Although the economy is predicted to do better, privatisation and SOE reforms will be crucial for Viet Nam's development in 2015, economist Nguyen Hong Nga tells Viet Nam News.
Recent reports point out that the world economy is still on a slow recovery path that contains many risks. The development of the Viet Nam economy still heavily relies on exports and FDI, so how does the world economy affect Viet Nam?
That is absolutely right. Viet Nam's economic growth has been based on two key pillars, exports and FDI. The economy is still heavily dependent on exports, especially to the EU, US, China, Japan and other ASEAN countries (accounting for 70 per cent).
The Vietnamese economy will be affected by demands in importing countries. It will change depending on the economic strength of those countries.
The weakness of the Vietnamese economy has been due to a lack of creativity and technology.
The current development heavily relies on natural resources and FDI. But natural resources are becoming increasingly exhausted, and we cannot control FDI sources.
For long-term development, the country needs to have policies to focus on R&D, promoting human creativity and intelligence.
Vietnamese people are very talented and hard-working. So, if there is a suitable policy and mechanism to exploit human resources effectively, the Vietnamese economy will develop as strongly as Korea and Japan.
The Vietnamese economy in 2014 was still unstable. Do you think the economy in 2015 will be a bumpy recovery, containing challenges and reforms?
In reality, the Vietnamese economy has many worrisome problems including business and production effectiveness, quality of growth and labour productivity, even though we have "nice" figures on unemployment, inflation, growth rate, export turnover and exchange rate.
One of these problems is that the State has intervened in the economy a lot and gained short- and medium-term targets, which seems to be illogical. If the economy is driven by market mechanisms, this will possibly be not good in the short term, but for the long term it will help solve many problems, especially business and production effectiveness.
Thus, the country's economy will face many challenges, especially in the reform of state-owned enterprises, using public finance effectively and fighting corruption, in addition to developing sustainably.
There are still many problems ahead and we need to have comprehensive reforms to get local people's trust back and foreign investors as well.
Can you comment about Viet Nam's economic restructuring programmes, and recommend policies for next year?
In 2014, the Vietnamese Government focused on implementing economic restructuring in three sectors, public investment, state-owned enterprises (SOEs), and the banking system.
Through the scheme, we gained some initial results. For instance, through the newly approved Law on Public Investment, state enterprise equitisation will be strongly enhanced. The banking system has been restructured, with decreased bad debt and many Merger & Acquisition activities.
However, these are short-term results, which do not yet show sustainable signs and effectiveness in the long term.
The equitisation of 432 SOEs in the 2014-15 period will become extremely difficult if the Vietnamese Government is not determined to implement equitisation. In the 2011-13 period, Viet Nam equitised only 99 State-owned enterprises.
Weak SOEs are the key reason that has made public investment less effective. This was due to poor management and weak human resources.
Therefore, we need to be determined about equitisation of SOEs in multi sectors. In addition, in SOE management, we should consider hiring foreign human resources in order to make successful changes.
Equitisation should be implemented in the banking sector to ensure healthy competition. Some experts have suggested 100 per cent equitisation of Vietcombank and BIDV. We just need two or three 100 per cent state-owned banks in the market.
What solutions are needed to promote sustainable development of the Viet Nam economy?
I want to emphasise that to make economic growth sustainable, development must be based on creativity, R&D and knowledge.
To realise this, Viet Nam needs to implement administrative and policy reforms thoroughly, and identify private enterprises as the key driver for sustainable economic development.
Furthermore, we need to root out corruption, which is a "cancer cell" on society, and create more trust in the eyes of international investors. Corruption is believed to add "transaction costs" to the country's economy, and makes it less competitive as well.
Freedom and fairness need to be guaranteed for all economic sectors. — VNS