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Vietnam's ruling party chides leaders, signals reform

HANOI (Reuters) - Vietnam's ruling Communist Party has promised economic reforms and a restructuring of state firms and the banking system after a top-level meeting that criticized senior members, thought to include the prime minister, but left them in their posts.

The banks are swimming in bad debt, much of it owed by the huge state enterprises at the heart of the economy. Moody's downgraded Vietnam last month and said bank reforms should be implemented quickly.

The central committee, the powerful body of more than 170 senior members of the Communist Party of Vietnam, "came to the decision not to discipline the collective of the Political Bureau and a comrade member of the Political Bureau", the party said in a statement on its website late on Monday.

Some analysts had forecast that Prime Minister Nguyen Tan Dung, in power since 2006, might be ousted. He has faced questions in parliament over a scandal involving Vinashin, a huge state shipbuilder he had championed but which almost collapsed in 2010 under $4.5 billion in debt.

Bloggers have accused him of greed, cronyism and economic mismanagement. The authorities have responded with a crackdown on dissent and three high-profile bloggers were recently jailed for up to 12 years for anti-state propaganda.

The plenum urged that the business climate be improved and foreign investment encouraged, according to a report by the official Vietnam News Agency (VNA).

While it advocated the restructuring and renovation of the state-owned enterprises (SOEs), "the committee continued to affirm their core role", according to the report.

"Resolute adjustments must be made so that the SOEs can have appropriate structures and take the lead in scientific and technological renovation ... and maintaining the socialist orientation of the economy," it said.

However, it added that non-core investments should be ended and the state should withdraw from firms in which it holds less than 50 percent of the capital.

In addition, the SOEs "must be reorganised in the model of joint stock and limited liability companies".

The central committee also ordered amendments to the 2003 Land Law to tackle corruption, speculation and lawsuits in the interests of socio-political stability, the VNA report said.


Jonathan Pincus, dean of the Fulbright Economics Teaching Programme in Ho Chi Minh City, said the plenum had opted for continuity in policy -- restructuring the financial system and SOEs were longstanding aims, even if progress had been slow.

"No more details were provided, but perhaps we can expect more bank mergers and continued pressure on public investment financing," he said.

Soaring inflation and the collapse of the property market have contributed to the bad-debt problem at banks, and the central bank last year launched a plan to restructure the sector through mergers and acquisitions of the weakest lenders.

In August, it gave approval for Sahabank to take over weaker lender Hanoi Building Bank (Habubank), the second such deal this year.

The central bank said in July that bad debt in the banking system had risen to 8.6 percent of loans as of the end of March, almost double the previously published figure.

Banks have slowed lending to tackle the problem. The authorities have also tried to tighten lending conditions in order to keep a lid on inflation.

As a result, the economy has slowed and the government has forecast growth of 5.2 percent in 2012 after 5.89 percent in 2011.

(Writing by Alan Raybould; Editing by Nick Macfie)


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