HANOI (REUTERS) - Vietnam has approved a broad plan to boost its economy to 2020, focusing on restructuring public investment, banks and state-owned enterprises while controlling inflation and maintaining growth.
The Southeast Asian nation's economic growth fell to a 13-year low of 5.03 per cent last year as reduced consumer demand piled up inventory at many firms, forcing many into bankruptcy, further adding to banks' bad debt problems.
The master plan aims for a prudent monetary policy to tame inflation while ensuring "reasonable growth", Prime Minister Nguyen Tan Dung said in a 29-page directive signed on Feb 19. The plan takes effect immediately.
Vietnam will conduct tight fiscal policy, promote exports and tightly control imports while boosting domestic production of consumer goods, the directive said.
Moody's downgraded Vietnam to its lowest rating ever in September last year, citing a weak banking sector likely in need of "extraordinary support", dealing another blow to a country once tipped as Southeast Asia's next emerging market star even as many of its neighbours prosper.
The directive said banks will focus on dealing with the sector's overall bad debts as well as those of individual lenders, expand their core businesses, improve payment systems, avoid cross-ownership and increase transparency as part of measures to reform the sector by 2015.
Vietnam's banking system is grappling with one of the region's highest bad debt ratios, which rose to 8.82 per cent of loans in September 2012 from 3.07 percent at the end of 2011, central bank data showed.
Analysts said the downgrade of Vietnam and eight of its banks - including two controlled by the state - did not signal a full-blown banking crisis and that the slowing economy should return to form if the government takes action.
Still, the cut compounded concerns about bad debts and the pace of so-called "doi moi" reforms begun in 1986 to build a socialist-oriented market economy.
The government directive said bad debt should be cut to below 3 percent of loans by 2015, stricter than a previous statement by the prime minister that the bad debt ratio be cut to 3-4 percent of loans by the end of 2015.
A weak financial system is one of the country's biggest economic problems. Fitch Ratings has put the non-performing loan figure at 13 percent.
Vietnam will aim to maintain total social investment at 30-35 per cent of the country's gross domestic product, the directive said, "maximising the scale and opportunity for private investment, especially the domestic private sector".
Restructuring of state-owned enterprises will focus on businesses in the defence industry and those which have monopoly or are providing essential goods and services while more state-owned firms should go public, it said, without providing details.
The directive also reiterated a policy on divestment by state-owned economic groups in their non-core businesses while encouraging the establishment and development of domestic private economic groups.
The government plans to accelerate economic growth this year to 5.5 percent while keeping annual inflation at between 6.0-6.5 percent, after inflation was 9.21 percent in 2012.