By Hunter Marston

Vietnamese commute during rush hour in Ho Chi Minh City. Vietnam’s economy has shown shoots of growth in recent months. Source: Padmanaba01’s flickr photostream, used under a creative commons license.

Much of the news coverage on Vietnam’s economy in the past year focused on corruption scandals, inept state-owned enterprises (SOEs), and dim growth prospects. But this reporting has overlooked promising new signs of growth as the central government has been making concerted efforts to speed up privatization of SOEs, long tied-down by shady state interests, and tackle graft among the ruling elites.

In the past six months, the government has sentenced to death three bankers and handed down life sentences to many of their accomplices. In one prominent case, a court convicted a former executive at the Vietnam Development Bank of misappropriating $93 million in funds and sentenced him to death.

Skeptics point out that, far from suggesting real economic reforms, the flashy trials of corrupt bankers and executives simply reflect rifts within the highest levels of government and are aimed at garnering approval from foreign investors and global watchdogs such as Transparency International. Transparency International’s Corruption Perceptions Index ranked Vietnam 116 out of 177 countries in 2013.

Some experts argue that the anti-corruption drive is indicative of a split between the faction led by Communist Party secretary Nguyen Phu Trong, which has been calling for increased pressure to end corruption, and Prime Minister Nguyen Tan Dung, whose rivals believe he should be held responsible for some high-profile graft scandals. Dung has previously come under pressure from the National Assembly for economic mismanagement and systemic corruption.

The intense pressure against Prime Minister Dung will likely remain a check to blatant abuse of power in the upper echelons of Vietnam’s political and business elites. Though hardly the champion of reform some make him out to be, Dung has survived the worst of his political challenges by making concessions to moderates in the National Assembly and ministers responsible for steering economic policy. Interestingly, elite competition, coupled with joint anti-corruption initiatives launched by the World Bank and Vietnamese government earlier this year, seems to be deterring graft at different levels of the government and state-owned sector.

Looking beyond the factionalism among elites, Vietnam’s macroeconomic environment may be at its soundest in a decade. Gross domestic product rose slightly in 2013 to 5.4 percent from 5.3 the previous year, driven by increased exports and an influx of foreign investment. Exports increased by 14 percent in the first quarter of this year compared with the same period last year, while foreign direct investment rose by 5.6 percent during the same period.

In April, inflation slowed to 4.7 percent, its lowest pace since 2009. Meanwhile, at the prime minister’s request, the central bank announced it will lower lending rates to 6.5 percent from 7 percent to facilitate borrowing and stimulate economic activity.

Following last year’s high-profile corruption scandals, Deputy Prime Minister Vu Van Ninh was tasked with overseeing SOEs privatization. Thirty state-owned companies were restructured in 2013 and another 45 are expected this year, with plans to withdraw state assets from another 74 SOEs by 2015.

Hawkins Pham, head of advisory at Indochina Capital, one of Vietnam’s leading financial services firms, says “the macro situation is better than it has ever been and has resulted in an uptick in demand across the board. The one thing that Vietnam has gotten wrong is the politics.”

Despite continuing political divisions, Vietnam’s economy is showing signs of healthy if modest growth, after several years of decline and pessimism amid the global recession.  Sandeep Mahajan, the chief World Bank economist in Vietnam, says the country’s growth prospects for the medium term are good overall, given the government’s current macroeconomic policy and estimates GDP growth of 5.5 percent in 2014-2015.  Now may be a good time for foreign investors and businesses to take stock of these positive trends and reassess their outlook on Vietnam.

Mr. Hunter Marston, a Senior Contributor and Analyst at The Indo-Pacific Review, holds an MA in Southeast Asia Studies from the University of Washington and spent two years living and working in Vietnam.