VietNamNet Bridge - The Government should cut down 50 percent of the existing regulations and re-consider its role: control or promote development? This is the content of the recent talks between VietNamNet and experts.
Vietnam is facing challenges in maintaining its high growth rate, including high inflation, increasing trade and fiscal deficits, and declining productivity and efficiency--especially in government’s spending. These have caused delay in structural transformation and affected the country’s competitiveness. According to the 2011 Global Competitiveness Index, compiled by the World Economic Forum--Vietnam dropped by 6 grades, from 59th to 65th.

Vietnam has implemented economic reforms by adopting liberalization, structure transformation (equitizing selected state-owned enterprises) and global economic integration through signing trade agreements. Economic achievements have been gained as a result.

However, the effects of such reform measures have been diminished significantly due to risks and inflexibility of the regulatory system. The Social-Economic Development Strategy for 2011-2020 approved by the 11th National Party Congress also admitted the low quality of policies and regulations and ineffective implementation.

Many anti-growth policies are still in use and such policies are still created in many fields, such as costly and ineffective administrative control measures. The economy still has to bear the burdens caused by market integration barriers, rigid regulations and administrative procedures.

Vietnam needs a new wave of reform to further liberate productive forces overruled by inappropriate policies and regulations and to improve productivity, efficiency by allowing the market to function better, reallocating resources more quickly and hastening the structural transformation process.
The government needs to establish more free and equitable market mechanism and rules, and intervenes in the market only when really necessary to protect social and community interests, such as environment protection, safety or protection of consumers.

The recent public arguments among relevant authorities on the management of petrol price have raised an important question about the role of and the relationship between the State and the market. In such case, state agencies should decide whether the Government should take control of petrol price or not, and if yes, for what purposes of management, and what measures should be used to maximize benefits to the country.

VietNamNet has organized talks titled “Changing policies to enhance economic vitality,” with the participation of three experts: Dr. Nguyen Dinh Cung, Vice Director of the Central Institute for Economic Management, Scott H. Jacobs, high-ranking advisor of the US Agency for International Development-funded Vietnam Competitiveness Initiative project and Nick Malyshev from the Organisation for Economic Cooperation and Development (OECD).

Nick Malyshev is an expert in policy improvement and development of OECD, which was invited by the Vietnamese Government to review the Master Plan for Administrative Procedures Simplification in state management.

With intensive knowledge of Vietnam, Scott H. Jacobs has made considerable contributions by sharing and applying international experience in policy quality improvement to the actual implementation of the Master Plan for Administrative Procedure Simplification (Project 30).

50 percent of administrative procedures must be cut

VietNamNet: This is the first question for the two international experts. Cumbersome administrative procedures are always considered an obstacle forVietnam’s social-economic development. What do you think about the results of Project 30 in recent years?

Scott Jacobs: Project 30 is one of the biggest reforms and one of its priorities is reviewing business-related regulations. Project 30 is the largest reform project in the world in the past 10 years.

The Project is not only helpful for the government through reviewing administrative procedures and regulations that are not good, but also brings about a new management approach to reform implementation and helps the government gain experience to implement broader reforms.
 
The project, once fully implemented, will save about US$1.5 billion for the people and businesses. This is real money that will be perceived as savings and help increase wages or income, producing real benefits for the people and businesses.

Under Project 30, the proposal to simplify 300 procedures within the National Assembly’s authority haven not been implemented. Among these procedures, there are unnecessary and in substantive regulations will only incur cost and waste time, for example requirements of mandatory notarization.

Project 30 is not a one-size-fits-all project. There are higher-level issues that hamper economic development. For instance, a firm that wants to build a parking lot, facility or establish a new business will have plenty complaints during implementation of relevant procedures.

Therefore, there is lots of work to be done, and serious implementation of reform will boost a more free economy. This requires institutional capacity and leadership vision.

Nick Malyshev: I think Project 30 did a good job in reducing administrative burdens for citizens and businesses. But it is not enough, because administrative burdens involve regulations and the “text” burdens, that is, to comply with those regulations.

In many cases, compliance cost far outweighs administrative cost. In particular, those regulation costs may create secondary impacts, distort the market, change prices in other markets, distract resources distribution for different economic activities.

In short, Vietnam should make further steps building on administrative procedure simplification reform to address regulatory burdens.

VietNamNet: Mr. Cung, what do you think about the results of Project 30? What businesses and citizens have benefited from this project?

Nguyen Dinh Cung: In the last three years, we have talked quite a lot about the achievement of Project 30. But the achievement should be measured based on the perception of businesses and citizens.

According to the Vietnam Chamber of Commerce and Industry’s Provincial Competitiveness Index (PCI) 2010, the actual cost that businesses paid for administrative procedures were on the rise, especially informal costs.

This means our reforms so far have not actually translated into full results for citizens and businesses. We say that we save $1.5 billion from slashing administrative but this has not been perceived by citizens and businesses.

In my opinion, to make a breakthrough in administrative reform in particular and reduction of regulatory cost in general, change of mindset is a must. Here we mainly talk about reduction, 10 percent cut off is almost nothing. It is common in other reforms that 50 percent of administrative procedures are cut off.
 
I am talking about the situation of policy formation and implementation. It should be free from control mechanism to turn to promote development. If we get ourselves indulged in control, then we simply just change and cut here and there, not to build a new regulatory system.

I think the second reform should get out of control, regulation and should be service-oriented. Only then Project 30 can be upgraded and results will be better.

Get out of control mindset
VietNamNet: Mr. Cung’s anwer leads the topic we’re going to discuss just now - reduction of administrative reform has achieved particular results. But it is not a powerful enough dose to improve the vitality of the economy. In practice, many policies are issued on an ad hoc basis following a process easier than that for legal documents. When discussing the petrol prices in recent debates, many experts said that monopoly must be broken to ensure petrol prices to be regulated by the market. What do you have to say for similar cases in Vietnam?

Cung: As I already said, the regulatory system should get out, should base on a new mindset, new philosophy, not control and regulation-oriented as is now. Project 30 should be implemented strictly and upgraded.

About the petrol price, we always think about market control, not only petrol but also milk, food, etc. all we think about is control.

The government’s job is not to control, regulate petrol market but to connect the domestic petrol market to the global market. The world markets are very competitive, actually.
If the markets are connected, change in world market prices will demonstrate in domestic market. The government should build petrol reserves that allow the government to make intervention in the petrol market once the international market fluctuates.

VietNamNet: What do our international experts have to say about Mr. Cung’s comments? I mean, the comment about get out of the old mindset – controlling the market.

Nick Malyshev: I think Mr. Cung gave a good example about the connection between the domestic petrol market and the world market. Vietnam’s import and export tariffs have dropped down to a relative low level, so the difference between domestic and international prices is not due to beyond borders reasons but due to barriers within Vietnam.
 
That’s why I believe the domestic retail indices in similar sectors will be good indicators for policy makers to see where regulations are not working well for the retail market, and then come up with appropriate reform solutions.

But from another perspective, we need to consider the politics of the issue. We have interest groups here and they are benefiting from the big differences in prices.

I think in order to solve this issue, there should be communications campaigns to promote transparency of information related to the market and fight market distortions when market does not function well. This will be an effective solution to this issue, and an information channel for consumers, keeping them informed of what causes market distortions.

Scott Jacobs: Dr. Cung made two comments that I fully support. The first is that the Government should consider cutting 50 percent of existing regulations. When the question comes to reconsideration of the government’s role: government controls or government promotes development, we need to think broader.

There are regulations that are outdated and no more relevant to the present economic setting. For example, price management. Vietnam has a price management agency that has long become obsolete in developed countries. If any products are put under control, the economy will be adversely affected.
Or the case that every activity is required of a license or permit will create obstacles and slow down business, affect employment and opportunities. Why people with new ideas cannot have a fast-track through all those procedures?

Instead, regulations that provide general guidance for business to start up in no time are necessary. In Canada, a person can start his business just two hours after his notice to the authorities. Therefore, we should have in place regulations that require reasonable conditions to facilitate economic development.

After all, that’s why a larger scale reform process is needed.

(To be continued)