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 Feb. 19, and seen by Reuters. 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 approved economic restructuring plan is the combination of what has already been stated and it may be a concrete step in the restructuring of each sector," said economist Dinh Tuan Minh at Hanoi-based Military Bank.
"However, I do not see any breakthrough in the plans to restructure the banking system and public investment," Minh said.
Investors wanted to see how the plan would be implemented, a Vietnamese financial expert in Ho Chi Minh City said.
Vietnam stocks were up 0.2 pct at 0650 GMT, after the central bank reaffirmed it would keep the dollar/dong exchange rate stable and on news that the government had approved a plan to boost the economy.
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.
The dong fell to 21,060/21,100 per dollar on the unofficial market on Thursday and stood unchanged on Friday, or 0.6 percent down from Monday, when Vietnam's markets reopened after a long holiday to mark the Lunar New Year.
Tackling bad debt
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 even as many of its neighbours prosper.
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.
A weak financial system is one of the country's biggest economic problems. Fitch Ratings has put the non-performing loan figure at 13 percent.
Reform of state-owned firms
Vietnam will aim to maintain total social investment at 30-35 percent of the country's gross domestic product, the directive said, "maximising the scale and opportunity for private investment, especially the domestic private sector".
Restructuring of state-owned enterprises will focus on businesses in the defence industry and those which have monopoly or are providing essential goods and services while more state-owned firms should go public, it said, without providing details.
The directive also reiterated a policy on divestment by state-owned economic groups in their non-core businesses while encouraging the establishment and development of domestic private economic groups.
The government plans to accelerate economic growth this year to 5.5 percent while keeping annual inflation at between 6.0-6.5 percent, after inflation was 9.21 percent in 2012.