What happened?
Vietnamese President Nguyen Xuan Phuc resigned from his government and party positions on 17 January 2023. This ostensible reason was to take responsibility for corruption by senior officials under his watch as prime minister (2016-2021). He is the most senior official so far to be removed under General Secretary Nguyen Phu Trong’s anti-corruption campaign. Vice President Vo Thi Anh Xuan has taken over as the interim president as per constitutional procedure, until a successor is formally appointed by a National Assembly vote (the next session is scheduled for May 2023).
Why did it happen?
Phuc’s forced retirement may have been a high-level political power play by Trong’s faction to eliminate political rivals. The timing of the leadership shakeup before the festive period (lunar new year, or “Tet” holidays) is unusual but recent scandals in which two deputy prime ministers under Phuc were brought down may have provided an opportunity. There had also been talk that Phuc’s family members were implicated in corruption scandals. These circumstances probably helped Trong’s supporters garner consensus in the Politburo to remove Phuc, who may have then agreed to step down in return for avoiding prosecution for him and his family.
Removing Phuc would help Trong’s faction consolidate power in the Politburo. The top four officeholders (general-secretary, prime minister, president and chairperson of the national assembly) will be selected from the next iteration of the 18-member body, of which two spots now need to be filled, vacated by Phuc and Standing Deputy Prime Minister Pham Binh Minh, who was removed for corruption about three weeks before Phuc. Trong is widely expected to step down at the 2026 party congress after an unprecedented third term, but the identity of his successor is up in the air. Phuc is probably still seen as a threat although he had failed to garner enough support at the 2021 congress to succeed Trong as general-secretary.
What does it mean for business?
Vietnam’s economic policy is unlikely to fundamentally change under party chief Trong’s leadership. The office of the president has less direct influence over party decision-making and economic policy, and it would not have a major impact on policymaking even if Phuc’s replacements hail from security rather than technocratic backgrounds (Public Security Minister To Lam is reportedly one of the leading candidates to replace Phuc, followed by Defense Minister Phan Van Giang).
Business should consider what Phuc’s removal says about future of Vietnam’s anti-corruption campaign and how it can impact them. The removal of top politicians like Phuc is an indicator that the party leadership clearly distrusts leaders who are more directly involved in business, and weeding out corruption remains an existential threat to the party’s legitimacy. This has several implications laid out below. First, a more politically cautious climate will ensue as politicians draw lessons from these developments and business dealings and government approvals like licenses and permissions proceed more slowly. Second, businesses need to be prepared to steer clear of and/or increase risk mitigation plans given a potential wave of politicized anti-corruption investigations in the coming weeks and months after the lunar new year holidays. Third, businesses also need to be watchful of a possible longer-term trend of the party becoming more focused on internal control, manifested in areas like purging political rivals and internal censorship, which creates operational, regulatory, and possibly also reputation risks for businesses. Two of the four top positions may be staffed by leaders with security backgrounds – Pham Minh Chinh, the current prime minister, and To Lam, if he replaces Phuc. Both Pham and To were former public security officials.
