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| REGULATORY REFORM IN VIET NAM |
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Client: Central Institute for Economic Management (CIEM), Ministry of Planning and Investment, Viet Nam
In a series of projects In 2001, Jacobs and Associates reviewed Viet Nam’s regulatory environment for private sector development, led a two-day seminar on regulatory reform for government officials and donors in Hanoi, and participated in two seminars on competition policy in Viet Nam. |
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- Our survey of major regulatory reform issues, "Improving the climate for business start-ups and investment: proposals for further work on regulatory" suggested priorities for further reforms of Viet Nam's regulatory and administrative environment that would improve market functioning. We also prepared a report, "Improving the Climate for Business Start-ups and Investment: Good Practices in Regulatory Reform" to inform Viet Namese officials about good regulatory practices in other countries.
- Scott Jacobs delivered a two-day workshop in Ha Noi on 27-28 February 2001 for government officials.
- Jong Seok Kim organized a high-level study tour of Viet Namese officials to Korea in October 2001 to explore lessons from Korean reforms for Viet Nam. Korea's regulatory reforms constitute one of the most far-reaching efforts at reform of regulation undertaken in Asia, and Viet Namese officials found that Korea's experiences are relevant to Viet Nam. The delegation gained first hand experience of regulatory reform in Korea, and learned about the practical strategies to promote successful reforms. We organized a schedule of meetings with a range of public and private sector experts involved in Korean reforms, including relevant government offices and officials, research organizations, academic experts, business organizations, public research institutes, and major corporations. Four industrial visits were arranged to major companies in Korea.
- Michael Wise worked with CIEM to develop a better understanding of how issues addressed by competition policy are perceived and treated in Viet Nam. He presented papers about issues in Viet Nam's policies about competition at a two-day public seminar in Hanoi in August 2001 and another seminar at CIEM in November 2001. He advised that market actors must be put on a firm and consistent footing so the price mechanism can work (for the valuation of firms and their assets, as well as for pricing their products).
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Regulatory reform is a key component of the structural reforms needed to support economic growth in Viet Nam, Scott Jacobs concluded in his report for Viet Nam's Central Institute for Economic Management (CIEM). Markets are taking on a bigger role in Viet Nam in providing products, services, and jobs. Viet Nam's transition from central planning is intended to help the country address many challenges, including creating jobs for the 1.4 million people entering the job market each year, moving to a knowledge-based economy, and responding to the pressures and opportunities of globalization, such as attracting investment and complying with bilateral trade agreements.
Jacobs wrote, "In a market economy, the government regulates behavior in the market, rather than restricting entry or exit, and this re-orientation requires new institutions, policies, and instruments. As part of a broader mix of macroeconomic and structural policies, regulatory reforms, properly designed and implemented, should increase private investment (domestic and foreign), business start-ups, and incentives for efficiency among private and state-owned enterprises in Viet Nam. These effects, in turn, should boost over-all productivity performance and potential long-term growth, and comprise a valuable tool in the national strategy for poverty reduction." Jacobs recommended that Viet Nam: |
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- Develop a framework strategy for market development. A comprehensive approach is necessary to put into place essential framework policies for market functioning, and to reduce the risks of costly market failure resulting from partial or uncoordinated reforms. Regulatory reform aimed at improving supply-side performance should be included in Vietnam's comprehensive economic strategy.
- Strengthen competition and efficiency incentives for former state-owned enterprises. Equitization (including privatization and corporatization of state-owned firms) is advancing. In 1992, SOEs produced 70 percent of GDP, whereas by 2001 they produced 51 percent (though SOEs still consumed 90 percent of capital). But the ultimate success of SOE reform depends on the increased efficiency which with national resources are used, and capacities to develop new wealth through innovation. To maximize performance, equitized SOEs should enter a competitive market in which consumers determine success, and output and investment are based on returns for shareholders.
- Improving the regulatory and administrative environment for businesses. Significant progress in key areas has stimulated business start-ups and investment in Viet Nam. Private enterprises are allowed to operate in many more sectors compared to 10 years ago, though entry is still controlled. Reform of business law has simplified administrative procedures. This, combined with deregulation in 1998 of exports and imports, stimulated the creation of 15,000 new enterprises by end 2001. The time required to obtain a business registration has dropped from 3-6 months to 7-15 days. Yet there are still obstacles to trade, and much remains to be done.
- Strengthening reform institutions at the center of government. The success of the Enterprise Law reforms was largely due to an innovative Working Party for Enterprise Law Implementation in the Office of the Government, which organized the reviews of licenses. If government-wide reforms are to be protected and expanded, a continuing strong body at the center of government is needed, more durable and with more powers. Other countries have put into place such bodies, and agree that such bodies are essential for the success of broad reforms. The Korean Regulatory Reform Commission and the Mexican Regulatory Review Committee are two of the most effective, and could provide useful examples for Vietnam.
- Reforming the public administration to build capacities for transparent and efficient regulation, improve regulatory implementation at ministerial and local levels, and establish efficient dispute resolution. An overhaul of regulatory procedures (even incentives and cultures) is needed within the public administration to create a market-friendly environment. The danger is that, as the state moves from owner to regulator of the market, public officials will attempt to use regulation more extensively to maintain control. Hence, controls on the regulators themselves will become increasingly important. Practical tools to increase regulatory quality should be considered, including introduction of regulatory impact assessments to assess the costs and benefits of state actions, and procedures to increase transparency, such as an Administrative Procedure Law and public consultation. Viet Nam may also consider alternative appeals mechanisms, such as tribunals or specialized committees, to resolve cases involving administrative actions, since judicial reform is long-term in nature.
- Designing effective competition policy and institutions. Efficiency, investment, and innovation -- and, ultimately, consumer welfare -- will be greatly boosted by measures that make competition principles operational economy-wide and across the public administration. Viet Nam should consider enlisting technical assistance in designing not only the competition policy but also its implementing institutions, considering the experiences of other countries.
- Establishing market-oriented regulatory regimes for telecommunications, energy, and transport sectors. There is large potential for boosting productivity, lowering input costs for user enterprises, and improving quality by introducing more competition in the infrastructure sectors. This would have a substantial positive effects upstream and downstream, indeed, throughout the economy. The priority infrastructure sectors are communications, energy, and transport, each of which poses complex regulatory issues. Viet Nam should consider conducting detailed assessments of the evolution of the key infrastructure sectors over the next ten years, and the step-by-step regulatory strategies needed to support the introduction of competition and consequent restructuring. Even where state monopolies exist, Viet Nam could induce efficiency gains by developing competitive tendering procedures for operating defined services.
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