Last updated: Thursday, May 23, 2013
Challenges in Vietnam’s Economic Restructuring in 2012Posted: Tuesday, June 05, 2012
The Vietnam Centre for Economic and Policy Research (VEPR) under the Economics University, Vietnam National University of Hanoi, has published its “Vietnam Annual Economic Report 2012” entitled “Facing Challenges in Economic Restructuring.” To learn more about this report, Vietnam Business Forum has an interview with Dr Nguyen Duc Thanh, VEPR Director. Anh Phuong reports.
What are the major obstacles to the Vietnam Government’s restructuring tasks?
Thanks to effective economic stabilisation measures launched in 2011 (in accordance with Resolution 11), this restructuring programme will have certain advantages when it is deployed. However, the effort to restore macroeconomic stability also engendered unwanted consequences: Weakness and hardship of enterprises in the early months of 2012. A series of companies went out of business or scaled down operations due to insufficient resources for development. Therefore, the Government’s restructuring tasks will have to take into account huge economic - social costs, which may touch the interests of many groups. This will place the Government and the entire economy before enormous challenges.
Banking system restructuring is a difficult task. What is your opinion about this task?
In fact, the Vietnamese economy was wrecked by global economic crisis since 2011. European public debt crisis led the world financial market into crisis. In this context, Vietnam's economy also experienced difficulties, partly because of policies in previous years and policy response in 2011 towards those consequences. This requires an overall reshuffling of the banking system if the Vietnamese economy wants to develop sustainably. Besides, the authors of the report pointed out that from 2010 to the first quarter of 2012, in addition to direct factors like high inflation, freezing real estate market, declining stock market, and business stagnancy, operations of the Vietnamese commercial bank system also exposed limitations of the central bank’s regulatory measures and policies. Those weaknesses were interest rate race, liquidity strain, excess capital at banks, high profitability of the banking system in the context of economic slowdown, business bankruptcies and production stagnation. And, it is noted that bad debts of the banking system tend to rise while regulatory and management activities are still limited.
So, VEPR recommended that the Government and the State Bank of Vietnam (SBV) need to shed light on unknowns related to the post-reshuffle model and format of the banking system before taking on it. Besides, roles and financial resources of debt trading companies need to be made clear. The coordination of involved agencies is vital to the implementation of restructuring process.
The second obstacle is the restructuring of State-owned enterprises. Does VEPR have any recommendations?
It is quite obvious that the State-owned enterprises (SOEs) have made huge contribution to Vietnam’s economic growth. But in the current context, many SOEs are operating very poorly. In reality, the number of SOEs with over 500 employees overwhelmed the private sector. However, compared with foreign-led company sector, the operating efficiency of SOEs is extremely poor. Specifically speaking, as SOEs enjoy most privileges from the State like easier access to bank loans, reception of huge State investments and production resources, their scale has been quickly enlarged in the latest 10 years. Nonetheless, their huge debts may potentially lead to financial imbalance, thus destroying their roles of leading the economy. And, it is high time the Government reduced the number of SOEs and their sizes and particularly improved their corporate governance. These solutions will help reduce the losses that this system causes to the economy.
Another problem is public investment far surpasses private investment. What are the causes and solutions for this?VEPR report shows that public investment is still regarded as the main cause to the rise of Vietnam's public debt from 42.4 percent of GDP in 2005 to 52.7 percent in 2010. High public debt is considered a potential risk to a future currency crisis and economic crisis in Vietnam. And, it is quite clear that public investment is exceeding private investment. Another problem is shortcomings in resource allocation mechanism from the central level to localities. With the current mechanisms, localities are devising investment projects to ask for money from the central budget. Meanwhile, the supervision mechanism is almost absent. These shortcomings must be resolved to enhance the efficiency of public investment.