VietNamNet Bridge – State-owned enterprises (SOEs) for the past two years have helped each other by buying each other’s goods worth VND71 trillion, but financial experts believe this is not the solution to their problems.

The Ministry of Industry and Trade (MOIT) two years ago issued an instruction to state-owned general corporations and economic groups to give priority to buying goods from each other in order to boost sales and cope with economic difficulties.

The instruction was issued at a time when SOEs and government agencies were warned about the huge debts they were incurring, reaching VND1,290 trillion, and the high public debt.

A report released by MOIT in mid-August showed that VND71 trillion worth of goods have been sold among SOEs over the last two years, which did not include the value of petroleum and electricity contracts.

This included VND4.164 trillion worth of electrical machines and equipment, VND5.2 trillion worth of structural steel and VND55 billion worth of protective clothing.

Besides the agreements on prioritizing use of each other’s products, state-owned groups also signed strategic cooperation agreements and memoranda of understanding on mutual support to help restructure debts.

The Vietnam Coal and Mineral Industries Group (Vinacomin), for example, agreed to cancel the Electricity of Vietnam’s (EVN) VND2 trillion debt. The electricity group also got approval from PetroVietnam, the gas supplier, for debt-payment delays.

Vinacomin, EVN and PetroVietnam are huge state-owned conglomerates which make up 80 percent of total power capacity. EVN is a big electricity generator and the only wholesale buyer, while the others control the input material sources, that is, gas and coal.

The initiative by MOIT has raised controversy. While some state officials believed this was a good way to help SOEs consume their products, the majority of economists said it would do more harm than good.

An expert said that when SOEs buy each other’s products, they would create an unhealthy competition between SOEs and non-state owned enterprises.

“Once goods consumption is not based on market rules, we have reasons to worry that it will distort the business environment,” he said.

“And we have reason to be doubtful about the transparency of the bidding packages,” he added, emphasizing that this will harm the national economy in the long term.

He also stressed that by doing this, enterprises are “breaking the rules of the market economy”.

Bui Trinh, an economist, said the MOIT’s plan must not be a way out to escape the SOEs’ existing problems, because it would not help stimulate demand, improve liquidity or have a positive impact on the national economy.

“This story is just like the transfer pricing conducted by foreign-invested enterprises,” he said. “Money is lost, but SOEs’ inner strength cannot be improved, while the debts still exist, which will finally burden the state’s budget and lead to an increase in public debt.”

Elaborating on this, Trinh said that the cash only flows from one place to another, which helps SOEs fabricate “beautiful account books”, but this will not help the national economy.

Dat Viet