Japan has temporarily halted its official development assistance (ODA) to Vietnam as Hanoi continues its probe into bribery allegations on a railway project.
Tokyo informed Vietnam of its decision in a bilateral meeting that centered on ways to fight corruption in Japanese-funded projects.
Economist Le Dang Doanh said the move will have repercussions on Vietnam’s economy.
"Japan is Vietnam’s largest ODA provider. If the assistance is suspended, it would have impacts on the country’s infrastructure developments that have mostly used Japanese funds, as well as other important projects," said Doanh.
Japanese newspapers in late March reported that the head of a Tokyo-based firm allegedly paid nearly $1 million to Vietnamese officials to win contracts.
Vietnam has since detained six people, including a high-ranking official of Vietnam Railways.
In a statement sent to VOA’s Vietnamese service, Japan’s embassy in Hanoi said Tokyo will review all new rail projects once given Vietnam’s full investigation into wrongdoing, punishments of guilty people and implementation of preventive measures.
This is not the first time Japan has taken this step. In 2008, Tokyo suspended its development assistance to Hanoi for six months after a high-profile bribery case. According to Transparency International, Vietnam ranked Number 116 out of 177 countries and territories in 2013.
Apart from the economic impact, Doanh said Japan’s decision will have psychological effects.
“Vietnam is under huge pressure in its relations with China. Beijing has shown no sign of backing down in the South China Sea while Japan is supportive of Hanoi’s stance through Prime Minister Shinzo Abe’s strong statements at the Shangri-La Dialogue," he said.
The move comes after the Japanese prime minister said Friday that he supported efforts by Vietnam and the Philippines to resolve territorial disputes with China.
Both Vietnam and Japan have been embroiled in confrontations with China over contested waters, leading to some skirmishes at sea.
This report was produced in collaboration with the VOA Vietnamese service.