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MINISTRY OF THE STATE BANK OF VIETNAM
EDUCATION AND TRAINING
BANKING ACADEMY
******************
BUI THI THANH TINH

FINANCIAL LIBERALIZATION IN VIETNAM
CURRENT STUATION AND SOLUTIONS

MAJOR: FINANCE - BANKING
CODE 62.34.02.01

SYSNOPSIS OF DOCTORAL THESIS ON ECONOMICS

1. The urgency of the research
Through decades of severe fiscal restraint, the country is
aware of the costs, at the same time, with the new conditions of the
global environment, countries try to choose for themselves the
financial liberalization measures to increase competition in the
financial system, thereby improving allocative efficiency and
resource utilization.
The countries have certain differences, such as fundamentals
of macroeconomics, the development level of the financial system;
degree of perfection of the legal system; management capability,
governance etc. are the issues to consider when selecting and
sequencing measures financial liberalization. The main purpose is to
maximize the benefits of financial liberalization while minimizing
the damage that financial liberalization brought. The liberalization of
financial help create an environment of transparency, flexibility and
efficiency to the financial system, attract investment, stimulate
healthy competition, bring development dynamics as well as the
opportunity to use of diversified financial services at high quality.
The potential benefits of financial liberalization are great, but there
are also downsides to the cause of collapse, financial crisis.
In early 20th century, the financial liberalization has
appeared, but it only really became strong wave after World War II
ended. The developed economies of North America and Europe
conducted strong financial liberalization in the years of 1960 - 1970,
the economies of Latin America and Japan implemented it vigorously
in the 1980s while the economy developing countries in Asia
promote this process in the 1990s.
However, since financial liberalization became popular in the
world, many people saw the financial crisis occurred in many
countries in the regions such as Latin America in the 1980s or the

of financial liberalization and limit its negative impact on the
economy. The key issue is choosing a financial liberalization route
with appropriate levels in each stage. Starting from these
requirements, the author selected the topic "Financial liberalization in
Vietnam – current situations and solutions" to study.
2. Research situation
Overview of the foreign study situations

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Financial liberalization has attracted the attention of many
research scientists and organizations around the world such as the
World Bank and the International Monetary Fund The research
content of financial liberalization is very wide, but can be roughly
divided the work into the following groups:
- The theoretical and experimental aspects of financial
liberalization: the nature, benefits and costs, the preconditions, the
level of financial liberalization are mentioned in a number of studies
of J. Stieglitz (2000), Gerard Caprio, Patrick Honohan and Joseph E.
Stiglitz (2004), Abdul Abiad, Enrica Detragiache, and Thierry
Tressel (2008). Specifically: Gerard Caprio, Patrick Honohan and
Joseph E. Stiglitz (2004), Financial Liberalization: How Far? How
Fast?, Joumal of Comparative Economics, 2004, vol. 32, indicating
the nature of financial liberalization and the extent of financial
liberalization. Ronald McKinnon (1993), The Order of Economic
Liberalization: Financial Control in the Transition to a Market
Economy, Baltimore, Johns Hopkins University Press, 1993 states on
the order of financial liberalization
- Study of the experience of nations on financial
liberalization: the choice of methods and routes; analyze the causes
of success and failure. The typical authors are Akira Ariyoshi, Karrl

international experience and the problems posed to Vietnam study
mainly about financial restraint towards financial liberalization and
the experience of some countries. Bui Ngoc Son (2010), Financial
Liberalization - A global trends, a ministerial-level scientific research
theme, this topic has shown promising trend of financial
liberalization globally, this is still the problem persists despite the
volatility in the global business environment over time. Nguyen Toan
Thang (2010), Theory and practice of liberalization of capital
transactions and the stability of the financial sector of Vietnam:
Policy Framework up to 2020, the state-level scientific research
project, this topic refers to the issue of liberalization of capital
transactions in relation to the stability of the financial sector in
Vietnam. Referring to the relationship between financial
liberalization and economic growth with studies by Tran Anh Tuan
(2002), The impact of financial liberalization to economic growth
theory & practice in Vietnam, Institute of Development Studies, Ho
Chi Minh City. Some studies by the Ministry of Planning and

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Investment - The United Nations Development Program, VlE/02/009
Project, Research the competitiveness and the impact of
liberalization of financial services: the case of the banking industry,
December 2005; Nguyen Dai Lai, Financial liberalization - Trends
and policy solutions for Vietnamese banks in post-WTO era. Also
some of the content of financial liberalization is also mentioned in
the papers presented at the scientific conferences of banking, finance
and universities.
However, the above-mentioned works have not reflected the
full generalization, namely the status of the financial liberalization
process in Vietnam, not pointed out the roadmap and financial

- The object of the thesis research is financial liberalization,
the implementation conditions of financial liberalization, the index
measuring the level of financial liberalization.
- Scope of the Study: In terms of time, the thesis focuses on
the period after the reform in Vietnam, especially the period from
2006 to 2011.
5. Research methodology
The dissertation uses a combination of measures in economic
science to analyze the issue. Statistical methods, comparisons
applicable to look for the salient features of the financial
liberalization process in countries around the world. At the same
time, the thesis uses the method of analysis, synthesis, and
systematization and generalization.
6. The scientific meaning and practice of the thesis
The thesis systematize, contributing to developing basic
theoretical issues of financial liberalization. Especially clarifying the
benefits and risks of financial liberalization, the necessary conditions,
the issue of principle quality to ensure making full advantage of the
benefits and minimize the risks of this process.
Situation analysis of the financial liberalization in Vietnam,
from which working out the roadmap, the solutions and conditions
that promote the financial liberalization in the context of international
economic integration in Vietnam today.
Besides, the thesis can be used as teaching materials,
research, education and policy proposals.
7. Structure of the thesis

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Besides the introduction, conclusion and list of references,
the content of the thesis is divided into three chapters as follows:

1.1.2.2. The liberalization of the exchange rate

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Exchange rate is the cost of money and reflecting the total
harmonic correlation of the social general price level in the domestic
market society compared to overseas markets.
Concept: Exchange rate liberalization is a process towards
allowing the exchange rate to be determined based on the market
supply and demand relationship.
Expression of exchange rate liberalization: Exchange rate
liberalization is expressed in a number of aspects such as: Remove
the fixing of exchange rates, the administrative measures on foreign
currency are eliminated and the tools bearing market characteristic
are used; exchange rate is determined based on demand and supply of
foreign currencies.
1.1.2.3. Liberalization of the activities of credit institutions and
other financial institutions in the financial markets.
Concept: Liberalization of the activities of credit institutions
and financial institutions means to remove the direct intervention of
the Government in the course of operation of these organizations, so
that these organizations operate under market rules.
Expression of the liberalization of the activities of credit
institutions and other financial institutions: (i) removal of interest
rate control, (ii) reducing reserve requirement, (iii) reduction of State
intervention towards the lending decisions of banks, removal of
directed credit to commercial banks, (iv) privatization of state-owned
banks, (v) further expansion of the domestic financial institutions and
the entry of foreign financial institutions increases.
1.1.2.4. Liberalization of capital transactions
Capital transactions are transactions related to capital

covers quite wide, to different parts of the financial liberalization not
only of capital transactions thus should be selected for use in the
thesis.
1.1.4. Principles and procedures for financial liberalization
1.1.4.1. Principles of procedures for financial liberalization
Principle 1: Financial liberalization is best done in the context of
healthy macroeconomy.
Principle 2: Financial liberalization should be closely associated with
the establishment of an institutional infrastructure possibly to reduce
the risk of financial uncertainty.

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Principle 3: To have appropriate financial liberalization speed, from
time to time, it is necessary to review the financial conditions and the
soundness of financial institutions as well as the time needed to re-
structure these institutions (if needed).
1.1.4.2. Some views on financial liberalization procedure
In fact, there may not be a unified sequence of financial
liberalization for all nations, due to the problems of national
characteristics, the time of financial liberalization as well as the
international context. There have been many different views on the
order of financial liberalization.
a. McKinnon and Shaw's view
b. Rules for financial liberalization roadmap of OECD
c. The integrated approach of the IMF
d. ADB's approach
1.1.5. The impact of financial liberalization on the economy
1.1.5.1 The positive impact
a. Allocate resources effectively on national and global scope
b. Increasing credit scale

The period from the mid-1980s to mid-1990s:
The period from the mid-1990s to present:
1.3.2. Experience of financial liberalization in some countries
1.3.2.1. Korea's Experience
1.3.2.2. Thailand’s Experience
1.3.2.3. China's Experience
Through empirical study of financial liberalization in China,
we can see a number of issues:
First, China conducted the gradual liberalization, not the "Express"
campaign as in some Latin American countries.
Second, the policies associated with the domestic financial
liberalization must be carefully selected and succession should be
well planned.
Third, closely related to the point above, appropriate institutional
development is essential for the success of the financial liberalization
process, including the legal norms and strong judicial system is a
prerequisite.

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1.3.3. Lessons for Vietnam from the empirical study of financial
liberalization of the country
1.3.3.1. On the premise for the financial liberalization process
a. Financial liberalization must be conducted within the framework
of a healthy macroeconomic policy.
b. Financial liberalization will lead to collapse or financial crisis,
especially in country having weak and unsound financial system,
unless there is enhancement and improvement in the financial
sector.
c. Provide information, enhance transparency, both at macro and
micro levels is a requirement to prevent and mitigate the severity of

increasingly developing stronger upon the integration into the world
and the regional economy.
2.2. CURRENT SITUATION OF THE FINANCIAL
LIBERALIZATION IN VIETNAM
2.2.1. The liberalization of interest rates
2.2.1.1. For Vietnam dong interest rates
The process of interest rate liberalization of Vietnam dongs
took place in the following order (i) The first phase (starting from
6/1992- 12/1995), (ii) the second stage (from 1/1996-8/2000 (iii)
The third phase (from 8/2000-5/2002), (iv) The fourth phase (from
6/1/2002-5/2008): VND interest rate is totally liberalized. According
to which, credit organizations determine loan interest rates in VND
based on market supply and demand of capital, operating costs and
the level of customer risks. (v) Fifth stage (from 5/2008 to present):
From mid-5/2008 due to many factors affecting from the economy,
the interest rates liberalization is temporarily stopped. Administration
management was set up in many forms: To control the ceiling deposit
interest rate, control the ceiling loan interest rate. Additionally, the
State Bank also offers other interest rate control remedies and
conduct supervision of the observance of the ceiling interest rate
offered.
2.2.1.2. For foreign currency exchange rates
Since the fixation of the specified interest rate and lending,
the liberalization of exchange rates is also done gradually. Before
1990, the central bank specified the level of interest rates mobilized
and foreign currency loans from local banks. After 1990, the central
bank operated the foreign currency exchange rate based on market
movements at home and internationally.

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investment in Vietnam. The inflow of foreign direct investment in
Vietnam is increasingly being basically expanded, but there are some
periods affected by the global economic crisis.

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Besides, the trend of foreign direct investment continues to
rise, especially after the change of the mechanism through issuing
new Investment Law, Decree 78/2006/ND-CP, even considering in
terms of the scale is not big.
2.2.4.2. Inflows of foreign indirect investment
In Vietnam there are two channels to make indirect
investments from abroad:
Firstly, through the stock exchanges: participating in release
market and listed securities transactions (including participation in
the auction, sale of bonds, stocks and other listed securities) and
trusted investment.
Secondly, through capital contributions, purchase of shares
(unlisted) of Vietnam businesses.
Indirect investment activity in Vietnam has increased, its
scale is larger and larger, accounting for the ever-increasing
proportion of total foreign investment in Vietnam. However, the fact
shows that its nature is volatile and very difficult to control the flow
of this kind of capital.
2.2.4.3. Inflows of foreign debt
Through foreign loans for capital it reveals that the capital
flow through this channel is increasing, and started to increase
drastically since 2004. This is the stage where the management of
foreign loan repayment is now easing, and the Government's ODA
loans also increased as the economy increasingly integrated.
2.2.4.4. Capital inflows in the form of cash and deposits

transactions
2.3.3. Existing limitations and causes
2.3.3.1. The limitations
- Regarding liberalization of interest rates: (i) Although nominally
interest rates were fully liberalized, but the free state of interest rate
is not intrinsic. (ii) Operation of interest rate is still insufficient, so it
can not be said that interest rate in Vietnam has really followed
market principles.
- Regarding liberalization of exchange rates: (i) the current
exchange rate is controlled, limited by an amplitude and rate despite
improved towards the currency basket, but still pretty closely
anchored to the dollars, thus the pricing of Vietnam dongs in foreign
currency must use cross rate method not accurately reflecting the

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value of exchange between currencies. (ii) The base on average
exchange rate on interbank foreign exchange market merely to
determine the exchange rate is not appropriate, because the current
new exchange rate regime only account for the single market factors,
ignoring the macroeconomic factors (international balance of
payments, inflation, economic growth, ).
- Regarding liberalization of credit operations of credit institutions:
(i) Although nominally it has been liberalized in credit activities, a
certain number of stages, State Bank of Vietnam has implemented
control of credit growth of credit organizations rather tightly to
ensure implementation of monetary policy base. (ii) Under the
provisions of the state, the existence of preferential credits, bearing
subsidies quality, non-commercial under the auspices of the
government adversely affect the competitiveness of commercial
banks.

institutions in the financial system in Vietnam, there remain a
number of issues of institution, structure, finance and techniques.
Chapter 3
SOLUTION TO PROMOTE FINANCIAL LIBERALIZATION
IN VIETNAM
3.1. VIEWPOINTS FOR FINANCIAL LIBERALIZATION
ORIENTATION IN VIETNAM UP TO 2020
3.1.1.Financial liberalization viewpoints
The socio-economic development Strategy up to 2020
specifies that we must be active, positive in international economic
integration which extensive and efficient and the viewpoint of
financial liberalization can not lie outside of this general guidance.
3.1.2. The roadmap towards financial liberalization in Vietnam
Strategic orientation of financial liberalization in Vietnam is
as follows:
First, continue to implement the roadmap which was launched in
Vietnam's commitments to integration into the global economy, such
as the commitments to joining the World Trade Organization (WTO).
Second, the degree of financial liberalization in Vietnam in the
coming period is unable to reach the complete financial
liberalization, in each specific content there should still be cautious
strides, especially with the liberalization of capital transactions.

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Third, financial liberalization must define the operation of financial
markets on the basis of the real market relationship, through the
implementation of the basic principles is to minimize the
administrative interferencly e of the state, enhance competitiveness
and ensure prices reflect correctsupply and demand relationship in
the market (especially for interest rates and exchange rates).

financial liberalization, especially the roadmaps commitments upon
the joining of WTO. Therefore, it is necessary to take measures to
ensure adherence to this roadmap.
3.3. SOLUTION TO PROMOTE THE FINANCIAL
LIBERALIZATION IN VIETNAM
3.3.1. Improving soundness of macro-economic policies, creating
essential prerequisites for the success of financial liberalization.
To have a framework of healthy macroeconomic policies
there should be sound close coordination and improve the
effectiveness of macroeconomic policies: monetary policy, exchange
rate policy, fiscal policy
3.3.2. Completing regulatory framework
3.3.3. Strengthening sustainability of foreign debt
3.3.4. Developing and completing the financial market: money
market, foreign exchange market, capital market
3.3.5. Setting management and supervision framework
First: These simple measures which can still be appropriate for
Vietnam.
Second: The preventive standards should gain special interest for the
banks.
Third: The international connection of prevention norms.
Fourth: Establish and maintain prevention policies based on three
main pillars which are: the management and supervision of the
government, the practices and internal control measures; market
discipline.
Fifth: Achieving an appropriate balance between reducing the risk of
excessive risk taking and curb the liberalization of institutions to
accept the normal risks inherent in financial intermediation activities.
3.3.6. Restructuring financial system to consolidate,
comprehensively upgrade the banking system and other

financial liberalization in Vietnam. To be able to work out practical
solutions, capable of implementation, the thesis has analyzed
carefully the reasoning bases and practical solutions and hope that the
solutions are supported and sympathized of training facilities,
scientists and experts. 24
LIST OF WORKS CONCERNING THE THESIS CONTENT
RELEASED
1 / Ma. Bui Thi Thanh Tinh (2007), Organizing accounting
operation at Vietnam’s securities companies, Banking Science
& Training Review No.58, March 2007.
2 / Ma. Le Ngoc Lan, Ma. Bui Thi Thanh Tinh (2011), A
review on SBV
’
s Inspection and Supervision , Banking Science
& Training Review No.110, July 2011.
3 / Ma. Bui Thi Thanh Tinh, Ma. Le Ngoc Lan (2012), A
theoretical view from a financial curb to a financial
liberalization, Banking Science & Training Review No.118,
March 2012.
4 / Fellows. Bui Thi Thanh Tinh, Dr. Le Ngoc Lan (2012),
Major characteristics of the world financial liberalization
procedure, Banking Science & Training Review No.120, May
2012.
5 / Ma. Bui Thi Thanh Tinh (2012), Impact of financial