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Aug 22, 2012 | 12:00 GMT

4 mins read

Vietnam: An Arrest With Financial, Political Effects

Vietnam: An Arrest With Financial, Political Effects
HOANG DINH NAM/AFP/GettyImages
Summary

Vietnam's General Police Department for Crime Prevention confirmed Aug. 21 that Nguyen Duc Kien, one of the country's most powerful tycoons and founder of Asia Commercial Bank, was arrested a day earlier. Another senior leader of the bank reportedly was also arrested, though the news report carried by Nguoi Lao Dong was removed shortly after it appeared.  

According to media reports, Kien is accused of "wrong doings in economic activities," though specific reasons have not been disclosed. Rumors had been circulating that he had manipulated his personal relationships to obtain funds from the banking system — even the State Bank of Vietnam — in order to acquire numerous other banks and powerful companies. Besides founding Vietnam's largest private bank and serving as deputy chairman of the Vietnam Professional Football Joint Stock Co., Kien had been a major shareholder in banks including Kien Long Commercial Bank, Dai A Commercial Bank, VietBank and Eximbank and held large shares of a number of enterprises.

Kien's arrest caused a sharp drop in Vietnam's stock markets, with the main VN index falling by 5 percent the same day. The move could also shake foreign investors' confidence in Vietnam's financial management, which had already seen significant setbacks in the past two years because of massive fallout from state-owned enterprises, growing capital outflows and moves to regulate currency devaluation.

Though the arrest caused a shake-up in the country's financial market (at least temporarily), the bigger concern is the potential for political instability it signifies. Given how closely intertwined business and political connections are in Vietnam, and how tensions are growing among political elites in the Communist Party of Vietnam about navigating the economy's downward spiral and the country's political instability, Kien's arrest could signify increasing discord among political elites and factions.

Locator Map - Vietnam

Since Kien is a member of a new generation of tycoons, his accumulation of wealth perhaps is no different from other political capitalists under Communist regimes who rely heavily on personal networks and political-business connections. Such personal networks may have helped Kien exploit the opportunity from Vietnam's economic liberation in the past decades to accumulate wealth and further solidify his business. The arrest of such a powerful figure with apparent political backing could be an illustration of the current political dynamic in the country.

Stratfor has heard that Kien has close connections to Nguyen Tan Dung, current Vietnamese prime minister and former governor of the State Bank of Vietnam, and to his daughter, a Swiss-trained private banker. Perhaps not coincidentally, Kien's arrest came among increasingly vocal criticism of Dung from the Communist Party leadership and a plan to readjust the power of the Politburo to curb the prime minister's authority and to empower the president. 

In Vietnam, the prime minister oversees daily business and economic policies. Particularly in the past seven years, with Dung as prime minister, the position's power has expanded significantly. The prime minister can now intervene in all economic decisions, in the security force and in senior government personnel appointments. The prime minister can also foster strong connections between state-owned enterprises and the banking sector.

This expansion of power under Dung has drawn significant criticism, particularly concerning Dung's failure to manage Vietnam's economic troubles — from surging inflation to capital outflow and massive corruption in state-owned enterprises. After the prominent financial scandal involving state-owned shipbuilder Vinashin in 2010 and a series of incidents that created public debates, Dung has faced increasing pressure about his economic plans, and some in Vietnam's National Congress in early 2011 even called to oust him as prime minister. Although he has survived, criticism has not abated. Moreover, anti-China factions among the divided Communist Party of Vietnam elites have exploited Dung's strong pro-China stance, particularly in light of the greater tensions in the South China Sea in the past two years.

As a result of this increasing discord, some political circles want to curb the prime minister's power and increase the president's power. The president is perceived as more neutral among the party's factions, which are mostly divided over China and economic plans.

The party also indicated plans to revamp the state sectors and resolve Vietnam's crippling credit rating downgrades and volatile currency, among other issues. During this process, some state capitalists and tycoons have been targeted in part because their accumulations of wealth are perceived to have occurred at the expense of the country's economic stability. In fact, Kien's arrest follows the ouster of businesswoman Dang Thi Hoang Yen from the country's National Assembly in May.

It may be too early to say that Kien's arrest could lead to further significant political crackdowns or an abrupt turn of economic direction, but the arrest itself could be an outward reflection of the party's internal tensions. With the party largely divided over economic expropriation, state consolidation, nationalism and pro-China policies, the chance for political change is high as Vietnam navigates economic instability and complex foreign relations, which could create a more volatile situation in Vietnam in the coming days or months.

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