerging market countries except for China. Much of the money eventually found its way to the large state-owned enterprises (SOEs) as low-cost loans, which the SOE’s then spent like the proverbial drunken sailors — investing in unrelated businesses ranging from banks to taxi companies to real estate that they had no capacity to effectively manage. Eventually, many of these investments proved to be value-destroying.

The worst case was the Vietnam Shipbuilding Industry Group (Vinashin), which was supposed to be the state champion of shipbuilding, as its name implies, with the goal of becoming one of the world’s top companies in the industry, in the vein of the Samsung, Hyundai, and Daewoo shipbuilding giants.

However, mismanagement and overexpansion, fueled to a good part by the stimulus program and either corrupt or negligent Vinashin officials, resulted in debt growing to unserviceable levels. In December 2010, the shipbuilder defaulted on its interest payments, triggering fears of possibly much bigger problems in the state sector and of the risk of bad SOE debts cascading throughout the banking system and triggering a systemic financial crisis. Rating agencies downgraded the country because of Vinashin’s problems, and a multi-year effort to clean up the SOEs followed. Eventually, new rules were issued to limit how much SOEs could invest outside of their core businesses.

The CPV laid much of the blame for SOE problems, as well as the country’s other economic ills such as inflation during that time, on the leadership of then prime minister Nguyen Tan Dung. The narrative was that corruption within his government and the too-close-for-comfort relationship between politicians and policymakers on the one hand and the SOEs and other rising business groups on the other hand led to the serious mismanagement of the economy. Conservatives within the party won the argument that the economic crises that could be precipitated by this type of malfeasance could increase social discontent and eventually threaten the legitimacy of single-party rule. This led the rise of Trong and his conservative allies in 2011 and the evisceration of Dung’s political networks. It is this overarching belief that corrupt ties between politicians and businesses could undermine not only Vietnam’s economic future, but the future of the communist party itself that formed the narrative for “blazing furnace.”

But the anti-corruption campaign also has a more immediate political context. CPV general secretary Trong, who is the highest-ranking official of party (and effectively the country), is expected to step down in 2026, after leading it for 15 years. Competition over who is to succeed any CPV general secretary is intense, with much of the political maneuvering taking place behind the scenes and away from public eyes. There is therefore a sense that the intensified implementation of “blazing furnace” over the past few years is part of the elimination process among the different factions and individuals that are competing to succeed Trong. Numerous high-ranking officials both within the government and the Politburo who are contenders for leadership positions or lead competing factions have thus fallen because of corruption-related vulnerabilities in their dossiers, either directly, among their family members or close inner circles, or when they oversaw provinces as party secretaries.

For foreign investors, many of whom have been enamored by the promise of Vietnam as the main alternative to China for manufacturing, the political churn at the top can be unsettling. For one, the campaign has had measurable effects on the economy, with bureaucrats slower to act because they fear that any corruption in the projects that they approve, implement, or oversee could face increased scrutiny and, eventually, result criminal prosecution under the anti-corruption initiative. And this generates concerns that key infrastructure projects could be derailed, particularly in power and logistics.

Also, the seeming elevation of officials with strong ties to the police and internal CPV security groups could compromise governance, with the communist party focused more on directly protecting itself against social discontent or political enemies rather than on sustaining long-term economic growth. Corruption is an endemic problem in Vietnam and across all levels of the government and solving it will take much more time.

Of course, these fears can fade after a couple of years, once the leadership transition concludes in early 2026. Export-oriented growth remains the key pillar of Vietnam’s long-term economic ambitions. But how well it can balance its immediate political priorities and its longer-term goals will depend on the composition of the next set of leaders.

The frontrunners for now to become CPV general secretary are Prime Minister Pham Minh Chinh, who has been in office since 2021, and the new president, To Lam. But neither has a lock on the position and other candidates are possible since there are still 18 months to go until January 2026. Political maneuvering to the last minute is not uncommon. Thus, the recent changes may only be the end of the beginning for the leadership transition. In the meantime, investors would do well to expect sometimes indecipherable political moves, endless conspiracy theories, cautious bureaucrats and, inevitably, some handwringing on how Vietnam may be wasting some precious years — which is par for the course for any emerging market entering an election cycle.

Bob Herrera-Lim is a managing director at Teneo, a New York-based consulting firm that advises companies and investors globally. He covers all of Southeast Asia for the firm’s clients. He is also a fellow of the Foundation for Economic Freedom.

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