Tightened Management over Public Investment

According to the Ministry of Finance, if the current mechanism is kept for public investment projects, Vietnam’s debt burden will increase very rapidly. Therefore, in the future public debt management, particularly State-funded investment projects, must be closely overseen to achieve the objectives of securing national finance and macroeconomic balance. While the economy is grappling with uncertainties in many sectors and current borrowing and repayment continue till 2015, Vietnam will have to pay US$1.5 billion of foreign debts a year, both principal and interest. It will be an onerous burden on the economy.

 

According to economists, the main reason for rising foreign debt is largely the ballooning loans of public projects from the central to local levels. The recent Resolution 11 of the Government aiming to curb inflation and boost macro-economic stability pinpoints a considerable reduction in public investment.

 

Thus far, public investment in Vietnam has still developed in the direction of “herd psychology” and “investment syndrome.” Many localities still possess the psychology of “local riches” rather than general economic development, evidenced by the increasing presence of such projects as cement plants, motorcycle assemblers, industrial zones, economic zones, universities, even golf courses and airports. Some financing for these projects comes from the private sector, but a majority comes from the central and local State Budget. And if Vietnam has a specialised agency responsible for gauging efficiency and wastefulness of State-funded projects and their impacts on macroeconomic stability, there will be black parts on this picture.

 

According to the Government’s assignment, the Ministry of Planning and Investment is primarily responsible for monitoring and allocating capital sources, but its supervision and management remain limited. Data from the General Statistics Office (GSO) showed that, with an investment cutback policy, public investment slid 11.4 percent from 2007 to VND184,400 billion (over US$9 billion). However, the amount of public investment ballooned in the following years: VND245,000 billion (US$12 billion) in 2009 (a rise of 40.5 percent from a year earlier) and VND316,000 billion (US$15 billion) in 2010 (up 10 percent from 2009). Even, in the first four months of 2011, State-financed investment rose 18 percent over the same period in 2010. Notably, investments in some localities surged, like Khanh Hoa rising 69 percent; Ninh Thuan, 64 percent; Da Nang and Thanh Hoa, 61 percent. According to specialists of the Central Institute for Economic Management (CIEM), given what has happened, the target of rescheduling the investment of VND39,000 billion, or 11 percent of VND350,000 billion of investment capital allocated to State-run economic groups and corporations for 2011 will be very difficult to reach.

 

In addition to the slowness of State agencies in managing this field, this phenomenon is also rooted in the formation of local monopolistic economies. Many localities are making every effort to protect State-funded projects for the sake of benefits of monopolistic groups, ignoring the public investment reduction policy.

 

Another reason is some State-run enterprises, especially large concerns, are still making mammoth investments without knowing whether their investment projects have good effects and whether they create macroeconomic development momentum in relation to the overall national economy. Meanwhile, if they suffer losses, the State Budget will cover. Hence, they are free to invest without concern about the outcome. Another thorny issue concerning the slowness in State administration is overlapped management. For example, the industrial sector is now managed by 13 ministries and all want to be the number one power.

 

Economist Le Dang Doanh said public investment in Vietnam remains too unfocused. He pointed out that investment criteria must be made public and transparent. For instance, investors must clearly announce who the primary contractors are, whether such contractors directly undertake the projects or hand them over to others, why they transfer to other parties, and what are additional conditions. Specification and clarification will inform the public and authority of the projects and help them supervise and deal with unexpected incidents. Last but not least, there must be clear definitions on the responsibilities of investment managers to get rid of bad behaviour in public investment and boost investment effects.