Rising to the Challenge in Asia: A Study of Financial Markets

Volume 12

Viet Nam

Asian Development Bank 1999

Asian Development Bank P.O. Box 789 0980 Manila, Philippines

The views and opinions expressed in this publication are those of the individual authors and do not necessarily represent the views of the Asian Development Bank.

Published by the Asian Development Bank All rights reserved Publication Stock No. 060999 ISBN 971-561-239-3

Foreword
The Asian currency and financial crisis has had far-reaching effects on the regional economies and their trading partners. These effects have threatened to wash away the regions significant social and economic advancement achieved during the preceding years of rapid growth. The crisis has also unveiled many intricate problems and challenges in macroeconomic management, banking and capital markets management, institutional capacity, and governance of the financial systems in the region. Recognizing the urgency of addressing these problems and challenges, the Economics and Development Resource Center of the Asian Development Bank undertook a regional study of financial markets in nine developing member countries: Peoples Republic of China, India, Indonesia, Republic of Korea, Malaysia, Pakistan, Philippines, Thailand, and Viet Nam. The objectives of the study were to analyze and deepen the understanding of the sources of the crisis in currency and financial markets, to provide a useful basis for designing and implementing preventive measures and refocused country strategies, and to help the Bank and its member countries build robust and sustainable financial systems in the region. The study was designed, supervised, and coordinated by S. Ghon Rhee, Resident Scholar, 19971999. A large number of Bank staff and renowned scholars and experts contributed to this study. Regional policy issues and recommendations based on the findings of the study were discussed at the High-Level Workshop on the Asian Financial Crisis in Tokyo, on 2526 March 1999. This workshop was hosted by the Bank, the ADB Institute, and the Institute of Fiscal and Monetary Policy of the Ministry of Finance of Japan. The present series of publications seeks to bring the research findings to a much wider audience and hopes to contribute to a better understanding of the Asian financial crisis and how its recurrence can be prevented in the future.

Jungsoo Lee Chief Economist

Preface
Rising to the Challenge in Asia: A Study of Financial Markets presents the findings of a study carried out under Regional Technical Assistance 5770: Study of Financial Markets in Selected Member Countries. Many Asian Development Bank staff members and outside experts contributed to the studys successful completion. The core members for the study were Ramesh Adhikari, David Edwards, Tobias Hoschka, Sudipto Mundle, Soo-Nam Oh, Pradumna Rana, Yutaka Shimomoto, Reza Siregar, Peggy Speck, Ramesh Subramaniam, and Vo Van Cuong. The outside experts were Stephen Cheung (Hong Kong, China), Yoon Je Cho (Republic of Korea), Jang-Bong Choi (Republic of Korea), Catherine Chou (Hong Kong, China), G.H. Deolalkar (India), Maria Socorro Gochoco-Bautista (Philippines), Akiyoshi Horiuchi (Japan), Masahiro Kawai (Japan), Mohammad Zubair Khan (Pakistan), Joseph Y. Lim (Philippines), Sang-Koo Nam (Republic of Korea), Anwar Nasution (Indonesia), Edward Ng (Singapore), Jaeha Park (Republic of Korea), Mohd. Haflah Piei (Malaysia), Ken-Ichi Takayasu (Japan), Khee Giap Tan (Singapore), S. K. Tsang (Hong Kong, China), Stephen Wells (United Kingdom), Richard Werner (Germany), Min-Teh Yu (Taipei,China), and Barents Group LLC (KPMG). Thirty-seven reports are contained in a series of 12 monographs: Monograph 1: Regional Overview Macroeconomic Policy Issues Banking Policy Issues Capital Market Policy Issues Monograph 2: Special Issues Asset Management Entities Deposit Protection Schemes Monograph 3: Sound Practices Corporate Governance (Hong Kong, China) Currency Board (Hong Kong, China) Central Provident Fund (Singapore) Dichotomized Financial System (Singapore) Banking Sector (Taipei,China) Monograph 412: Country Studies Macroeconomic Policy Issues Banking Policy Issues Capital Market Policy Issues

The monographs benefited extensively from constructive comments from the Bank interdepartmental working group, and the ministries of finance, central banks, and securities and exchange commissions of the nine member countries that participated in the regional technical assistance study program and in the HighLevel Workshop on the Asian Financial Crisis in Tokyo, on 2526 March 1999. Mitsuo Sato, former President of the Asian Development Bank; Bong-Suh Lee, former Vice-President (Region West); and Peter Sullivan, Vice-President (Region East) provided strong support and guidance throughout this project. Soo-Nam Oh coordinated the research and publication activities. Wilhelmina Paz, Lagrimas Cuevas, Anthony Ygrubay, Ruben Mercado, Virginia Pineda, and Rosalie Postadan provided administrative and technical support. The monographs were edited by Gloria Argosino, Mary Ann Asico, Graham Dwyer, and Muriel Ordoez. Typesetting, computer graphics, and conceptualization of the cover design were done by Segundo de la Cruz, Jr.

S. Ghon Rhee K. J. Luke Chair of International Finance and Banking University of Hawaii Resident Scholar of the Asian Development Bank (June 1997June 1999)

THE CAPITAL MARKET IN THE SOCIALIST REPUBLIC OF VIET NAM

Contents
Foreword Preface Acronyms and Abbreviations

iii v viii

Management of Macroeconomic PoliciesViet Nam

Reza Siregar OVERVIEW

Growth Fiscal and Monetary Developments Investment External Trade Economic Reforms
POLICY ISSUES IN THE ECONOMY OF VIET NAM

Developmental Issues in the Monetary Policy Coordination of the Monetary and Foreign Exchange Policies Coordination of Macroeconomic Policies by Government Offices Liberalization of the Capital and Current Account
POLICY RECOMMENDATIONS

Developing Monetary Policy Instruments Coordinating the Foreign Exchange Policy and the Monetary Policy Coordinating and Streamlining the Decision-Making Process Enhancing the Policy Role of T-Bills and T-Bonds Steps Before Liberalizing the Capital Account Measures for a Sound Overall Financial Sector Liberalizing the Current Account Side
NOTES REFERENCES

2 2 2 2 3 3 4 4 6 8 9 10 10 11 12 13 13 13 15 17 17

Financial Deepening in the Banking SectorViet Nam

19

Soo-Nam Oh EXECUTIVE SUMMARY OVERVIEW OF THE BANKING SECTOR

Financial Structure Current Situation of the Banking Sector Recent Developments in the Banking Sector

20 21 21 22 25

vi

A STUDY OF FINANCIAL MARKETS

POLICY ISSUES IN THE BANKING SECTOR

Coordination Among Economic Policies Resource Mobilization Resource Distribution Competition in the Banking Sector Regulatory Framework and Prudential Regulation Other Banking-Related Regulations Restructuring and Consolidation of the Banking Sector Data Collection and Knowledge Dissemination
POLICY RECOMMENDATIONS

Developing the Capital MarketViet Nam

Yutaka Shimomoto EXECUTIVE SUMMARY OVERVIEW POLICY ISSUES

APPENDIXES

NOTES

Coordination Between Economic Policies and the Banking Policy Promotion of Resource Mobilization by the Banking Sector Enhancement of Resource Allocation by the Banking Sector Promotion of Competition Among Banks Improvement of the Regulatory Framework and Prudential Regulation Refinement of a Banking-Related Legal Framework Restructuring of the Banking Sector Enhancement of Data Collection Strengthening of the Research Department of SBV

27 27 28 29 29 30 31 32 32 33 33 34 35 35 36 37 37 38 38 40 42

53

SOE Reforms Regulatory Framework and Regulations Intermediaries and Market Infrastructure Expansion of the Investor Base Development of the Capital Market
POLICY RECOMMENDATIONS

Accelerating SOE Reforms Rationalizing the Regulatory Framework Setting up the Market Infrastructure Expanding the Investor Base Developing a Successful Capital Market
NOTES APPENDIXES

54 55 56 56 57 58 59 60 62 62 63 64 65 65 67 68

THE CAPITAL MARKET IN THE SOCIALIST REPUBLIC OF VIET NAM

vii

Acronyms and Abbreviations

AFTA ASEAN BIDV CD CP CPI FDI GDP ICB IMF IPO JSB JSC JV JVB KSE L/C MOF MPI NBFI NPL PDS PRC RP RRR SBV SIS SOCB SOE SRO SSC VAT VBARD VCB WTO

ASEAN Free Trade Area Association of Southeast Asian Nations Bank for Investment and Development of Viet Nam certificate of deposit commercial paper consumer price index foreign direct investment gross domestic product Viet Nam Industrial and Commercial Bank International Monetary Fund initial public offering joint-stock bank joint-stock company joint venture joint-venture bank Korea Stock Exchange letter of credit Ministry of Finance Ministry of Planning and Investment nonbank financial institution nonperforming loan private debt security Peoples Republic of China repurchase agreement reserve requirement ratio State Bank of Viet Nam Social Insurance System State-owned commercial bank State-owned enterprise self-regulatory organization State Securities Commission value-added tax Viet Nam Bank for Agriculture and Rural Development Bank for Foreign Trade of Viet Nam World Trade Organization

References to Viet Nam are to the Socialist Republic of Viet Nam. Unless noted otherwise, in this publication $ refers to US dollars.