LIMP ENDING FOR WORLD BANK REVIEW OF VIETNAM'S PMU-18

UNCLAS SECTION 01 OF 02 HANOI 001016 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/MLS AND EB STATE PASS USTR DAVID BISBEE STATE PASS USAID FOR ANE/AA KUNDER/KENNEDY/WARD AMEMBASSY BANGKOK FOR RDM/A USDOC FOR 4431/MAC/AP/OPB/VLC/HPPHO TREASURY FOR OASIA SINGAPORE FOR SUSAN BAKER DEPT PASS FEDERAL RESERVE SAN FRANCISCO FOR DAN FINEMAN E.O. 12958: N/A TAGS: ECON EFIN EAID ETRD ECPS PREL VM SUBJECT: LIMP ENDING FOR WORLD BANK REVIEW OF VIETNAM'S PMU-18 Ref: A) 06 Hanoi 771; B) 06 Hanoi 1090 ¶1. (SBU) Summary: The World Bank's review of corruption allegations and the Ministry of Transport's management of two Bank-funded projects is complete: the infamous Project Management Unit (PMU) 18 escaped any serious findings of corruption, but the Bank concluded that pervasive mismanagement abounds at the provincial level. The Bank plans no further action with respect to the two projects, but it has a substantial agenda ahead for upgrading procurement, contracting, and financial management systems in the Ministry of Transport. End Summary. ¶2. (SBU) The PMU-18 scandal, which broke in January 2006 in the lead-up to the Communist Party's National Congress, is a multi-million dollar corruption affair that involved accusations of embezzlement, bribery, nepotism and gambling at the GVN Ministry of Transport (reftels). The scandal has received extensive press coverage in Vietnam and has become synonymous with public corruption. Due to the scandal, Transport Minister Dao Dinh Binh was forced to resign and Vice Minister Nguyen Viet Tien was arrested. PMU-18 Executive Director Bui Tien Dzung was also detained, as press coverage revealed widespread corruption at the PMU 18-headquarters in Hanoi. ¶3. (SBU) On May 28, the World Bank office in Hanoi and the Ministry of Transport released the summary results of the Bank's Detailed Implementation Review (DIR) of two Bank-funded projects implemented through PMU-18. A joint MOT-Bank press conference in the morning attracted over 80 journalists and later that day, the Bank (but not the MOT) briefed donors on the findings of the DIR. ¶4. (SBU) Acting World Bank Country Director Rama explained in considerable detail the DIR process. Notably, the Vietnam DIR was only the fifth in the Bank's history. Explaining that a DIR is a process to determine a project's susceptibility and possible exposure to corruption or waste, he added that it is not an investigation to assign responsibility, nor is it used as a basis for initiating administrative, civil or criminal proceedings. The Vietnam DIR was conducted from May-September 2006 on two Bank-funded transport sector projects: Rural Transport Project 2 (RTP2) and Road Network Improvement Project (RNIP). Rama's office received the report two weeks ago. According to Rama, distribution of the actual report is limited to the GVN, Japan and the UK, which co-financed one or both projects. Any further distribution must be approved by the Bank's board. ¶5. (SBU) Regarding PMU-18, while the DIR found no evidence supporting allegations of fraud and corruption against PMU-18 officials, it identified areas where fiduciary controls in PMU-18 should be strengthened. Acknowledging that the findings were "less spectacular" than press reporting, Rama emphasized that the DIR looked only at Bank-funded projects at PMU-18, which was responsible for many transport sector projects, both donor-funded and GVN-financed. He refused to speculate on what specific activities had led to the arrests of PMU officials last year. Rama further said that of three separate GVN investigations of the PMU, only one is completed. Turning to provincial-level PMUs, the DIR found "pervasive" indicators of irregularities. (Note: As defined by the Bank, an irregularity is a misuse of Bank funds or diversion from intended purposes or improper or unsatisfactory implementation. End Note.) The DIR found the following irregularities at the provincial level: --Procurement: fraud and misrepresentation, collusion, deviation from Bank procedures and influencing of contract awards; --Financial Management: weak financial management capabilities; and --Implementation: questionable workmanship. In monetary terms, the DIR found the following confirmed indicators of irregularities for RTP2 and RNIP: --Procurement: $15.5 million --Financial Management: $4.0 million --Implementation: $7.7 million ¶6. (SBU) According to Rama, the Bank will work with the GVN to develop an action plan to combat corruption and waste in donor-funded transport sector projects and to strengthen financial HANOI 00001016 002 OF 002 management systems with the PMUs. In the medium-term, the DIR recommends strengthening mechanisms for handling complaints and expanding disclosure of project information to improve public surveillance. The Bank has no plans to impose monetary penalties. Rama said that the Bank would not declare "misprocurement and will not request further investigation." Responding to a question from the donors, Rama said this decision was the product of considerable internal discussion within the Bank. He did not elaborate. ¶7. (SBU) The discussion among the donors essentially turned on how the DIR's results would be absorbed by the GVN, the press and the public. Donors also wondered how and if this somewhat surprisingly clean bill of health for PMU-18 would affect the GVN's anti-corruption campaign. For his part, Rama said the Bank is not in a position to take the moral high ground, but nevertheless expects the GVN to proceed apace with its anti-corruption efforts. Based on his many consultations with the Ministry of Transport on the DIR, he expected a robust response to the DIR's many recommendations. ¶8. (SBU) According to a Japanese Embassy contact, donors asked many questions about the PMU-18 scandal. She said the GOJ's investigation had not produced any evidence that Japanese ODA was stolen or misused in that scandal. While donors welcomed the dialogue and the various GVN initiatives to fight corruption, they expressed concerns about duplication and lack of clarity on the roles and responsibilities of the GVN entities charged with carrying out anti-corruption work. ¶9. (SBU) Comment: So closes the World Bank's look into PMU-18. Mission Vietnam now looks to the mid-term Consultative Group meeting on June 1 for an update on the GVN's anti-corruption drive. Donors will certainly urge the GVN to stay the course and not be complacent. Time will tell if they forge ahead or adopt an attitude implicit in the headline of a morning daily: "Detailed review finds no evidence of corruption at PMU-18, World Bank continues aid." End Comment. MARINE