Private sector financial mobilization for socio economic development in vietnam

1 INTRODUCTION Urgency of thesis According to a number of studies, Vietnam’s economic growth in recent years was primarily the result of successful mobilization of financial, labor and natural resources for production and business However, as a developing country whose cumulative available funds are still lower than the increasing demand for investment, it is essential for Vietnam to improve the effectiveness in mobilizing financial resources The facts showed that mobilization of public sector financial resources in recent years was relatively stable However, this source is limited and primarily used for important infrastructure projects and providing public goods and services The financial resources from FDI sector, though playing an important role in promoting economic development, are not stable, dependent on foreign investors, and only used for a limited range of business Thus, mobilization of domestic financial resources from the private sector has become a task of great significance In recent years, however, the actual private sector finance mobilization was only able to exploit a part of its potential While we are still short of funds for socio-economic development, failure to mobilize private sector financial resources will not only cause an unforgivable waste of resources but also result in undesirable consequences, such as speculation in gold, foreign currency and real estate, and create bubbles and socioeconomic instability From this perspective, it is urgent to find efficient solutions to better mobilize private sector funds for socio-economic development Presently, the studies on private sector financial mobilization for socio-economic development vary greatly both in number and in content, but these studies approached financial resources as a factor of general economy or as an internal resource of enterprises and how they make full use of these resources to improve their competitiveness That means that the private sector financial mobilization for socio-economic development was only approached indirectly and either too broadly or too narrowly; so far, there has not yet been any research that covered this issue in a comprehensive way Meanwhile, the current demand for socio-economic development requires improvement of mechanism, policies and measures to mobilize private sector financial resources For this reason, the writer selected "Mobilization of financial resources from the private sector for socio-economic development in Vietnam" as a dissertation thesis of economics – political economics major Purposes and tasks of thesis The purpose of this thesis is to (1) clarify the basic theories of financial resources from the private sector and finacial mobilization from the private sector for socioeconomic development, in order to make way for analysis and assessment on financial mobilization from the private sector for socio-economic development in Vietnam and (2) propose some feasible orientations and solutions to improve of private sector financial mobilization for socio-economic development in Vietnam in the coming time Tasks of research: - Generalize and clarify theories on financial resources, financial resources from the private sector and financial mobilization from the private sector for socio-economic development - Analyze channels of financial mobilization from the private sector and affecting factors - Summarize experience in mobilizing financial resources from the private sector for socio-economic development in some other countries and territories of similar conditions in order to draw lessons for application in Vietnam - Analyze and evaluate the actual mobilization of financial resources from the private sector for socio-economic development in Vietnam from 2001 to 2011, in order to find out the reasons for successes and the causes of drawbacks to overcome - Propose points of view, directions and solutions for effective mobilization of financial resources from the private sector for socio-economic development in Vietnam in the coming years Object and scope of study The object of this study was defined as financial resources from the private sector and methods of mobilizing financial resources from the private sector for socio-economic development Scope of study The research scope covered financial resources from the private sector and methods of mobilizing financial resources from the private sector for socio-economic development in Vietnam The private sector is understood as an economic sector with private ownership of production means, including domestic private enterprises, individual businesses, family-owned companies, and the privatized parts of jointstock companies were covered in this study as well Also, the approach to the private sector was applied to the state economy and the FDI economic sector The time of research was within the period of 2001-2011 sector for socio-economic development in the coming years Rationale and method of study - Finally, this study proposed some orientations and solutions for improving the mobilization of financial resources from the private sector for Vietnam’s socioeconomic development in in the coming time - Rationale: This study was based on the theoretical basis of Marxism-Leninism, Ho Chi Minh’s point of view, the guidelines and policies of the Party and the State, and modern economic theories which were properly selected to suit the particular conditions of Vietnam - Method of study: This study used various scientific methods of economic study such as analysis, synthesis, comparison, investigation and survey in combination with qualitative analysis and quantitive analysis, especially the methods of systemization of research and application of results obtained from several scientific projects related to mobilizing financial resources for socio-economic development This study, after clarifying the theoretical issues, conducted analysis on the income, profits, and accumulation of financial assets by the private sector in order to determine the potential for mobilzing funds from this economic sector Next, the analysis reviewed the actual mobilization of financial resources through different channels From the comparative analysis of the potential and actual mobilization of financial resources, the thesis points out the drawbacks of mobilizing financial resources from the private sector for optimal exploitation of the potential for socioeconomic development Finally, the thesis proposes feasible solutions for more efficient mobilization of financial resources New contributions of study - This study reviewed and clarified some key theories of financial resources from the private sector, mobilization of private sector financial resources and the relationship between these financial resources and socio-economic development; - Based on the empirical study of some countries on their mobilization of financial resources from the private sector, this study drew some lessons that can be applied to Vietnam in mobilizing financial resources for the socio-economic development - This study also conducted analysis and evaluation on the current potential mobilization of private sector financial resources for socio-economic development in Vietnam and pointed out some factors of impact, drawbacks and the causes of the shortcomings The new point of this study was that it compared the potential and actual mobilization of financial resources from the private sector and used it as an instrument for measuring the effectiveness of this activity - Furthermore, this study produced some forecasts on the trends of the financial resources of the private sector and opportunities for mobilizing capital from this Structure of study In addition to the introduction, conclusion, list of references and appendices, the thesis is structured into four chapters as shown below: Chapter OVERVIEW 1.1 OVERVIEW OF RESEARCH ON MOBILIZING FINANCIAL RESOURCES IN GENERAL The studies in this group all focused on mobilization of financial resources through general channels and from general sources The advantage of this approach is that it produced a comprehensive overview on mobilization of financial resources for socioeconomic development However, as they were too general, these studies had no intensive analysis on different perspectives of each mobilizing channel and each financial source Moreover, these studies did not take the financial resources from the private sector as the central point of study; they made general investigations into the mobilization of financial resources only, focusing on no specific economic sector 1.2 STUDIES THAT FOCUSED ON ONE OR SOME CHANNELS OF FINANCIAL MOBILIZATION There are quite a lot of studies on mobilizing financial resources with a focus on one or a few specific channels of financial mobilization from the private sector, such as bank savings, stock markets, bonds, public-private partnerships, The advantage of these studies was that they focused on a specific channel of mobilizing financial resources, and therefore they could make in-depth analysis on the specifications and techniques of that channel However, these studies neither showed an overview on the mobilization of financial resources from the private sector nor conducted analysis on the potential, characteristics, advantages and difficulties in mobilizing financial resources from the private sector They only focussed on a specific channel, ignoring other important ones Despite these shortcomings, the studies served as a useful references source for this thesis 1.3 OVERVIEW OF RESEARCH ON FINANCIAL MOBILIZATION FROM PRIVATE SECTOR Besides the studies on mobilizing financial resources in general, or on a specific channel of financial mobilization in particular, some studies focus on mobilization of financial resources from the private sector These studies did not carry out extensive investigation into just a few specific channels but covered a variety of forms of fund mobilization These studies worked on different perspectives: 1) Development of the private sector, including mobilization of financial resources from the private sector, 2) Financial mobilization from the private sector through a certain number of channels; 3) Financial mobilization from the private sector for a specific goal, such as development of education and health care, 4) Comprehensive study on the channels of financial mobilization from the private sector for socio-economic development Generally, the studies in this group succeeded in pointing out the role and potential of the private sector financial resources They also conducted analysis and proposed some solutions for higher efficiency in mobilizing financial resources from this sector However, some of the studies mentioned above were too general; the others were confined to a few channels of mobilization only, and therefore they lacked completeness, comprehensiveness and systemization So far, the writer has not seen any studies that provide a systematic, comprehensive and complete analysis on the mobilization of private sector financial resources Chapter RATIONALE AND PRACTICAL EXPERIENCE IN PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM 2.1 FINANCIAL RESOURCE RESOURCES AND PRIVATE SECTOR FINANCIAL 2.1.1 Financial resources for socio-economic development: Resources for socio-economic development consist of natural resource, national wealth, science and technology, finance, time and people that can be mobilized for immediate and long-term goals of socio-economic development Of those resources, the financial resource plays an important role in providing capital for all activities of production, business and society Financial resource for socio-economic development is understood as monetary source (or assets that can be quickly converted into cash) that can be mobilized to form monetary funds for socio-economic development of a country In talks of financial resource, we always care about where it comes from and to whom it belongs When this resource is owned by the private sector, we call it the financial resource from private sector, or, to be more precise, from households, individuals and private enterprises of different types Private sector financial mobilization is the work of attracting financial resource from the private sector, including household businesses and private-owned enterprises, to monetary funds for socio-economic development Financial resource can be divided into several types by origin, channel and form of mobilization This dissertation applied that classification in analyzing financial resource and private sector financial mobilization through different channels and in different forms 2.1.2 Role of financial resource in socio-economic development - Financial resource when mobilized will form investment funds for socio-economic development - Financial resource when mobilized and put into use will act as a component of aggregate demand - Financial resource when mobilized and rationally used will be very helpful for the transition of economic structure - Financial resource when mobilized and rationally used will help promote sciences and technology - Financial resource when mobilized and rationally used will help improve the quality of economic growth, health, education, and environment 2.1.3 Private sector and private sector financial mobilization Private sector is a term to indicate an economic sector with private ownership of production means, including household businesses, medium and small enterprises, and private capitalists In this thesis, the private sector is confined to the domestic private economy Basically, private sector financial resource can be categorized by three criteria: origin, form of mobilization and channel of mobilization In terms of origin, private sector funds come from two main sources: 1) financial resource of the private enterprises and 2) financial resource of the household businesses and medium and small enterprises In the interest of channel of mobilization, private sector financial resource is reflected in the share of private contribution to the State budget, proportion of private loans and bank deposits, private share in the stock market and system of private enterprises, household businesses and private agencies Regarding form of mobilization, private sector financial resource is reflected in the financial resource mobilized from taxes, fees and charges paid by private businesses, bonds and shares issued by private enterprises to raise capital, personal indirect investments through purchases of shares and bonds in the stock market, or direct investment made by private enterprises and agencies - Macroeconomic Environment 2.2 PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT AND AFFECTING FACTORS 2.2.4 State’s role in private sector financial mobilization 2.2.1 Private sector financial mobilization for socio-economic development - Economic trends and consumers preference of savings and investments - Financial system, including banking system and stock market - People’s, entrepreneurs’ and politicians’ knowledge of financial issues The State plays an important role in developing the private sector in general and mobilizing private sector financial resource in particular, as specified below: - Private sector financial mobilization through investments in production and trade conducted by private enterprises and household businesses - Make decision on private fund mobilization; - Private sector financial mobilization through the state budget system - Establishes a macroeconomic environment and business environment - Private sector financial mobilization through banking system 2.2.5 Criteria for evaluating effectiveness of private sector financial mobilization - Private sector financial mobilization through stock markets In evaluating effectiveness of private sector financial mobilization, it is common to compare the volume of actual financial mobilization with the volume of current financial potential If the first is relatively large in comparison with the latter, it means that the mobilization is of high effectiveness In this thesis, the writer used the approach of comparing the size of actual mobilization with that of the current private sector financial potential The reason for using the terms “current financial potential” is that there has not been any accurate statistics on the size of private financial resource so far Therefore, the thesis used the method of comparing the private financial volume already mobilized with the financial volume not yet mobilized and normally stored in the form of cash, gold and foreign currencies in the private sector The smaller the amount mobilized, the lower the effectiveness of private sector financial mobilization for socio-economic development - Private sector financial mobilization through socialization of public services and social programs such as charity and social security 2.2.2 Need of private sector financial mobilization for socio-economic development in Vietnam - First, private sector financial mobilization helps increase funds for investments and promotes economic growth - Second, private sector financial mobilization helps maximize production capacity and utilizes economic potentials scattered in the population - Third, private sector financial mobilization for investment helps create employment and increase laborers’ income - Builds a legal framework and a policy system for private sector development; and - Fourth, private sector financial mobilization helps promote socialization of investments in infrastructure and social security programs, such as hunger erasement and poverty reduction as well as other charity movements 2.3 INTERNATIONAL EXPERIENCE IN PRIVATE SECTOR FINANCIAL MOBILIZATION 2.2.3 Factors affecting private sector financial mobilization To increase the savings volume in the banking system, Malaysia implemented a number of measures: There are many factors that affect private sector financial mobilization, including: - Economic growth - System of Law - Business Environment 2.3.1 Malaysia: Mobilizing private funds through bank savings - maintain a cautious macroeconomic policy over several decades, keeping inflation rate at about 3.2% with very small fluctuation - Apply various savings programs with creaming interest rates to stimulate savings - Develop an effective banking system, especially the postal savings service that 10 reaches out to the rural areas sector and ensure the interests of their investments or capital contribution 2.3.2 Korean: developing bond market - Base financial mobilization on a stable macroeconomic environment, especially stability of prices and exchange rates Ensure high economic growth and high income to creating trust in the private sector Since the financial crisis of 1997, the Korean government has strongly promoted bond issues to mobilize funds to make up for the budget deficit and to push up the economic recovery after the recession A number of measures were implemented to simplify the government’s financial policies, such as reducing the number of bonds and unifying names of the government bonds An electronical system of bond auction was also set up To facilitate market development, Korea established several credit rating agencies and improved the standard norms Thanks to these innovations, information about bonds became more precise, which helped investors better understand the value of each bond Thus, the Korean government bond has become an increasingly important instrument of financial mobilization in the financial market 2.3.3 China: developing stock market In the development of stock market, the State of China played a very important role in setting orientation and strategies for a long-term development of the market At first, due to its unplanned operation, the stock market did not prospect as expected To cope with this problem, the State allowed various entities to take part in the stock market including securities firms, stock issuers and investors An important point is that China successfully maintained a rapid economic growth and a stable macroeconomic environment At the same time, China actively allowed selective foreign investors to enter the domestic stock market, encouraging the domestic companies to issue shares to foreign strategic business partners 2.3.4 Some countries in Asia, Africa and Latin America: mobilizing private financial resource and promoting public-private investment partnerships in infrastructure The fact showed that these countries used different instruments to attract private investments in infrastructure, such as issues of construction bonds, government bonds, cooperations of BOT and BT In practice, wherever possible, these tools were applied in combination to promote the strengths of each - Develop a financial system with high reliability and convenience, offering abundant financial products in order to attract private funds, which is characterized as greatly potential and diverse - Ensure profitability of the private sector in public-private partnership investment projects with a strong commitment of the government Chapter ACTUAL MOBILIZATION OF PRIVATE FUNDS FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM 3.1 ECONOMIC SITUATION OF 2001-2010 AND DEVELOPMENT OF PRIVATE SECTOR IN VIETNAM 3.1.1 Overview on the world’s and Vietnam’s economy of 2001-2010 - The world economy experienced many ups and downs with negative growth which ended in crisis in 2008 - Vietnam’s economic growth in the period 2001 - 2010 was quite good: + Average growth reached 7.02% / year: + Economic structure shifted towards industrialization – modernization + Income per capita increased - However, since the end of 2007, Vietnam’s economy has faced a number of challenges: + High inflation and economic downturn due to the global and domestic economic recession 2.3.5 Lessons for Vietnam + Macroeconomic instability, imbalance of many key macroeconomic variables such as inflation, exchange rate, trade deficit, budget deficit, Based on the international experiecnce in private sector financial mobilization mentioned above, we can draw a number of lessons for Vietnam to apply in the coming time, as shown below: + Economy grew at a very low rate due to sole dependence on exploitation of natural resources and labor and inefficient use of capital such as dispered investments, - Establish a legal framework and policies to facilitate the development of the private 3.1.2 Development of private sector in Vietnam 11 12 - Economic development, on one hand, is partly supported by the private sector, and, on the other hand, helps the private sector develop itself The milestone for the development of the private sector was the introduction of the Enterprise Law 1/2000 + Up to 60-70% of the private businesses were profitable during the period of 20072009; + Rising income helped increase the financial accumulation of households - In 2008, the number of newly established private enterprises soared from about 35000 to 197 000 (approximately 460 thousand enterprises registered for business permit by 12/2009) Table 3.2: Average monthly household savings per capita - However, the private enterprises were small in terms of labor force and capital Most of them (96-97%) were small and micro enterprises and very few of them were medium and large enterprises - Despite their small size, the private enterprises were growing very fast and making significant contribution to the national economy 3.2 ACTUAL MOBILIZATION OF PRIVATE SECTOR FINANCIAL RESOURCE FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM, PERIOD 2001 – 2011 3.2.1 Actual mobilization of private sector financial resource by origin - The development of the national economy helped increase people's income and improve financial accumulation Table 3.1: Vietnam’ savings by year at current prices Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Average Savings Thousand billion Growth rate VND (%) 151 171 13 191 12 234 23 300 28 350 17 391 12 436 12 480 10 563 17 16% Source: World Bank, World Development Indicators - In the private sector, the proliferation of private enterprises and a speedy rise in household income encouraged the financial resource to grow rapidly: Year 2002 2004 2006 2008 2010 Urban area % 000’ VND 124 20 163 20 246 23 360 22 302 14 Rural area 000’ VND % 43 16 64 17 104 21 142 19 121 11 Average 000’ VND 62 87 126 202 176 % 17 18 20 20 13 Source: Writer's calculations based on data of GSO (2011) and survey results on household living standard in 2010 + Remittance is also an important household income source On average, the annual remittance from overseas to Vietnam during 2001 - 2010 increased by 17%, reaching about billion USD in 2011 + Gold and foreign currency in the population is also reserved in very large amount As estimated by the State Bank, the amount of gold reserved in the population ranged from 300 to 500 tons, equivalent to 18-30 billion dollars + The results produced from the quantitative regression models in the thesis showed that the proportion of private investment/ GDP came in line with the growth rate of average income (late), economic growth (late) and the introduction of the Business Law (using dummy variables) 3.2.2 Actual mobilization of private sector financial resource by channel and form of mobilization - To maintain a high growth rate in the context of inefficient use of investments and high ICOR, Vietnam had to maintain a high ratio of investment / GDP (approximately 40%) in recent years Thus, the demand of capital for socio-economic development was always very large, and therefore private funds played an increasingly important role + The capital for socio-economic development increased by 5.6 times, from 151 trillion VND in 2000 to 840 trillion in 2010 by current prices In particular, the funds mobilized from the private sector increased by nearly nine times, from 34.6 to 288.5 trillion, and twice as much as the average growth rate 13 14 + In terms of investment proportion, the private funds accounted for 36% of the total investment in 2010, compared with 30% in 2000 of registered businesses increased by 15 times in 2009 compared with that of 2000 In just years, from 2007 to 2009, the total capital of private enterprises increased from 1800 to 4200 trillion VND, meaning that 2400 trillion was mobilized for economic development The total capital of private enterprises was 30% higher than that of the state enterprises and by times as much as that of the FDI sector + A considerable proportion of the state sector investment also sourced from the private funds + As reported by Vu Nhu Thang (2010), the funds directly mobilized from individulas accounted for 36% of the total development investment, excluding people’s funds contributed through credit channels and to the State budget Figure 3.1: Structure of capital for development, 2001 - 2010 + The number of household businesses increased rapidly by year - Financial mobilization via banks and other financial systems: + Banks and other financial systems serve as important intermediary channels of fund mobilization in the economy because the investment capital of Vietnam’s enterprises primarily depends on loans + Banks and other financial systems developed strongly in terms of capital, deposits and loans Using the credit rating/ GDP for comparison of financial depth, we can see that the financial depth of Vietnam improved rapidly, from 35% of GDP in 2000 to 90% of GDP in 2008 and 107% in 2009 Source: Vu Nhu Thang (2010) "Financial Strategy of 2010-2010", Institute of Strategy and Financial Policies Table 3.3: Investment funds for socio-economic development by economic sector (trillion VND - current prices) Year Total State sector Private sector 2000 151,2 89,4 34,6 27,2 34,2 2005 343,1 161,6 130,4 51,1 40,9 2006 404,7 185,1 154 65,6 41,5 2007 532,1 198 204,7 129,4 46,5 2008 616,7 209 217 190,7 41,5 2009 708,8 287,5 240,1 181,2 42,7 2010 840,3 316,3 288,5 214,5 41,9 FDI sector Ratio / GDP Source: Statistical Yearbook in Brief 2010 - Financial mobilization via direct investments by private enterprises and individual households: + The private enterprises increased rapidly in number and size of capital The number + In the period of 2000-2011, the growth rate of bank capital was much higher than the rate of economic growth On average, the growth rate of capital mobilization in the recent three years was 20% in 2008, 26% in 2009 and 31% in 2010 These indicators exceeded the investment growth rates for economic development Table 3.4: Bank deposits mobilized by year (thousand billion VND) Bank Agribank Mbank ACB Eximbank Vietcomban k Vietinbank Sacombank Total 2007 Amou nt 306 23 75 23 Increa se 32% 109% 88% 77% 2008 Amou nt 375 39 91 32 Increa se 23% 70% 21% 41% 2009 Amou nt 434 59 134 71 142 17% 151 55 775 20% 145% Increa se 16% 51% 47% 122% 2010 Amou nt 475 97 183 105 Increa se 9% 64% 36% 48% 157 10% 162 3% 208 54% 175 59 928 16% 7% 20% 221 86 1167 26% 46% 26% 340 126 1534 54% 47% 31% Source: Writer’s compilation from the annual report of banks - Capital mobilization through stock market and equitization of state-owned 15 16 enterprises + Vietnam’s stock market was newly established and thriving in some recent years However, the number of listed companies and the market capitalization size has increased rapidly As of 7/2010, HOSE and HNX were joined by 547 listed companies, including 245 in Ho Chi Minh City Stock Exchange (HOSE) and 302 in Hanoi Stock Exchange (HNX) The scale of market capitalization, period 2001 – 2005, was just under 1% of GDP, but rocketed to 22.5% of GDP in 2006 and 43% of GDP in 2007 NHDmoney.vn estimated that the market capitalization at the end of 2010 would amount to 28 trillion, or $ 1.4 billion USD Third, the stock market was established and developed rapidly in recent years, creating an important channel of raising private funds for joint-stock companies + From 2006, businesses began to mobilize capital from the stock markets In 2007, capital mobilization from the stock markets boomed and the total deposits amounted to 40 trillion VND through nearly 200 drives of stock issues carried out by 192 companies and commercial banks Later on, despite its decline, the stock market provided more than ten trillion VND per year 3.3.2 Drawbacks + In addition to stocks, the government and corporates issued bonds and bills to raise capital directly from the population As of 3/2010, the volume of unmatured government bonds was up to 250 trillion VND, equivalent to about 12% of GDP in 2010 + Equitization of state-owned enterprises has been practiced since the early 1990s As of 2011, nearly 4,000 enterprises nationwide were equitized, which reshaped the SOEs, from 12,000 to 6,000, and currently only 1,309 are 100% state-capitalized companies Thanks to the conversion of 100% state-owned businesses into joint stock companies, the SOEs were very successful in attracting more financial resources from society, of which a considerable amount was mobilized from the private sector - Private sector financial mobilization through socialization of public investments and services for socio-economic goals 3.3 REVIEW ON ACHIEVEMENTS AND DRAWBACKS IN PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM Fourth, the financial mobilization through enterprises equitization was accelerated Fifth, the mobilization of private funds for infrastructure was already put under pilot research to get experience for wider application Sixth, the socialization of education, health care and other public services initially obtained good results, reducing the budgetary burden and meeting diverse needs of the society Besides the achievements, there were still some drawbacks in the private sector financial mobilization for socio-economic development First, despite an abundent number of newly established and quickly developing private enterprises, most of the businesses in the private sector were small and medium-sized, facing a lack of capital, technology and management skills The number of branded large-scale enterprises was still too small Second, in spite of its rapid growth, the private sector was not able to put its financial potential in full utilization Third, though increasing rapidly, the mobilization of private funds through banking system was only able to exploit part of the potential Fourth, the new channels of private sector financial mobilization such as stock market and bond market were not able to attain a sustainable development Fifth, though playing an important role in private sector financial mobilization, the socialization of education and health care obtained very modest results Sixth, while the demand was very large, the private funds mobilization for infrastructure projects was still limited, untapping the actual potential of financial resource in the population 3.3.3 Causes of drawbacks in private sector financial mobilization 3.3.1 Achievements First, there was a lack of consensus in cognition and behavior over the private sector First, the financial mobilization was successfully conducted through establishment and development of new private enterprises, which was boomed after the introduction of the Enterprise Law 2000 and Vietnam officially became a member of the WTO Second, due to its low starting-point through just two decades of economic reform, the financial accumulation of the private sector was therefore still very low Second, along with the economic growth and people’s income rise, the financial mobilization from the population through indirect channels increased dramatically Third, along with the economy of low starting point and poor financial accumulation, the financial system remained underdeveloped 17 18 Fourth, the economic difficulties and macroeconomic instability in recent years caused negative impact on private sector financial mobilization the global economy will fall back into a second recession, which may be more painful and persistent than the previuos one Fifth, the equitization of the state enterprises progressed too slowly Sixth, the mechanism on managment and development of the stock market was still insufficient + Normal scenario: the world economy may progress unsteadily for a length of time Low growth, high budget deficit and risks in many countries will prevent enterprises and individuals from making spending decision and investments Seventh, the policies and mechanism on public-private partnership in infrastructure investment were out-dated and unsynchronized + Good scenario: Europe will find a way to solve the debt crisis and the U.S economy will get out of recession, bringing prosperity to the world economy And finally, the socialization progressed too slowly in many fields, which prevented the private sector from economic integration Vietnam's economy Chapter POINT OF VIEW, DIRECTION AND SOLUTION FOR PROMOTING PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIOECONOMIC DEVELOPMENT IN VIETNAM 4.1 RATIONALE FOR PROPOSING POINT OF VIEW, DIRECTION AND ON PROMOTING FINANCIAL MOBILIZATION FROM PRIVATE SECTOR FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM 4.1.1 Forecast on economy of the world and Vietnam from 2012 to 2015 World Economy - The world economy will be still in crisis and recession and facing many challenges + The crisis of European debt is now getting worse and worse in many countries with no signs of recovery + The U.S economy is showing no sign of sustainable development and may fall into crisis at any time + Japan's economy is suffering many weaknesses in its internal economy and the impact of the earthquake and tsunami - The world seems to be in a crisis of direction, finding no way to get out or the current crisis - The world economy is expected to grow slowly and will experience lots of ups and downs as well as minor recessions, even when it comes out of the crisis - Forecast on the world’s economic cenarios: + Bad scenario: the economy of the U.S or Europe may fall into crisis In both cases, According to Vietnam’s plan of socio-economic development in the period 2011 – 2015, introduced by the Ministry of Planning and Investment, there are scenarios of economic growth: 6.5% / year and 7% / year In the writer’s opinion, the growth target of 7% is too optimistic This thesis launched three less optimistic scenarios + Bad scenario: We are very slow in eliminating the weaknesses of the economic model and structure; increasingly serious macroeconomic imbalances led to uncontrolable inflation, recession and monetary instability Meanwhile, the world economy is either in crisis or only growing meagerly as shown in the two bad scenarios If that happens, the average economic growth might reach 5% -5.5% only + Normal scenario: Vietnam can temporarily overcome imbalance and stabilize macro economy, but will not be able to overcome the fundamental weaknesses If so, Vietnam's economy may abtain a bit lower growth than the average growth in the previous years, ranging from to 5.5-6% + Good scenario: Vietnam can overcome many difficulties, maintain macroeconomic stability, improve investment efficiency, sucsessfully conduct economic restructuring, and make radical innovation while the world economy is recovering quickly after the crisis and making optimistic growth With this scenario, Vietnam’s economy may make a growth of 6-6.5% 4.1.2 Forecast on prospects and challenges in private sector financial mobilization The scenarios of economic growth also give forecasts on challenges in mobilizing financial resources from the economy in general and from the private sector in particular Decline in economic growth will reduce earnings To visualize the relationship between average income growth / GDP growth and inflation, the thesis used a simple quantitative model: g _ thunhap = β0 + β1g _ GDP + β2lamphat + u , 19 20 where g_income is the growth rate of average income (%), g_GDP is the rate of annual GDP growth (%), inflation the annual inflation rate and u is the error of normal distribution with the constant variance Finally, improving the efficiency of private sector financial mobilization must be associated with raising the efficiency of using such resources The statistical result is 5% It shows that if the economic growth decreases by 1%, it can cause the current earnings to fall by 2.7% Based on the two scenarios of growth mentioned above, we could produce scenarios of decrease in personal income as shown in Table 4.1 (compared to that of period 2001-2010) Decline in earnings caused the financial accumulation of the private sector to fall, affecting the financial mobilization from this sector On the other hand, the difficulties in the world economy also reduced the amount of remittances sent to Vietnam Table 4.1: Income fall in line with growth scenarios Scenario GDP growth Income growth Bad 5-5,5% Decline of 4-5% Normal 5,5-6% Decline of 3-4% Good 6-6,5% Decline of 1-3% 4.2.2 Direction on private sector financial mobilization for socio-economic development in Vietnam First, bring a strong development to the private sector to create abundant financial resources and stimulate a channel of direct investment for the private sector Second, restructure and strengthen the system of banks and other financial organizations so that this system can help mobilize financial resources effectively Third, promote various channels of financial mobilization by setting up stock market and bond market Fourth, encourage the private sector to invest in public projects and public services through various forms of socialization 4.3 SOLUTIONS FOR PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM 4.1.3 Point of view of Vietnam’s Communist Party in 11th Congress on economic development of private sector 4.3.1 Maintain macroeconomic stability, improve investment environment and create trust and psychological safety for investors, especially private investors 4.2 POINT OF VIEW AND DIRECTION ON PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM 4.3.1.1 Macroeconomic stability 4.2.1 Point of view on private sector financial mobilization for socio-economic development in Vietnam First, it is necessary to give private sector financial mobilization the highest priority in comparison with the mobilization of financial resources from other economic sectors; Second, private sector financial mobilization must be done in line with nurturing the resources; Third, equality should be maintained between the private sector and other economic sectors; Fourth, it is advisable to encourage and allow the private sector to invest in infrastructure projects and public services, which is traditionally undertaken by the State; Fifth, private sector financial mobilization must be done in line with bringing the resources to transparency; - Macroeconomic stability is a foundation for a sustainable economic growth and financial mobilization for investment and development - To stabilize the macro economy, we must synchronically handle all the issues that closely relate to each other, such as public investment, fiscal deficit, inflation and imbalance of payments, gold-base and dollar-base economy and exchange rates - The immediate cause of macroeconomic instability is mainly due to the fact that we implement an open fiscal and monetary policy and keep loose management of gold and foreign currency and public investments which is unfocussed, wasteful and inefficient So, the immediate task we must now is to erase these weaknesses in order to establish a base for macroeconomic stability The main cause of macroeconomic instability lies in the economic model which is based on capital, natural resources and inefficient state-owned enterprises Thus, in the long run, it is necessary to restructure the economy, change the model of resources allocation for higher investment efficiency and convert the growth from expansion model to indepth model + First, cut out unimportant public investments, reduce fiscal deficit and improve 21 efficiency of public investments 22 + Second, strictly execute a prudent monetary policy to curb inflation Enterprises to create favorable conditions for all people to establish and operate private enterprises for prosperity of themselves and society; + Third, solve the problems of exchange rate, dollarization, gold-base economy and payment imbalance - Simplify administrative procedures on business registration, tax-code registration and tax reporting, particularly for small and medium businesses + Forth, maintain a close coordination between fiscal policy and monetary policy to avoid unnecessary conflicts - Create favorable conditions on land access for private businesses, especially small and medium enterprises Continue applying the model of business clusters and handicraft co-orperative clusters in communes and districts Ensure an adequate fund of land with low cost and keep production sites isolated from residential areas for environmental protection + Finally, only with the government’s strong and consistent commitment to solving the problem of macroeconomic instability and sacrifice of economic growth can all of the above solutions be successfully realized 4.3.1.2 Improve investment and business environment - Continue the reform of administrative procedures, transparency and simplification of bureaucratic procedures to reduce costs and time for businesses Put special focus on the procedures concerning taxation, land, business licensing, investment and procurement - Complete the system of laws on enterprises, private investment and taxation to facilitate investments of enterprises - Conduct review on taxes, fees and other incurred business expenses, especially unofficial charges and market entry costs to have them removed and prevented - Strictly enforce administrative disciplines against harassment, bribery, embezzlement and corruption Regularly monitor civil servants and strictly punish violations - Effectively implement economic development planning in order to help enterprises update with the planning and policies so that they can avoid risks due to unplanned changes - Plan and create a fund of clean land for production and business for enterprises - Develop support programs for household businesses and small and medium enterprises to access to bank loans Develope forms of microcredit, especially in rural areas - Promote and facilitate establishment of venture capital funds for start-up businesses, capital funds for small and medium businesses with reasonable interest rates and guarantees of loan for small businesses without collateral to access credit sources - Promote household economy, especially in agricultural and rural development through support programs of technology, capital, microfinance, marketing and product chain - For large private enterprises, there should be a strategy for them to compete in international markets and machanisms for transferring investment, research and technology between the State and the private sector and between research institutes and enterprises 4.3.3 Restructure and renovate procedures of commercial banks in order to attract private sector financial resources - First, increase the scale of banks’ equity - Diversify forms of mobilizing idle financial resources from the society, especially from the private sector - Accelerate equitization of the state-owned banks such as BIDV and Agribank and sell stakes in the state-owned banks which are partly equitized such as Vietcombank and Vietinbank - Separate the state capitalized banks from social and policy activities - Actively listen to opinions of businesses to help them promptly solve their problems, creating the best conditions for businesses - The Central Bank should create an environment for fair competition between banks and avoid interference in their business activities, including banks under state ownership 4.3.2 Have a consistent policy on promoting development of private sector to increase private contribution to GDP and state budget revenues 4.3.4 Make a breakthrough in equitization of state-owned enterprises - First, continuously provide amendment and supplementation to the Law of First, consistently execute the policy on equitization of state-owned enterprises and 23 24 reduce the percentage of holdings in the equitized enterprises private sector Second, equitization should be executed based on a specific plan, clear target and coercive nature Third, issue policies on promoting socialization of health care and education and facilitate access to land and capital Third, force enterprise leaders to take responsibility for equitization Fourth, equitization should and must be done extensively through IPO Fourth, complete the legal system and monitoring mechanism to ensure quality of socialized services Fifth, carry out radical equitization in a series of large businesses and important corporations of the State Fifth, there should be a policy on helping the poor with access to educational services and health care Sixth, carry out equitization even when the stock market is in stagnation Finally, each of the ministries and branches must take responsibility for the equitization process 4.3.5 Develop stock market - Develop the existing stock market in order to attract private investments through share auctions and purchases of shares on the stock market - Expand operations of bond market, especially local bonds, project bonds and corporate bonds 4.3.6 Encourage and create favorable conditions to attract remittances from abroad - Continue a consistent plan attracting foreign currency from abroad into Vietnam - Promote labor export - Facilitate development of formal channels of remittance through the financial system and banks - Create favorable conditions for Vietnamese people living abroad to make investments and purchases of property in the mother country - Promote and expand markets for labor export - Attracting remittances should be done in line with a plan of gradually eliminating dollarization in Vietnam 4.3.7 Promote public-private partnerships and socilization of investment in infrastructure, health care and education First, establish a clear legal framework to facilitate various forms of public-private partnership in infrastructure investment Second, diversify mechanism of public-private partnership to adopt many different forms of cooperation, ensuring the share of benefits and risks between the State and CONCLUSION When the state financial resources are limited and financial resources from outside are instable, private sector financial mobilization serves as the optimal solution applied by all countries that pursue an economy of multi-components For analysis and interpretation of the contents related to private sector financial mobilization and proposal on orientations and measures to improve the efficiency of financial mobilization from this source, this study used qualitative and quantitative analysises in combination with contents divided into four chapters Chapter focused on reviewing several studies related to the subject to take advantage of the theories that are thoroughly analyzed as well as the findings of the previous studies; at the same time, this chapter dealt with the drawbacks of the previous studies Chapter dealt with some theoretical issues of financial resources, private sector and private sector financial mobilization Chapter focused on analyzing the actual private sector financial mobilization over a decade through each channel of both direct and indirect mobilization, such as banking system, financial market, public private cooperation and socialization of public services Based on the achievemets, shortcomings and causes of drawbacks, this thesis proposed some points of view, directions and solutions to enhance private sector financial mobilization The analytical results of the thesis showed that along with the country's economic growth in general, the private sector also had a boom and made significant contribution to the national economy The increase in financial accumulation of the private sector helped strengthen its financial resources Thanks to this, private sector financial mobilization increased strongly through all channels and in all forms, of which the most notable was the strong development of the private sector and the scale of attracting financial resources through the banking system and the stock market However, despite its rapid growth, the private sector in our country was still small and scattered The actual private sector financial mobilization was still not 25 commensurate with the potential of this sector The channels of financial mobilization were still primitive, especially the channels of stock market, bonds, socialization and public-private partnerships The equitization of the state-owned enterprises progressed slowly Even the channels of banks and financial system, which were considered quite well developed, offered very few services with a weak network and inedequate capital In the coming years, the thesis forecasts that the economy of the world and Vietnam will still face many difficulties and challenges and it will be very hard to achieve an economic growth as high as seen in the previous decade This will affect the financial accumulation of the private sector and opportunities of financial mobilization from this source The thesis proposed a number of viewpoints, directions and solutions to promote private sector financial mobilization through direct channels, such as banks, financial system, stock market, remittance, public-private partnership and socialization of investment The key approach was to nurture the revenue sources by creating a stable macroeconomic environment, favorable business environment for the private sector, development of channels and forms of financial mobilization such as banking system, stock market, equitization, legal framework for public-private cooperation, socialization of public services, If these solutions are realized, the writer believes that private sector financial mobilization for socio-economic development will be significantly improved [...]... theoretical issues of financial resources, private sector and private sector financial mobilization Chapter 3 focused on analyzing the actual private sector financial mobilization over a decade through each channel of both direct and indirect mobilization, such as banking system, financial market, public private cooperation and socialization of public services Based on the achievemets, shortcomings and causes... this, private sector financial mobilization increased strongly through all channels and in all forms, of which the most notable was the strong development of the private sector and the scale of attracting financial resources through the banking system and the stock market However, despite its rapid growth, the private sector in our country was still small and scattered The actual private sector financial. .. thesis proposed some points of view, directions and solutions to enhance private sector financial mobilization The analytical results of the thesis showed that along with the country's economic growth in general, the private sector also had a boom and made significant contribution to the national economy The increase in financial accumulation of the private sector helped strengthen its financial resources... cooperation, ensuring the share of benefits and risks between the State and CONCLUSION When the state financial resources are limited and financial resources from outside are instable, private sector financial mobilization serves as the optimal solution applied by all countries that pursue an economy of multi-components For analysis and interpretation of the contents related to private sector financial mobilization. .. Actively listen to opinions of businesses to help them promptly solve their problems, creating the best conditions for businesses - The Central Bank should create an environment for fair competition between banks and avoid interference in their business activities, including banks under state ownership 4.3.2 Have a consistent policy on promoting development of private sector to increase private contribution... done in line with a plan of gradually eliminating dollarization in Vietnam 4.3.7 Promote public -private partnerships and socilization of investment in infrastructure, health care and education First, establish a clear legal framework to facilitate various forms of public -private partnership in infrastructure investment Second, diversify mechanism of public -private partnership to adopt many different forms... number of viewpoints, directions and solutions to promote private sector financial mobilization through direct channels, such as banks, financial system, stock market, remittance, public -private partnership and socialization of investment The key approach was to nurture the revenue sources by creating a stable macroeconomic environment, favorable business environment for the private sector, development. .. economy, especially in agricultural and rural development through support programs of technology, capital, microfinance, marketing and product chain - For large private enterprises, there should be a strategy for them to compete in international markets and machanisms for transferring investment, research and technology between the State and the private sector and between research institutes and enterprises... abroad - Continue a consistent plan attracting foreign currency from abroad into Vietnam - Promote labor export - Facilitate development of formal channels of remittance through the financial system and banks - Create favorable conditions for Vietnamese people living abroad to make investments and purchases of property in the mother country - Promote and expand markets for labor export - Attracting remittances... environment for the private sector, development of channels and forms of financial mobilization such as banking system, stock market, equitization, legal framework for public -private cooperation, socialization of public services, If these solutions are realized, the writer believes that private sector financial mobilization for socio- economic development will be significantly improved