HANOI: Vietnam has approved a broad plan to boost its economy to 2020, focusing on restructuring public investment, banks and state-owned enterprises while controlling inflation and maintaining growth.
The Southeast Asian nation’s economic growth fell to a 13-year low of 5.03 percent last year as reduced consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks’ bad debt problems.
The master plan aims for a prudent monetary policy to tame inflation while ensuring “reasonable growth”, Prime Minister Nguyen Tan Dung said in a 29-page directive signed on February 19. The plan takes effect immediately.
Vietnam plans to restructure financial markets and consolidate state-owned businesses and investment but critics worry that, given entrenched interests and opaque decision-making, getting concrete results may prove difficult.
The central bank reaffirmed that it would keep the dollar/dong exchange rate stable. Vietnam will conduct tight fiscal policy, promote exports and strictly control imports while boosting domestic production of consumer goods, the directive said.
Financial experts have proposed that the central bank devalue the dong currency by up to 4 percent to support exports, but the central bank said it was not considering any such plans at present. Moody’s downgraded Vietnam to its lowest rating ever in September last year, citing a weak banking sector likely in need of “extraordinary support”, dealing another blow to a country once tipped as Southeast Asia’s next emerging market star.
The directive said banks will focus on dealing with the sector’s overall bad debts as well as those of individual lenders, expand their core businesses, improve payment systems, avoid cross-ownership and increase transparency as part of measures to reform the sector by 2015.
Vietnam’s banking system is grappling with one of the region’s highest bad debt ratios, which rose to 8.82 percent of loans in September 2012 from 3.07 percent at the end of 2011, central bank data showed.
Analysts said the downgrade of Vietnam and eight of its banks - including two controlled by the state - did not signal a full-blown banking crisis and that the slowing economy should return to form if the government takes action.
Still, the cut compounded concerns about bad debts and the pace of so-called “doi moi” reforms begun in 1986 to build a socialist-oriented market economy.
The government directive said bad debt should be cut to below 3 percent of loans by 2015, stricter than a previous statement by the prime minister that the bad debt ratio be cut to 3-4 percent of loans by the end of 2015.
