Accepting the Price for Macro Stability Restoration

The differences in statistical data can be seen in foreign investment data. Dr Le Dang Doanh said Vietnam has up to now attracted US$230 billion of registered foreign investment capital, of which US$42 billion has been disbursed, an average of US$2.1 billion a year, and drawn US$80 billion of pledged official development assistance (ODA) capital, of which US$38 billion has been disbursed and US$20 billion remained undisbursed. Public debt, which includes domestic and foreign debt, has ballooned in recent years. While focusing too much on mobilising different resources for investment, Vietnam has forgotten to learn how to use such capital effectively. Investment is very inefficient. The State- owned enterprises (SOEs) are making huge losses, contributing little to the State Budget and feeding corruption, the private sector is investing economically and efficiently.

 

Dr Tran Dinh Cung, Director of Central Institute for Economic Management (CIEM), noted that current weaknesses of the financial system have not yet been overcome. Capital is mainly kept by banks and directed into inefficient areas. Resources allocation has seriously strayed from market rules.

 

In fact, Vietnam has allocated and invested a huge amount of capital and resources into the State economy but regulations with a lot of loopholes have given rise to inefficient capital use and created a fertile realm for corruption and wastage. With ineffective State control, speculative acts on property and stock markets have brought about bad debts, real estate bubble and negative impacts on the economy.

 

Excessively slow institutional reform is also reflected in the Government’s important roles in direct resources investment into the economy through investment projects, national target programmes, eradication programmes, hunger and poverty reduction programmes. ODA resources are allocated and administered by the State apparatus, which is notorious for rampant wastage and negativity. As the owner of land, natural resources, sea and forests, the State also holds the right to license and allocate resources benefits on a very large scale, but the allocation process is proven to be controlled by group benefits. Thus, this process is inefficient. Payments of citizens and businesses for corrupt officials in administrative apparatus for handling procedures also partially pushed up production costs, reduced competitive advantage and inhibited business-doing motivations of entrepreneurs. Credit supply, which was excessively pushed up to satisfy booming real estate and stock market, caused inflation to gallop and people's real incomes to fall.

 

Dr Tran Du Lich said both factors, namely ‘hard’ infrastructure which includes economic infrastructure, particularly transportation infrastructure, and ‘soft’ infrastructure which comprises human resources and economic institutions, are unfavourable factors for Vietnam’s economic competition and integration. The dominant role of the State economy is being misinterpreted and misapplied to maintain the SOE force, even helping it hold monopolistic position, and this goes against the nature of market. The market economy is deformed and distorted by increasing administrative interventions and orders from the State. The State economic sector is assigned a pivotal role of regulating the economy and maintaining macroeconomic stability. The State economic sector plays an overwhelming part, accounting for up to 34 percent of the country’s GDP, but it cannot holds its pivotal role due to bad debts, ineffective operations, losses and wastages, said Dr Vo Dai Luoc.

 

Economic institutional reform has been posed for years and now seen as "a strategic breakthrough" but it has not brought in desired results. Therefore, institutional reform is a top priority, according Vietnamese economists. Dr Tran Dinh Thien said we must pay the price to restore the economy and maintain macro stability. We must be resolute enough to cure structural diseases, establish restructuring axis built from logical resource allocation and resources utilisation administration based primarily on equitable and free competition, and, through pricing systems, set up market price-based competitive freedom. Non-performing loans in cash also must be resolved.

 

Dr Tran Du Lich said Vietnam lacks a systematic vision in national industrialisation model, lacks a clear development philosophy to lay the groundwork for shaping an appropriate institutional system where the clearest evidence is the lifetime of Vietnam’s economic laws is too short. He said, institutional reform, with appropriate steps, must be placed in a systematic relation: The early things done must pave the way for later things done, not create legal conflicts and policy contradictions. Top priority, also a top concern, in institutional reform is now radical reform of public finance and public administration.

 

Dr Luu Bich Ho said core issues of economic institutional reform in Vietnam is how to properly handle the relationship between the State and the market in the fundamental principle that the market determines resources allocation, and how to promote the necessary and sufficient role of the State.

 

Dr Vo Dai Luoc said institutional reform must be fully understood as social institutional reform and economic institutional reform. This means that we must reform legal systems, administrative apparatus and State management at the same time.

 

Dr Pham Duy Nghia suggested a specific and intelligent solution: Disintegrating political enforcement and professional public administration at the central government level. Not all organisations with seals with the coat of arms are independent units with separate responsibility as legal entities, but the entire central government forms a legal entity of public power which is responsible to the people and third parties. The central government - the most important nucleus of administration - is only one of many institutions that form the central government. It is essential to have regulatory agencies of the central government which operate independently and they are not the National Assembly or the Government, as now.

 

Assertive and ardent, former Trade Minister Truong Dinh Tuyen said a modern market economic institution must include the market, the state and civil society. He said civil society is a product of democratic development and such development has rules. “If the civil society can take part in the process of policymaking, policy refutation and execution supervision, it will help address market limitations and State bureaucracy. The civil society in Vietnam has developed to the extent that we must accept it. This is a critical and necessary step of institutional reform to promote development,” he concluded.