Some alternative scenarios for the role of the state in Vietnam

The Vietnamese economy has by most standards performed very well over the l ast decade. For instance, economic growth has averaged around 8 per cent pe r year during the 1990s. The high growth rate has mainly been achieved thro ugh large increases in investment, and a large share of the investment has come from foreign sources. However, it is likely that the Asian crisis will lead to a significant reduction in the inflows of foreign capital, which w ill make it difficult to maintain a growth strategy based on increased capi tal formation. Continued high growth requires improved economic efficiency. Such efficiency gains have to focus on the state-owned enterprises that ac count for a large share of the Vietnamese economy, but are known to face se rious efficiency and profitability problems. This paper discusses economic consequences of some different choices regarding the role of the state-owne d sector. We discuss two scenarios where the state will continue to play a dominant role - centralized or localized state-owned enterprises - and two scenarios with a stronger private sector - supporting the establishment of new private firms and privatizing existing state-owned enterprises.