The Politics of Economic Restructuring in Vietnam: The Case of State-Owned Enterprise "Reform"
Painter, Martin, Contemporary Southeast Asia
The aim of this article is to outline the nature of the influences and forces that are shaping the direction and pace of state-owned enterprise (SOE) reform in Vietnam. (1) The purpose of this analysis is to assess the capacity of the political leadership in Vietnam to shape the direction of structural reform more broadly during the process of transition, in the face of both external pressures and internal tensions and contradictions. Vietnam is run on democratic centralist principles under the leadership of the Communist Party of Vietnam, pursuing a policy of transition to "market socialism". The economy is being transformed from one that was officially managed by the state to one that is increasingly driven by global and domestic market forces. This is the result of a deliberate strategy of "renovation", or doi moi, which has been pursued since 1986 and is continually reaffirmed.
Vietnam is a poor country with a need to maintain a high level of growth to sustain living improvements for its citizens. Economic reform both solved a short-term crisis in Vietnam in the late 1980s and has proved to be successful in delivering economic growth subsequently. The government is pursuing a cautious programme of integration into the international capitalist economy to sustain this growth. Increasing integration is in turn a source of growing pressures for further structural reform. The signing of international agreements, such as the bilateral trade agreement with the United States and planned accession to the World Trade Organization (WTO), imposes direct demands for structural reform. Other sources of outside influence include international and national aid agencies, which are very active in Vietnam, and press structural reform as a key part of their agenda. The World Bank and the International Monetary Fund (IMF), as well as many bilateral donors, urge the government to implement pro-market ref orms, and provide technical and financial assistance to this end. IMF/World Bank loans have included conditions that seek to tie the government to a set of reform milestones in such areas as trade liberalization, banking, and SOE reform. (2)
SOE reform provides a test case for investigating the relative significance of and the interaction between international and domestic forces in the transition process. Is the Vietnamese state able to control and manage this transition successfully -- is it a "weak" or a "strong" state in this regard? (3) The Vietnamese party and government have set out a strategy to retain state ownership of key parts of the productive sector, while shedding (including privatizing) less important parts. In other words, SOE reform is about modernizing the SOE sector as much as it is about marketizing it. (4) In some respects, current policy and practice reflect an uneasy compromise. At the Third Plenum of the Ninth Party Central Committee Meeting in August 2001, the lack of consensus was acknowledged:
A high degree of unanimity of perception is yet to be obtained regarding the role and position of the state economic sector and state enterprises.. .many issues remain unclear, entailing conflicting opinions, yet practical experiences have not been reviewed for proper conclusions. There are many weaknesses and bottlenecks in the state administration of state enterprises... (5)
In this context, the international community views SQE reform as one of the least successful areas of structural adjustment, subject to policy equivocation and administrative failures. Policy incoherence, implementation failures, and a fragmented or decentralized administrative system have been taken as signs of a "weak" state in Vietnam. (6) However, different criteria by which one judges weakness and strength can produce different assessments. Discussions of "strong" and "weak" states in the literature have moved beyond one-dimensional, holistic categorizations to a more subtle, variegated view of different kinds of state capacities that are evident in multiple arenas of state action in particular states and societies. (7) For example, Kerkvliet argues that the retreat from collectivization by the Vietnamese Government in the 1980s (apparently a "policy failure") was not a sign of weakness, as it reflected recognition of the benefits of negotiating with, rather than attempting to coerce, a reluctant peasant ry. (8) The concessions resulted in enhanced state legitimacy (as well as leading to a rapid rise in agricultural production) -- they were a sign of "the Vietnam state's capacity to govern". (9) It will be argued in this article that the "incoherence" of SQE reform policy and its "lack of implementation" provide potentially misleading criteria for assessing the capacity of the Vietnamese state. The ability to balance conflicting or ambiguous objectives and to proceed through cautious, piecemeal implementation (that is, to say one thing and do another) may be signs of a state that is capable of pursuing a successful "coping" strategy in the face of severe constraints and contradictory pressures. Through such a strategy, the state is sustaining the institutional and political conditions under which key societal groups and interests benefit.
One source of possible misdiagnosis of state capacity is the very notion of "reform" itself, with its highly instrumental, top-down image of both the process of change and the nature of control. The rhetoric of reform as purveyed by international agencies and consultants fundamentally confuses and distorts the underlying basis of the process. "SOE reform" is shorthand for describing a complex, multi-arena process of strategic actions by state business interests, state bureaucrats, party leaders and other state actors who are engaged in the process of managing and restructuring state commercial activities. The diversity of interests and goals involved in this process defy encapsulation under one overarching "reform" umbrella. Just as Gainsborough argues that the label "reformers" attached to a group of leaders associated with evolving policy changes is a misleading one, so too is the word "reform" misleading when used to depict this process of change. (10) The label disguises the essentially interest-based fou ndations and institutionally shaped trajectories of the process of change and its outcomes. That process is as much bottom-up as top-down, it is contested at many points, and there are multiple perspectives. Once we shed the images associated with a top-down reform discourse, we open up the possibility for a more realistic set of criteria for judging "success" and "failure".
The perspective adopted in this discussion of the reform and restructuring process is "polity-centred", in that the focus of analysis is on a political leadership operating in a particular domestic historical, institutional, and political context. (11) This is not to ignore the fact that the national leadership is also buffeted by external forces and pressuxed by international agencies, and that this poses its own problems of autonomy and capacity. Apart from the specific issue of the influence of donor SOE reform aspirations on the restructuring process, however, the focus is on how the state handles complex issues of domestic political management and control, issues that must be dealt with whatever the external circumstances. Indeed, Migdal suggests that growing levels of integration and interconnection with the contemporary international system can be used strategically to bolster a state's domestic legitimacy and to capture resources for domestic programmes. (12) At the centre of government is a set of de cision-making institutions that are designed to shape and guide the policies, programmes, and actions of the Vietnamese state, including its dealings with international donor agencies. The scope for effective control and management by these central actors is shaped by the internal logic and workings of a wide range of institutional arrangements, traditions, and inheritances that provide opportunities for a variety of other agencies, groups, and individuals within the state to pursue their interests and goals. Of particular importance in the case of SOE reform is the inclusion in the state of significant commercial or business interests and their strong linkages with the party and with key state institutions, including the military. Their state positions give access to significant wealth, as well as power. The perspective adopted here is that successful management and containment of the conflicting ambitions of these groups, requiring some measure of central control over the positional and other resources that sustain them, is a critical part of the maintenance of state policy capacity.
The discussion is in five remaining parts: first, a description and analysis of the role and "performance" of the SOE sector in Vietnam; secondly, an account of party and government policy towards SOEs, including an analysis of the main conflicting interests and pressures; thirdly, an account of the role of international agencies in the SOE reform programme; fourthly, an analysis of the political and institutional factors that shape the manner in which SCE restructuring has been managed and implemented; and finally, an assessment of the points of strength and weakness exhibited by the Vietnamese state in the course of this process.
SOEs in Vietnam
Despite the gradual shift from 1986 towards a market economy, the state sector continues to play a leading role. The current Ten-Year Development Plan affirms this:
Reforming and developing the state economy to ensure its leading role in the economy: the state will focus on investing in socioeconomic infrastructure and hold key sectors in the economy, ... SOEs shall be the leading actors in developing high-tech industries and other industries...
As shown in Figure 1, in the initial period of reform from 1986 to 1991, the contribution of SOEs to gross domestic product (GDP) fell, but it subsequently recovered to near former heights and levelled out.
Table 1 depicts the contributions of SOEs to GDP by sector. SOEs accounted for more than 50 per cent of industrial output in the mid-1990s, but their share had diminished to less than 40 per cent by 1999. Nevertheless, SOE industrial and construction output grew as a proportion of GDP during this period, although the number of industrial SOEs declined from 3,000 in 1988 to 1,821 in 1998. (16) Employment in SOEs declined from 2.1 million in 1990 to about 1.9 million a decade later. Figure 2 shows that employment levels fell sharply in the early 1990s, but then recovered, again demonstrating that the sector remains a key contributor to economic production and growth.
The SOE's share of the total labour force was in fact modest, declining from 7.5 per cent to just over 5 per cent in this period. On the other hand, their contribution to state revenue was very significant, amounting to about 23 per cent of total revenue, excluding royalties from crude oil. (19) Table 2 shows the distribution of enterprises across different kinds of economic activity. SOEs have traditionally dominated in industries such as steel, non-ferrous metals, electrical goods and electronics, chemicals, fertilizers, food processing, and printing. (20) About 28 per cent of the total is found in manufacturing. As Table 2 also shows, more enterprises are owned by lower levels of government (provincial, city and district) than by the national government. The total number of SOEs has more than halved since 1986. In the first wave of restructuring, the number was reduced from more than 12,000 in 1.990 to about 6,000 in 1994, by the simple device of requiring reregistration (Decree 338/1991/HDBT). The majorit y of the 3,000 closures and 2,000 mergers involved local-level SOEs. (21) Now, as then, local SOEs are smaller, and comprise about one-quarter of the total capital of the sector. (22) In 2000, nearly 75 per cent of SOEs had less than 500 employees.
A survey by the Ministry of Finance and the IMF showed that only about 40 per cent of SOEs were profitable in 1997 (see Table 3). (24) Forty-four per cent were classified as "temporary loss-makers" and 16 per cent were "permanent loss-makers". The overall profit rate -- at about 3 per cent -- was low. The sector had more debt than equity, with debt ratios of more than 0.5. Table 3 shows indications of variable levels of performance. Larger enterprises perform better than smaller ones they have lower debt to equity, and about 90 per cent of the largest enterprises showed a pre-tax profit. This superior performance may be partly because large SOEs in telecommunications, transportation, electricity generation, and other public utilities enjoy monopolistic positions in their industries. In addition, such SOEs tend to receive easier access to credit, on more favourable terms. One survey suggests that the performance of SOEs -- both large and small -- has worsened, with half making losses despite growth in sales. ( 25) A more recent official picture is less gloomy: according to the results of the enterprise census at 1 April 2001, more than 75 per cent of SOEs were profit-making in 2000. (26)
These aggregate data on performance show only glimpses of a complex reality. The evidence for a relatively profitable sector of larger, strategic SOEs that are achieving labour productivity increases is strong. Loss-making SOEs have been sustained through various forms of support, including the write-off of non-performing loans and cash injections from state-owned banks, the National Investment Assistance Fund, Social Security Funds, and other sources. (28) The IMF notes that several of the most severely indebted SOEs were able to increase their total outstanding debt by 50 per cent or more in 1997. (29) Some of this has been the result of policy-driven concessions. In response to the Asian financial crisis, in 1998 the government relaxed provisions requiring SOEs to provide collateral for loans; allowed assets generated by existing loans to be used as collateral; and granted special credits for the purchase of some pro ducts. (30) However, a significant component of high levels of indebtedness seems to be th e result of individual deal-making by managers with state banks and other forms of political connection, despite recent efforts to tighten up on easy credit access through banking reforms. Agreements with the IMF on meeting targets for lower levels of indebtedness by large SOEs have not been kept, with the IMF plaintively reporting that "the authorities are seeking to identify the main sources of the overrun". (31)
From this data, we begin to get a picture of the somewhat murky world of SOE "performance". Other elements that are crucial for understanding the politics of restructuring are even murkier -- for example, the concealment of "real" profits and other book-keeping and financial stratagems to facilitate rent-seeking by managers and revenue generation for state agencies. "Transparency" is not helped when financial profit is not the only "official" objective of SOEs, with hidden cross-subsidies built into the accounts as a result. Many administrative and political controls over individual enterprises remain, echoing earlier practices of the command economy. Objectives for SOEs may include a multitude of targets ranging from the maximization of employment to regional policy goals. Managerial discretion is not high, and noncommercial criteria can be imposed by bureaucratic and political fiat. A recent survey has shown that many aspects of business decisionmaking are subject to central control: the wage budget of SOEs is negotiated each year with the Ministry of Labour, War Invalids and Social Affairs (MOLISA); most SOEs use the standard wage tables for their employees, rather than use the discretion that they supposedly enjoy; there are centrally determined prices for some products, including cement, electricity, coal and paper; the government sets annual turnover and profit targets; and government officials regularly intervene in investment decisions, despite the official granting of discretion to managers. (32)
Reform by Decree
The commercialization of SOEs and the dismantling of central bureaucratic controls was a crucial step in Vietnam's programme of doi moi. Decree 217/1987/HDBT created the conditions for increased enterprise autonomy by dismantling some of the institutions of state subsidy and control. (33) The range of targets and controls was greatly reduced; the enterprise manager was given authority to manage day-to-day matters, including hiring staff and remuneration practices; the state no longer was to provide for inputs; transactions between enterprises were to be based on contracts; each enterprise was in theory free to buy and sell inputs and products on the open market (although central price controls were retained for key products); and enterprises were to be self-financing through the retention of depreciation charges and the raising of funds from state banks, which were to decide on loans on a commercial basis.
The removal of subsidies and price controls encouraged local measures to prop up ailing enterprises and stimulated the creation of new ones. (34) The large sector of small, non-viable mostly local enterprises was clearly unsustainable, and in 1991 the government took steps to weed out the least viable through requiring all state enterprises to be reregistered or to cease business operations. (35) Clearer lines of authority and tougher criteria based on commercial considerations were introduced to control the registration process. In 1994, a further tightening of criteria occurred. The result was to more than halve the number of SOEs through mergers and dissolution.
In 1991, the Second Plenum of the Seventh Party Congress approved a proposal on "equitization", that is, the transformation of SOEs into joint-stock companies. A pilot programme was approved in mid-1992, and efforts were made to speed it up a year later. Steps were taken to clarify both the principles and the practical details -- for example, principles were laid down on the conditions under which enterprises should remain in state ownership, on how to sell shares, what proportion of shares was to be sold, who was eligible to buy them, and so on. (36) In 1992, a Central Steering Committee for Enterprise Reform was set up. Line ministries and People's Committees at provincial and district levels were instructed to set up committees to develop divestiture plans, which were to be submitted to the Central Steering Committee for approval. By the end of 1997, under this "bottom-up process", only fifteen enterprises had been converted to joint-stock companies. Obstacles included technical difficulties (for example, disagreements over the value of assets) and legal impediments (for example, contradictory statements in different decrees). As many of the targets for equitization were loss-making, there were no prospective buyers. Potential purchasers -- who in most cases included managers and employees -- saw clearly the high risk of taking on ownership responsibilities. They would sacrifice the many advantages that public ownership brought -- clearer title to land, easier access to loans, fringe benefits for employees, security of employment, and so on.
Various measures were adopted to speed up equitization in the second half of the 1990s. (37) Each new measure attempted to clarify confusions and relax some of the criteria -- for example, restrictions favouring employee and manager buy-outs and inhibiting individual share ownership. The issues continuing to cause difficulties included the manner in which valuations were conducted to determine the sale price; treatment of redundant labour (compensation and retraining); and the proportion of shares (if any) available to foreign investors. Other forms of ownership and management structures were also devised to facilitate divestiture, such as contracting or leasing out of enterprises and transformation of SOEs into single-owner limited liability companies. (38) Decision 55/2000/QD-TTg delegated authority (for example, to provincial People's Committees) to approve the sale, business contracting, or leasing of enterprises with a capital value of less than VND 5 billion. (39) A Financial Investment Company under th e Enterprise Law was established by the Ministry of Finance to handle the state's interests as owner of the SOEs. In order to assist with the problem of debt management and facilitate the disposal of some of the least viable entities, the Ministry of Finance proposed to establish a national Debt and Asset Management Company (modelled along the lines of a similar agency in South Korea). As a result of all these measures, from the end of 1997 to May 2002, 636 SOEs were equitized. (40)
While increasing efforts have been put into the process of removing obstacles to equitization, the commercialization or corporatization of enterprises that are to remain in state hands is a more significant component of the overall SQE restructuring programme. One aim of the reforms (apart from stated purposes such as "commercialization") has been to reduce the power of line agencies to interfere in business management and capture profits and rents. (41) One such measure was the establishment in 1994/95 of "General Corporations", successors to earlier "Unions of Enterprises" that were established in 1978. (42) "Decision 90" corporations have at least five member enterprises and a capital of VND 500 billion, and "Decision 91" corporations (which require prime ministerial authorization) have at least seven members and a capital of VND 1,000 billion. There are eighteen nationally created corporations (for example, in electricity, coal, petroleum, post and telecommunications, steel and textiles, and garments). (4 3) General Corporations have a Board of Management and a Board of Control, the former appointed by the establishing authority. Ownership rights remain with the establishing authority, but management functions are vested in the Board. The chief executive is appointed by the establishing authority. Relations between the Corporation and the member enterprises are set down in a model "charter", but in practice there is considerable variation. Generally, it would appear that the degree of autonomy exercised by SOEs is less than the regulations would suggest is available. (44) According to a recent survey, most SOEs have to seek approval for major investment decisions, about three-quarters cannot develop their own business plans without approval of the General Corporation and/or the government, and about half cannot set their own prices. (45) However, marketing and procurement are largely undertaken at the enterprise level, as are recruitment and dismissal of workers.
Despite weakening the formal position of the line ministries, the General Corporation model may have confused rather than clarified control and accountability arrangements. General Corporations were established in a top-down manner, and in some cases there is little logic to the composition of the conglomerate. Profitable member enterprises complain that they have to cross-subsidize others, and there have been cases of collusion and price fixing. (46) Nevertheless, the General Corporation is still a significant part of the government's plans for SQE restructuring. Proposals are in hand to develop new forms of conglomerates, under labels such as the "parent company model" and the "holding company model".
The Ninth Party Congress in 2001 laid out an ambitious and expansive future role for the SQE sector: "providing necessary public-utility goods and services for the demand of national defence and security, being the key force in boosting economic growth, and providing ground for the industrialization and modernization of the country with the socialist orientation". Decision 58/2002/QD-TTg fleshed this out by setting out a range of size and profitability criteria for either state retention or equitization. Large, strategic, profitable SOEs in key sectors (particularly those in General Corporations) would largely remain in state hands. The state would hold 100 per cent ownership of SOEs in "public interest" categories, such as state monopolies in explosives, toxic chemicals, radio-active materials, and transmission of electricity; SOEs in businesses that "maintain the essential need for production, development and enhancement of physical and spiritual living conditions of people in rural mountainous and remote a reas"; SOEs "doing special business in publishing, lottery and other areas decided by the Prime Minister"; and lastly, SOEs in a range of specified public utility areas. In March 2001, the government adopted a five-year SQE reform plan, with annual targets specified for three years. During 2001-03, about 1,800 out of 5,571 SOEs were to be subject to reform measures, mostly through equitization (1,400), divestiture (140), liquidation (220), and merger or consolidation. Several measures were also announced for auditing, reviewing, and restructuring a number of large SOEs with a view to improving their commercial operations. (47)
This account of the trajectory of SCE reform is incomplete without reference to the continuing process of restructuring that has been going on since 1987 at the individual enterprise level under the auspices of entrepreneurial line agencies and managers. Understandably, this process has been less well documented than the "official story" of reform. Making use of new-found commercial freedoms and deploying networks of party and state patronage and connections, many managers built successful commercial operations. In the process, various semiofficial forms of "ownership" structure evolved alongside those that were officially sanctioned. (48) Much of the convoluted history of decrees and decisions on SOE restructuring is explicable as responses to the manoeuvring of such players seeking to protect and consolidate their commercial gains against attempts to assert national policies.
International Agencies and SOE Reform
The March 2001 SOE plan was widely welcomed by the international community, and in some measure showed the imprint of its inputs to reform policy. How significant are these inputs? The Vietnamese Government is heavily aid-dependent. According to the World Bank's World Development Indicators, between 1994 and 1999, annual overseas development assistance (ODA) averaged 20 per cent of central government expenditures, rising from 17 per cent in 1997 to 27 per cent in 1999. One estimate is that ODA loans will provide US$1.4 billion and US$1.5 billion in 2003 and 2004 respectively. (49) However, despite quite high levels of capital inflow as the economy grows, Vietnam's overall debt position is relatively strong. Debt services as a share of total exports are at 10 per cent (compared with Indonesia at more than 30 per cent and Thailand at 23 per cent). About four-fifths of debt in Vietnam is with multilateral and bilateral donors, on concessional terms. (50)
Annual high-level "consultative group" meetings that involve all donors are held with the government to discuss and monitor aid programmes and their goals. There is regular detailed consultation with the government over the disbursement of aid by the IMF and World Bank, undertaken in a framework of a Country Assistance Strategy (GAS). High levels of technical assistance accompany this programme. The current focus for assistance is a Comprehensive Poverty Reduction and Growth Strategy (CPRGS), announced by the government in May 2002. (51) This strategy draws heavily on Vietnam's Ten-Year Development Strategy (2001-10) and Five-Year Socio-Economic Development Plan (2001-05), both approved at the Ninth Party Congress in 2001, but also reflects strong donor agency input. (52)
SOE reform, together with other structural reform programmes, is an element of the CPRGS. The set of measures proposed under the CPRGS echo earlier government pronouncements drawn up as part of the five-year SOE reform programme of March 2001 (described earlier). In November 2001, the government published an "Action Plan for the implementation of the Resolutions of the 3rd Plenum of the 9th Congress of the Central Committee", which spelt out the details of the SOE reform plan, allocated responsibility for thirty-four specific tasks, and gave milestones and deadlines. (53) Specific financial assistance for the SOE reform programme includes a World Bank loan facility for a safety net assistance fund for redundancies (details of which were announced by the government in April 2002).
IMF and World Bank funds involve an element of conditionality, if only through the formal processes of monitoring and consultation imposed on the recipient government.
In general, however, the conditions set out are mild. The IMF monitoring milestones for the SOE reform programme are a case in point. They are a mixture of reiterated government objectives and a few specific encouragements. There is nearly always slippage on these specific targets and milestones, but the normal result is mild admonishment more than direct sanctions. (54) Targets for equitization have regularly been under-shot, with particular concern being caused by a declining rate in 2001 over 2000. The reasons were many, and some were sympathetically acknowledged by donors. (55)
In sum, the extent to which the SOE programme is shaped by the external pressures of lenders and donors should not be exaggerated. First, Vietnam's fiscal position is not a source of high vulnerability, although it is dependent on capital inflows to feed growth. Secondly, the main impact of the combined influences of technical assistance and loan conditions, with their attendant exhortation and monitoring, is probably to strengthen the hand of those within the Vietnamese Government pressing hardest for accelerated reform and restructuring. (56) The incorporation of milestones and implementation timetables in government decisions adds additional muscle to the exhortations of the central reform agencies. The resources that come from overseas aid add significantly to departmental budgets, and win support for the alliance between donors and key bureaucratic actors. In cementing this alliance, donors tread carefully for fear of creating a political backlash. They recognize that the level of tolerance for intrusive demands and conditions is not high among Vietnamese public officials. Following the call by key donors for an "accelerated doi moi" in 1998, Minister of Planning and Investment, Tran Xuan Gia, was quoted as saying "...you cannot buy reforms with money...no one is going to bombard Vietnam into acting". (57) The fear that entanglement with the IMF and other international donors might result in "losing the war by other means" sets limits to the acceptability of monitoring and guidance, and moderates the expectations of the donors. In the meantime, the advocates and beneficiaries of restructuring willingly accept funds to assist them in strengthening the state commercial sector along the road to "market socialism". The most striking feature of the effect of external inducements to reform is the manner in which, while being kept at arm's length, they provide resources for domestic actors to pursue their own goals. The most striking illustration of this is that the March 2001 SOE reform plan, with its emphasis on equitizations and its alignment with IMF and World Bank timetables, co-exists with other policy pronouncements (such as Decision 58) that speak of another trajectory altogether -- the entrenchment and strengthening of the state sector.
The Politics of SOE Reform
If, as just argued, international donors and lenders play a somewhat peripheral role in the process of shaping the direction and pace of SOE restructuring, what are the dynamics of the domestic processes that contribute to these outcomes? As already alluded to, following the deregulation of much of the commercial activity of SOEs in the late 1980s, a state business or commercial interest evolved, comprising officials in line ministries, provincial and district governments, SOE managers, SQE workers and many senior party officials as their "patrons". (58) This constellation of actors used state power to advance and protect both the commercial interests of enterprises and their own personal positions. One view is that the programme of national SOE reform and restructuring policy has to be seen in this context as an attempt to reassert central control over "rogue" commercial actors using state resources for their own benefit. (59) At the same time, the representation of these interests within the highest organs of the state is also reflected in the pattern of compromise and continual adjustment in SOE policy.
In referring to "central control", it must not be taken for granted that this is either unified or consistent in its aims. One tension is between party and state objectives and instruments of control. The party centre sees strengthening party organization in SOEs and General Corporations as part of the SOE reform agenda. The recent Ninth Party Congress in 2001 spelt out the aims:
Party organizations in state enterprises lead in the application of party lines and policies, participate in proposing and leading in implementing efficiently the business development; ensure the legal rights for labourers; bring democracy into play; lead in building the manager system, party members, and in fighting corruption; lead mass organizations in implementing their tasks and functions.
The structure of control and supervision is laid out in detail. In Decision 91 General Corporations, the party committee reports directly to the party executive committee of the central economic sector "in case general corporations require close leadership in terms of vertical management". Party organizations of member enterprises report to local party organizations. In Decision 90 General Corporations, the party committee for the Corporation reports directly to the provincial party committee. The Central Organization Committee has issued a circular on "...innovating the leading way of Party organizations in SOEs to fit with the requirement and operational characteristic of enterprises in the new conditions".
The insistence on retaining strategic control of the largest enterprises in key sectors thus includes a political strategy as well as an economic programme. In some respects, the two reinforce each other and have common aims (the party is clearly in tune with the need for more effective commercial management of enterprises), but the tensions that arise from this dualism are significant. One source of such tensions is the appointment and remuneration of managers, which is currently a matter of party and bureaucratic patronage. Instead of measures to recruit specialist managers and impose strict performance criteria, efforts are in hand to retrain existing incumbents and to educate party cadres in commercial practices, without radically changing their terms of employment.
The struggle over the priorities in SQE reform is thus entwined with the struggle over wider state restructuring. The overlap between party and state is at the core of the principles of democratic centralism, but since the adoption of a new constitution in 1992 as part of the doi moi process, there has been a steady process of institutionalization of the idea of "rule by law" (as distinct from by party fiat). This has seen a strengthening of the formal and substantive powers of the organs of government, including the office of Prime Minister as leader of a distinct executive arm. The idea of a distinct sphere of "public administration" is also taking hold. (60) As the advocates of a "state ruled by law" see it, the state and economy must be more clearly separated, and a new set of institutions and instruments put in place to manage the relationship. This means (to these proponents) getting the party out of its direct management role in state affairs, including state enterprises, in contradiction of the enhanc ement of party control over enterprise management enunciated at the Ninth Congress. The instruments of party control and oversight are still formidable, and are backed up by official doctrine on the nature and role of the state. (61) Overlap between party and government operates in a number of ways, including dual mechanisms of political control at the very top in the national government and the party respectively (namely, the Politburo and the party Central Committee and its policy committees); the continued operation of the nomenklatura system through which all significant appointments and promotions in state organs are monitored and controlled by the party, both at the centre and in the provinces; (62) and the role of the "party affairs section" within each state organization.
In this context, the development of any coherent economic reform strategy must steer its way through a complicated party-state combination of policy concerns and political interests. The complexities for the leadership are multiplied when we come to consider the political interests that are incorporated within the multi-layered state management system of departments and agencies. Gillespie refers to this as a system of "polycentric power sharing". (63) The machinery of government in Vietnam would be considered by most outsiders to be fragmented and cumbersome.64 The tendency is for flat hierarchies comprising a multitude of bodies, many of them only tenuously connected to a weak administrative centre. Gainsborough directly links this fragmentation -- or "institutional particularism" -- to the significance for line agencies and provincial officials to retain control of state commercial interests and resources. (65) Whether for patronage purposes or simply to get the job done, managers seek to defend bureaucrat ic turf and to enhance their financial autonomy. In a world of scarce resources and tight budgetary control, extra-budgetary sources of finance, such as user fees (both "official" and "unofficial") and gains from SOE commercial activity are a vital resource.
Outside reform advocates look on with frustration at the apparent lack of cohesion and control that result from bureaucratic fragmentation and insularity:
As this comment notes, the state is also fragmented into layers, albeit in a "unified system". Provincial representative organs (peoples' councils) are subordinated to the National Assembly, and provincial executive bodies (peoples' committees) are subordinated to the national government. Central government ministries have field offices, which serve as part of the administrative machinery of the People's Committees (an example of the principle of "double subordination"). Neither national nor provincial governments possess their own uninterrupted hierarchies of administrative command, but share overlapping structures -- the head of a provincial administrative department in a line ministry is under the command both of the national ministry head office and of provincial level senior officials. This is part of a wider problem: who has power to issue and interpret laws, decrees, decisions, ordinances, guidelines, and circulars, and which of these documents take priority when they come into conflict, are matters of ambiguity, despite measures to clarify powers. (67) The issuance of a party decree or prime ministerial decision does not end the matter: there is often the need for a ministerial or provincial level guideline or inter-ministerial circular to clarify procedures. The inoperability of many decisions long after they have been "taken" because they do not suit the interests of local managers is a common feature in this context of overlapping authority and disjointed lines of command.
No single agency is currently responsible for monitoring implementation of all reforms, nor for ensuring consistency and coherence... Even for a single reform component like SOE reform, several ministries/agencies are involved... -- Ministry of Finance, Ministry of Planning and Investment, Ministry of Labour, Invalids and Social Affairs and the Office of Government -- but actions in respect of specific SOEs like equitization, liquidation, sale and restructuring, can only be taken by owners like different provincial peoples' committees, line ministries and General Corporations. They in turn have to persuade enterprise managers to take actions. (66)
These deeply ingrained institutional features both encourage and feed off the economic resources that SOEs can bring to their managers and their bureaucratic patrons. It is not surprising in this context that the initiative for a process of restructuring of an enterprise has rested in the hands of the enterprise and the bureaucratic agency in which is vested ownership rights. The inability to overcome this structural fragmentation on a day to day basis is also illustrated by the lack of coherent, co-ordinated management of the SOE restructuring programme, despite the continual avalanche of decrees, decisions, and circulars flowing from Hanoi. As the observation by the World Bank quoted above indicates, major responsibilities for financial and other aspects of SOE oversight and reform are scattered across a number of government ministries. The operation of the National Steering Committee on Enterprise Reform and Development (NSCERD), successor to the coordinating committee set up in 1992, demonstrates the styl e of policy management that emerges in this system. The Committee (since its latest restructuring in 2001) is chaired by a deputy prime minister. Its members are high-level agency officials, who see their role as holding a "watching brief". NSCERD's formal mandate is to "draw up strategies", "direct, guide and monitor implementation", "co-ordinate with the competent agencies" in making submissions and "propose solutions to remove difficulties" in the reform programme. (68) Its own version is that it plays a "fixer" role, being authorized to intervene in inter-level and inter-departmental arenas to clear blockages in the implementation of restructuring proposals. (69)
NSCERD's three chief officials are assigned part-time from other positions (the vice-head is chairman of the Office of Government [OOG], which is like a Prime Minister's Department), and the full-time staff is small and of relatively low status. Uncertainty surrounds the exact source of the committee's authority, whether it derives from the OOG or from an independent remit from the Prime Minister. Tellingly, the actual committee effectively stopped meeting in 2001. As a result, in this highly complex and conflict-ridden field of policy, the Committee is generally viewed as a force for prevarication as much as an engine of reform. One of the demands of international agencies has been to give it "enforcement powers", a result of which was the restructuring announced by Decision 128, which placed it under a deputy prime minister and attached it to the 00G. Ironically, this measure (supposedly aimed at enhancing its bureaucratic "clout") was resisted by its staff, which saw things very differently, namely, a loss of independence and status rather than a gain in co-ordinating power. To suggest that the change has made a fundamental difference (as the IMF seems to have done in accepting it as a sign of meeting a reform "milestone") is to misconstrue the nature of such a body's role and standing in the Vietnam state's system of diffuse and shared authority. It is there to signify the existence of central policies, to broker attempts to implement them, and to make frequent pronouncements on the progress being made, not to "command and control".
There is a powerful domestic structural and political logic to the pace and trajectory of the SOE restructuring programme in Vietnam. State commercial interests are deeply embedded in the structure of the Vietnamese state, and help to sustain both the bureaucracy and the party. Efforts by the national government and the party centre to manage and co-ordinate a restructuring process are inhibited by these institutional and political factors, but they are not so debilitating that the state cannot hold together. The party and government share a common interest in maintaining a healthy and profitable SOE sector. On the one hand, the delays and prevarications in the SOE restructuring programme would seem to depict a weak state that is unable to implement a coherent reform strategy. On the other hand, it could also be said to demonstrate a resilient state comprising a plurality of interests, which is able to resist unwelcome pressures to marketize while leaving scope for many innovations and adjustments to produce a more efficient set of economic enterprises. These adjustments are as much through local invention and adaptation as through central "reform". The rhetoric of reform can be plausibly sustained, but at the same time the pace of reform is slow enough to reassure those who fear its excesses.
Thus, the lack of co-ordination, slow implementation and U-turns so familiar and frustrating to outsiders has a political logic. What appears contradictory from the outside actually comprises an internally balanced political strategy for managing a potentially chaotic transition. One element in its success is that the state relies on being relatively insulated from external political or societal sanctions, such that contradictions can largely be contained within the circles of the party-state. For example, "government by decree" leaves room for local interpretation and implementation, enabling continual refinement and correction, reaffirmation and modification. Gaps in control caused by disjointed hierarchies that leave room for lower level obstruction and resistance also keep issues open and deflect opposition and dissatisfaction, while permitting further search for workable local and national solutions.
Paradoxically, then, the capacity of the Vietnamese state to shape and control its own economic reform programme rests in part on a set of traditions and practices that seemingly weaken and diffuse administrative control and policy coherence. These traditions and practices are viewed with scepticism and puzzlement by donors and lenders, who call for "better enforcement" and more coherent central control and direction (for example, in the shape of a "single agency or organization for economic reform").70 Only then would "real reform" be possible. However, it is the lack of coherence and the diffusion and sharing of power and authority within a fragmented state that enables the transition to be managed in such a way as to accommodate external pressures, while also (to date) preserving the state's stability and integrity as it pursues its long-term programme of doi mci.
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TABLE 1 GDP by Sector and Ownership 1995-99 (% of GDP) 1995 1996 1997 1998 1999 Agriculture 27.2 27.8 25.8 25.8 25.4 State 1.2 1.3 1.1 1.1 1.2 Non-state 26.0 26.5 24.6 24.7 24.2 Industry & Construction 28.8 29.7 32.1 32.5 34.5 State 14.5 14.4 15.4 15.4 16.0 Non-state 14.3 15.3 16.7 17.1 18.5 Services 44.1 42.5 42.2 41.7 40.1 State 24.6 24.3 23.9 23.5 22.5 Non-state 19.5 18.1 18.2 18.2 17.6 SOURCE: IMF (1999). (17) TABLE 2 The Number of National and Local SOEs by Economic Activity Economic Activity Total Central Local Agriculture and Forestry 801 141 660 Aquaculture 48 2 46 Minerals 135 63 72 Manufacturing 1,515 599 916 Electricity, water and gas 73 1 72 Construction 946 405 541 Trade and repairing 1,133 421 712 Hotel and restaurant 182 30 152 Transportation and Communication 246 95 151 Finance and credit 75 21 54 Other 377 99 278 Total 5,531 1,877 3,654 SOURCE: GSO (2002). (23) TABLE 3 Key Financial Indicators of SOEs (1997) The 100 largest The 200 largest Total Total state capital 40,492 44,332 73,075 Total fixed assets 62,548 67,354 n/a Total turnover 56,523 77,644 267,523 Total contribution to budget 14,094 15,651 23,919 Total debt 29,369 40,237 101,439 Total bank loans 13,544 18,286 n/a Total profit before tax 3,275 4,942 8,177 Number of profit-making SOEs 89 180 2,196 Debt-asset ratio .47 .52 .58 Fixed assets turnover ratio 7.07 7.71 n/a Gross Pre-tax Margin (%) 6.1 7.5 3.1 Note: n/a = not available SOURCE: IMF (1999). (27)
(1.) I acknowledge the assistance of Phan Huu Nhat Minh, who collated and tabulated the primary data on the structure and performance of the SOE sector in Vietnam, Adam McCarty and Mekong Economics provided additional support for the project, which was funded by the City University of Hong Kong Project Grant 7100228. An earlier version was presented at a Panel on "Changing Contexts and Roles of Government", International Conference on Governance in Asia: Culture, Ethics, Institutional Reform and Policy Change, 5--7 December 2002, Governance in Asia Research Centre, City University of Hong Kong.
(2.) IMF, "Vietnam: Second Review under the Three-Year Arrangement under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria" (Washington: IMF Asia and Pacific Department, 2002).
(3.) Joel Migdal, Strong Societies and Weak States: State-Society Relations and State Capabilities in the Third World (Princeton, NJ: Princeton University Press, 1988); and Peter Dauvergne, ed., Weak and Strong States in Asia-Pacific Societies (St Leonards, NSW: Allen & Unwin Australia), 1998.
(4.) Phan Van Tiem and Nguyen Van Thanh, "Problems and Prospects of State Enterprise Reform, 1996-2000", in State-owned Enterprise Reform in Vietnam: Lessons from Asia, edited by Ng Chee Yuen, Nick J. Freeman and Frank Hiep Huynh (Singapore: Institute of Southeast Asian Studies, 1986).
(5.) Communist Party of Vietnam, "On Continuing to Restructure, Reform, Develop and Improve the Efficiency of State Enterprises", Resolution 05-NQ-TW of the Third Plenum of the Ninth Central Party Committee, 2001.
(6.) On "unimplementability", see A. Fforde, 'Strategic Issues in Vietnamese Development Policy: State-owned Enterprises (SOEs), Agricultural Cooperatives and Public Administration Reform (PAR)" (Paper presented at the Department of Political and Social Change, RSPAS, Australian National University, Canberra, September 1998). On "decentralization", see Melanie Beresford, "Interpretation of the Vietnamese Economic Reforms 1979-85", quoted in Benedict J. Tria Kerkvliet, "Land Regimes and State Strengths and Weaknesses in the Philippines and Vietnam", in Dauvergne, op. cit., 1998, p. 159.
(7.) Peter Dauvergne, "Weak States, Strong States: A State-in-Society Perspective", in Dauvergne, op. cit., pp. 8-9.
(8.) Kerkvliet, op. cit., pp. 158-74.
(9.) Ibid., pp. 170-71.
(10.) M. Gainsborough, "Beneath the veneer of reform: The politics of economic liberalisation in Vietnam", Communist and Post-Communist Studies 35 (2002): 356-57.
(11.) Robert F. Durant, "Whither the Neoadministrative State? Toward a Polity-centred Theory of Administrative Reform", Journal of Public Administration Theory and Research 10 (1999): 79-109; Merilee S. Grindle, Audacious Reforms: Institutional Invention and Democracy in Latin America (Baltimore: Johns Hopkins University Press, 2000), pp. 25-26; Kathleen Thelen, and Sven Steinmo, "Historical Institutionalism in Comparative Politics", in Structuring Politics: Historical institutionalism in Comparative Analysis, edited by Sven Steinmo, Kathleen Thelen and Frank Longstreth (Cambridge: Cambridge University Press, 1992).
(12.) Joel S. Migdal, State in Society: Studying How States and Societies Transform Themselves and Constitute One Another (Cambridge: Cambridge University Press, 2001), pp. 141-42.
(13.) Communist Party of Vietnam Central Committee, Soda-Economic Development Strategy 2001-2010 (Hanoi: 2000).
(14.) GSO (Government Statistical Office), Statistical Yearbook 1999 (Hanoi: Statistical Publishing House, 2000a].
(15.) GSO, Statistical Data of Vietnam Socia-economy 1975-2000 (Hanoi: Statistical Publishing House, 2000b].
(16.) World Bank, Vietnam Development Report 2002: Implementing Reforms for Faster Growth and Poverty Reduction (Hanoi: World Bank, 2001).
(17.) IMF (International Monetary Fund), Vietnam: Selected Issues and Statistical Appendix, IMF Staff Country Report No. 99/55-56 (Washington, D.C.: IMF, 1999).
(18.) MOLISA (Ministry of Labour, Invalids and Social Affairs), Statistics on Labour, Involids and Social Affairs in Vietnam 1996-2000 (Hanoi: Labour and Social Affairs Publishing House, 2001).
(19.) Figures drawn from Ministry of Finance budget data. See www.mof.gov.vn.
(20.) OECF, "State-owned Enterprise Reform in East Asian Transition Economies", Research Paper (Japan, 1998), p. 199.
(21.) CIEM (Central Institute for Economic Management), "Vietnam's Equitized Enterprises: An Ex-post Study of Performance, Problems and Implications for Policy" (Discussion draft presented at the conference on "Studies of Post-equitization", Hanoi, 29-30 August 2002).
(22.) OECF, op. cit.
(23.) GSO, The Results of the Enterprise Census at 1 April 2001 (Hanoi: Statistical Publishing House, 2002).
(24.) Data on performance are of dubious reliability, and different sources provide different figures. The data in Table 3 are widely quoted by government spokesmen, as well as by international agencies, as indications of the state of health of the SOE sector. A more recent official picture is less gloomy: according to the results of the enterprise census of 1 April 2001, more than 75 per cent of SOEs were profit-making in 2000; see ibid. There is circumstantial evidence that pressure to "perform to the targets" is a source of distortion in reported SOE financial results. Ninety-five per cent of SOEs report results that fall within 5 per cent of break-even. See Peter Nelson, "Approaches to categorizing SOEs in Vietnam" (Hanoi: DANIDA Project Office, National Committee for Enterprise Reform, n.d.).
(25.) H. Mitsui, and Y. Wada, "Analysis of Reform of State-owned Enterprise in Vietnam", Journal of Development Assistance 4 (Japanese Bank for International Cooperation, 1998).
(26.) GSO, The Results of the Enterprise Census.
(27.) IMF, Vietnam: Selected Issues.
(28.) Such measures have not been uncommon to support loss-making private industries in a number of East Asian developmental states.
(29.) Ibid., p. 45.
(30.) Tran Van Son, "Ad hoc measures taken by the Government and State Bank of Vietnam to reduce financial difficulties to state-owned enterprises" (Paper presented to the Vietnam-Japan Joint Research, Phase 3, Session 3 (Hanoi, 8-9 December 2000), pp. 9-10.
(31.) IMF, "Vietnam: Second Review", p. 11.
(32.) Tomoo Marukawa, "General Corporations and State-owned Enterprise Reform in Viet Nam" (Paper presented to the Vietnam-Japan Joint Research Phase 3, Session 3 (Hanoi, 8-9 December 2000), pp. 2-7.
(33.) Nguyen Van Huy and Tran Van Nghia, "Government Policies and State-owned Enterprise Reform", in State-Owned Enterprise Reform in Vietnam: Lessons from Asia, edited by Ng Chee Yuen, Nick J. Freeman and Frank Hiep Huynli (Singapore: Institute of Southeast Asian Studies, 1996), pp. 42-50.
(34.) Ray Mallon, "Background Paper prepared for the Enterprise Reform Project" Hanoi: Ministry of Planning and Investment and Asia Development Bank, 1998) p. 20.
(35.) Decree 388/1991/HDBT.
(36.) Decision 202/1992/CT, Circular 84/1993/TTg.
(37.) Decree 25/1997/CP of March 1997 was replaced in 1998 by Decree 44/1998/ND-CP, which in turn was supplanted by Decree 64/2002/ND-CP.
(38.) Decree 103/1999/ND-CP and Decree 63/2001/ND-CP. The latter was aimed at facilitating "commercialisation" while retaining state or party ownership.
(39.) The Vietnamese dong is valued at approximately fifteen thousand to the U.S. dollar.
(40.) World Bank, "Taking Stock: An Update on Vietnam's Economic Reforms: Progress and Donor Support", Mid-year Consultative Group Meeting, Ho Chi Minh City, 23-24 May 2002, p. 22.
(41.) See Vasavakul Thaveeporn, "Politics of the Reform of State Institutions in the Post-Socialist Era", in Vietnam Assessment: Creating a Sound Investment Climate, edited by Suiwah Leung (Singapore: Curzon Press, Institute of Southeast Asian Studies, and National Centre for Development Studies, 1996); and Vasavakul Thaveeporn, "Vietnam: The Third Wave of State Building", Southeast Asian Affairs 1997 (Singapore: Institute of Southeast Asian Studies, 1997).
(42.) Ray Mallon, op. cit., p. 35. The "Union" model was revived as a way of putting a distance between the ownership and management functions, with the new "conglomerate" model being piloted in Ho Chi Minh City. Decision 90/1994/TTg and Decision 91/1994/TTg of March 1994.
(43.) In 2000, Decision 91 General Corporations employed about 35 per cent of all SOE employees in Vietnam and made up about 64 per cent of total SOE pre-tax profit; see Marukawa, op. cit., 2000, p. 1.
(44.) Marukawa, op. cit.
(45.) Ibid., pp. 3-7.
(46.) Mallon, op. cit., pp. 40-41.
(47.) IMF, Vietnam: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility, IMF Country Report No. 01/59 (Washington, D.C.: IMF, 2001), p. 17.
(48.) Gainsborough, op. cit., pp. 358-60.
(40.) World Bank, Vietnam Development Report 2002, p. 35.
(50.) Ibid., pp. 36-37.
(51.) Socialist Republic of Vietnam, "The Comprehensive Poverty Reduction and Growth Program (CPRGS)", approved by the Prime Minister as Document No. 2685/VPCP-QHQT, dated 21 May 2002, Hanoi.
(52.) These plans were drawn up by the government and party, and drew on technical assistance funded by donors.
(53.) Decision 183/2001/QD-TTg.
(54.) World Bank, Vietnam Development Report 2002, pp. 39-41.
(55.) Ibid., p. 41.
(56.) The category "reformers" is a loose and large one. Elite politics in Vietnam is more complex than a constant struggle between "reformers" and "conservatives". See David Koh, "The Politics of a Divided Party and Parkinson's State in Vietnam", Contemporary Southeast Asia 23, no. 3 (2001): 533-51; and Gainsborough, op. cit.
(57.) RIAP (Research Institute for Asia and the Pacific], Building Institutional Capacity in Asia: Public Sector Challenges and Government Reforms in South East Asia (Sydney: RIAP, University of Sydney, 2001), p. 166.
(58.) See A. Fforde, "The Political Economy of 'Reform' in Vietnam -- Some Reflections", in The Challenge of Reform in Indochina, edited by Borje Ljunggren (Harvard: Harvard Institute for International Development -- Harvard University, 1993); and Gainsborough, op. cit., p. 358.
(59.) Vasavakul Thaveeporn, "Politics of the Reform of States Institutions", and Vasavakul Thaveeporn, "Vietnam: The Third Wave of State Building", 1997.
(60.) Martin Painter, "Public Administration Reform in Vietnam: Problems and Prospects", Public Administration and Development 22 (2002); 1-13.
(61.) Dang Phong, & M. Beresford, Authority Relations and Economic Decision-Making in Vietnam: An Historical Perspective (Denmark: Nordic Institute of Asian Studies [NIAS]), 1998.
(62.) The precise mechanisms and coverage of the nomenklatura system in Vietnam remain unresearched. For glimpses, see, for example, J. Gillespie, "The Political- Legal Culture of Anti-Corruption Reforms in Vietnam", in Corruption in Asia: Rethinking the Governance Paradigm, edited by Tim Lindsey & Howard Dick (Sydney: The Federation Press, 2002), pp. 180-81; and A. Fforde, op. cit., fn. 39.
(63.) Gillespie, op. cit., p. 183.
(64.) M. Painter, "Public Administration Reform in Vietnam", in Governance and Public Sector Reform in Asia, edited by Anthony B.L. Cheung and Ian Scott (London: Routledge Curzon 2002), pp. 219-21.
(65.) Gainsborough, op. cit., p. 360.
(66.) World Bank, Vietnam Development Report 2002, p. 45.
(67.) Vasavakul Thaveeporn, Building Authority Relations: Public Administration Reform in the Era of Doi Moi (Hanoi: ADB, 2002), pp. 20-21 (available at http://www.aduki.com.au/).
(68.) Decision 128 DD-TTg, 28 August 2001.
(69.) Interview with Nguyen Van Huy, Vice Chairman National Committee on Enterprise Reform, Hanoi, 11 October 2002.
(70.) World Bank, Vietnam Development Report 2002, p. 42.
MARTIN PAINTER is a Professor in the Department of Public and Social Administration, City University of Hong Kong.…
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Publication information: Article title: The Politics of Economic Restructuring in Vietnam: The Case of State-Owned Enterprise "Reform". Contributors: Painter, Martin - Author. Journal title: Contemporary Southeast Asia. Volume: 25. Issue: 1 Publication date: April 2003. Page number: 20+. © 1999 Institute of Southeast Asian Studies (ISEAS). COPYRIGHT 2003 Gale Group.
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