Vietnam, which like most Asian countries is being hammered by the downturn, is discovering that even the most direct form of stimulus spending -cash giveaways to citizens -can wind up in the wrong hands.

With the number of poor growing and reports of some going hungry, communist officials in Hanoi recently decided to hand out US$12 to millions of impoverished Vietnamese on the eve of the nation's most important celebration, Tet, the Vietnamese New Year. Tet is Vietnam's equivalent of Christmas, it's a holiday of family gatherings and lavish spending on gifts. But this year, a time for giving turned out to be a time for taking. It appears that many of the cash handouts were pocketed by corrupt local officials.

In some cases, fees were deducted or the gifts were taxed to the point there was little left, according to local police. Families in Quang Binh province complained that they were required to sign receipts acknowledging they had received the handouts, but some villagers say more than 90% of the funds were siphoned off by petty bureaucrats. In the province of Quang Ngai, dozens say they were forced to donate to a so-called rural traffic fund. Other destitute villagers reported they had to contribute to a fund for the poor. Investigations of these and scores of similar cases have begun across the country.

Under the unusual giveaway, Vietnamese living below the poverty line (defined by the government as those earning less than US$15 a month) qualified to receive a gift of 200,000 dong, or about US$12. Families were entitled to a maximum of US$57. Though it may seem a paltry sum, the cash was a windfall for Vietnam's 10 million poorest. It was a way of helping people truly suffering from the economic crisis and a series of natural disasters that hit the country last year, says Ngo Truong Thi, the deputy director of social welfare at the Ministry of Labour, Invalids and Social Affairs, which oversaw the programme. "Giving out cash to the poor was also part of measures to stimulate the economy," Thi says.

The recent global economic slowdown has put the brakes on Vietnam's decade of growth. The International Monetary Fund forecasts that Vietnam's GDP growth will slow to 5% this year from a high of 8.5% in 2007. Hit particularly hard has been the country's manufacturing sector, which helped lift millions out of poverty by providing relatively high-paying jobs. Declining orders from abroad have forced newly built factories to close, sending workers back to their villages.

Vietnam's stimulus programme pales in comparison to the US$787 billion package approved by US lawmakers last week, but the country is doing what it can to jumpstart its economy. The cash giveaway followed November's announcement of a plan to spend US$1 billion to subsidise interest rates for businesses and to lower taxes in order to boost investment and create jobs.

But Hanoi on its own can't change the course of global events, says Alex Warren-Rodriguez, economic policy advisor at the United Nations Development Programme in Hanoi. Vietnam is too dependent upon what is happening in the US and Europe. "Even if you reduce interest rates to stimulate investment, that's not going to happen because there is nothing to invest in," he says. "They can do very little to stimulate the economy."

Still, public perception of how well the government is handling the crisis is crucially important. Vu Thanh Tu Anh, director of research at the Fulbright Economics Teaching Programme in HCM City, says the cash payments were clearly made for political, not just economic, reasons. "It's very important for the government to be seen as doing something," he says. "The political pressure is huge."

So far, Hanoi appears to be falling short in its efforts to inspire public confidence. The Ministry of Finance announced the stimulus package months ago but the measures have only just been implemented in the last few weeks, says Tu Anh. Now the government's image has been further tarnished because local officials have been stealing from the very people Hanoi was trying to help.

It may never be known how much of the cash meant for the poor has been diverted. One official from Lam Dong Province in central Vietnam was arrested last week, and dozens of others across the country have been demoted or sacked due to the scandal. Hundreds of provincial-level investigations are ongoing.

But few are surprised at the scope of the looting, says Tuong Lai, former director of the government-run Institute of Sociology in Hanoi. Vietnamese officials at all levels have a reputation for sticky fingers. Last Year, a survey on public-sector corruption by Transparency International ranked Vietnam 121st most corrupt out of 180 countries. "Stealing from the poor is nothing particularly new," says Lai. "But after a year of terrible difficulties, the Tet gift was supposed to be a gesture to help improve the trust of the Vietnamese people." Instead, Lai notes, it sabotaged it.

Time Magazine - February 25, 2009