Advice to Vietnam : Privatize
HANOI - Vietnam should reduce its support for state-owned companies in order to meet its economic growth targets, the United States, the European Union and the International Monetary Fund have advised the country's government.
As of September, Vietnam had cut the number of government-owned companies in the country to fewer than 3,200 from more than 5,600 in 2001, based on World Bank figures. But the country's banking system faces a high level of bad debt in part because of loans to state companies, according to a government report distributed Tuesday at the opening of a two-day conference in Hanoi of countries and agencies that provide Vietnam with development assistance.
Vietnam hopes to raise its annual growth rate to 8 percent from a 7 percent average over the past 5 years. But that target could be jeopardized by the government's retention of a controlling interest in the majority of larger state companies, a statement by the U.S. delegation to the meeting said.
"The dominance of the state sector continues to crowd out capital that could otherwise be used by the private sector," it said. "We urge the government to reconsider its decision to retain control over many state-owned enterprises, to address the debt issue, and to significantly expand the role of the private sector."
The development of privately held companies is essential if Vietnam is to maintain its level of economic growth, the European Union said in its statement to the meeting.
"Continued support for non-competitive state-owned enterprises will drain resources and hinder economic development," it said. "The process of reform of state-owned enterprises needs to be accelerated if Vietnam's ambitious economic growth targets are to be achieved."
Vietnam views the sale of foreign bonds as a new channel for raising capital, Deputy Prime Minister Vu Khoan said Tuesday at the opening of the meeting.
Vietnam used a $750 million global bond sale in October to finance its state-owned shipbuilding industry, the World Bank told the meeting.
That use of the money worried the International Monetary Fund which warned the conference of the "large overall size and uncertain quality" of planned investments by some other state-owned industries.
"Planned further issues of government-guaranteed bonds by major state-owned enterprises could increase external vulnerability," the IMF said, urging the government to reconsider its bond issuance plans.
Vietnamese banks have reduced the overall pace of loan growth by slowing credit to state-owned companies to a 28 percent annual rate in June from 36 percent for all of 2004, according to World Bank figures.
Vietnam's policy is to retain full ownership of industries considered important to public security and national defense, and of those where other businesses cannot or do not want to participate, the National Steering Committee for Enterprise Reform and Development told the meeting. For other state-owned companies, government policy is to attract foreign investment, it said.
Khoan cited the sale of shares in the Vietnamese dairy products company, Vinamilk, as an example.
Still, the sale of shares in more than 2,400 state companies in the last five years, "accounts for only 10 percent of the total capital of state-owned enterprises," the U.S. statement noted.
By Jason Folkmanis - Bloomberg News - December 7, 2005.
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