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Vietnam's Move to Publish Earnings Hailed

A bank employee stacks Vietnamese dong banknotes at the Vietcombank's headquarters in Hanoi on April 6, 2012.
A bank employee stacks Vietnamese dong banknotes at the Vietcombank's headquarters in Hanoi on April 6, 2012.
HANOI - Mired by mismanagement and debt, state-owned enterprises are the bane of the Vietnamese economy. But a recent move to publicize earnings is being hailed as a revolutionary step towards reform.

When Vietnamese police issued an arrest warrant for the former chairman of a state-owned shipping and port operator, many observers were not surprised.

In a country dogged with high inflation and food prices, most people blame economic woes on debt-ridden state-owned enterprises that make up 40 percent of economic output.

The prime minister has long promised to reform wasteful state-owned enterprises, but a new plan to publish annual earnings could be the long anticipated catalyst for change.

U.N. Development Program policy adviser Jairo Acuña-Alfaro was optimistic.

“All of the major corruption scandals that you have heard in the past two years have come from state-owned enterprises," said Acuña-Alfaro. "I think it is the most concrete and significant sign from the government that they really want to address these problems.”

The details of the regulation are still in discussion. Economists said companies must publish their earnings and also change how their executives are hired.

Economist Le Dang Doanh said bosses appointed by the government are not hired on merit. They are not committed to targets on profit or improvements of productivity that give them little incentive to boost performance, he said.

“As long as there [are] no independent forces or independent auditing or control, it is more or less a black box," Doanh said. "They are cooking their own data, cooking their own books, and it is unclear.”

Observers said some of the problems come when companies branch into unfamiliar new businesses.

Shipbuilder Vinashin pumped money into businesses as diverse as tourism and brewing beer. Up until recently, oil company Petrovietnam was pursuing real estate plans, and the chairman of Vietnam Electricity was recently fired for investing in mobile-phone networks.

Acuña-Alfaro said problems of performance and the influence of political connections can be solved through assessments by independent auditors.

“If those audits are disclosed then you are going to have information on who is dealing with these state-owned enterprises and what type of deals have been made," Acuña-Alfaro said. "So this is going to help address these problems and we can identify who is doing business with whom.”

The government’s announced move for more accountability from the state-owned enterprises follows the trial of the former chairman of state-run Vinashin, Pham Thanh Binh, who received a 20-year jail sentence for flaunting regulations on investment, costing the state tens of millions of dollars.

Consultant Jeff Browne, who works with American firms who wish to do business in Vietnam, said “Vietnam has been sending a message to its other executives at state-owned companies. Obviously this kind of government prosecution, from last year Vinashin, this year Vinalines, is sending a message to all the people who are working for the government who are running companies."

He said the arrests also help accelerate the move towards privatization of some of these companies so that both domestic and foreign investors can share in the ownership of Vietnam’s economy.

Browne said the government and party want to compete on a global stage and grow into a strong economy like South Korea, and even Japan.

“In order to do that there is an understanding that the old ways of doing business need to change," said Browne. "At the same time the old ways of doing business are very deeply rooted in the business culture so it is going to take time, there is no question about that.”

In the face of double-digit inflation and rising food prices last year, the government was forced to rethink its growth strategy by raising interest rates. The result of that has been markedly slower growth.

As investment stalls, pressure has mounted on state-owned enterprises to improve their performance. This pressure does not just come from the government, said economist Doanh.

“People are quite angry. People are very unhappy about that because you can see the living of the people are now very difficult," Doanh said. "The hospitals are very overcrowded, and if they realize that big money has been wasted while there are no new hospitals and no sufficient investment in education and health care they are very unhappy.”

Analysts agree the Vietnamese public and foreign investors want to see progress in action, not just on paper. Any appraisal of how effective the regulation can be in tackling burdensome state-owned enterprises will have to wait until that action is taken.