Vietnam: Time to kickstart reforms
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Vietnam: Time to kickstart reforms

For a while in the early 1990s, Vietnam looked set to make a late sprint to catch up with its much richer neighbours in south east Asia. A far-reaching programme of economic liberalization attracted a wave of foreign investment and unleashed strong economic growth. But in the past few years foreign interest has flagged and investment projects have frequently become bogged down in bureaucracy and corruption. With the latest industrial output figures showing the lowest growth rate in years, it is becoming clear that the country's underdeveloped financial markets are holding back the pace of economic growth.

In the banking sector, for example, Vietnam's four state-owned banks remain the dominant players. Government backing cushions these institutions from worries over the scale of their bad debts. Recent deregulation has broadened the range of industries with which the state banks can do business, but in August the central bank warned against diversification because of the losses which some institutions had experienced after lending to risky enterprises.

However, the real difficulty is that taxes and regulations on state banks are preventing them from managing their lending business efficiently. For example, if a state bank contributes $1 million to a joint-venture or joint-stock company, it has to pay $200,000 in additional taxes.

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