Restructuring Vietnam’s Financial Sector and State-owned Enterprises
To ensure that Vietnam’s macroeconomic and structural policies could contribute to sustainable economic growth in the wake of the 2008-2009 global economic crisis, government officials participated in an exchange with Indonesia, Mexico, and Chile. Vietnamese officials learned how to institute practical reforms leading to better assessment of their banking system, and developed a policy reform agenda for preventative and corrective measures.
The government of Vietnam sought to undertake structural reforms to restore the progress in economic growth and poverty reduction it had experienced before the 2008-09 global economic crisis. Two of its economic development strategies – the Socio-Economic Development Strategy 2011-20 and the Socio-Economic Development Plan 2011-15 – have identified the restructuring of its banking system and state owned enterprises (SOEs) among the primary reforms needed to revive economic growth. Such plans are indicative of the government’s commitment to these reforms and their progress in doing so.
Notwithstanding deficiencies in the existing regulatory and policy frameworks, Vietnam lacked the knowledge to properly assess existing financial institutions and SOEs. In this light, it also lacked the capacity to develop a realistic restructuring and reform plan for its banking and SOE sectors – with an implementation plan to support future economic stability.
In arranging an exchange with Indonesia, the Vietnamese government requested assistance from the World Bank, which had successfully administered reform strategies that overcame the 1997-98 Asian financial crises in a comprehensive, systematic manner. They hoped to learn from Indonesia’s experience in assessing the impacts of the financial crisis, and to move forward with critical reforms in the banking and SOE sectors – in a focused, consistent, aggressive, and thorough, yet transparent manner.
Indonesian participants were officials from the economic ministries, Indonesian Bank Restructuring Agency (IBRA), Bank Indonesia, commercial banks, and international financial institutions. And Vietnamese participants were from the Finance and the Planning and Investment ministries, State Bank of Vietnam, National Financial Supervisory Commission, and Vietnam Academy of Social Sciences.
The exchange was structured into two study visits, as follows:
- Study Visit 1. During March 17-23, 2013, nine Vietnamese representatives from the agencies listed above, along with one Bank official, focused on exchanging experiences in bank and SOE restructuring – through discussions with Indonesian officials and site visits to relevant agencies. Participants learned from senior officials and policy makers about the Indonesian experience in handling the financial crisis and reforming its economic and financial system.
- Study Visit 2. At the request of the government, the Bank supported a second study visit. A small delegation comprising of a planning and investment ministry vice minister and the Development Strategy Institute president participated, both interested in Latin American country experiences in macroeconomic management during turbulent times. The delegation went to Mexico and Chile, during June 27-July 3, 2013, where they met and discussed key issues: these included sustainable debt management, economic planning, competitiveness enhancement, and macroeconomic policy coordination. In Chile, the delegation exchanged on issues related to the management of public investment, regional development, and debt management.
Participant understanding of keys steps that can be taken to reform and restructure its banking and SOE sectors was increased by:
- Raising awareness of the importance of recognizing weaknesses and gaps within the banking and SOE structures. This contributed to Vietnam undertaking – jointly with the International Monetary Fund (IMF) and the World Bank – a financial sector performance program aimed at the following: gaining a thorough understanding of the issue and needs; establishing the Vietnam Asset Management Company to deal with non-performing loans and re-establishing confidence in the economy; establishing specific deadlines for reform interventions; and then moving toward a long-term reform agenda, including corporate governance and banking sector oversight.
- Increasing the knowledge and capacity of participants and familiarizing them with the framework for assessing banks, including evaluation principles and interventions. This equipped them to address problematic banks through mechanisms like dissolution, mergers, nationalization, the use of bridge banks, and the purchase of off shore and ownership holdings.
- Enhancing and strengthening networks as the Vietnam Academy of Social Sciences initiated a follow-up exchange, inviting two former Indonesian ministers they had met during the exchange to visit Vietnam and speak at workshops with high-level policy makers. As such, ongoing expertise was provided by experienced policy makers.
- When seeking to apply lessons learned on institutional or policy reforms from an exchange, it is important to have a solid communications strategy, including public information campaigns, thus ensuring credibility and public confidence in the reforms.
- It is important to select knowledge-providing countries where there are clear similarities regarding the challenges and context with the knowledge-receiving countries, so that lessons learned can be applied more efficiently.
- During knowledge exchanges, it is important to also recognize the value of informal conversations as these often lead to additional sources of information and shared-experiences. “There were often intensive discussions within the delegation after the meetings, and in general, the delegates view that the Indonesian lessons are very useful for Vietnam because of a high degree of similarities between two countries.” – Study Visit report
The exchange was funded by the South-South Knowledge Facility and coordinated by Bank staff in collaboration with the government of Vietnam. The Bank team also contracted an Indonesian expert to come to Vietnam and support ongoing efforts in restructuring of SOEs and their management.
The participating Indonesians were from the Ministry of Finance (vice minister), Ministry of State-owned Enterprises (vice minister and former minister), PT Perusahaan Pengelola Aset (AMC, chairman), Indonesian Banking Restructuring Agency (former chairs and deputy chairs), and Indonesia Financial Services Authority (OJK, or Otoritas Jasa Keuangan). The delegation also met with representatives of the World Bank (country director), IMF (senior representative and former IMF representative), chairs of private banks, a leading Indonesian economist, and a university professor.
The Indonesians were very supportive during the exchange, and offered the Vietnamese delegation candid and comprehensive suggestions from their experience. They also stated that they are looking forward to additional exchanges with their Vietnamese's counterparts on banking system restructure and SOE reform as well as on other economic development topics of mutual benefit and interest. Following the exchange, a report was also prepared by the Vietnamese delegation to the prime minister, and a seminar was also planned after the exchange to share views with other Vietnamese policy makers.
Vietnam Academy of Social Sciences
- Prof. Dr. Nguyen Xuan Thang, President
- Nguyen Thang
- Nguyen Thanh Ha
Economic Advisory Board for the Prime Minister
- Truong Dinh Tuyen, Head of the Advisory Board, former Trade Minister
National Financial Supervisory Commission
- Vu Viet Ngoan, Chairman
Ministry of Planning and Investment
- Cao Viet Sinh, Vice Minister (second visit)
- Bui Tat Thang. President, Development Strategy Institute (second visit)
- Le Manh Hung, Enterprise Development Department
- Nguyen Dinh Cung, President, Central Institute for Economic Management
State Bank of Vietnam
- Pham Huyen Anh, Banking Inspectorate Agency
Ministry of Finance
- Nguyen Duy Long, Corporate Development Department