The Saigon Times Daily: Could you please let us know your opinion about the current restructuring process of Vietnam’s banking system?

- Deepak Mishra: The banking system restructuring is one of the three economic restructurings currently underway in Vietnam. We believe this was long overdue and is the right thing to do. We think the relevant functional bodies have already expressed their intention quite clearly. We are waiting for more clarity on how the resolution will be implemented. At the moment we do not have specific and full information about how the 8-10 weak banks will be restructured, but it is believed by many that the process is already underway. It is very difficult to provide a good assessment of the impact of the restructuring on the economy due to limited information. We hope that the Government will make more information available to the market. For example, a number of banks need additional capital, and the question is who will pay for their recapitalization.

What is the most significant risk?

- The most significant risk of the restructuring process is the risk of delay. If not implemented promptly, the cost of restructuring will be much higher. Therefore, restructuring of the banking sector needs to be carried out in a timely manner, and supported by an effective action plan and with the right instruments. Recognizing the need for restructuring was already late to start with, and it is therefore crucial not to waste any more time and opportunities. The second most important point is to retain the trust of the general public during the restructuring process. This could be done through a clear roadmap and a credible plan.

What is your experience in prevention of vested interests from interfering in this process?

- It is unfortunate that the vested interest groups are gaining significant influence, which is also a feature in some of the other transitional economies. This issue needs to be examined closely and solutions identified clearly. It would have been a good thing if the interests of these groups were in line with the national interests. However, when they are driven by personal gains, the country needs a more transparent policymaking process and a sound legal system to neutralize their effects. We believe that among all economic reforms, the ones that would lead to greater transparency of the system will produce the biggest benefits for Vietnam. This is especially valuable in case of public projects and contracts, as well as in granting permits or information related to the State Budget. Once things are made more transparent, vested interest groups will find it difficult to lobby in favor of their personal gains.

Vietnam started their transition to the market economy 25 years ago, but a recent survey jointly conducted by the World Bank, the Embassy of Ireland and VCCI has indicated that the pace as we have seen is below expectations of the general public. Do you agree with this remark?

- Vietnam has not completed its transition, which explains why the size of the private sector is still relatively small and state-owned enterprises account for a large proportion of the economy. Therefore, Vietnam needs to continue moving towards market orientation, along with improving regulatory capacity of the State agencies. From a long-term perspective, Vietnam has changed drastically during the last 20 years, leading to a sharp fall in the role and importance of the State (see Vietnam Development Report 2014 at www.worldbank.org/vn/vdr) and I believe nobody would wish to return to the old days. In VDR 2012 we find that the share of State enterprises has been reduced while the opposite is true for private and foreign enterprises. However, this has happened at a much slower pace, which explains why the share of State owned enterprises in absolute terms is still relatively high. Also in the VDR 2012 we find that despite the reduction in quantity, the influence of State-owned-enterprises is still significant. This is because large State-owned enterprises have invested in subsidiary companies of other economic corporations/groups and therefore they still enjoy control over a large part of the economy indirectly.

Is this improvement happening fast enough, if compared with similar economies like Indonesia, African countries, and maybe Myanmar next?

- There is a perception that the reform process could have been faster than has been the case so far. People are still hopeful of further changes. A number of reforms have been implemented and we hope more positive changes will occur in the future.

A number of specialists said that if not carefully implemented even the State can be a risk for the market. What is your opinion on this?

This is because the State can potentially become a very dominant player in the market. In many countries, the State is allowed to participate in the market provided that a comprehensive regulatory framework, such as a credible competition law, is available where the State, private enterprises and foreign enterprises can compete against each other in a level playing field.

The year 2012 has been predicted to be a challenging year for Vietnam’s economy. What is your projection of Vietnam’s economic growth?

- While 2012 will be a challenging year, we think it will be less challenging than 2011. If you remember, 2011 was a year of significant difficulties for the Vietnamese economy, especially in Quarter 1, when foreign reserves were falling and interest rates were being raised. We believe 2012 will be a year with greater macroeconomic stability. Obviously we will face some new challenges such as slower growth, a troubled banking system, slowdown in the real estate market, and an unpredictable world economy, but they can be handled with appropriate polices. We believe that Vietnam’s GDP growth rate for 2012 will be close to last year’s level (5.89% for 2011) – in the range of 5.5-6%.

Source: SaigonTimes.