Asia Briefing:A couple of years ago, Vietnam was surging ahead of regional rivals, including China, as the destination of choice for direct foreign investment, with many factory owners moving their operations to the southeast Asian nation where labour costs were low and the government was keen, like China a decade earlier.

That is still true, and companies are still investing in Vietnam, but the country’s reputation has been battered by a rash of corruption cases and the arrest of leading businesspeople, as well as by tales of inefficient state-owned enterprises and close links between the banks and the state.

Vietnam has been on a strong upward trajectory more or less since it began to open up in 1986, but the economy expanded by just more than 5 per cent last year, its slowest rate of growth since 1999.

It is now losing out to countries such as Indonesia in terms of efficiency and value for money.

Inflation is on the rise, the dong currency has weakened and untrammelled borrowing by the state-owned enterprises has put a strain on the banking system and left the banks heavily indebted.

Corruption crackdown

Faced with growing public discontent and increased scepticism overseas, the government has come up with a plan to crack down on corruption and overhaul 52 commercial state enterprises by June of this year.

It has also approved a plan to boost its economy to 2020. This master plan aims for a prudent monetary policy to tame inflation while ensuring “reasonable growth”.

Prime minister Nguyen Tan Dung’s administration will conduct tight fiscal policy, promote exports and tightly control imports while boosting domestic production of consumer goods.

Commercial state bodies account for 40 per cent of total output in Vietnam, but the public perception is that they are riddled with graft.

The government plans to sell all non- essential semi-states by the end of 2015 and will retain just 50 per cent to 75 per cent in most of its companies.

In October, Communist Party general secretary Nguyen Phu Trong apologised after a meeting of party leaders for what he described as “big mistakes”, including graft and poor oversight of state-owned conglomerates.

To repair the damage to its reputation, the Communist government even seems set to play down the socialist aspect of the administration.

A proposed revision to Vietnam’s constitution, which is due to be submitted to the national assembly for approval and is currently open for public comments, removes the concept of the state sector playing the leading role in the economy, the Saigon Times reports.

Recent months have seen a catalogue of embezzlement, fraud, corruption and mismanagement that have badly unsettled international confidence in Vietnam and caused widespread public anger at home.

Electricity Vietnam’s chairman Dao Van Hung was fired in February last year and a month later nine top officials were jailed for their roles in the near-bankruptcy of Vinashin – the Vietnam Shipbuilding Industry Group.

Shock waves rippled through Vietnamese society in August with the arrest of the banking tycoon Nguyen Duc Kien, one of the richest men in the country and famed for his close connections to the ruling Communist Party. He was suspected of “economic violations”.

His family was a co-founder in ACB Bank, Vietnam’s largest private lender by assets, and news that he had been picked up started a run on the bank, with depositors withdrawing hundreds of millions of dollars.

Police swoop

In September, police swooped on the former chairman of Vietnam National Shipping Lines, or Vinalines, suspected of falsifying contracts.

In January, Pham Thanh Tan, former head of state-owned Agribank, the country’s largest lender by assets, was arrested for “irresponsibility causing serious consequences”.

This came after a flurry of headlines about embezzlements at various branches, with bank staffers from tellers to executives.

A survey by the Vietnam Chamber of Commerce and Industry showed that half of businesspeople admitted bribing officials to win contracts.

“As Vietnam moves into the ranks of middle-income countries, the time to revisit the nature and causes of corruption, the time to bring new empirical data to bear on these issues, and the time for renewed vigour in the fight against corruption is now,” the World Bank said in a report on corruption in Vietnam.