Privatization gulf between Sri Lanka, Vietnam exposed by Bimal Ratnayake, opposition

ECONOMYNEXT – Sri Lanka’s Marxist Janatha Vimukthi Peramuna and opposition legislators launched an attack on an amendment to a governing law of state-run People’s Bank aimed allowing it to raise debt capital and increase authorized capital exposing stark differences between the island and fast-growing Vietnam.

State Minister for Finance Eran Wickremeratne said the change was needed to boost the capital of People’s Bank. The Auditor General had queried its inadequate capital of a billion rupees.

Allowing People’s Bank to tap debt markets through bonds would bring it in line with other state banks like Bank of Ceylon, which could already to it, he said.

"People’s Bank could not tap debt capital like other similar state banks," Wickremeratne explained. "After this amendment, they can do it without a Treasury guarantee."

Covertible Assurance

JVP’s Bimal Ratnayake sought an assurance that debentures would not be converted into equity in the future.

Wickremeratne said section 13 of the People’s Bank prohibited anyone other than the Treasury or Co-operatives from holding shares and such convertible debentures will not be possible.

"Can you bring an amendment to assure that," he was asked.

Opposition legislator Bandula Gunewardene asked whether increasing authorized capital would involve issuing fresh shares.

Wickremeratnes said shares would be issued in by future governments as and when required and when funds were allocated to do so.

"The Joint opposition and Mahinda Rajapaksa administrations had always maintained that they will not support privatization in any way (thun hithakinwath madihathwennay ne)," Gunewardene said.

"This is because Sri Lanka’s banks were stated by British colonials to help plantations owners. But Phillip Gunewardene made a revolutionary change by promoting the concept of consolidating then exiting Co-operative Federal Banks into People’s Bank through an act of law.

"T B Illangarante brought it to parliament."

Sri Lanka’s largest commercial lender, the Bank of Ceylon was set up after the legislators passed a law, after gaining self-determination from the British, expropriating the first bank set up by native capitalists.

Ratnayake also questioned the ending of a clause which required the approval of the Monetary Board (central bank) for debenture issues.  He said it was preliminary to put the banks on the stock market.

Wickremeratne said other state bank were not subject to such rules and the board would now be allowed to set the rates and tenors as required.

Legislators charged that People’s Bank reforms were part of a ‘neo-liberal’ agenda form a government that was hand-in-glove with the IMF.

In Sri Lanka IMF and World Bank are demonized as ‘neo-liberal’, a word that has different meanings to different people.

State Minister for Economic Reforms Harsha de Silva said there was no hidden agenda (kolay wahalar gahannay nae) behind the reforms, it was done openly and opposition legislators were trying to mislead the nation.


The clamour against privatization in Sri Lanka is in sharp contrast to fast growing countries like Vietnam which abandoned a planned economy, self-sufficiency and import substitution under its ‘Doi Moi’ reform program in 1984.

Sri Lanka’s legislators on both sides of the house regularly hold up Vietnam as an example for its unusually fast economic progress.

Yawming Gulf

But they do not go too deeply into how removing state controls and restoring economic freedoms of private citizens including free trade helped collapse poverty, raise the height and nutrition of a generation, reduced inflation and triggered a dynamic and competitive non-traded sector.

Vietnam has not one stock exchange like Sri Lanka but two, in Hanoi (HNX) and Ho Chi Minh City (HSX)  (as well UPCOM, a second tier market)  where several state banks are listed or ‘equitized’ (cổ phần hóa) in domestic nomenclature.

The Communist Party of Vietnam has been piloting privatization or equitization from 1992 and now has gained much expertise. Prime Minister Nguyen Xuan Phuc, who was appointed in 2016 has taken the process further.

In 2017 the Prime Minister issued Decision No. 1232/QD-TTg and Letter 991 approving the equitization of over 40 state enterprises. Over 500 SOE are in various stages or equitization. The government’s Decree 126 further updated the process.

Vietnam SOEs could now go to an IPO through an auction, uderwriting or book building. Equitization could also start wtih a private placement. The lock-in period for such stragic investors were cut to three years from five. In May 2017, at the 5th plenum of the Communist Party of Vietnam a resolution was passed to accelerate equitization (SOE equitization tardy).

In sharp contrast to Sri Lanka, which is struggling to allow a state bank to issue bonds amids opposition from Marxists and statists, shares of state banks in Vietnam are not only owned by Vietnamese citizens but also foreign investors.

Vietnam Joint Stock Commercial Bank for Industry and Trade (VietinBank), is one of several banks that were de-linked from the State Bank of Vietnam (central bank) in 1988 as part of reforms that eventually helped stop chronic falls of the Vietnam Dong and high inflation, laying the foundation for explosive 1990/2000s growth.

In 2011, a 10 percent stake in VietinBank was sold to the International Finance Corporation, a unit of the ‘neo-liberal’ World Bank.
   
In 2014, a 20 percent stake in VietinBank was sold to Japan’s MUFG Bank making it "the number one state-owned commercial  bank with the strongest shareholder structure in Vietnam" according to its annual report.

As Bimal Ratnayake and Bandula Gunewardene sought assurances that People’s Bank debentures would not be converted into equity, shares of VietinBank closed at 20,600, down 150 dong on the Ho Chi Minh Stock Exchange, known affectionately known among newly created millionaires and small punters alike as the ‘HOSE market’. 

Share of another state bank, Joint Stock Bank for Investment and Development of Vietnam  (BIDV) closed at 37,600 dong, down 250.

Shares of Military and Commercial Joint Stock Bank closed at 22,550, up 50 dong.

Shares of Vietnam Technological and Commercial Joint Stock Bank (TechcomBank) closed at 21,650 dong unchanged in the HoSE market.

Meanwhile Minister Wickremeratne assured Bimal Ratnayake that under section 13 of the People’s Bank Act no shares could be owned by anyone other than the state or co-operatives and that his fears were groundless. (Colombo/Aug23/2019 – Updated with legal provisions)