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Draft law on public funding has much room for improvement

Update: September, 30/2014 - 09:42

Nguyen Dinh Cung, Director, Central Institute for Economic Management, tells Thoi bao Ngan hang (Banking Times) that the new draft law on management and use of public funding has several flaws.

What are your thoughts on the draft law and what's the likelihood of it passing?

As far as I know, the drafting committee is waiting for the National Assembly to discuss and approve the draft law at the National Assembly's year end meeting. However, I should say, the draft is hanging in the balance. Many of its articles and provisions are overlapping and redundant, or lacking in substance.

Of the law's seven chapters and 63 articles, there are many articles which must go while remaining ones must be revised. The draft's language largely fails to reflect the law's key objectives, that is to revive and update how the State manages and invests public funds. And that's not all. The law adds more institutional bottlenecks that will drag down ongoing reforms in State-owned enterprises.

For example, Article 3 contains 11 provisions elucidating the language used in the law, but all of them need revision. Provision 3 explains the meaning of the phrase "an enterprise belonging to an ownership representative is an enterprise being established by that representative or is assigned to be run by the latter".

Legally speaking, the concept is murky. All enterprises must have their master, either in name or in fact. So how exactly does this provision clarify who and what fits the mould of an ‘ownership representative'? When we talk law, the language must be precise and specific; this requirement is absolutely essential.

There are a few more points that I think deserve further discussion. To mention one, should an ownership representative manage an enterprise's capital? This has never been done in any country in the world. We need to think about it carefully.

Is there anything in the draft law you think runs counter to the 2013 constitution?

Article 53 of the 2013 Constitution says "Land, water resources, mineral resources, resources in the sea and airspace, other natural resources, and property managed or invested in by the State are public property, owned by all the people, and represented and uniformly managed by the State".

According to the constitution, the National Assembly has the highest power and is directly elected by the people. That's why the National Assembly should be the agency that has the absolute and primary responsibility to be the ownership representative of national enterprises. The National Assembly then assigns executive responsibilities to the Government to be the steward of State-owned properties.

As a matter of fact, all laws are approved by the National Assembly. So the National Assembly divests powers to the Government to act on its behalf.

The draft law, however, only says that the Prime Minister will report to the National Assembly and update them on how the State budget is managed and invested in enterprises. This is contrary to the implicit flow of power and information that the constitution envisions.

Another important item in need of clarification is whether the Prime Minister acts as an ‘ownership representative' of the State enterprise. Legally speaking, the Prime Minister has the power, but what are his actual duties and responsibilities? It is not clarified in the draft law.

Last, but not least, what criteria can be used to assess whether the Government has completed its assigned tasks or not? If not, who will take the blame?

What kind of supervision will there be over State budget funding of enterprises?

Chapter 5 of the draft law covers this matter, but it does not clearly say who supervises whom, what must be supervised and who will take responsibility for the outcome in the end.

In short, the success of on going reforms of State-owned enterprises still hangs in the balance. To be successful, there are two things we have to do immediately. First, we must tighten up the State budget and be disciplined.

Secondly, we must strictly impose market rules on State enterprises and improve their management. One of the first principles in applying market rules is to separate the ownership representative role from the State-management role.

So far the draft law has yet to identify who will act as the State enterprise's ownership representative. — VNS

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