It’s time to boost economic reform

The recently-concluded conference of the Party Central Committee has stressed an urgent need to restructure the national economy in order to overcome weaknesses and maintain sustainable growth.

Over the past few days, the closing speech delivered by Party General Secretary Nguyen Phu Trong at the conference has made the domestic headlines as it shows the Party’s strong determination to restructure the national economy alongside renewing the growth model. It could be considered a mandatory order to speed up economic reform to meet the practical requirements of national development.

In his speech, Mr Trong analysed weaknesses of the national economy which have been warned by the economist and press circles. They include high inflation, high public debts, low foreign exchange reserves, risks of the unstable financial and real estate markets and sluggish business production.

After pointing out the root causes for bottlenecks in growth, Mr Trong stressed that it is time to revamp the economy by firstly restructuring public investment, secondly restructuring the financial market, notably commercial banks and financial institutions, and thirdly restructuring State-own businesses, with a major focus on economic groups and State corporations.

The fact is that public investment has increased sharply in recent years, making up a big proportion of the country’s GDP. However, investment efficiency has constantly been reduced with the Incremental Capital Output Ratio (ICOR) fluctuating abnormally. This means national resources have been wasted due to weaknesses in decision making, management and implementation. Inefficient investment has also reduced the competitiveness of the national economy in the eye of foreign businesses.  

There is growing concern over instability of the financial market, especially the operations of commercial banks which entered an unhealthy competition by raising the interest rate spontaneously, and poured much money in real estate projects, paying no heed to prompt instructions from management agencies. There is no denying that unhealthy developments of this market will certainly have a negative impact on the stability of the macro economy.

Another pressing issue is the slow pace of restructuring State owned enterprises (SOEs), especially economic groups and State corporations. The public has already raised concerns over the operational efficiency and the leading role of these groups and corporations in the national economy. Their ineffective and scattered investment and high bad debts have not only caused a waste of national resources, but also badly affected equality and transparency of the business environment.

The restructuring of SOEs was put forward when Vietnam began its open-door policy in 1986. However, the process has not lived up to expectations due to the pursuit of individual and collective interests.

It is obvious that these weaknesses will blur an impressive record of national socio-economic development achievements. They will also slow down the country’s ongoing transitional growth model in order to escape the middle income trap.

This is why the Party conference laid down specific principles to guide the restructuring process in the three key areas. Although it is a tough task which could be achieved in several years’ time, never before has the Party shown such strong political determination to succeed.

It is high time Vietnam speeded up economic restructuring and there is no point in slowing down this process, given national and international complications. The crux of the matter is to transform the Party’s high determination into specific action plans to drive the national economy forward.