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Background Brief: Vietnam: Fall Out from Arrest of Nguyen Duc Kien Carlyle A. Thayer August 29, 2012

[client name deleted] With reference to the arrest of Nguyen Duc Kien in Vietnam, could you provide a brief assessment about the consequences of his arrest for the Vietnamese economy. What is the "big picture" of what is taking place? ANSWER: The arrest of leading private businessman Nguyen Duc Kien led to an immediate fall in stock shares and a panic withdrawal of several hundred millions of funds from Vietnams Asia Commercial Bank (ACB) that he was associated with. This caused the State Bank of Vietnam to intervene and provide nearly US $1 billion in cash to cover the run on deposits in the banking sector. Kiens arrest, and the follow on arrest of ACB general director Ly Xuan Hai has sent shock waves through Vietnam private sector. Up to now all victims of the current anti-corruption campaign have been officials working in state-owned enterprises. If, as expected, more arrests follow, it could lead to a fall in foreign investment. The banking system is riddled with debt due to hasty loans that have not been repaid. The current round of arrests has led to intense speculation that the current reform campaign is connected to political in-fighting at the highest levels of the ruling communist party. Kiens arrest has sparked uncertainly over economic policy and raised the risk to investors, two ingredients not conducive to economic stability. Vietnams reputation as an emerging market will be dented.

Suggested citation: Carlyle A. Thayer, Vietnam: Fall Out from Arrest of Nguyen Duc Kien, Thayer Consultancy Background Brief, August 29, 2012. Thayer Consultancy Background Briefs are archived and may be accessed at: http://www.scribd.com/carlthayer.