The Long, Arduous Birth Of A Special Mechanism

The National Assembly’s recently passed Resolution 54/2017/QH14 for “piloting a special mechanism and policy for the development of HCMC” is expected to bring about fresh opportunities for this most important economic hub of Vietnam. Dr. Truong Huy Minh Vu, Director of the Center for International Studies (SCIS), talks with the Saigon Times over this resolution.

Dr. Truong Minh Huy Vu


Q: The HCMC leaders have told the media about the process of 12 years for “giving birth” to a new mechanism for development. Why does it take such a long process?

A: The birth of an institution requires a long process. It can begin with ideas, premises or plants or from experiments, interchanges, trials and errors, and even failures in the persuasion for its implementation. The 12-year process of “giving birth” reflects clearly all these steps, with efforts to lobby for the Politburo’s Resolution 16 for “Directions and duties for development of HCMC to 2020,” the plan for piloting the urban administration, proposals through different channels for a particular policy and mechanism, and now the plan for piloting the special mechanism and policy for development of HCMC.

I want to restate two reasons cited in Resolution 16 for difficulties, limitations and shortcomings regarding this issue: (i) The leadership capacity of the city’s Party Committee, and the management and operation of the city’s government regarding the execution of the resolution are still inadequate and short of determination. The city has not paid due attention to learning realities, and has not been persistent in proposing the central government for break-through policies and measures, and (ii) The institutionalization of the Politburo’s Resolution 20-NQ/TW is still slow. There are no mechanism and policy to unlock the potential and form the combined strength of the Southern Key Economic Region for the development of a special category city. Some ministries and sectors have not actively coordinated with the city in executing the Politburo’s Resolution 20 and Conclusion 15 for solving some issues regarding mechanisms and policies within their authority.

So, the process for “giving birth” to the special mechanism has been affected by both subjective and objective reasons. The outcome today is obviously the destination of a process. Resolution 16 of the Politburo, term 11, and Conclusion of the Politburo, term 12 are the political commitment, and Resolution 54/2017/QH-14 is the legal commitment for an initial consensus.

What’s the concrete meaning of this consensus?

The most important meaning is the break of “uniform”, “identical” development policies for localities. As a comparison, a person with 1.6 meters in height and 55 kilos in weight must wear a medium-size (M) shirt, but a person with 1.8 meters and 80 kilos must have a shirt with at least the extra large size (XL). The framing of HCMC in the M size for a long time has deprived of necessary resources for its development, severely affecting the construction of infrastruction needed for its growth.

The “uniform” mindset also causes different psychological impacts on the relationship between the local and the central government. HCMC is the largest contributor to the national budget (27,8% in 2016), but the revenue allocation from the central budget for the city has continuously declined, from 33% in 2003 to 18% in 2017. Worse, the reduction of the revenue allocation for the city as well as the ratio of revenue it is allowed to retain versus those of other localities does not follow a given principle. A locality whose innovative motivation for growth is restricted may face suspicion for its efforts to become the “leading” locality. It’s the biggest institutional disorder when the relationship between the central government, especially the governments of cities regarded as “growth engines”, is governed by unclear principles.

The approval for greater autonomy will be an opportunity for HCMC development. What scopes of development are in your interest?

Eighteen contents in five areas stipulated in Resolution 54 will produce different impacts and outcomes when they are implemented. I’m most interested in the State administration because it is not only a burden for businesses but also directly impacts the business environment and the working environment of people. The recent surveys of the Provincial Competitiveness Index (PCI) and the Provincial Administration Performance Index (PAPI) of HCMC show that unofficial charges remain a big challenge for businesses, local and foreign alike.

There are many causes of unofficial charges, one of which is multiple agencies have the power to make decisions, regulate or intervene in market activities. The different levels of decision making are also the fertile ground for corruption, with negative impacts on not only business costs but also time, service quality and infrastructure. When the decision-making process involves many agencies, each sticking to its own interests, the cost of compliance will be pushed up much higher and businesses and the society will bear the burden.

HCMC should pioneer in the application of a new mechanism for State staff management, assessment and encouragement, as the current State staff assessment and payroll system has many has many shortcomings. The pilot application of this new mechanism would be quite feasible. The city is implementing a pilot plan to reform the selection of leaders at the department, section and office levels. At present, it is applying the competitive examination or mechanism for selecting competent staff in the State administration system, but in the future, the competition should be open to people outside the system. The new treatment and salary regime as allowed by Resolution 54 should also be experimented together with the staff performance and capacity assessment mechanism to encourage officials and civil servants to best perform their duties.

Among the 18 contents in five areas which Resolution 54/2017/QH14 allows HCMC to pilot, what content do you think requires the most resolute engagement?

I think it’s the equitization in the finance and budget area (content 10), which reflects the spirit of “asking for the fishing rod only, not the fish”. With this content, “The city’s budget can get the proceeds from the equitization of and State capital divestment at State-owned enterprises (SOEs) under the management of the HCMC People’s Committee and the proceeds from divestment of State capital at economic entitles where the HCMC People’s Committee is the representative owner. The city can use these proceeds plus its budget to develop socio-economic infrastructure, including the flood control project which is not allocated with VND10 trillion from the central budget as projected in the mid-term public investment plan for 2016-2020.”

However, the SOE equitization will face a strong hindrance. A clear evidence is the determination for equitization has yet to gain full force over the past two decades and through the terms of two prime ministers. The Transport Ministry’s experience for equitization in 2014-2015 is a good example for the strong determination. SOEs under the HCMC People’s Committee generally have good financial standings, own “golden land plots” and are operating in a locality with a developed financial market and a strong private sector capable of absorbing well the shares offered by SOEs under equitization. Therefore, leaders of SOEs who do not observe the Party’s line and Resolution 54 and fail to achieve the equitization progress should be dismissed and replaced. What counts is the political determination, not the legal framework or corporate evaluation. 

Reported by Tran Tien

(*) Director of the Center for International Studies, HCMC University of Social Sciences and Humanities, and member of the consulting group for sustainable finance development in HCMC in cooperation with the United Nations Development Program in Vietnam

Particulars in the finance-budget area

On November 24, 2017, the National Assembly approved Resolution 54/2017/QH-14 for pilot application of a special policy and mechanism for HCMC in the areas of a special policy and mechanism for HCMC in the areas of land management, investment, finance-budget, power delegation and income of State officials and civil servants under the city’s government. 

Some scopes for the pilot mechanism in the finance-budget are (extracts):

1. The HCMC People’s Council can send to the Government for consideration and presentation to the National Assembly a proposal to pilot an increase in the tax rates for a number of items subject to the special consumption tax and the environmental protection tax. The increase must not exceed 25% of the current tax rates.

2. The HCMC People’s Council can decide on: 
a) Application of new fees and charges other than those stipulated in the list of fees and charges attached to the Law on Fees and Charges.
b) Raising the rate or ratio of fees and charges in the list of fees and charges attached to the Law on Fees and Charges which have been approved by competent authorities.

3. The city budget can get all the proceeds from the new fees and charges and the additional hike in approved fees and charges for investment in socio-economic infrastructure projects which must be funded with the local budget. These proceeds must not be used to determine the share of revenues between the central budget and the local budget.

4. The city government can borrow funds from issuing municipal bonds, domestic financial organizations, other domestic organizations and foreign loans re-lent by the Government, but the total borrowings must not exceed 90% of the budget revenue it is allowed to retain. The total annual loans and budget deficit of the city are determined by the National Assembly in line with the Law on the State Budget.

5. Every year, the Government proposes the National Assembly’s Standing Committee determine targeted  additional funds from the central budget for the city’s budget, which are equivalent to 70% of the excessive revenue for the central budget and for the local budget against the estimate set by the Prime Minister (l.e. the remainder after the reward for excessive revenue collection as stipulated in Clause 4 of Article 59 in the Law on the State Budget) and the excessive revenue from collection entirely for the central budget as per stipulations in point b, c, d, g, h, i and q of Clause 1 in Article 35 of Law on the State budget against the estimate […] Prime Minister; the targeted additional funds must not exceed the additional revenue for the central budget […] the collection in the previous year.

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