September 1, 2010
Vietnam’s government has removed the recently appointed top manager of debt-plagued Vietnam Shipbuilding Industry Group, adding to the sense of crisis surrounding the state-owned company less than a month after its former chairman was arrested for alleged mismanagement.
Prime Minister Nguyen Tan Dung issued the order to remove managing general director Tran Quang Vu on Sunday. It wasn’t immediately clear why Mr. Vu was removed just two months into his job, but it appears that Mr. Vu’s long tenure with the company and a deepening investigation into fraud and mismanagement at one of the Vietnam government’s flagship enterprises made his position untenable. There were no immediate indications that a successor to Mr. Vu would be appointed.
The instability surrounding Vinashin, as the company is known, threatens to harm Vietnam’s reputation in international markets, expecially if the investigation drags out for many months and reveals further possible wrongdoing. Several state-owned enterprises, including oil giant Vietnam Oil & Gas Group, or PetroVietnam, have announced plans to raise hundreds of millions of dollars in international bond markets later this year to finance their expansion.
Vinashin is one of the cornerstones of Vietnam’s policy to promote state enterprises as major players in many parts of the economy and potentially build them up into major international players. It grew rapidly over the past 10 years, building ships for export and the quickly expanding local market. In an interview with The Wall Street Journal in 2008, former chairman Nguyen Thanh Binh said his goal was to turn Vietnam into a global shipbuilding power, much as South Korea had done in previous years. Indeed, most of Vinashin’s order book was filled by overseas clients.
But when the global financial crisis struck in 2008, Vinashin saw a sudden drop in orders and several large cancellations, leaving its finances in a precarious state after it amassed debts the government estimates at 86 trillion dong, or $4.41 billion. Economists in Vietnam say the company worsened its problems by expanding recklessly into businesses it didn’t fully understand, such as tourism and brewing.
Mr. Binh was suspended in July pending an investigation as the extent of the company’s problems began to emerge, and he was arrested in August in Hanoi for allegedly circumventing state regulations and filing misleading financial statements. An initial government investigation said that Mr. Binh also jeopardized Vinashin’s financial stability by buying up old foreign-made ships to start a sea-cargo business, but several ships were declared obsolete and unsafe soon after delivery in Vietnam. Neither Mr. Binh nor Mr. Vu, who formerly headed one of the company’s largest shipyards, could be reached for comment.
Vinashin’s problems also are a significant setback for Vietnam’s prime minister, Mr. Dung. He encouraged Vinashin’s expansion for several years and his government channeled the proceeds of a $750 million sovereign bond issued in 2005 to help finance the company’s growth. Mr. Dung has also encouraged other state enterprises to expand, hoping to create large conglomerates that would be sufficiently strong to enable Vietnamese interests to dominate large parts of the economy even as it opens up to more foreign competition.
Private economists, however, say the government’s strong support for state-owned enterprises—some were allowed to open banks to finance their growth—crowds out more efficient competitors in the private sector.
“The interesting question is whether the government will learn the lesson that more discipline over the state-owned enterprises is urgently needed,” said Jonathan Pincus, dean of the Harvard-affiliated Fulbright Economic Teaching Program in Ho Chi Minh City.
By James Hookway and Patrick Barta
http://online.wsj.com/article/SB10001424052748703467004575463222980405754.html?mod=googlenews_wsj