VietNamNet Bridge – The International Monetary Fund’s Resident Representative for Vietnam Sanjay Kalra has expressed concerns over State-owned enterprise (SOE) reform due to soaring debts in the sector.

A bank staff counts U.S. dollar banknotes in this file photo. IMF Resident Representative for Vietnam Sanjay Kalra expressed concerns over SOE reform due to soaring debts in the sector

As calculated by IMF, the SOE sector is causing fiscal risks to the country with government-guaranteed debt accounting for 15% of gross domestic product (GDP) in 2012, a surge versus 5% in 2001.

Kalra, speaking at a seminar organized by VPBank in Hanoi City on November 4, wondered what would happen if the Government backed extra debts that are unrecoverable for SOEs and if they failed to pay.

The Government has silently provided guarantees for SOEs to gain access to cheap funds at banks, he noted.

SOEs had not paid dividends to the State Treasury before 2013, meaning they had used State capital free of charge for years. This practice goes against international norms.

Regarding Vietnam’s SOE restructuring process, he said a lot of SOEs would have to go public but asked whether the process would result in stronger and more transparent entities.

The central bank is facing huge pressure for serving as a leverage for economic growth. Credit growth has yet to pick up as expected as banks’ balance sheets are not yet clean and bad debts remain unsolved.

Earlier, the Ministry of Finance reported that the equitization of SOEs is lagging behind schedule as only 75 were equitized in January-October this year.

The equitized enterprises were among 96 that were restructured in the reviewed period. The ministry expects about 200 businesses will be equitized this year while the target is 432 companies in 2014-2015, according to Vietnam News Agency.

The ministry attributed the slow reform to a lack of determination and drastic measures at some ministries, local governments and companies, along with impacts of the world’s financial crisis and domestic economic difficulties on the financial and stock markets, thus affecting SOEs’ share issuing plans.

To accelerate the equitization process, the ministry said it will improve equitization policies and mechanisms, enhance the supervision of State-owned corporations and economic groups, and make businesses’ executives more responsible for ensuring the restructuring is on track.

SOE equitization is part of the economic restructuring drive stated in the National Assembly’s Resolution No.10/2011/QH13 on the socio-economic development plan for 2011 to 2015. The restructuring is also implemented in public investment and the banking system.

Commenting on Vietnam’s economic growth, Kalra said the growth rate of 5-5.5% for a developing country like Vietnam is low as the nation should have achieved higher growth thanks to its huge potential.

However, he said macro-economic indicators have improved in the past two years, helping lift the confidence of the business community.

More foreign investors have shown interest in the Vietnamese market, Kalra said.

Expert Nguyen Mai told the seminar that foreign direct investment is the strongest momentum for Vietnam’s economic growth and more multinationals are relocating their factories from China to Vietnam.

Mai predicted FDI disbursements this year would increase 8-10% over last year and that there would be “a new wave of investment in Vietnam.”

SGT/VNN