The Vietnamese government will accelerate equitization of state-owned companies and will not rescue failing banks, Deputy Prime Minister Nguyen Sinh Hung said on Thursday, signaling plans to loosen the state's grip on key parts of the economy.
Hung said that the "equitization", or partly privatization, of state-owed enterprises had been slow in recent years because of the economic downturn and sluggish stock markets, but he said the government would speed up the pace and even sell stakes in its biggest firms, known as economic groups.
"If we can keep macroeconomic development at a rapid pace in the next five years, most big state-owned groups and companies will be equitized," he said.
Investors have been eagerly awaiting the privatization of select state-owned companies, like telecoms operator Mobifone, saying it will help improve the structure of the economy and give the country's stock markets more depth.
In the banking sector, some economists have expressed concern about the future of smaller, less solvent banks as well as those with heavy loads of non-performing loans from inefficient state-owned enterprises.
On Thursday the International Monetary Fund said the government needed to address concerns about vulnerabilities in the financial system as it seeks to stabilise the economy.
The Fund recommended tighter supervision of the banking sector and improving governance and financial discipline in corporations.
Hung said the government would not bail out banks.
"The policy, as we can see it now, is that if financial institutions are in difficulty they will be merged. There is no longer a case where the state will stand out to subsidize financial institutions on the edge of bankruptcy," Hung said.
In addition, he said, the government would reduce the number of stock brokerages and banks. "It's time for good quality banks," he said at a mid-year meeting with foreign donors.
Victoria Kwakwa, the World Bank's country director in Vietnam, said the comments showed "renewed commitment" on the part of the government to reform state firms.
"The government is going to have a stronger oversight role," Kwakwa told Reuters.
"It's very much a government effort to make the economy more efficient, more productive. They are moving in right direction to subject SOEs to competition and efficiency."
The default last year of state shipbuilding conglomerate Vinashin on a $600 million international loan surprised analysts who had expected the government to intervene even though there was no explicit guarantee.
The government has come under heavy criticism domestically for letting Vinashin amass a mountain of debt unchecked and come to the brink of bankruptcy.
Economists say the inefficient use of capital funneled into state-owned companies contributes to Vietnam's inflation problem.