Monday, June 23, 2014

Japan-Vietnam: lures, rewards and bribes

HO CHI MINH CITY - The recent suspension of Japanese aid to Vietnam will do little to uproot the systemic corruption that has long fueled and plagued bilateral relations. With growing strategic relations aimed at jointly counterbalancing China and burgeoning commercial ties, the suspension is expected to be short-lived and only a minor setback to the broad warming trend.

In March, Japanese media reported that the president of Japan Transportation Consultants (JTC) admitted that his company had paid bribes of 130 million yen (US$1.3 million) to civil servants in Indonesia, Uzbekistan and Vietnam from 2008 to early this year to win work tied to projects funded by Japanese Overseas Development Assistance (ODA).

Officials at state-owned Vietnam Railways allegedly received 80 million yen ($782,000) for a Japan ODA-funded urban highway project worth approximately 4.2 billion yen. After initially gagging local media coverage of Japan's pending announcement, Vietnam later responded firmly by suspending scores of implicated officials and later arresting six people, including Tran Quoc Dong, deputy general director of the railways.

The swift and punitive response, however, failed to prevent Japan from suspending new ODA loans and funding for the highway project on June 2. (Non-refundable ODA and technical assistance for specific ODA projects are not affected by the ban.) Japanese officials said Tokyo would resume aid flows following an investigation and after measures are established to avoid a repeat of the offense. Tokyo suspended hundreds of millions of dollars worth of development loans for four months in 2008 after a similar bribery scandal related to an ODA-backed highway project.

"The amount of money involved in the case of the transportation sector is relatively large and Japan probably felt it must do something. It may also have been done to appease those in Japan who complain," Dennis McCornac, an economics professor at Loyola University Maryland in Baltimore, said. "Japan is also guilty of corrupt activities, but they want to hide this fact and by suspending aid to Vietnam it looks like Vietnam is the guilty party. However, there is blame on both sides."

The suspension of aid flows comes at an inconvenient juncture for both sides. Tokyo has recently ramped up economic and strategic engagement with Hanoi amid rising tensions between China and Vietnam over disputed territories in the South China Sea. Those tensions spiked in recent weeks after China positioned an oil rig in waters Vietnam claims as part of its Exclusive Economic Zone (EEZ).

Japan, itself embroiled in a maritime territorial dispute with China over the Senkaku/Diaoyu Islands, has recently offered to help bolster Vietnam's coastguard, including through training, information sharing and provision of decommissioned patrol ships. It's not clear if the suspension of aid will delay the delivery of ships. Japanese Prime Minister Shinzo Abe said last week that Japan would not be able to immediately provide the ships because its own coastguard was "stretched by surveillance activities", according to a Reuters report.

Some analysts believe the suspension of aid is aimed mostly at assuaging domestic constituencies in Tokyo and will not significantly dampen bilateral relations. The same analysts believe it is unlikely Japan will suspend aid for a significant length of time due to the losses it would cause for Japanese companies involved in ODA-backed contracts and related Japan exports to Vietnam.

"Japan's major international policy tool is economic assistance. This role as a major economic donor brings great international recognition and respect to Japan," said Edward Feasel, an expert at Soka University of America who has studied Japanese assistance to Vietnam. "This is especially important since Japan does not engage [directly] in military affairs where there may be conflict because of its [pacifist] constitution."

"Japan's aid program is not about altruism, and it never has been. It's about enhancing commercial opportunities for their business sector," Zachary Abuza, a Washington-based Asia analyst, said. "The Japanese program is about doing well, not doing good. They support port construction for trade, they often link ODA to contracts to Japanese firms or consultancies, or the purchase of Japanese machinery and equipment … It's not that this is unusual, but no one does it to the degree that the Japanese do."

A foreign expert who declined to be identified endorsed such argument. He recalled participating in a Japan International Cooperation Agency project in 2003 which looked at how to improve foreign investment laws in Vietnam. "Much of this was done to make sure the laws and regulations were helpful to the type of Japanese companies who want to invest in Vietnam," he said.

Two-way street
Japan has consistently ranked as Vietnam's largest source of ODA. From 1993 to 2012, Tokyo provided around $20 billion worth of ODA to Vietnam, according to last year's Japan International Cooperation Agency's annual report. In March, Japan said its aid to Vietnam this year would be equivalent to or more than the 200 billion yen (US$1.94 billion) it administered in 2013. "Vietnam has become a showcase of the positive potential economic effects of Japanese economic aid," Feasel said.

2015 will mark the target date for the United Nation's Millennium Development Goals (MDGs) - a set of targets for education, poverty, health and other areas - and major donor countries have all tried to claim that their economic aid has been instrumental to accomplishing the quantified improvements. In the context of Vietnam achieving the first of its MDGs on poverty reduction well ahead of the 2015 deadline, Japan will strive to show that its aid "has been important in this accomplishment," Feasel said.

During his December visit to Japan, Vietnamese Prime Minister Nguyen Tan Dung said his government always "appreciated" Japanese aid and pledged to use the financial assistance effectively and efficiently. He also urged the Japanese government to ramp up assistance in the coming years to help expand bilateral trade and investment.

Vietnam is still in dire need of modern infrastructure in ports, roads and power generation. Analysts say that even though Japan's foreign aid is often tainted by corruption and conflict of interests, the funds have accelerated Vietnam's development and created substantial employment in both countries.

"However, as anyone who has been involved in ODA projects knows payoffs, skimming money off the top, and gifts have long been a standard practice," McCornac said. "Sometimes it seemed as if the giving country was paying Vietnam to allow them to give Vietnam money for development. It is too ingrained in both [countries].

Since 1993, international donors have pledged an estimated $58.4 billion worth of ODA to Vietnam for projects ranging from infrastructure development, poverty alleviation and environment protection, government figures show. However, a very small portion of those funds are given free of charge, with most coming as preferential loans at below market interest rates. Interest rates and loan fees increase if disbursement is delayed and the use of the loans is ineffective.

Those costs have engendered a debate at the highest levels of the Communist Party. "Vietnam should stop regarding ODA as an achievement in international relations so it can tread more carefully before deciding on asking for more international aid," Nguyen Duc Thanh, a Vietnamese economist who advises the prime minister on economic policies, was quoted by Dat Viet - a Vietnamese-language newspaper - as saying in April. "At the end of the day ODA is a financial burden that Vietnamese younger generations will have to shoulder. It is the bane of their future," Thanh said.

Independent analysts and economists reckon around two-thirds of the international aid Vietnam has received for infrastructure projects has been fertile ground for graft and corruption, including in the bidding process and equipment purchases. A number of studies have also confirmed that the practice of giving and receiving under-the-table money is actually so common in Vietnam that it is not even considered bribery but rather an intrinsic part of the local business culture.

Reflecting those findings, Vietnam made little progress in the latest corruption rankings by the Berlin-based watchdog Transparency International. The 2013 Corruption Perceptions Index, which measures the perceived levels of public sector corruption, saw Vietnam climb up a marginal seven spots to 116th out of 177 countries and territories with a score of 31/100. In Southeast Asia, it ranks seventh behind Singapore, Brunei, Malaysia, the Philippines, Thailand, and Indonesia.

"This is a repetitive problem. Therefore if the government and the [Communist] Party are looking for different results they need to start doing things differently," Jairo Acuna-Alfaro, anti-corruption policy advisor to the United Nations Development Program in Vietnam, said. "This means working more seriously on limiting rent-seeking opportunities and eliminating negative incentive.

"I'm not sure managing corruption by trials and controversial human rights [violating] sentences is a good strategy. It's like killing birds on the tree but not preventing others to come back after the scare."

Brian La, a pseudonym, is a Vietnam-based journalist.


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