The reform of Vietnam’s financial system has been a long time coming, but Hanoi might finally be on to something as the National Assembly focuses its attentions on the implementation of Central Resolution 4, a self-criticism campaign that it hopes will penetrate every echelon of society and force reform.
The resolution was announced at the start of this year and Hanoi has just held regional meetings around the country to identify where the problems lie. Local newspapers use words such as alienation and disease to describe the way things have been run in the past, compared with words such as confidence, truth, strength and bravery to describe the desired effects of the campaign.
“Every officer, party member has to review themselves in every field they worked. For leaders, the higher they are, the better they have to be. All the officers and party members must seriously self-criticise and criticise because this is the motto and reason to existence of the party,” reads one report of a speech at a local committee meeting.
Self-criticism has long been a staple of communist party rule. It involves admitting personal and professional faults, often in a public arena. The principal sentiment behind the movement is one of confession which leads to a desire for reformation. In some ways it is akin to the principle of financial transparency.
The wheels of this are clearly in motion as the banking system begins to admit its sins and purge itself of impurities. For many years, official non-performing loan (NPL) estimates were below 3%, but the latest report from the State Bank of Vietnam (SBV) estimates that the reality is closer to 9%.
In mid-July, the Ministry of Finance (MoF) published a report revealing that the indebtedness of 85 of Vietnam’s SOEs is around 16% of the country’s GDP. It also warned that many SOEs face the risk of bankruptcy.
Many of the finer details of the report are somewhat unsavory: 30 state owned businesses have debts three times higher than their equity and seven of them have ten times more debt than equity. But the fact that the MoF is willing to admit this is a significant step in the right direction, as is the government announcement that it will force SOEs to publish their financial statements on an annual basis.
When state-run shipbuilder Vietnam Shipbuilding Industry Group (Vinashin) defaulted on an international loan last year, chairman and CEO of the company, Pham Thanh Binh was arrested for disguising the company’s dire financial condition. It is this sort of deception that Central Resolution 4 will attempt to root out.
Equally, if the self-criticism campaign is powerful enough to convince individuals and businesses that reporting on the shortcomings of others is laudable, transparency could begin to increase even among those smaller businesses that are not forced to report their debts annually.
Despite its many shortcomings, such as a lack of progress in ambitious M&A plans for the banking sector, the party’s commitment to the cause of financial reform has been noted. Pamela Cox, Vice president for East Asia and the Pacific region at the World Bank met with Vietnamese national leaders in the capital on July 26 to discuss the progress made.
During the trip, Vietnamese minister of finance Vuong Dinh Hue suggested to Cox that the World Bank should help the Vietnamese government to restructure its debt-riddled SOEs and help it to construct transparent and effective policies and legal frameworks.
He also asked for financial aid in managing bad debts, according to local press. It seems that Cox has agreed. In August, the World Bank will send a working group to Vietnam to discuss how best to assist the SOE scheme, which involves restructuring debts, disposing of non-core assets and privatisation of the companies, a process that the government calls ‘equitisation’.
An overhaul in Vietnam’s financial sector will require a tremendous amount of political will, but it is possible that this is exactly what Hanoi possesses. For Vietnam, this is not just an economic crisis, but a deeper issue that stems from the communist party’s relationship with the Vietnamese people. Resolution 4 could bring the decision makers and the politicians and the party’s vested interests very firmly behind the need for economic reforms, and the campaign is one way of making sure that everyone gets the message pretty clearly. Perhaps the regulators investigating the Libor scandal ought to take note.