Vietnam 2012: Safe to get back in the water yet? Presentation to EUROCHAM lunch group

1. Vietnam 2012: Safe to get back in the water yet? Presentation to EUROCHAM lunch group September 19, 2012 - Hanoi, Vietnam Adam McCarty www.mekongeconomics.com adaminhanoi@gmail.com

2. The Brief • How damaging is corruption and is the Party serious about stopping it? • How can banking consolidation be undertaken? • What is behind the ACB scare? • The problems in the State Sector and how can it be reformed? • Recession in Europe and the States: impacts on Vietnam? • Will EU FTA have any effect?    • What are other priorities the government should focus on in 2012?

3. Corruption • A minimisation problem (level => opportunities, norms, chance to be caught, penalties) • Corruption perceptions: a weak proxy for corruption prevalence (VN 112/182). • Visible anti-corruption = f(political infighting) • Important to distinguish between “high level” and “household level” • High level: endemic and uncertain (“not sure I get what I pay for”); FDI signalling a secondary concern. • Household level: much less than you may assume (transparency and accountability).

4. Stronger Communist Party • Party Central Committee conference (13 August) => “self-criticism” • Politburo proposed central steering committee on anti-corruption under themselves (along with re-established Department of Interior)! • Is this “Serious”? => if it sustainably minimises opportunities (clear and transparent systems and public accountability)

5. Somebody is serious: “Initially, we believed that some problems were not so difficult to solve theoretically. However, in reality, these problems were much harder to solve because of the different interests held by certain groups that are looking to benefit from the situation. Meanwhile, others took the opportunity to fish in troubled waters or to put a spoke in the wheel, and resort to other malicious acts.” President Truong Tan Sang National Day speech (2 September 2012)

6. ACB, Banks++ • Arrests linked to higher-level struggles and bank restructuring issues: • Some dubious M&A activities • Banks lack capital to buy and merge with weak banks (and incentives) • Huge, but unclear capital injections needed • State Bank Governor, Nguyen Van Binh, under pressure. • Securities companies also facing losses • SBS under investigation; some ceased operations but not declared bankrupt (licence sales?).

7. State Sector Reform • SOE reform is just one of the same list for 10+ years - we know the problems and solutions: • Monopoly-product corporations stifle competition (patronage “leaking buckets”) • Technical experts still have a weak voice on macro-economic policy (targets/forecasts) • Public investment planning is grossly inefficient (no CBA, regional planning) • Inadequate universities that “push” thousands overseas each year (at huge forex cost)

8. The consequence is low productivity GDP Growth, Investment Rates, and ICOR (Selected Countries, 2007-09)

9. EU/USA Recession impact? • Obviously large and negative; EU recession inevitable, but when? • China slowdown (8.5% in 2012). • Consequences: lower world prices; slumps in manufacturing, tourism. • EU FTA: no impact, zip. • Vietnam needs more (macroeconomic) “wiggle room”.

10. Vietnam’s scope to accommodate macroeconomic shocks is limited.

11. (my) GoV priorities for 2012 • Systematic (transparent) cross-country study of corruption and systems to control (beyond “educating cadre”). • Close (not merge) a significant set of the weakest banks and securities companies. • High-level studies to specify how to: • change VN corporations into more Korea/Japan competitive privatised versions. • completely liberalise (“let float”) vocational and tertiary education • Impose regional planning and quality control upon public investment choices

12. Vietnam 2012: Safe to get back in the water yet? Presentation to EUROCHAM lunch group September 19, 2012 - Hanoi, Vietnam Adam McCarty adaminhanoi@gmail.com www.mekongeconomics.com