Vietnam: Reform to Stabilize Economy

PHNOM PENH. Apr 3, 2012. Vietnam Prime Minister Nguyen Tan Dung said he is stepping up plans to revamp the country’s bloated state sector that have led to a series of debilitating credit-rating downgrades and pressured Vietnam’s fragile currency.

In written responses to questions posed by The Wall Street Journal on the sidelines of a regional summit in Cambodia, Mr. Dung said he plans to push Vietnam’s state-owned enterprises into closer competition with the private sector to make them more efficient, and to revive a stalled series of partial privatizations, a process known in Vietnam as “equitization.” Creating a more level playing field between the private and state sectors, Mr. Dung said, “is one of the key components of economic restructuring.”

Vietnam’s once-booming economy has foundered in recent years, thrown off balance in part by burgeoning debts at some of its sprawling state-owned enterprises. Mr. Dung’s government previously had adopted a policy of encouraging Vietnam’s big state-owned firms, which control about 40% of the country’s economic output, to diversify into new industries and provide a powerful counterweight to a deluge of foreign investment into the nation.

The strategy in many cases backfired. In some instances, state-owned enterprises took on unmanageable levels of debt or invested in businesses that they didn’t fully understand. Shipbuilder Vinashin, for instance, nearly collapsed under $ 4.4 billion in debts in the summer of 2010 and later defaulted on some of its foreign obligations after moving into businesses as diverse as brewing and tourist resorts.

That debacle forced Mr. Dung, a 62-year-old former security chief who was appointed Vietnam’s top day-to-day executive in 2006, to acknowledge his mistakes in a televised apology to the Vietnam’s parliament. One lawmaker demanded an unprecedented vote of no confidence, while Mr. Dung narrowly survived a behind-the-scenes leadership challenge at the Communist Party Congress in Hanoi in early 2011.

The Vinashin crisis also ushered in a rethink of Vietnam and its state-dominated economy among investors.

International credit ratings firms such as Fitch Ratings, Standard and Poor’s and Moody’s MCO +0.14% Investor Service cut Vietnam’s debt ratings, while investors abandoned the country’s stock market. The crisis badly tarnished Vietnam’s international reputation. It put downward pressure on Vietnam’s dong currency, and helped drive up inflation, which only now is dropping back to the 14% on-year mark, as of March, after peaking at 28% in August last year.

On Friday, a Vietnamese court sentenced Vinashin’s former chairman and chief executive, Pham Thanh Binh, to 20 years in prison for ignoring regulations governing the management of state-owned enterprises in order to speed up some of the shipbuilder’s ill-fated projects.

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