The Saigion Times Daily: Vietnam is once again trying to speed up the State-owned enterprise reform. What is your comment?

- Jonathan Pincus: I think the Government is very serious in the SOEs reform. The lessons of the past few years send a very strong signal that largest SOEs are not making positive contribution to the economy and that achieving higher economic growth in the longer period requires structural reform as well as reform of SOEs. This is a change because four or five years ago I did not think it is true. At that time many people insisted large SOEs were the main driver for economic growth and the Government could create national champions from large SOEs which formed the leading sector of the economy. It is a wide perception in the Government that the largest SOEs are not competitive now, so I do believe the Government is serious about SOEs reform.

As senior country economist of UNDP Vietnam years ago, you have witnessed Vietnam’s efforts to reform SOEs in the past decade produced no good results. Why are you positive this time?

- As I said before, I do believe that now there is awareness that SOEs reform is central if Vietnam is going to achieve a higher rate of growth over the next decade. Everybody understands that. I don’t think it was 10 years ago. Ten years ago there was still a very strong belief among many policymakers that SOEs were going to be the leading sector forever in Vietnam. The majority of policymakers now understand that making SOEs competitive and moving many of them into the private sector were ultimately better for the economy and accelerate growth. It it’s a big change. This is an important change. Five or six years ago there was a massive push consolidating SOEs and creating huge conglomerates out of existing SOEs in order to drive growth forwards. Now we can conclude that doesn’t work partly because of the global environment, and moreover, these firms don’t have incentives to compete. They actually become bigger, but not to become more efficient. As a result, they borrow a lot of money, but their end results are not good. They don’t export, they haven’t developed technological capabilities, they operate in too many sectors, which are not generating revenues. So there are lots of problems. People now recognize they cannot create huge SOEs. Now it is a challenge to create companies that are more competitive. Whether they are state sector or private sector, they need to be forced to compete.

What point in the program that attracts your attention the most?

- The current strategy relies too much on equitization as a reform mechanism, but it is not enough, firstly for competition and secondly transformation for the governance like transparency, management, ownership. I think there is a difference between large SOEs in Vietnam and large state companies in China. One of the differences is that large SOEs in China are subject to domestic competition. Even if they are state-owned, they have to compete with other private and other public companies. They don’t have monopoly power. The second thing the Chinese have done very effectively is that they have adopted international standards of good governance in their large SOEs. They’ve done it partly by selling shares on overseas stock markets in Hong Kong, Singapore or New York, and partly by bringing independent managers and directors from outside into the firms to actually shake up management of their enterprises in order to be internationally competitive. None of this is seen in Vietnam.

So I think equitization is just a part of the answer. It needs to reform a company by two things. One is more domestic competition, and the second is transformation of the governance of these firms even after they are equitized. I think too much emphasis on equitization is not enough to improve their competitiveness.

SOEs are required to conduct social policies while they also have to ensure business profits. How do you think about this?

- People now are increasingly aware that you cannot formulate social policies through SOEs. The idea that you can use SOEs for social policies is generally recognized a bad idea. However, that doesn’t mean they can stop immediately. Electricity for example, there is appreciation now that selling electricity very cheaply as a social policy makes it very difficult to develop the grid. It means to impose massive costs on EVN and huge governance problems. It would be much better to create market prices and turn EVN into an electricity regulator rather than the owner and provider of electricity. That would be huge step forward to achieve it. But moving toward the target is quite complicated both economically and politically. One of the reasons SOEs fail to become internationally competitive is that they are asked to do many things. They are asked to make money, to support the poor, (and) there is a long list of things they are asked to do. They can’t do it all and are still competitive. But still it can take time because the practice has been in place for many years and not easy to dismantle.

Source: SaigonTimes