On the sideline of the conference on “Economic crisis update in US and Europe & Vietnamese economic restructuring” held by ANZ Bank, the Vietnam Business Forum had an interview with Dr Vu Thanh Tu Anh, Director of Research of Fulbright Economics Teaching Programme. Anh Phuong reports.
Mr Vu Thanh Tu Anh said: “By continuing the tasks of curbing inflation and stabilising the macro-economy starting in 2011, the Government of Vietnam has made more aggressive solutions in early 2012 to boost the overall health of the economy. Its specific solutions include bank restructuring, State-owned enterprise (SOE) restructuring, and public investment restructuring. However, I see that the Government will still face a lot of challenges ahead.”
What do you think about the SOE restructuring plan adopted by the Government of Vietnam?
According to statistical reports, SOEs used 56.6 percent of investment capital and 36.6 percent of credits in the 2001 - 2005 stage. In the 2006 - 2010 period, the respective indexes were 44.7 percent and 30.6 percent. The contribution to the country’s GDP was 30 percent in 2001 – 2005, but it shrank to 27.8 percent in 2006 - 2010. Data showed that although SOEs use a lot of investment capital and credit, their contribution to the economy declined markedly. Let’s look at another comparison. The respective contributions to the country’s GDP of SOEs, non-state enterprises (NSEs) and foreign direct investment (FDI) enterprises were, respectively, 30 percent, 46.7 percent and 14.6 percent in 2001-2005, and 27.8 percent, 46.1 percent and 17.9 percent in 2006 - 2010. These data show a contraction in SOE contributions while there was a sharp rise from the FDI sector. Hence, SOE restructuring is expected to be one of three socioeconomic development breakthroughs in the five-year stage from 2011 to 2015. In the coming time, to make SOE restructuring effective, the State must be able to answer the questions about the roles of SOEs: Are they a tool for macroeconomic regulation? It is time we applied market mechanisms to restructure SOEs in terms of market prices and international competition. In addition, State discipline must be strengthened in operating SOEs by ending subsidies, monopolies and other measures.
The rapid banking system restructuring indicates the determinations of the Government and the State Bank. What is your opinion about this issue?
The development of the banking system greatly depends on the moving trend of market economy where there is fierce competition. Thus, no matter how it wants to regulate or defend them with macro or micro measures, it must end the operations of weak, ineffective banks. This is completely different with the existence of SOEs. According to external factors, current problems of the banking system are the result of liquidity strains, interest rate race, ceiling interest rate violation, soaring interbank interest rates (35-40 percent), and black credit default, among others. This reality also comes from internal causes like inappropriate governance, overlapping ownership, high nonperforming loan ratio, rapid development, etc. However, the regulatory interventions of the State into the banking system are sometimes not close and not effective.
Inefficient public investment is being tightened. And, this approach is considered a content of prime importance in economic restructuring. However, is it not true that group and local interests make this extremely difficult?
As it happened, Vietnam's public investment increased too rapidly and ineffectively. Investments are unfocused and unnecessary, while there are no mechanisms for the guarantee of efficiency. For example, State-run shipbuilder Vinashin Group expanded its branches to 400 but their operations were very poor. Looking at public investment from the angle of management, there is a paradox that central and local investments are the same. All localities want to share the State Budget pie. They do not care about how their investment projects will go and how such projects will perform in the economy of the country.
Take deepwater port development as an example: Most coastal provinces and cities have deepwater ports, with 20 such facilities in the southern region, 16 in the central region and four in the northern region but, according to experts, only four of them are operating really effectively while the rest are very bad. A similar situation can also be seen in airport development. Vietnam has 24 airports, including eight international airports. Comparing with Japan - the economy that is 60 times larger than Vietnam, it has only four international airports. This shows irrational expansion investment in Vietnam. Besides, in 2011, three new airports, namely Phu Bai, Da Nang and Chu Lai, were built but they are just 60 km apart. Similarly, An Giang, Can Tho and Kien Giang repeatedly ask for funds to build roads although it takes an hour drive between them. And, according to infrastructure development investment scheme for the 2011 - 2020 period, the transport sector claims the biggest investment capital, with an average annual value of US$160 billion. Nonetheless, how the State money will be translated into efficiency is a different matter. This shows wastefulness in transport system development planning.
In practice, all three restructuring schemes (SOE restructuring, banking system restructuring and public investment restructuring) were completed in a short time and many deployment difficulties were not anticipated.
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