Hanoi  - A Vietnamese official Friday cautiously welcomed Japan's decision to suspend new aid to the country owing to a major corruption scandal on a Japanese-funded infrastructure project.

On Thursday, Japanese Ambassador Mitsuo Sakaba told a meeting of international donors in Hanoi that his country would suspend new loans to Vietnam pending the investigation of the Pacific Consultants International case.

PCI, a Japanese consulting firm, allegedly paid millions of dollars in kickbacks to Vietnamese transportation officials while working on transit and water projects in Ho Chi Minh City in the early 2000s.

"We are unable to pledge new yen loans" until both countries work out "effective and meaningful measures against corruption," Sakaba said.

While most Vietnamese officials were disappointed at the move, some said it would help motivate the country to fight corruption.

"I have mixed feelings, both sad and pleased, at Japan's decision," said Deputy Minister of Natural Resources and Environment Dang Hung Vo.

Vo said the loss of Japanese aid, which had continued even during the US-led economic embargo of Vietnam during the 1980s, would be a blow. But he said the decision "will force the Vietnamese government to become more serious and determined in containing corruption."

Transparency International ranks Vietnam 121st on its index of perceptions of corruptions in 180 countries. An earlier major corruption scandal in 2006 hit a unit of the Transportation Ministry involved in foreign aid projects, but foreign donors said none of their money had been misused.

Trinh Duy Luan, director of Vietnam's Academy for Social Sciences, said he was "disappointed in every sense of the word," both at Japan's decision and at Vietnam's slow progress in fighting corruption.

Other Vietnamese officials took the suspension harder.

Vietnamese ambassador to Japan Nguyen Phu Binh told local media Thursday he felt bitter when Japanese asked him about the case.

Nguyen Xuan Tien of the Ministry of Planning and Investment's foreign department, which deals directly with Japanese official development assistance, said he was "unhappy with Japan's decision."

Tien said Japanese authorities had yet to offer the Vietnamese government proof of its allegations that Huynh Tan Sy, who directed the ODA-funded East-West Highway and environmental water projects, had taken bribes.

But Tien said the allegations "made the Japanese public very angry and badly damaged Vietnam's image."

Japan gave Vietnam 1.1 billion dollars in low-interest development loans last year. It had considered 61 candidate ODA projects for Vietnam in fiscal 2009 and beyond.

The decision to suspend aid could slow or halt some major Vietnamese infrastructure projects.

An official at the Japanese embassy who declined to be named said the projects which will not receive new money include the 580 million dollar East-West Highway in Ho Chi Minh City, which had been expected to finish in the first quarter of 2010.

Other projects include a drainage and sewerage project in Ho Chi Minh City, a proposed railway link to Hanoi's international airport, and a high-speed railway from Hanoi to Ho Chi Minh City.

Japan's decision was announced at the annual Consultative Group meeting of foreign donors in Hanoi, where donors make their official aid commitments for the coming year public. In 2007, donors committed a record 5.4 billion dollars to Vietnam.

This year, the amount dropped to just over 5 billion dollars. Many countries are phasing out development aid to Vietnam as the country's economic growth moves it towards middle-income status.

Most aid will come from the World Bank and Asian Development Bank, at 1.66 and 1.5 billion dollars respectively.

EU countries pledged 893 million dollars, led by France's offer of 281 million dollars. The US came fourth with pledges of 128 million dollars. (dpa)