Stability, realism are key to sustainable growth

What is your view on the restructuring process of state-owned enterprises and the banking sector?

These are two different topics. Looking at the reform of state-owned companies, there have been many discussions but I haven’t seen much action. For many countries this is also a challenging process that takes a great deal of time. If you look at New Zealand, for example, some of the major airlines are still owned by the state. Personally, I don’t think these reforms are a key driver for the economy.

More important I think is the growth of the private sector. In this area it is very important to allow and encourage growth while also improving governance and the independence of state-owned firms.

In terms of bank restructuring, this is also a long process. The State Bank of Vietnam has addressed this issue via critical steps. First was the classification of non-performing loans (NPLs). This is a critical step toward banks having a clear classification. As such, the guiding circular should not be delayed again after its review in June next year. The second measure was the establishment of the Vietnam Asset Management Company (VAMC). I expect that in the next 12 months a lot of bad bank assets will move to VAMC and over the next five years banks will have to amortize the bonds they are holding for the VAMC.

With the goal of resolving NPLs, the approach is correct but the most important question is the capital. Over the next five years banks will have to write off the loans and will suffer resultant losses. As such, I think the ownership cap and other factors will be major issues over the next six months. I believe we will see much more clarity on issues surrounding how banks will access funds to support the undercapitalised nature of the banking system.

How will recent issues with state-owned enterprises and banking system reform shape Vietnam’s economic outlook over the next couple of years?

Undoubtedly, reforming the economy is a significant challenge and will have an impact on growth prospects. Balancing reform and social needs requires a measured approach.

What are the key issues the State Bank needs to address in terms of group interests and cross-ownership hindering the restructuring of state-owned enterprises and the banking system?

Cross-ownership exists all over the world, and in itself is not a bad thing. But it is bad when cross-ownership is not passive and becomes active in influencing business decisions. The private sector should make sure their leadership and boards represent the interests of all shareholders, customers, community and staff, and not be influenced by cross-ownership. I recognise that this is a difficult mind-set and in reality it may take a generation for this to really work as the founders and shareholders of companies can rarely back away from something they started and feel responsible for.

The 2014 growth rate target has been set at 5.8 per cent and inflation 7 per cent. Does that sound reasonable to you?

I think it’s realistic. Even though there are challenges, many sectors are performing well such as agriculture and foreign trade which you can see very clearly in places like Binh Duong and Dong Nai. These areas will offset those facing difficulties.

In your opinion, what are the major risks Vietnam will face in 2014?

Inflation. If high inflation returns it will create uncertainty and interest rates will go up, making it difficult for businesses to borrow money, thereby dragging down production and economic growth ultimately.

In your view, what is the most important factor for government focus  in 2014?

Maintaining stability is vital to macroeconomic growth and most important, as I said before, is keeping inflation reasonably low. Now is an opportune time for new businesses because they can borrow at lower and reasonable interest rates.

One reason we are optimistic is due to our 20 year experience in the country and our observations of how the market has changed. We also recognise the value of a young population and have watched trade grow. We are encouraged by the many opportunities ahead we see for Vietnam.

However, if you look at the World Bank’s ease of business ranking for the country, Vietnam doesn’t hold a high position, and this is because of a lack of clear regulations. My recommendation is for the government to make business easier.