This is the focus of a conference hosted by the Vietnam Centre for Economic and Policy Research (VEPR) in Hanoi on the occasion of the publishing of the 2012 Annual Report of the Vietnam economy. Core issues regarding economic restructuring such as commercial bank restructuring, State-owned enterprises (SOE) restructuring and investment restructuring were discussed during the conference.
According to Dr Nguyen Duc Thanh, editor-in-chief of the report, with several advantages of the macroeconomic condition from late 2011, the restructuring program went on without any major difficulties. However, an implication of the macroeconomic stabilization program is deflation and challenges that businesses are currently facing. These are the first signs, being evident that the restructuring resulted in significant socioeconomic costs; trampled on the interest of different groups; and so required both the Government and the economy to overcome many challenges in order to achieve the target.
Impossible to resolve bad debt quickly
Mr Vo Tri Thanh, Deputy Director of the Central Institute for Economic Management (CIEM) and representative of the consulting and critic group, believes that resolving bad debt is a difficult task. The fundamental of resolving bad debt is to rebalance the businesses’ and corporations’ assets, taking into account the interest of both former and current creditors and turning them into strategic shareholders; establish a new strategy and management structure. In addition, the 2015 deadline obligating SOE to withdraw all of their investment from non-core businesses is not an easy endeavour.
Dr Thanh admitted that resolving weak banks and their bad debt is more challenging than meets the eyes. The toughest job is to determine the exact bad debt ratio of the commercial banking system. Besides, the Government does not have enough financial capacity for the restructuring program; people are worried and lose their trust on the banking system.
Also according to Dr Nguyen Duc Thanh, a mechanism must first be established before deploying human resources to resolve bad debt. It will take six months for the mechanism to be ready, and then financial statements of businesses and banks will be scrutinised. Therefore, it will take one to two years to resolve the issues. Resolving bad debts of businesses and banks alone will take up to three or four years and the process cannot be rushed.
Thus, in order to restructure the banking system, Mr Thanh believes that there should be transparency regarding the relationship among financial resources, the roles of debt and asset trading companies, node agencies involved in the restructuring, especially the relationship between the restructuring of the banking system and public investment and SOE.
Perception about the SOEs needs changing
According to the report, at the moment, the public economic sector still represents 40 percent of total GDP, while the private sector, though only represents 35 percent but is the at the core of a market-oriented economy. This structure alone shows that it is not easy to proceed with the restructuring program. Dr Thanh believes that the dominance of the public sector is the chief reason for the reduction in efficiency of the economy at large. Moreover, there is a need for a distinction among SOE involving in non-profit, public goods supply and for-profit sectors so that these SOE will gradually adjust their structure to aid in the industrialisation and modernisation of the economy.
Corporations and companies in the dominant public sector are often chosen for infrastructure development project, which further encroaches its reach into the private sector. Public investment might indirectly leads to high inflation rate. In fact, public investment during the 2006-2007 period, representing 30 percent of GDP, was probably the cause of the hyperinflation in 2008. Major public investment in the 2009-2010 period, representing 33 percent of GDP, led to a surge in inflation rate in 2011.
Furthermore, the separation in the public investment sector between the central and provincial offices has inadvertently encouraged provinces to draft out as many projects as they can in order to receive the funding from the national budget, leading to a surge in public investment. Several reasons have been cited such as: bad planning, lacking mechanisms to monitor the flow of investment capital from the central bureau, public investment capital from the central bureau to the provinces is not efficiently utilised etc. Therefore, the report raises the need to gradually decrease the public investment ratio in the total investment capital and improve the efficiency and quality of public investment capital.
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