SUMMARY

Over recent years, public investment and investments made by state owned enterprises (SOEs) have accounted for about 50 percent of total investment made by the whole society. On the one hand, public and SOEs investments have made important contribution to socio-economic development. But on the other hand, ineffective public and SOEs investments have been an underlying reason of higher inflation rate of Vietnam, comparing to those of other regional countries. Inflation in 2007 and some first months of 2008 have even increasingly escalated due to increased credit which is partly resulted from out-of-business investment extension to their un-mandated fields.

The working-paper is not just to mention the cut of public and SOEs investment, and the control of coporations and groups’ investments with a view to curbing inflation pursuance to the Decree provided by the National Assembly, but also to conduct an endepthed study some more fundamental and long-term matters related to the effectiveness enhancement of public and SOEs investments, serving rapid and sustainable development in medium and long terms.

1. Public investment

Mistakings in decisions regarding investment and implementation, and corruption in construction investment projects causing losses and wastefulness of significant resources are major reasons of poor investment performance. It is estimated that about 15 percent of state investment into construction works are losted.

Such losses and wastefulness of many investment projects make state investment capital poured into some individuals’ pockets instead of the projects. Money appropriated by corruptors is spent in personal consumption, or speculated in secirities and real estate markets, increasing circulated money and virtual prices, and accelerateing inflation.

The obeidience and respect of laws, regulations, and rules, as well as virue and knowledge of public cadres are poor. There remain many weaknesses and shortcomings in the work of guiding, executing, and manaing investment and fundamental constructrion projects. In which, irresobsibility, ignorance of reality, self-interests of the industry and/or locality, and performanism have led to wrong investment decisions.

As a matter of fact, some planning works just to fulfill investment registration procedures, making investment decisions without cautious preparation and a scientific base, poor connection between socio-economic planning and land use planning and/or urban development planning are found popular. Inter-industrial, inter-regional proceedings of planning projects and implementation are confusing; planning in term of areas remains overlaping, or even unconsistent. Moreover, implementation supervisor is not carried out in a strict and systematic way.

Inspectation, examination, and audit of state agencies are not carried out in a regular and constant basis; performance of supervising work remains poor.

Ministries and localities are found lacking of initiatives and creativeness in taping other capital sources, such as: foreign and private investment, for developing infrastructural works.

Policies and laws are formulated basing on a closed analyses and targets of public authorizing apparatus, with limited participation of stakeholders who are regulated and affected by such laws and regulations. This leads to some shortcomings in provided policies and laws.

The decentralization of state budget investment management has just concentrated on investment management, with inefficient attention paid to the promulgation of rules and regulations for the decentralization implementation, related sanctions, and examining and controling mechanisms.

2. Out-of-business investment made by coporations and groups

There are many coporations and groups operating in various industries and fields, and making investment out of their mandated play-grounds.

According to a report provided by the Ministry of Finance, by the end of 2007, total amount of out-of-business investment made by 53 groups and coporations reached more than VND 111,037 billion, 13 percent higher than 2006. Of 70 coporations and groups, 28 ones made capital contribution to the establishment of securities companies, commercial banks, fund management companies, insurance, and real estate companies ưith total capital of VND 23,344 billion, accounting for 8.7% of ownership capital.

Such investments have raised difficulties to the state management of groups and coporations’ performance, as well as to the state bank in monetary circulation management. Unless they are stopped, the speculiveness in securities and real estate markets will be increased, adding more pressures to inflation.

The implementation process of state capital trading mechanism has taken place rather slowly, outward foreign investment has not been strictly controlled. The Governmental Decree No. 199/2004/ND-CP dated 3rd December 2004 providing regulations on the management of state-owned company finance and state capital invested in other enterprises has not provided close binding of outward investment of groups and coporations.

In Vietnam, groups and particularly coporations have been established on a basis of administrative decisions rather than the law of nature and economic accumulation. While, there is inefficient awareness of adverse impacts of economic concentration into some enterprises, which will imply some risks if they are not strictly controlled, and free to raise their products and services’ prices irrationally.

3. Some measures

The policy of cutting investment pursuance to Decision No. 390 of the Prime Minister must be pernetrated into all ministries, localities, and SOEs so that they really share that politic determination, creating unified and decisive implementation, regular examination and inspection, and strict sanctions.

Controls of SOEs investments must be done in parallel with controls of outward investments, particularly in securities, banking, and real estate sectors, by amending financial regulations towards connecting investment with the utility and practicality of the works. Further promoting the equitization of SOEs, and enforcing accountability of coporations. It is necessary to provide preliminary reports on coporation models pursuance to the 3rd Central Plenum Resolution (Section IX).

Authorities of all levels must focus on providing guidance and reforming administrative procedures related to public and SOEs investments. To review and assess existing procedures, thereby abolishing, amending, and suplementing unproper ones. To publicize and transparentize adminstration procedures.

To build a professional and fair civil servant system consisting of officials playing the role of servants to the people. To supervise civil servants carrying out their missions as regulated by laws and their responsibility. In addition to supervising responsibilities of the heads of any administration bodies and mass media, it is required to bring into full play the role of citizens as supervisors to any mistakes and misdoings of state officials. Once noticing that their behaviours are beyond permission by laws, they should deploy their action, inquiring consideration and timely settlement by authorized persons.

To build-up a strong public sector and state apparatus. It is necessary to provide measures of attracting and using talents, stopping brain-drain in state sector; while there should be reasonable policies of streamlining state apparatus, unproper officials should be moved to more suitalble positions or even dismissed if found self-interested or commiting corruption.

To improve quality of planning work. To ensure the consistence between industrial planning and regional and teritorial planning. Accordingly, the industry of natural resources and environment will not responsible for concrete planning on land use as regulated by the 2003 Law on lands, but the construction industry will be responsible for concrete planning on urban land use, and the agriculture industry will be responsible for that of agricultural land.

There should be transformation from administrative planning, lacking of feasibility and ignoring market requirements, to market-based planning. Thereby, roadmap and schedule of competiveness enhancement for products in each region should be provided. It requires to make intime adjustments to planning given changes of market demands.

Industries and levels have to appreciate guidance regarding planning provision and implementation; planning should be seen as a foundation for making industrial and local development investment plans. To strengthen the examination of planning implementation, fighting against suspending planning.

To push up more regular examination, inspection, and audit by state agencies. State bodies can sign contracts with professional organizations to proceeding inspection and audit work. Violations must be strictly fine and punished.

To increase supervision by resident communities pursuance to Decesion No. 80/2005 of the Prime Minister to bring into full play the role of habitants in supervising and assessing the obeidiance of regulations on investment management by authorized agencies, investors, project management units, contractors, and executors during the investment implementation process.

To encourage private sector and non-state economic sectors to participate in infrastructure development under suitable investment forms so as to gradually decrease the list of works with 100 percent of state capital. To conduct research and issue laws regulated proper forms of Public Private Partnership-PPP.

People and enterprises should have their deserving foodholds in policy making process. Suggestion consultation should be carried out under various forms given conditions of specific groups, including organizations, individuals, and especially business association. It is necessary to conduct sociological surveys, and assessments on socio-economic impacts of relevant policies. Policy makers should be provided with efficient information to overcome self-interests, and group-interests.

It is required to follow a rule that state budget is a property of the people, thus it should be controlled and decided by the people. Therefore, beside national works decided by the National Assembly, the role of people committees should be brough into full play in making decisions related to the use of state budget capital for development investment.

Source: VNEP, June 2008