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SOEs need to take responsibility

Update: December, 21/2013 - 11:21

Nguyen Dinh Cung, acting director of the Central Institute for Economic Management, spoke with Nguoi lao dong (The Labourer) newspaper about the plan to restructure the State sector.

In your opinion, what have been the programme's major achievements in the past two years?

A key objective of the programme is to switch the basis of the economic growth model from relying on natural resources investment to other areas offering a high level of productivity and comparative advantage.

Looking back at the programme, I'm sorry to say not much has changed. The current shifts are not strong enough to fundamentally change the mechanisms governing public investment and the management of state own enterprises.

We don't have an economic recovery driven by increases in public investment, or in the selling of more government bonds. We have not seen the light at the end of the tunnel.

Can you explain why progress has been slow?

By now proposals to restructure 68 state entities have been approved and 101 proposals on sectoral reform have been accepted. How to implement these proposals remains a complex issue.

One pertinent example of this is divestment in non-core businesses by state-run corporations. Under the Government's programme, the winding down of non-core business must be completed by 2015.

However, there is still a lot of confusion about this notion of ‘non-core businesses'. In reality, the winding down of non-core business investment means re-allocating resources to compete more effectively and efficiently in a market-based economy.

Its key purpose is to use State resources to invest in areas that will yield social and economic returns on investment. However, in reality, re-allocating capital only occurs when businesses are unprofitable.

In some cases, owners of unprofitable companies have also tried to sell their shares in failing companies for a very high price, stifling progress in this area.

What measures should be taken to resolve this trend?

It is imperative to change our thinking and change the legal framework to bring the actions of State corporations, in regards to non-core businesses, in line with the Government's roadmap.

The Government needs to provide specific instructions on how to incorporate the real cost of capital into assessments of seed capital so that we can forecast a return on investment.

Additionally, the Government needs to come up with a mechanism to assess the re-allocation of investment from non-core businesses.

If SOEs are still regarded as important levers in the market economy, what are the limitations of these actions?

It should not be the onus of the Government to impose market rules on the state-run sector. These initiatives need to be self-driven and adopted by SOEs themselves if they truly wish to compete effectively in the market place and not rely on public funding.

In recent years, the Government has begun to impose market rules on State corporations, however they have not been adhered to. More importantly, public investment in SOEs removes the imperative to become more efficient.

Whenever they have faced difficulties, the State has extended its hand to rescue them through tax reductions, exemption and extensions on debt repayments.

This special treatment has hampered the restructuring process at the state-run sector level and the macroeconomic level. SOEs need to stand on their own feet and take responsibility for their businesses.

The Government cannot protect them forever. That's the rule of a true market economy! — VNS


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