ODA and Corruption: Vietnam’s Development Scheme Walks a Thin Line

20160116220207-1Japan’s postwar foreign policy has been structured around its Official Development Assistance (ODA) program, proactive measures designed to improve human welfare in developing countries and further Japan’s economic interests. In East Asia, Japan and Vietnam’s partnership has grown from the implementation of the ODA. Vietnam has been the most successful case for the ODA program; Japan’s standing in the Asia region has been markedly improved by their close economic relationship. And the recent disbursement of over two billion US dollars of Japanese aid to Vietnam in the midst of a major recession proves that economic assistance now plays a major role in Japan’s national security strategy. Despite these efforts, whether Japan continues to be a leading sender of international aid and use ODA as an effective tool of foreign policy depends on the cooperation of the Vietnamese government to utilize the support and curb its infamous reputation for corruption.

ODA consists of two major vehicles for aid: grants and loans. Loan aid has been the primary tool of assistance in the program’s early years, but the flexibility of grants has become increasingly appealing.

Vietnam alone is a major development success story. Political and economic reforms (Doi Moi) launched in 1986 have transformed Vietnam from one of the poorest countries in the world. Most of the aid is channeled to infrastructure development projects including railway construction, road and bridge construction, irrigation system upgrade projects, and waste treatment.

The latest batch of ODA loans from Japan will be allocated to four key infrastructure projects, including the north-to-south expressway, the international port in the northern city of Hai Phong, and the fourth stage of their climate change program.

It is impossible to deny Japan and Vietnam’s effective collaboration in ODA implementation, yet the shadow of corruption in Vietnam looms large in recent years. In 2008, the president of Japan Transportation consultants (JTC) admitted that his company has paid $1.3 million in bribes to win the rights to projects funded by the Japanese ODA. Vietnam Railways, the state-owned operator of the railway system in the country, allegedly received $782,000 for a Japan-funded ODA project. Shortly after, Japan suspended its ODA loans to Vietnam. It also stalled hundreds of millions of dollar worth of development loans for four months in 2008 after a similar bribery scandal related to an ODA-backed highway project.

“Once tiny corruption becomes common, then surely there will be big corruption cases. The private companies in Japan, Korea and the United States dare not bribe [in] their countries but in Vietnam, they have to do as the Vietnamese do,” says Dr. Dang Ngoc Dinh, director of the Center for Community Support for Development Studies.

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. Thus Japan, as part of its development scheme, can help Vietnam combat corruption. Proper selections of projects to be funded by the ODA and consistant disclosure of information on projects’ updates are important. As Vietnam’s economy is moving towards free market principles, infrastructure projects should be distributed to the private sector. At the same time, JICA (Japan International Cooperation Agency), the central ODA distributor, can ramp up its assistance to Vietnam with investment in human and resource capital through additional managerial training process, employment support system, cooperation education programs or technology transfer.

It is also worth noting that a very small part of Japan’s ODA for Vietnam is non-refundable. Most of it consists of loans with increasing interest rates. Two-thirds of international aid has been spent on delayed infrastructure projects that have long been considered fertile ground for corruption. The Vietnamse government has made countless public commitments to alleviate corruption, but the fact that it still rests soundly at the bottom of the 2013 Corruption Perceptions index says there is more work to be done. The Vietnamese government must inspect and monitor its ODA expenditure more carefully before asking for another $39 billion of loans in the 2016-2020.

The unique socio-economic conditions in Vietnam requires active reform in the use of international aid. ODA flows should be directed to support not only infrastructure development but also other government projects, including health, education and security. Keeping the United Nations’ 2030 Agenda for Sustainable Development in sight – which stresses the importance of poverty reduction, gender equality, and education harmony – both Japan and Vietnam will equally benefit from showing the world that ODA is playing a role in achieving these accoplishments.

Another reason that the Vietnamese government may not want to upset Japan is the inclusion of the Development Cooperation Charter in ODA’s agenda. The new charter allows direct assistance to foreign armed forces, which was prohibited under the original 1992

charter. It states that assistance will be provided to maintain maritime safety, support anti-terrorism measures, and reinforce maritime, space and cyber security capabilities.

With China’s rising influence and military assertiveness in both the South and East China Sea, it is unlikely Japan will suspend aid in any serious form given that Vietnam is one of its most important ally in the region. But Hanoi needs to minimize its bribery problems, for it may not be in their best interest to be left isolated, both economically and militarily, during this time of uncertainty.

Chi Tran

Author: Chi Tran

Chi Tran is originally from Vietnam and is currently a second-year student at the Elliott School, double majoring in International Affairs and Asian Studies. She has had experience being the founder of a non-profit dedicated to human rights in Vietnam and chief organizer of several philanthropy projects. Chi is interested in feminism, international security, and international development.