Vietnam has adopted many right policies and measures to restore and develop the domestic economy and deal with numerous difficulties on financial and monetary markets. The banking sector has initially stabilised and interest rates have been slashed a lot. However, many dark spots still exist in the macroeconomic picture. Many industries like banking, finance, insurance, securities, real estate, construction, building material, cement, iron and steel, engineering, transportation and shipbuilding are still struggling with hardships like oversupply, bad debts and weak competitiveness.
Meanwhile, the Government lacks effective measures to business system reform. To reform enterprises, the State needs to create a legal framework for changes in shareholder structure in big companies from State shareholder and individual shareholders into institutional shareholders and strategic shareholders (not State-owned enterprises) in order to basically change corporate governance and enable enterprises to access cheap share capital in accordance with international practices. This is the basic way to develop businesses sustainably.
On the other hand, measures the Government has, and will, issued are not strong enough to drastically resolve all problems mentioned above. The Government must continue to seek leverage solutions to quickly address major existing shortcomings of the economy. Therefore, the Vietnam Association of Financial Investors (VAFI) has put forth five solutions to quicken economic development as follows.
Solution One: Vietnam should not set a room for foreign ownership in listed companies except those which operate in the conditional businesses; foreign room in banks should be raised to 49 percent and no ownership limit is necessary for ailing credit institutions.
Currently, no ownership limit is imposed on foreign investors at unlisted companies. And, this group of businesses are enjoying more favourable conditions in raising funds and carrying out corporate restructuring. The 49 percent ownership cap put on foreign investors in listed companies is a hindrance as it weakens corporate competitiveness (different from international practices too).
VAFI said this is the most important solution to corporate reshuffling aimed at basically changing shareholder structure in the direction that will increase institutional shareholders and strategic shareholders in order to facilitate corporate governance methods, enable enterprises to raise low-cost funds, and create more export markets for Vietnamese enterprises in some cases.
“If this proposal is accepted, the Vietnamese business sector will be able to raise extra US$10 billion within 3 years and the Vietnamese business picture will basically change,” said VAFI.
Solution Two: Vietnam should encourage foreigners to buy luxury and high-end houses with simplified procedures. The Government has advocated policies that increase the opportunity of buying houses for foreigners and assigned relevant ministries to draft such policies. However, the time for such policies brought into life remains unknown and the practicability is doubted because of currently complex procedures.
So, according to VAFI, Vietnam needs policies to encourage foreigners to buy real estate as many countries around the world have done with the simplest procedures. For example, individual foreigners only need a passport to buy houses and when they invest a certain sum of money; they should be given preference visa policies.
Allowing foreigners to buy houses is not a strong boost for property market yet because the living and investment environment is still less comparative to many other countries but the solution will help ease difficulties in the property market in many years to come and will boost tourism, foreign investments.
Hong Kong and Singapore do not limit foreigners from buying real estate although their areas are small. They use tax instruments to control land prices and selectively attract foreign homebuyers.
Solution Three: Vietnam should immediately end goldisation with 10 percent VAT in forms of deduction in bullion and jewelry business. According to statistics, gold bar auctions hosted by the State Bank of Vietnam (SBV) are only a temporary measure to deal with the supply for credit institutions, not prevent the goldisation of economy. Most solutions to gold market management adopted by the SBV to date are unprecedented in the world and unable to reduce the goldization of economy. Billions of US dollars are being ‘buried’ and significantly affect interest rate and exchange rate policies.
Its objective “bringing domestic gold prices closer to world rates" is not a macro-economic stabilisation solution but it maybe works against expectations. In fact, to narrow the gap between domestic and world gold prices may spur speculation, which will result in an increase of “dead” capital flows. If the gap balloons, smuggling and production will intensify.
According to VAFI, no imports have equal or close prices with world rates because they also bear shipping fees, management fees and taxes. Hence, the SBV should review its ongoing mission.
Solution Four: Vietnam should gradually lower deposit interest rate in foreign currencies to zero to strengthen the dong and pull down dong-denominated interest rates further.
VAT levy on gold and zero interest rate on USD deposits will strongly support deposit rates of local Dong to 4 - 5 percent per annum. Low interest rates will liven up stock market and help restore property market, help companies to raise funds easier. This is also a measure to deal with bad debts quickly.
"If Solution 3 and Solution 4 are quickly applied, foreign reserves will easily reach US$100 billion in the next 4-5years, and this is not a difficult target,” said VAFI.
Solution Five: Heads of government agencies should spend more time corresponding and listening to different opinions to look for, select and work out policies and solutions to key economic issues. The Resolution 02 of the Government has many fundamental and feasible solutions to deal with economic problems. Notably, the Prime Minister directly seeks consultations from the business community and relevant bodies and directly instructed economic ministers like the SBV Governor, Finance Minister and Construction Minister to consult the business community, business associations, and the press.
Within two weeks, feasible fundamental solutions of the Resolution 02 were specifically drafted. Practicable solutions from enterprises, business associations were collected and translated into policies.
Quynh Anh
Vietnamese
