Cablegate: Ousting Corrupt Leader Is a Start, but Can Tho Needs

VZCZCXRO8318
OO RUEHDT RUEHPB
DE RUEHHM #0248/01 0671139
ZNR UUUUU ZZH
O P 071139Z MAR 08
FM AMCONSUL HO CHI MINH CITY
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3845
INFO RUEHHI/AMEMBASSY HANOI PRIORITY 2561
RUCPDOC/USDOC WASHDC PRIORITY 0068
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCNARF/ASEAN REGIONAL FORUM COLLECTIVE
RUEHHM/AMCONSUL HO CHI MINH CITY 4067

UNCLAS SECTION 01 OF 02 HO CHI MINH CITY 000248

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, USAID/ANE DONAVAN, EEB/TPP/BTA/ANA
STATE PASS USTR FOR BISBEE
USDOL FOR DUS PONTICELLI, ZHAO
USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO
TREASURY FOR CHUN

E.O. 12958: N/A
TAGS: ECON EFIN EIND PGOV PINR VN
SUBJECT: OUSTING CORRUPT LEADER IS A START, BUT CAN THO NEEDS
TRANSPARENCY AND COMPETITION

HO CHI MIN 00000248 001.2 OF 002

1. (SBU) Following allegations of land-deal corruption, the
Communist Party Central Committee reprimanded and fired Can Tho
People's Committee Chairman Vo Thanh Tong on March 3. This is
good news for the "capital of the Mekong" and an encouraging,
though not unprecedented, development. Can Tho's private sector
maintains they are frozen out of the economy, with SOE bias and
poor transparency creating an environment where bureaucratic
ineptitude and corruption are endemic. As a result, most of the
city's 16.5 percent growth (double the national average) last
year came through official development assistance or State-owned
enterprises (SOEs) developing massive infrastructure projects.
Tong's successor, Mr. Tran Thanh Man, is a well-connected Can
Tho politician who made his name battling "social evils" but
will have his hands full trying to open up Can Tho's economy.
End Summary.

Lax Management and Land Scandal Bring Down Municipal Leader
--------------------------------------------- --------------
2. (SBU) On March 3, the People's Council of Can Tho
Municipality announced that Can Tho People's Committee Chairman
Vo Thanh Tong and Vice Chairman Pham Phuoc Nhu had been removed
from their positions for administrative improprieties. Media
reports focused on two charges: Tong's approving "excessive"
performance bonuses for some city departments and his role in
improperly licensing land developments in Can Tho City.

3. (SBU) Central Committee Party Inspectors found that Tong
ignored investment licensing regulations when he signed a
decision for South Korea's Chong Ho VN Company to buy "golden
land" in downtown Can Tho for a bowling center. The land
quickly changed hands with the Korean firm netting a tidy profit
that Party Officials felt the city should have been able to
capture directly. This bad decision looked worse when Vice
Chairman Nhu produced a letter from Tong directing the vice
chairman to award the Chong Ho the license, circumventing normal
city licensing procedures. The Party Central Committee's
Inspection Committee officially "reprimanded" Tong and Nhu on
December 28, 2007 for "having loosely managed and monitored land
deals". (Note: In the Party ranks, the lightest form of
penalty is reprimand, then comes 'warning', 'removal' from Party
position and 'expel' from Party. End note.)

4. (SBU) Corruption associated with land deals grabs headlines,
but Tong also made administrative decisions that are best
inappropriate and possibly even corrupt. In the Vietnamese
system, if city department exceed their pre-set revenue targets,
the People's Council can authorize performance bonuses. Tong
and Nhu approved performance bonuses some 5.3 billion VND (U.S.
$330,000) in excess of the legal limits. (Comment: This is a
far from modest sum by Vietnamese standards, given it is roughly
400 times the per capita income in Vietnam. End comment.) In
January, the Inspection Committee of the Party Central Committee
issued a "warning" to Tong and Nhu for "serious violations in
management" in approving these excessive and illegal bonuses.
Shortly after the lunar New Year holiday, the two officials were
removed from office.

Lack of Competition and Transparency Breed Corruption
--------------------------------------------- --------
5. (SBU) By censuring and removing Tong and Nhan, the Communist
Party may be responding to the symptoms without treating the
disease affecting Can Tho -- an overwhelming bias in favor of
State Owned Enterprises (SOE's) over private firms. Can Tho's
economy grew at a blistering 16.3 per cent in 2007, nearly twice
the national average, but the economy is tough for the private
business community. (Comment: Infrastructure spending drove
the growth statistics. The Can Tho bridge alone will cost $340
million, and recent GVN reports describe a new Mekong Delta
infrastructure fund of over $300 million. End comment.)
According to the private Vietnamese firms who make up the Can
Tho Business Association, however, the infrastructure boom has
not benefited private firms at all. Not only do master
contracts go to SOE's, even smaller sub-contracts flow
exclusively to SOE's. Business leaders complain that an opaque
and corrupt bidding process for public works and an
entrepreneur-averse government bureaucracy disadvantage the
private sector. Private companies also find it difficult to
meet the minimum capital requirements to bid on major
infrastructure projects. Even for private projects, financing
is difficult to come by because banks that lend freely to SOEs
turn away collateral-poor entrepreneurs.

HO CHI MIN 00000248 002.2 OF 002

6. (SBU) On paper, at least, Can Tho is a business-friendly
city. Private business leaders state, however, that while
higher-level provincial officials "talk the talk" of a one-stop
shop for licensing projects and registering businesses, line
bureaucrats that issue permits and assign contracts are
"uneducated" and often require informal payments.

Foreign Investors Wary
----------------------
7. (SBU) Foreign investors also tell us Can Tho's investment
environment keeps many away despite the city's growth rate.
Inside the eerily empty building housing Can Tho's Department of
Planning and Investment (DPI), officials told Econoff that while
donors pledged $67 million in ODA last year, private foreign
investors committed only $13 million. DPI attributed the
admittedly low amount of FDI to the higher construction costs
required by the sandy local soil and an incompetent city
bureaucracy. Recent efforts by city officials to improve the
quality of their workforce, including hefty signing bonuses and
free housing for successful job applicants with Masters' or PhD
degrees, have yet to yield fruit. Queried about a possible link
between recently-exposed high-level corruption and the paucity
of FDI, officials maintained that such malfeasance was not a
factor, noting that the leaders in question frequently traveled
abroad to drum up foreign investment.

Comment
-------
8. (SBU) By sacking the chairman of one of Vietnam's largest
cities, the Party is making a very public statement about the
battle against corruption. Unfortunately, the sacking was not
accompanied by changes in underlying rules and processes that
produce an environment that is highly conducive to corruption.
The ability of senior party and government officials to arrange
the sale or transfer of land to themselves, their families and
their political supporters ranks among the most pervasive and
ingrained forms of public corruption in Vietnam. In Can Tho, as
in most of Vietnam, land use and planning decisions are still
largely left up to individuals rather than regulated in a
systematic, transparent manner. In firing Tong, the Party also
officially only cited his "mismanagement" and "improper
licensing" rather than outright corruption. Unfortunately,
omission of corruption charges not only reflects a deference to
a senior party official but also a widespread feeling among many
party officials that rigged land deals are not inherently
corrupt as long as those involved are not too greedy. Despite
these negative indicators, change is occurring in many
provinces. Successful provincial leaders tell us policy and
analytical tools like the USAID-funded Vietnam Provincial
Competitiveness Index have provided them with an almost ideal
combination of objective feedback on performance and information
on best practices for improving economic governance. We will
encourage Tong's replacement, Mr. Tran Thanh, to take these
lessons to heart, especially transparency, SOE bias and land
management.

Biographical Notes
------------------
9. (SBU) Can Tho's new Chairman, Mr. Tran Thanh, was born on
August 12, 1962 in Truong Long Commune, Chau Thanh A District,
Hau Giang Province and holds a bachelor's degree in politics and
a master's degree in business administration. Prior to his
March 2, 2008 election, Mr. Man was Secretary of the Party
Committee of Binh Thuy District, Can Tho City and Substitute
Member of the Central Party Committee. Before being transferred
to Binh Thuy, Man was Vice-Chairman in charge of cultural and
social affairs of Can Tho Province from 1999-2004, Chief of
Staff of Can Tho Province People's Committee and Secretary of
the Youth's Union of Can Tho Province. Man is quite open in
discussion with Consulate officers and is considered tough in
combating social evils during his term as Vice-Chairman of Can
Tho province. In April 2007, he applied for a visa to travel to
the U.S. to meet with some American potential investors in Can
Tho. Just after he was elected People's Committee Chairman, Man
said that his top priorities would be developing human
resources, infrastructure, schools, hospitals, housing projects
in Can Tho. End bio notes.

10. (U) This cable was coordinated with Embassy Hanoi.
FAIRFAX

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