The Most Significant Risk: Risk of Delay

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SaigonTimes English - 31 month(s) ago 6 readings

The Most Significant Risk: Risk of Delay

Mr. Deepak Mishra, chief economist of the World Bank in Vietnam, talked with the Saigon Times on the current restructuring process. Excerpts:

The Most Significant Risk: Risk of Delay

Reported by Hong Phuc

Mr. Deepak Mishra chief economist of the World Bank in Vietnam
Mr. Deepak Mishra, chief economist of the World Bank in Vietnam, talked with the Saigon Times on the current restructuring process. Excerpts:

Q: What do you think about the current restructuring process of the banking systems?

A: Banking system restructuring is one of the three economic restructurings currently underway in Vietnam. We believe this was long overdue and is the right thing to do. We think the relevant functional bodies have already expressed their intention quite clearly. We are waiting for more clarity on how the resolution will be implemented.
At the moment we don’t have specific and full information about how the 8-10 weak banks will be restructured, but it is believed by many that the process is already underway. It’s very difficult at the moment to provide a good assessment of the impact of restructuring on the economy due to limited information. We hope that the Government will make more information available. For example, a number of banks need additional capital, and the question is who will pay for their recapitalization.

In your opinion, what is the most significant risk in the process?

The most significant risk of the restructuring process is the risk of delay. If not implemented promptly, the cost of restructuring will be much higher. Therefore, restructuring of the banking sector needs to be carried out in a timely manner, supported by effective action plans and with the right instruments.

Recognizing the need for restructuring was already late to start with, and it’s therefore crucial not to waste any more time and opportunities.

The second most important point is to retain the trust of the general public during the restructuring process. This could be done through a clear roadmap and a credible plan.

How can interest groups be banned from interfering in this process?

It’s unfortunate that the vested interest groups are gaining significant influence, which is also a feature in some of the other transition economies. This issue needs to be examined closely and solutions identified clearly. It would have been a good thing if the interests of these groups were in line with the national interests. However when they are driven by personal gains, the country needs a more transparent policymaking process and sound legal system to neutralize their effects.

We believe that among all economic reforms, the ones that would lead to greater transparency of the system will produce the biggest benefits for Vietnam. This is especially valuable in case of public projects and contracts, as well as in granting permits or information related to State budget. Once things are made more transparent, vested interest groups will find it difficult to lobby in favor of their personal gains.

Vietnam started their transition to market economy 25 years ago, but a recent survey jointly conducted by the World Bank, Ireland Embassy and VCCI has indicated that the pace as we have seen is below expectations of the general public. Do you agree with this remark?

Vietnam has not completed its transition, which explains why the size of the private sector is still relatively small and State-owned enterprises account for a large proportion of the economy. Therefore Vietnam needs to continue moving towards market orientation, along with improving regulatory capacity of the State agencies.

Some specialists have mentioned that if not carefully implemented the State itself can be an obstacle to the market. What is your opinion on this?

This is because the State can potentially become a very dominant player in the market. In many countries, the State is allowed to participate in the market provided that a comprehensive regulatory framework, such as a credible competition law, is available where the State, private enterprises and foreign enterprises can compete against each other in a level playing field.

This year has been said to be a challenging year for Vietnam. What is your projection of Vietnam’s economic growth at this moment?

While 2012 will be a challenging year, we think it will be less challenging than 2011. Last year was one of significant difficulties for the Vietnamese economy, especially in the first quarter, when foreign reserves were falling and interest rates were skyrocketing. We believe 2012 will be a year with greater macroeconomic stability. Obviously, we will face some new challenges such as slower growth, a troubled banking system, slowdown in the real estate market, and an unpredictable world economy, but they can be handled with appropriate polices. We believe that Vietnam’s GDP growth rate for 2012 will be close to last year’s level (5.89%) – in the range of 5.5-6%.

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