Enhancing autonomy and responsibility of SOEs under market mechanism

Enhancing autonomy and responsibility of SOEs under market mechanism

Improving autonomy and responsibility is the only way to improve the capacity of state-owned enterprises (SOEs) and the competitiveness of the country.

At a workshop on the autonomy and self-responsibility of SOEs under the market mechanism held by the Central Institute for Economic Management (CIEM) with support from Aus4Reform on January 29, 2021, Phan Duc Hieu, deputy general director of CIEM, said that "fair treatment" between SOEs and other private enterprises is necessary to ensure market mechanisms are uninterrupted, especially in the process of international economic integration. During 35 years of doi moi, the legal framework has been revised and expanded to enable the autonomy and self-responsibility of SOEs.

Summarising the research of the CIEM on the autonomy and self-responsibility of SOEs, Pham Duc Trung, head of CIEM's Department for Research Reform and Enterprise Development said that policies should be sustainable on the long term to ensure autonomy and self-responsibility for SOEs. The criteria to monitor SOEs should be built and announced publically.

In comparison with international practices, there are some shortcomings and big gaps in ensuring autonomy and self-responsibility at SOEs under the market mechanism.

"However, it is quite difficult to apply market mechanisms to improve the performance of SOEs. Numerous SOEs that should have been dissolved or gone bankrupt are still kept alive," said Trung.

Pham Duc Trung, head of CIEM's Department for Research Reform and Enterprise Development

In fact, state agencies decide all issues pertaining to SOEs like salary fund, payment for managers, promotions, re-promotions, dismissals, rewards, and disciplining leadership. Besides these, solutions related to capital mobilisation, investment and construction projects, purchasing and selling assets, as well as a capital contribution or transfer are also decided by state authorities.

In order to enhance the autonomy and self-responsibility of SOEs, transparency should be improved. All information on finance and non-finance should be announced publically in line with international standards, while the yearly financial statements of SOEs should be audited objectively in high quality. SOE managers should take responsibility for the business results, especially regarding finances and budgetary matters, and endeavour to make improvements.

"The incentives and advantages of SOEs in approaching finance should be reduced, while the costs of public tasks and business clarified. Meanwhile, control of financial risks of the enterprises and the economy should be strengthened," Trung said.

He also suggested that transforming SOEs to joint-stock companies is an essential solution to enhance the autonomy under the stipulation of Law on Enterprises, and Law on Securities. The legal framework on the relationship between owners and representatives should also be added and revised.

Experts at CIEM's conference recommended unifying all the contents related to SOE ownership into a single document. Additionally, the results on the organisation and structure of SOEs should be as flexible and proactive as those of the private sector, added Trung.