Restructuring the SOE Sector in Vietnam

This paper assesses Vietnam's recent experience with reforming its state-owned enterprise (SOE) sector and discusses potential ways forward. It does so by: reviewing the economic principles that account for the motivations and shortcomings of state ownership; taking stock of stylized facts about the SOE sector; and assessing the legal and institutional reforms and equitizations that have taken place over the last years. The current focus on microeconomic approaches to firm productivity is highly misleading and a broader reform perspective of Vietnam's development model is needed. While there is little compelling evidence that the state of the SOE sector is as dismal as some analysts suggest, the paper highlights an increasing implementation lag of the legal reform progress — reflecting fault lines in Vietnam's political economy. SOEs can and should play a vital role in Vietnam's development strategy going forward. However, a more precise vision for the sector, based on a more elaborate assessment of market failures and externalities in different parts of the economy, is needed.