This week, in order to better understand the extent of the problem, the Ministry of Planning and Investment will send a team to inspect the use of investment capital by big state corporations.

Inspecting investment capital sources

For some time now, the financial situation of state corporations and companies has not been strictly controlled. Many have randomly invested in areas outside their given scope.

According to a report on 70 corporations and companies, as many as 28 are operating in the field of securities investment, establishing securities companies or investing in such areas as fund management companies, commercial banks, and real estate with a total investment value of VND23,344 billion. Given that, the stock market have recently fallen by 70 percent, the real estate market is nearly frozen, and the banking system suffers from poor liquidity. The question is how State corporations and companies can overcome these difficulties to put the national economy on a sound footing.

Dr. Cao Si Kiem, former governor of the State Bank of Vietnam, said that leaders of state enterprises and corporations do not have experiences in investing in other fields, so they are likely to face many risks. In his view, administrative measures must be taken to impose penalties for violations so that the issue will not affect the national economy.

Auditing three State corporations and economic groups

It is difficult to get a handle on the real situation of State corporations and economic groups due to a lack of transparency in financial statement reports and real figures of State budget’s spending. Therefore, the Prime Minister has instructed inspection teams to conduct a thorough audit.

During this year’s auditing process, the State Audit worked with three major entities, namely the Electricity of Vietnam (EVN) Group, the Vietnam Coal and Mineral Group and the Vietnam Maritime Corporation. The audit work focused on expenditures, production costs and revenues from the coal and electricity sectors with the aim of helping the Government design a roadmap for increasing the price of coal and electricity.

This week, the State Audit began inspection of the EVN Group in what is considered the largest audit programme so far. The results on the electricity sector’s profits and losses will be made public.

Dang Van Thanh, Deputy Chairman of the Vietnam Accounting & Auditing Association (VAA), said it is not a problem that the electricity sector is now investing in diverse fields, since many international groups do the same. The question is whether or not the electricity sector invests wisely. When the sector invests in other fields, it has to consider the pros and cons, he added.

The fact that many State groups have injected capital into other fields demonstrates that the oversight of State capital investment has been weak. Vuong Dinh Hue, head of the State Audit, said that his agency’s responsibility is to identify and analyse new problems arising from the national economy. Investing in other fields is not something of a novelty since it has occurred for several years. In the past, the State Audit monitored the use of capital investment in an enterprise’s own business operations, but it did not concentrate on assessing its investment structure.

Mr Hue said: “It is very important to accurately identify the extent to which economic groups invest in other fields. At present, we have only the groups’ own reports to check up on their performance. The auditing figures this time will help the Government and functional agencies to appraise precisely the effectiveness of economic groups and corporations so that they can take suitable measures to combat inflation.”

The group model is being developed in Vietnam. However, he said the groups’ investment in other fields is posing many risks in terms of finance, banking and real estate. The inspection of capital investment by big corporations and groups will help the national economy iron out snags to achieve a steady growth, he added.