Vietnam’s lawmakers oppose pruning economic growth target, criticize SOE’s

May 10, 2008. Most lawmakers disagreed with the government’s recent decision to trim the economic growth target and slammed state-owned corporations for their inefficiency at a National Assembly session Friday.

Referring to Prime Minister Nguyen Tan Dung’s opening remarks Tuesday, in which he called for lowering the growth target to 7 percent, legislator Duong Trung Quoc said it could only be a “temporary” solution.

“I suggest keeping the same growth target (between 8.5 and 9 percent) the assembly approved last year,” he said, adding the house must intensify its scrutiny of the government’s economic management.

Double-digit inflation and inefficient investment in public projects were among the chief reasons for the PM’s call for clipping the growth rate.

“What we’ve seen is a corporation like Vietnam Electricity investing US$ 260 million to build a resort, while letting residents suffer from electricity shortage.”

The finance ministry estimates that the country’s 70 state-owned corporations had borrowed more than VND 448.2 trillion (US$ 28 billion) as of last December.

Delegates at the recent State-Owned Enterprise Reform Conference said the government had to act since state-owned corporations were “guzzling investments, yielding low returns and squandering funds.”

The former head of the central bank, Cao Si Kiem, said though the government had instructed state-owned corporations to allocate at least 75 percent of their resources to their major field of business, enforcement of this rule was patchy.

Read more …

Additional background

According to the Committee for Enterprise Reform and Development and the Ministry of Planning and Investment, state-owned enterprises hold 70% of the total real property in the economy, account for 20% of investment capital throughout society, and devour a staggering 60% of the credit in the commercial banking system, 50% of state investment capital and 70% of official development aid capital.

However, these same enterprises are responsible for only 25% of total sales revenues, 37% of pre-tax profits and 20% of the value of national industrial output. The rate of credit use by state-owned businesses to generate revenue is definitely higher than that of other enterprises. It takes VND2.2 in capital to create VND1 in revenue compared to VND1.2 in capital spent by businesses outside the state corporate sector and VND1.3 in capital expenditures by foreign enterprises operating in Vietnam.

Read more ….

OECD Guidelines on Corporate Governance of State-Owned Enterprises (SOEs)