Excellency PM Nguyen Tan Dung
Minister Bùi Quang Vinh
Other Government Ministers,
Mr. Pierre Charles AMILHAT, Directorate General for Development and Cooperation - EuropeAid
Ambassadors, Heads of Development Agencies
Members of the Vietnam VDPF
I join Minister Vinh in welcoming you all to VDPF 2014.
Sincere thanks to Minister Vinh and the team at MPI, notably the VDPF secretariat for the hard work that has gone into preparing this VDPF. I also thank the Governments of Australia and Japan who have actively supported the work of the VDPF secretariat.
At the beginning of the VDPF 2014, I’d like to congratulate the Government for several important achievements during 2014. Vietnam has witnessed the third straight year of macroeconomic stability, notably with single digit inflation, exchange rate stability, and robust export growth, which has allowed a strong external balance position. We are beginning to see early signs of a growth recovery that is generalized across several sectors of the economy. Sovereign ratings have been upgraded and the Government has issued one billion dollars in bonds on the international capital markets on terms better than initially expected.
Prime Minister Dung, we congratulate you and your Government for these and several other achievements in 2014 including on the regional and global stages. I’d like to highlight in particular Vietnam’s success in hosting the first ever ASEAN Health Minister’s Conference and your signing onto global efforts to put a price on carbon.
Our VDPF today focuses on economic institutional reform and development of the domestic private sector.
Vietnam’s first five years as a lower middle income country has coincided with the global financial and economic crisis, which has also been referred to as the “great recession”. This has highlighted the critical importance for ALL countries, even the most advanced and certainly for emerging economies like Vietnam, to continually enhance their competitiveness in order to sustain growth and deliver improved welfare for their populations. These challenges must obviously be met with rigorous action to take full advantage of the benefits of deeper integration while minimizing the risks.
In Vietnam the need for institutional reforms to drive competitiveness has moved very rapidly to the front burner of Government policy initiatives. A key lesson from successful East Asian developing economies like South Korea and Taiwan (China) is the need for continuous institutional strengthening as as per capita incomes increase over the decades. Both South Korea and Taiwan (China) had good institutions relative to their level of development. So the increased attention to institutional reform in Vietnam is wise and timely.
But institutional reform is not new in Vietnam. Initial “Doi Moi” reforms including introduction of secure land use rights, decollectivization of agriculture, formalization of the private domestic sector, promotion of foreign investment, and liberalization of trade all culminated in WTO membership in 2007. These developments delivered a strong investment climate for Vietnam relative to its peers and provided the first spurt of institutional reforms in Vietnam. They produced spectacular results, giving Vietnam the second fastest per capita GDP growth in the world over the last twenty years.
Vietnam’ next 5 years as a middle income country coincides with several important processes--- the preparation of the next 5-year socio-economic development plan (2016-2020), and the preparation of key documents for the 12th Party Congress in early 2016. This is a unique opportunity to generate a new wave, or a second generation, of institutional reforms that will build on earlier achievements to help deliver the higher productivity growth Vietnam so desperately needs, contribute to the process of economic and social modernization as well as build a more inclusive society.
Whether leaders and policy makers at all levels join hands to make the most out of this opportunity will be an important determinant of Vietnam’s success as a middle income country. It will also be critical to how quickly Vietnam can begin to lay the foundations for achieving the aspiration of becoming a high income economy.
Prime Minister Dung, in 2014 your Government and the National Assembly adopted or updated several pieces of legislation (Resolution 19, bankruptcy Law, Enterprise Law, Law on Investment, Procurement Law, Public Investment Law etc.), which constitute a very good start in designing this package of new institutional reforms. We’ve also seen the beginning of implementation of the revised Land Law that was approved in 2013.
The real test of the Government’s commitment to this agenda will be effective and transparent implementation of these new policies. We would encourage the Government to consider putting in place a credible mechanism for monitoring and evaluating implementation in an integrated way and to draw lessons for further policy changes.
Much stronger coordination across different government agencies is crucial. Prime Minister Dung, the OOG may want to chair a regular review of progress in implementation. Reforms to strengthen the rule of law (quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence) will also improve incentives for investment and production.
Part of the institutional reform package should be about strengthening institutions for macroeconomic management. While Vietnam has enjoyed good macro stability over the last three years, gains continue to be fragile and more needs to be done to provide a stronger basis for robust long term macro stability. Policies and processes for fiscal planning, for conduct of monetary and exchange rate policy need to evolve towards more transparent and market oriented approaches. And in particular the issue of the autonomy or independence of the SBV needs to be examined.
Today’s discussion is also about how Vietnam can promote the development of a more vibrant domestic private sector. Over the last few years, the domestic private sector has struggled. Several enterprises have closed, and those that have survived have remained predominantly informal, micro, small and medium scale. In fact work by the VCCI suggests that average firm size has shrunk over the last few years. Domestic firms have not benefitted adequately from positive spill-over effects from FDI enterprises and their integration into global value chains has remained fragmented and limited.
No country has developed through predominant reliance on foreign private sector. The Government’s growing attention to the emergence of a dynamic and vibrant domestic private sector is again wise and timely. Further deepening of trade integration through the ASEAN economic community, EFTA, TPP, the trade agreement with Korea and several others could provide opportunities for promoting Vietnam’s domestic private sector. This cannot be achieved without a strong public sector, through various institutional reforms to address the challenges that enterprises face.
Continued reform of the SOE sector will be important in this regard. Indeed this could be a platform for promoting larger sized domestic enterprises. But the ongoing SOE reforms need to focus less on the numbers of equitizations and more on their quality. First to allow the levels of private ownership in these entities that would make it attractive for investors, and also enhance the chances of improvements in corporate governance. In parallel, actions to strengthen SOE transparency through regular and credible disclosure, to end preferential access to land and capital for SOEs, and impose hard budget constraints will be critical for a more efficient public sector and for creating space for the domestic private sector to grow. Decision 61 on SOE disclosure issued in 2013, the Law on State capital Investment in Enterprises this year move in the direction of addressing these issues but full implementation and effective implementation is again essential.
The ongoing reforms of the financial sector will need a clear plan on how NPLs will be resolved. The renewed efforts to strengthen the legal framework for the functioning of the VAMC is important in this regard but the more fundamental issue of how the resolution will be financed needs to be addressed. Without credible resolution of NPLs, banks are likely to remain reluctant to extend credit to private enterprises and particularly to smaller sized enterprises.
Our discussions today focus on economic institutions and development of the domestic private sector but both have important entry points for strengthening inclusiveness. Economic institutional reforms provide opportunities for strengthening accountability to citizens. They can also be designed to ensure that they are friendly to “micro, small and medium enterprises that create jobs for less well off Vietnamese.
At the same time there are specific institutional reforms that impact directly on inclusiveness. The amendment to the Health Insurance Law in June 2014 sets out the clear objective of having every Vietnamese participate in the national health insurance system. The revision should also reduce the financial burden on the poor and near poor in terms of co-payments and required a more clear definition of the benefits which will increase the accountability of the system to deliver on those benefits to the insurees. The reduction of co-payments for the poor and near- poor, will become effective on January 1, 2015.
The revisions to the Social Insurance Law introduce many changes to improve financial sustainability which in time could indirectly benefit the poor by freeing up fiscal space for non-contributory pensions and equality between public and private sector employees in their access to social insurance, as well as expanding coverage.
The current fiscal pressures on the Social Security System will need further attention to ensure that, as Vietnam is aging rapidly, risks of old age poverty are reduced. In this regard one major area of institutional reform that is important for preserving inclusiveness will be reform and modernization of Vietnam’s pension system. This will both ensure sustainability of the current system and reduce future fiscal pressure, which may in turn facilitate phased expansion of coverage.
Finally for the poorest of the poor including ethnic minority, institutional reforms to strengthen social safety nets through consolidation, modernization and better targeting will be important. We commend Government for starting to pilot this process in four provinces. Incorporation of more culturally sensitive approaches in processes for formulating and implementing policies will need to be further enhanced.
To increase the equity of access to quality health services – both for the population that has not fully benefited from Vietnam’s good progress on basic health indicators, but also the aging population that are increasingly experiencing the complex health problems of middle income countries – real focus has to be provided to increase the trust in the quality and responsiveness of care provided by the grassroots level health system
Vietnam’s efforts to build a more competitive economy and inclusive society will require continued attention to reducing opportunities for corruption and misuse of public resources. Policies to strengthen, modernize and make public financial management, more transparent are particularly critical.
The stated intent of Vietnam’s institutional reforms is to support the country’s transition to a market economy. Vietnam has chosen a more cautious and slower process of market transition than other previously planned economies. While there are clear downside risks to a hasty and poorly thought through transition process, a long drawn out transition also presents its own risks, particularly those of creating vested interests that make reforms even more difficult. Vietnam needs to chart its own transition path and pace, while keeping the risks of both approaches in mind.
For success of this new wave of institutional reforms, it will be critical for Vietnam’s leaders to re-think the role of the state in the economy. Vietnam has relied on state enterprises to support macroeconomic management and to allow the state a strong lead in the process of industrialization. The evidence suggests that this approach has not been effective. The upcoming discussions around preparation of the SEDP 2016-2020 and the documents for the 2016 Party Congress should put this issue front and center of the debate. A radical shift in approach is needed for success.
Prime Minister Dung, development partners stand ready to support your efforts through analytic work, policy advice, technical assistance and through financing. A re-invigorated effort on your part will strengthen our ability to mobilize all our energies and resources in support of Vietnam’s development.
As we begin VDPF2014, it is important that we remind ourselves of the objectives that we set at the outset of the VDPF process. First is to promote a more substantive dialogue, second is to be more inclusive by allowing other players notably the domestic civil society a seat at the table, and the third is to make our dialogue more action oriented and less of a “talk shop”
I would like to highlight three key lessons from last year’s process. The first lesson is to provide more clarity on the process to reduce transactions costs on all participants. The second lesson is to decide the topics for the next VDPF early enough to allow working groups sufficient time to really promote dialogue on the issues before the next event; and the third lesson is to focus on a fewer number of follow up policy actions that are agreed quickly after the forum and to keep all partners informed of the process.
It is our collective responsibility both Government and development partners to help achieve the original objectives by taking these lessons into account today for VDPF 2014 and as we prepare for VDPF 2015. Development partners stand ready to work closely with Government to continue this forum and use it more effectively to promote Vietnam’s development.
To get the most out of our session today, I hope that we will all be focused and succinct in our remarks and give others a chance to speak.
I look forward to a very productive dialogue.