Workers watch as a new ship is launched by a Vinashin subsidiary. In the wake of major corruption and mismanagement scandals, the government aims to make state-owned enterprises as transparent as listed companies.
The government's decision requiring state-owned enterprises to make greater financial disclosures will raise the public sector's competitiveness and boost investor confidence, but improving the legal framework is essential for it to deliver full value, economists have said.
State companies would have to report their quarterly and annual financial performances and extent of state ownership on their websites or face fines, Deputy Prime Minister Nguyen Xuan Phuc said last week at an ongoing session of the National Assembly.
"This will help combat corruption and wrongdoing at state-owned companies and groups," he said.
The goal is to make SOEs as transparent as listed companies.
Le Dang Doanh, an economist, said: "This may be a positive measure, but it will only be fully effective if accompanied by an improved legal framework."
Antitrust regulations to prevent monopoly by economic groups and laws to ensure transparency in management and staff appointment should be passed for the new measure to be implemented effectively, he said.
In addition, the disclosures should be verified by independent auditing firms to ensure their correctness, he said.
Kenneth M Atkinson, managing partner at auditing and business consultancy firm Grant Thornton Vietnam, said: "I think the call to transparency and accountability of many SOEs is way overdue and this requirement to file financial statements every quarter is a step in the right direction.
"However, the key question is will the SOEs comply with this requirement and how will the Ministry of Finance or the State Audit Office deal with SOEs who do not comply.
"If there is no enforcement or penalties for non-compliance then it will be a fairly meaningless exercise because the well managed SOEs will comply and others probably will not."
He said the measure by itself would not raise competitiveness or boost investor confidence unless it is accompanied by others such as setting performance goals and indicators and a way of sanctioning management for not meeting goals and objectives.
Vu Xuan Thuyen, an economist with the Ministry of Planning and Investment, said the information disclosure would help the public and government monitor the economic groups' business and quickly detect their faults.
Enterprises used to make reports, but only to management agencies, he said, admitting some of the agencies and their staff would take bribes to ignore or cover up fraud.
With lax laws, some enterprises were committing violations for years without being detected, causing huge loss of public money, he said, pointing to the example of Vietnam National Shipping Lines, often known as Vinalines.
The government began an investigation into Vinalines last May after state inspectors found many wrongdoings committed at the company between 2007 and 2010, including the purchase and inefficient use of old ships.
According to the government, Vinalines had incurred losses of more than VND2.6 trillion (US$124.7 million) last year and VND1.2 trillion in 2010, but falsely reported profits.
Two of its executives have been arrested, while Duong Chi Dung, a former chairman, is sought by the police.
Atkinson said: "Any case that exposes mismanagement of state resources and lack of transparency does nothing for investor confidence or lenders confidence.
"If the government does not stand behind the obligations of SOEs which run into financial difficulties because of mismanagement and improper use of resources, it is damaging to the international credit rating of SOEs and the government itself and limits access to international debt and capital markets."
Thuyen said the lax regulations have also given rise to a situation where state overseeing agencies can deny responsibility for violations committed by SOEs.
Economic groups like Vinalines and shipbuilder Vinashin, which almost collapsed in 2010, have been allowed to make investment decisions without seeking permission from the Ministry of Planning and Investment, Minister Bui Quang Vinh told the National Assembly last week.
"As they have been authorized to decide on their own projects, the ministry was not aware of the activities of Vinashin and Vinalines."
Many SOEs, which get huge bank loans in Vietnam, are inefficient, causing huge loss of public money and bad debts in the banking system, economists pointed out.
It can be seen in the case of Habubank which has been approved by shareholders to merge with Saigon-Hanoi Commercial Joint Stock Bank after facing solvency problems sparked by huge bad debts, mainly by Vinashin.
The bad debts reached 16.06 percent of total loans at the end of February and included a VND3 trillion ($144 million) loan to Vinashin.
SOEs' outstanding debts were worth nearly $20 billion as of September 2011, or 16.9 percent of the country's total loans at that time, according to the Ministry of Finance.
Bad debts rose to 4.14 percent of banks' total loans as of April 30, the governor of the State Bank of Vietnam, Nguyen Van Binh, told the National Assembly this week. The total non-performing loans at banks stood at VND108.6 trillion ($5.18 billion).
Vietnam's economic growth slowed to 4 percent in the first quarter of this year, the lowest level since 1999.
"The slowing of the economy has forced the Vietnamese to evaluate the effectiveness and efficiency of their investment, for both the public and private sectors," The Hongkong and Shanghai Banking Corporation said in a report earlier this month.
"State-owned enterprises continue to cause a drag on the economy, making up more than 60 percent of total investment but lagging behind in performance."
Economist Doanh said: "State enterprises have large equity and get tax incentives, but are still doing a poor job."
The government should have to explain every decision to give state enterprises more money in future to prevent more losses, he said.
To improve the competitiveness of SOEs, it is necessary to have proper financial reporting, including rigorous internal audits, improve their managements' accountability, transparency, and corporate governance, Atkinson said.
Thuyen said many SOEs have proved their weakness and thus the need to accelerate their privatization to improve their operation.
But the government's effort to diversify state ownership through privatization has been sluggish for years, upsetting investors, he said.
Only 60 SOEs were equitized in 2011, and four in the first four months of this year, according to the Vietnam Standing Steering Committee for Business Reform and Development. The country plans to privatize 573 SOEs between now and 2015.
The tardiness has mainly been because many firms want to continue to operate in their present form to enjoy the incentives offered by the government, Thuyen said.
Economist Pham Chi Lan said the government should run the economy through policies and not by getting into businesses, and called on it to divest ownership in many sectors.
State-owned groups like Electricity of Vietnam, Vietnam Oil and Gas Group, and the Vietnam National Coal and Mineral Industries Group should be privatized, which would help them mobilize more capital and improve their performance, she said.
If the privatization of SOEs is implemented well, scandals like those at Vinalines and Vinashin would not occur, she added.
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