Private sector financial mobilization for socio economic development in vietnam

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 resource

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

socio-economic 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

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 socio-economic 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 joint-stock 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

4 Rationale and method of study

- 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

socio-economic 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

sector for socio-economic development in the coming years

- Finally, this study proposed some orientations and solutions for improving the mobilization of financial resources from the private sector for Vietnam’s socio-economic development in in the coming time

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 socio-economic 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 2

RATIONALE AND PRACTICAL EXPERIENCE IN PRIVATE SECTOR

FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT

IN VIETNAM

2.1 FINANCIAL RESOURCES AND PRIVATE SECTOR FINANCIAL

RESOURCE

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

2.2 PRIVATE SECTOR FINANCIAL MOBILIZATION FOR SOCIO-ECONOMIC

DEVELOPMENT AND AFFECTING FACTORS

2.2.1 Private sector financial mobilization for socio-economic development

- Private sector financial mobilization through investments in production and trade

conducted by private enterprises and household businesses

- Private sector financial mobilization through the state budget system

- Private sector financial mobilization through banking system

- Private sector financial mobilization through stock markets

- 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

- 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

2.2.3 Factors affecting private sector financial mobilization

There are many factors that affect private sector financial mobilization, including:

- Economic growth

- System of Law

- Business Environment

- Macroeconomic Environment

- 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 2.2.4 State’s role in private sector financial mobilization

The State plays an important role in developing the private sector in general and mobilizing private sector financial resource in particular, as specified below:

- Make decision on private fund mobilization;

- Builds a legal framework and a policy system for private sector development; and

- Establishes a macroeconomic environment and business environment

2.2.5 Criteria for evaluating effectiveness of private sector financial mobilization

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

2.3 INTERNATIONAL EXPERIENCE IN PRIVATE SECTOR FINANCIAL MOBILIZATION

2.3.1 Malaysia: Mobilizing private funds through bank savings

To increase the savings volume in the banking system, Malaysia implemented a number of measures:

- 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

reaches out to the rural areas

2.3.2 Korean: developing bond market

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

2.3.5 Lessons for Vietnam

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:

- Establish a legal framework and policies to facilitate the development of the private

sector and ensure the interests of their investments or capital contribution

- 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

- 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

+ Macroeconomic instability, imbalance of many key macroeconomic variables such

as inflation, exchange rate, trade deficit, budget deficit,

+ 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, 3.1.2 Development of private sector in Vietnam

- 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

- 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)

- 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

Savings

VND

Growth rate (%)

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:

+ Up to 60-70% of the private businesses were profitable during the period of 2007-2009;

+ Rising income helped increase the financial accumulation of households

Table 3.2: Average monthly household savings per capita

Year

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

+ In terms of investment proportion, the private funds accounted for 36% of the total

investment in 2010, compared with 30% in 2000

+ 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

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 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

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

+ 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

+ 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)

nt

Increa

se

Amou

nt

Increa

se

Amou

nt

Increa

se

Amou

nt

Increa

se

Vietcomban

Source: Writer’s compilation from the annual report of banks

- Capital mobilization through stock market and equitization of state-owned

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

+ 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

+ 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

3.3.1 Achievements

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, along with the economic growth and people’s income rise, the financial

mobilization from the population through indirect channels increased dramatically

Third, the stock market was established and developed rapidly in recent years, creating an important channel of raising private funds for joint-stock companies 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

3.3.2 Drawbacks 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 First, there was a lack of consensus in cognition and behavior over the private sector 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

Third, along with the economy of low starting point and poor financial accumulation, the financial system remained underdeveloped

Fourth, the economic difficulties and macroeconomic instability in recent years

caused negative impact on private sector financial mobilization

Fifth, the equitization of the state enterprises progressed too slowly

Sixth, the mechanism on managment and development of the stock market was still

insufficient

Seventh, the policies and mechanism on public-private partnership in infrastructure

investment were out-dated and unsynchronized

And finally, the socialization progressed too slowly in many fields, which prevented

the private sector from economic integration

Chapter 4

POINT OF VIEW, DIRECTION AND SOLUTION FOR PROMOTING

SOCIO-ECONOMIC 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,

the global economy will fall back into a second recession, which may be more painful and persistent than the previuos one

+ 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

+ 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

Vietnam's economy 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=β +βg GDP+βlamphat u+ ,

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

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

4.1.3 Point of view of Vietnam’s Communist Party in 11th Congress on economic

development of private sector

4.2 POINT OF VIEW AND DIRECTION ON PRIVATE SECTOR FINANCIAL

MOBILIZATION FOR SOCIO-ECONOMIC DEVELOPMENT IN VIETNAM

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;

Finally, improving the efficiency of private sector financial mobilization must be associated with raising the efficiency of using such resources

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

4.3.1 Maintain macroeconomic stability, improve investment environment and create trust and psychological safety for investors, especially private investors

4.3.1.1 Macroeconomic stability

- 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 in-depth model

+ First, cut out unimportant public investments, reduce fiscal deficit and improve