Private sector financial mobilization for socio economic development in vietnam

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INTRODUCTION
1. 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.
2. Purposes and tasks of thesis

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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.
3. 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


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research was within the period of 2001-2011.

sector for socio-economic development in the coming years.

4. 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.
5. 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

6. 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 1
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


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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 2
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

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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


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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 3
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


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- 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 9 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.


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+ 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 3 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 3 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


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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 4 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.


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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 4
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 2 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 ,


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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 do 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


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efficiency of public investments.

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+ 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


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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 1 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 2 dealt with some 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 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.