The plan was passed by Prime Minister Nguyen Tan Dung last weekend after it had been put forward at the National Assembly (NA) meeting in late 2012. Public investment, banking and State-owned enterprises (SOEs) are the three main areas for restructuring.

The plan was drawn up in hope of recovering the economy that has become more vulnerable to the vicious circle of macroeconomic instability as resources were used improperly, especially in the three areas mentioned above.

However, Nguyen Dinh Cung, vice president of the Central Institute for Economic Management, deemed it not easy to carry out economic restructuring at present because the economic situation had become very complicated.

“The focus of the economic restructuring program is reallocation of resources. Inefficient allocation of economic, financial and land resources has become deep-rooted and not easy to change,” Cung said.

Macroeconomic stabilization is a foundation for economic restructuring. Only when macroeconomic stability is achieved will producers feel assured to make long-term investment, Cung told the Daily.

Besides, to create a new motivation for Vietnam, it is necessary to revise multiple laws, including the Investment Law and the Land Law, so that market mechanisms will function properly. Currently, land allocation and compensation is not following the market mechanisms, leading to the abuse of power and eliminating the driving force for development, the economist remarked.

With SOEs being the center of reform, he said this sector must operate on their own without incentives from the State. In addition, they have to disclose information like listed companies in the stock market.

Meanwhile, bank restructuring focuses on bad debt and cross ownership. Bad debt must be settled according to the market mechanism.

However, he admitted it would be hard to handle bad debt as the State had made several moves to rescue the properties used as collateral.

“When there are many requirements for saving the real estate market,… everyone, both banks and enterprises, are waiting for higher prices. Therefore, even when the national asset management company is established, the pile of assets in the form of debt will remain a deadlock,” he underscored.

As for public investment, Cung said capital must be injected into the projects with the highest economic efficiency only. Project planning must be carefully done, avoiding revisions after planning.

“Restructuring cannot be done overnight. However, dealing with the above areas will gradually untie the knot, turning the economic situation around,” he said.

Cung’s comments are similar to earlier suggestions by Victoria Kwakwa, World Bank country director for Vietnam.

She said the current growth model was one of the reasons for instability. This model heavily relies on public investment, with a demand for many loans from State-run banks.

To maintain this model, Vietnam needs rapid credit growth. However, investments turn out to be inefficient, causing uncertainties in the financial sector.

She said the current economic growth model had reached its limit and should be changed for the country to achieve higher growth.

“Vietnam should end this model and switch to another model based on productivity and efficiency,” she said.

In addition, she suggested Vietnam should separate State management from State ownership, letting SOEs compete on a level playing field with businesses in other sectors.

“The State is bearing too many functions. Why must the State run hotels and resorts? One basic principle that should be remembered is the State supplies public services,” she stressed.

SOEs and banks are mired in troubles, with some of them in a dire situation. “If this was not remedied, the problem would get bigger and more difficult to resolve,” said Kwakwa.

“When caught in a really desperate situation, you must be very painful to deal with it. Vietnam must deal with it right now. Time is very important,” she stated.

By Tu Hoang - The Saigon Times Daily - February 28,2013