Government intervention and privatization in thailand, vietnam, and singapore

Editor's Notes

1. For a long time, Singapore has had many nationally-owned enterprises in many sectors. While there is a trend of privatization and divestment going on in multiple sectors, the dominant way in which the government has been intervening in firms has been with partially-private companies. The argument against these types of firms is that government being both a regulator and shareholder can raise conflicts of interest. For example, it is possible that political interests could outweigh commercial interests in the businesses operations. Singapore sees state-owned holding companies as a good way to handle the link between government and privatized state-owned companies. It has used this strategy to be strong in managing and globalizing these companies. These government-linked corporations account for 17% of the Singapore Exchange. They have had remarkable performance, when compared to state enterprises from other nations, with an above-market growth for years. This is arguably because of the structure they use. Multiple studies “have argued that the primary source of stronger financial performance in partially privatized firms is related to higher standards of corporate governance” (Sam, 2010). Because they are separate from the government, this allows managers to focus their “attention on commercial objectives while leaving non-economic issues in the hands of other state agencies” (Sam, 2010). “As former Minister for Finance Goh Keng Swee explained, ‘in our GLCs, there is a clear separation of powers of ownership and authority of management. Neither the supervising ministries nor the Boards of Directors can know more of the GLCs’ business matters than the managers themselves” (Sam, 2010). Another example of was in response by the Second Minister for Finance in parliament about why the government did not intervened in a business deal between Temasek, a large state-owned holding company, and Thailand. He explained “that the government had not meddled with the Temasek-Shin Corp deal because it was not the government’s job to do so” (Sam, 2010). The usual worry is that state owned-enterprises investing in foreign countries will often try to steal state secrets, technology, or military knowledge. Because of this, establishing this disconnect from the government and the organization has built trust and increased the ability of these firms to globalize. A comparative example of the efficiency of this method can be with China. They had agencies that managed the privatization of SOEs, but, because they weren’t in the role of shareholders like in Singapore, to influence the SOEs they had to negotiate with the central bureaucracy which was slow and inefficient. There are some worries about privacy with these companies. As an exempt private company, Temasek is not required to disclose financial information except to the Minister of Finance (Sam, 2010). However, since 2004, Temasek has published its annual Temasek Review, which serves as a public scoreboard of its business and performance (Temasek, 2016). “It is worth mentioning that besides an internal board, Temasek has appointed 11 individuals with diverse management backgrounds and industrial experience from the USA, UK, Japan, China and India to sit on the International Panel. That there exist non-Singaporeans to provide advice on how Singapore’s resources are to be allocated supports the government’s claim that Temasek is commercially and independently run. In addition, all of the advisors have been in their respective sectors for a long time and they know the industry trends” (Sam, 2010). Sources: Globalizing Partially Privatized Firms in Singapore: The Role of Government as a Regulator and a Shareholder Choon Yin Sam, Journal of Asian and African Studies 45(3) 258–273 © The Author(s) 2010 School of Business and Information Technology, PSB Academy, Singapore 2012 Singapore Investment Climate Statement, Bureau of Economic and Business Affairs, US State Department http://www.state.gov/e/eb/rls/othr/ics/2012/191233.htm
2. These values are from the CLSA corporate governance watch of 2014. As we can see, Singapore has a comparatively strong set of corporate governance standards, accordance with GAAP, and a corporate governance culture. Singapore also ranks 8th globally on the corruption perception index from transparency international. Both of these measure show that Singapore has high standards for its corporations and is very effective at implementing them. http://www.acga-asia.org/public/files/CG_Watch_2014_Key_Charts_Extract.pdf “CG Watch 2014 – Market Rankings” Presentation by: Jamie Allen, Secretary General, ACGA
3. This is the Thailand SOEs Governance System: Due to SOEs is the mechanism of government to create both economic & social value for generating country prosperity. The government has assigned the complicated governance system to regulate SOEs operation. The government mainly divided into 3 parts, giving different policies such as industry development policy, financial policy, pricing and quality regulation to make sure SOEs are under control of government. http://www.oecd.org/daf/ca/corporategovernanceprinciples/37340295.pdf
4. Now let’s see what is different in the government intervention in Thailand. It is totally different from Singapore’s motivation about globalization and innovation, government take SOEs as a financial tool, and some political powers try to get this financial power by fighting with each other. First of all, let’s see who has the political power? They are two competition political factions and the Military. In a words, these two political factions are the one support the previous PM Mr.Thaksin, and another one Anti-Thaksin. Then what are they doing in attempt to control the SOEs? Resignation:The nation's generals, who took power in a coup in 2014, have stopped short of an outright seizure of the nation's 56 state-owned companies, which include Thai Airways International PCL and oil-and-gas producer PTT PCL. But they have put public pressure on the heads of these firms to resign, and many have begun to comply. Voravidh Champeeratana, the chairman of Krung Thai Bank PCL, stepped down on Monday, following the resignation over the weekend of PTT's chairman. The heads of the Government Lottery Office and the Airports of Thailand PCL also have resigned since the coup. So far, none have been replaced. Analysts said it is common for administrations in Thailand, whether military or civilian, to put allies in charge either as a reward for loyalty or as a way to exert control over spending. Most board positions are selected by company committees, typically a rubber stamp for the government's choice. Thailand's military junta says its intention is to make state enterprises more efficient. "If we have to make any change, we will find good people who can contribute to the country and put them to work," Air Chief Marshal Prajin Juntong, the junta's economic policy czar, said after the coup. Mlitary Force: Army chief Gen. Prayuth Chan-ocha, who led the military's grab for power in May and heads its new ruling council, has sat on the board of TMB Bank PCL since before the coup in 2014. Mr. Prajin, the military junta's economic czar, has been on the board of Thai Airways from before the army's seizure of power. Financial Power: The Government Lottery Office, which runs the nation's monthly state lottery, has had a number of bosses in recent years. The office made 2.7 billion baht ($83 million) net profit in 2012 on 61 billion baht in revenue, the latest available figures. Much of the profits go to fund government programs. The office also can print tickets for special lotteries to raise additional funds for specific government projects. http://www.wsj.com/articles/in-thailand-a-struggle-for-control-of-state-firms-1402930180
5. http://www.wsj.com/articles/in-thailand-a-struggle-for-control-of-state-firms-1402930180
6. The Vietnamese government classifies all SOEs(State owned enterprises) into three groups according to their level of importance. Group 1 consists of public enterprises that are under complete state ownership and control and are not subject to privatization. Group 2 consists of SOEs for which the government wants to keep controlling shares even if they are privatized. Group 3 consists of all remaining SOEs, which can be privatized by one of four methods: (i) keeping the state shares intact and issuing new shares (i.e. corporatization) (ii) selling a fraction of the state shares (iii) detaching and then privatizing parts of an SOE (mostly applied to the state general corporations) (iv) selling off all state shares to workers and private shareholders (mostly applied to loss-making SOEs) http://www.grips.ac.jp/vietnam/VDFTokyo/Doc/2ndConf15Jul06/2EcoSession2VTTAnh.pdf
7. The government still retains a stake of ownership and does not give up its ultimate control over all privatized firms following privatization. “Private companies are able to conclude export contracts, but these are subject to approval by the Vietnam Food Association.” “While in Vietnam in 2008-2009, ‘stop-go’ approval for private sector exports created major problems. Such government involvement seems to be the major problem faced by the private sector” (https://books.google.be/books?id=OIHdCV8m_GUC&pg=PA114&lpg=PA114&dq=government+intervention+private+sector+vietnam&source=bl&ots=h525IjOoln&sig=94x9xxutvGUojkNWm8bLy29F6HY&hl=en&sa=X&ved=0ahUKEwiCm_jXy6TLAhWEWBQKHSRfAmIQ6AEIKzAD#v=onepage&q=government%20intervention%20private%20sector%20vietnam&f=false) The investors aren’t interested in buying stakes in the SOEs partly because they are offered only minority stakes in most cases. the stakes on offer have been small and most often minority positions, leaving investors with little say in how the companies are run.That prevents them from joining the management boards, which means they can’t get involved in pushing through much-needed governance reforms that could boost efficiency. The current development strategy of Vietnam is severely biased towards government intervention, thus sacrificing private sector development. The decline of Vietnam’s total factor productivity is a result of an unsound government-led industrialisation strategy that heavily relies on poorly managed SOE’s. Ranked 21 st regionally, Vietnam received a score of 34.9 out of 100 for Government Intervention. Notable disadvantages include one of the worst tax administration systems in the world, high levels of state intervention and public company monopolies in critical economic sectors, and lengthy and expensive procedures for essential tasks such as registering a property. (http://www.bmiresearch.com/vietnam)
8. The main strategy Singapore has been using for intervening in businesses has been through the use of state-owned holding companies. In terms of government intervention affecting the ease of doing business, Singapore ranks the best out of the world according to the world bank. With that said and seeing their strong economic performance, they have been able to regulate businesses and protect consumers in a smart way that doesn’t limit performance. Ease of doing business index (1=most business-friendly regulations) World Bank, Doing Business project (http://www.doingbusiness.org/) http://data.worldbank.org/indicator/IC.BUS.EASE.XQ?order=wbapi_data_value_2015+wbapi_data_value+wbapi_data_value-last&sort=asc
9. One example sector that has been privatized was their commercial banking sector. The Monetary Authority of Singapore started its liberalisation program in 1999, the deputy prime minister of singapore, and chairman of the MAS, stated “We want to shape and strengthen our banking sector, while maintaining confidence and stability in the financial system”
10. The government thought they could improve the quality of services and financial performance of the banks through privatization. They felt the advantages of the local branch system of business would be lost due to digitalization and globalization. They felt this would additionally incentivize foreign companies and help make Singapore an international financial center, especially through the use of partnerships with foreign banks. The government was still strict in this process however, they were only allowing access for strong and well-managed foreign banks that were committed to grow in Singapore. They also enforced a quota for the amount of deposits which were coming from local sources because they emphasized the need to keep major shares in the hands of parties who have the long-term interest of Singapore in mind. Lastly, corporate governance was a key issue and the program required local banks to strengthen management teams, institutionalise management processes, and improve systems of corporate governance. SOURCE : MAS Announces Programme to Liberalise Commercial Banking and Upgrade Local Banks - Monetary Authority Singapore http://www.mas.gov.sg/news-and-publications/media-releases/1999/mas-statement-on-measures-to-liberalise-commercial-banking-and-upgrade-local-banks--17-may-1991.aspx
11. 1998, Master Plan for State Enterprise Reform: This plan lays out a comprehensive strategy and timetable for privatization of infrastructure and various state-owned enterprises (SOEs). 1999, State Enterprise Corporatization Act: This plan provides the framework for the conversion of state enterprises into stock companies, and corporatization is viewed as an intermediate step toward eventual privatization. 1999, Foreign Business Act: Foreign investors are allowed to participate in the privatization but certain restrictions are also applied in certain sectors. *Reference: 「Thailand Country Study Guide」, International Business Publication, USA, 2008 4th Edition, Page 202-203. https://books.google.be/books?id=1gFFfWHiF9wC&pg=PA202&lpg=PA202&dq=thailand+soe+privatization&source=bl&ots=XfcK9NmnQ0&sig=AsJGLl9qn_r4ZaSgrQHDbHgmkj0&hl=ja&sa=X&ved=0ahUKEwjV_-HP5qTLAhXD0RQKHXRZD8YQ6AEISzAF#v=onepage&q=thailand%20soe%20privatization&f=false 「Regional Outlook: Southeast Asia 2004-2005」,Russell Hiang-Khng Heng, Denis Hew Wei-Yen, Page 92-93. https://books.google.be/books?id=4P56BwAAQBAJ&pg=PA92&lpg=PA92&dq=thailand+SOE+privatization&source=bl&ots=SUDXaIBOMQ&sig=8yWrg27Qv4lAnajiuytK1SVRg-8&hl=ja&sa=X&ved=0ahUKEwiAyP_isbTLAhWG_w4KHQdlAFMQ6AEIUDAG#v=onepage&q=thailand%20SOE%20privatization&f=false
12. *Reference: 「Thailand Country Study Guide」, International Business Publication, USA, 2008 4th Edition, Page 202-203. https://books.google.be/books?id=1gFFfWHiF9wC&pg=PA202&lpg=PA202&dq=thailand+soe+privatization&source=bl&ots=XfcK9NmnQ0&sig=AsJGLl9qn_r4ZaSgrQHDbHgmkj0&hl=ja&sa=X&ved=0ahUKEwjV_-HP5qTLAhXD0RQKHXRZD8YQ6AEISzAF#v=onepage&q=thailand%20soe%20privatization&f=false 「Regional Outlook: Southeast Asia 2004-2005」,Russell Hiang-Khng Heng, Denis Hew Wei-Yen, Page 92-93. https://books.google.be/books?id=4P56BwAAQBAJ&pg=PA92&lpg=PA92&dq=thailand+SOE+privatization&source=bl&ots=SUDXaIBOMQ&sig=8yWrg27Qv4lAnajiuytK1SVRg-8&hl=ja&sa=X&ved=0ahUKEwiAyP_isbTLAhWG_w4KHQdlAFMQ6AEIUDAG#v=onepage&q=thailand%20SOE%20privatization&f=false
13. Example of Privatized Company: Petroleum Authority of Thailand Reference: http://www.pttplc.com/en/pages/home.aspx http://www.pttplc.com/en/Media-Center/Energy-Knowledge/Documents/petro_05_en.pdf
14. The government has implemented a policy to reform key sectors of the economy and at least partially privatizes state-owned enterprises, but the implementation has been gradual so that the state sector still accounts for a large fraction of GDP. From a large number of SOEs (10,000 SOEs fully owned by government) at the beginning of 2000, now it is less than 1,000. So the government has made a lot of progress.The Vietnamese government has chalked out concrete plans to privatize a number of major state-owned enterprises (SOEs). SOEs soak up about 50 percent of state investment, tie up 60 percent of bank lending and account for more than half of the nation's bad debt. But they contribute just around 30 percent of the country's annual gross domestic product growth In principle privatized firms receive some favorable treatment (compared with fully private firms) according to Vietnam’s Law on Encouraging Domestic Investment. This law allows privatized firms to exempt up to 50% of their profit from taxation in the first several years after being privatized. The privatized firms are also permitted to borrow money at the state commercial banks and other state credit institutions at the same rates and terms as the SOEs http://www.grips.ac.jp/vietnam/VDFTokyo/Doc/2ndConf15Jul06/2EcoSession2VTTAnh.pdf 2001: SOE employed 60% of capital → 38% of GDP 2012: SOE employed 38% of capital → 33% of GDP SOE are engaging in loans in order to invest in non-core businesses and these loans are often non-performing loans which are held by local banks. The reason banks engage in these loans is because they presume that they are guaranteed by the state. Vietnam’s leaders recognise the need to privatize many of the SOE’s in order to advance the economy. An additional stimulus are the ongoing EU-Vietnam Free Trade Agreement (FTA) and Trans-Pacific Partnership (TPP) negotiations. In order to be competitive in the global market, the state owned firms need to be privatized because they are often poorly managed and inefficient. The government has two main elements in their agenda what concerns these SOE’s; Privatizing the SOE’s Increasing the efficiency of the SOE’s So far, in November 2014, 71 SOE’s had been privatized of the 432 targeted for 2014 and 2015. Also, with the state convinced to retain a majority stake in most large equitised SOE’s, foreign investors don’t see any scope for pushing through improvements in the company as minority shareholders in order to make changes to management and improve efficiency. Another reasons it’s not interesting to foreign investors is the widespread corruption in Vietnam with the country ranking at 112 of the corruption perception index in 2015. (https://www.gov.uk/government/publications/vietnam-state-owned-enterprise-reform/vietnam-state-owned-enterprise-reform) (http://www.transparency.org/cpi2015) (http://blogs.wsj.com/frontiers/2015/04/08/vietnam-struggles-to-achieve-privatization-goals/) In April 2015, the prime minister of Vietnam ordered to speed up privatization of SOE’s. (http://www.nasdaq.com/article/emerging-markets-vietnam-gets-serious-about-privatization-cm465221)
15. The recent changes made by the government is turning to selling stakes in already-listed companies and also increase the foreign-ownership limits to help fund its budget deficits.State Capital and Investment Corp.(SCIC's) exit from listed companies would increase tradeable shares and market activities. This, if combined with an increase in foreign-ownership limits, could lead to a significant increase in foreign participation.Eg the government is planning to sell its 45% stake in vinamilk and scrap foreign ownership limit on the stocks.Vinamilk's long-full 49 percent foreign-ownership limit means foreign investors pay a premium of around 17 percent over what local investors pay to own the shares, http://www.cnbc.com/2015/10/20/why-vietnams-latest-privatization-push-may-succeed.html According to ibtimes: 1. Vietnam Mobile Telecom Service (MobiFone) MobiFone is the second-largest mobile network operator, with a 21.4 percent market share. The company will be the first SOE in the telecom sector to be offered to the public when 80 percent of its shares are put up for sale later this year. Vietnam Post & Telecommunications Group, which currently runs the company, will own the remainder. Vietnam’s growing telecom sector brought in an estimated $9.9 billion last year, according to the Wall Street Journal, and about 90 percent of that revenue is accounted for by Viettel, with a 44 percent market share, MobiFone, and Vinaphone with 19.9 percent market share. 2. Vietnam National Textile and Garment Group (Vinatex) Vinatex initially planned to initiate the IPO process in the last quarter of 2013, but missed their launch date twice; it is now on track for a second-quarter IPO. The group will sell 49 percent of its stake, with the state retaining the rest. Vietnam’s textile and garment industry is expected to be one of the biggest beneficiaries if and when the country becomes a member of the Trans-Pacific Partnership, which could make Vinatex attractive to foreign investors. Overall, the industry is expected to reach $30 billion in export revenue by 2020, compared to $20 billion last year, and could reach $55 billion by 2030. 3. Vietnam Airlines The state-owned airline brought in $3.4 billion in 2013, earning a $25.3 million profit. It owns 82 planes, and accounts for about 63 percent of the seats on domestic flights each year, and is “on track” for a second quarter 2014 initial public offering, the New York Times reported. Only 25 to 35 percent of the shares will be sold initially, with the government holding onto the rest. Vietnam Airlines is the only major Southeast Asian carrier not currently publicly listed. As airlines controlled by governments typically struggle to remain competitive, the company may have trouble attracting investors, according to Shukor Yusof, an aviation analyst at the ratings agency Standard & Poor’s. 4. Vietnam National Shipping Lines (Vinalines) Vinalines is a shipping, ports and services holding company that has had even more scandals and problems than the average SOE in Vietnam. In December, a former chairman of the company was sentenced to death for embezzlement, and two of its subsidiaries, VInashin Ocean Shipping Co. and the Vietnam Oil and Gas Transportation Co., have filed for bankruptcy. Nonetheless, the company is planning to make an IPO by early 2015, and will sell as much as 70 percent of the stake. http://www.ibtimes.com/four-major-vietnamese-state-owned-enterprises-will-file-ipos-soon-1569157
16. The government sold minority stakes only in a small number of the companies originally earmarked for public listing, while foreign-ownership restrictions have kept out big institutional funds and prompted overseas money managers to look to private deals instead.Eg the government's attempt to privatize Vietnam Airlines late 2014 was broadly disappointing. In November, Vietnam Airlines raised around $51.3 million in an initial public offering planned since 2008. It attracted little interest. Not only was the offering only around 3.5 percent of the company, but the bulk was purchased by two Vietnamese banks, with no foreign institutional investors participating. These problems have created incentives for foreign investors to look to private companies for returns, in which they can own 100% in some circumstances, compared with just 49% of a public company. http://www.wsj.com/articles/slow-pace-of-vietnams-privatizations-worries-investors-1417138677
17. In Singapore, we’ve seen that the country has been opening up new sectors to be privatized to gain certain benefits. The method they have done these privatizations with has been slow and controlled. The country closely considers the market and viability of privatization to shift from government owned platforms. Additionally, we saw earlier that their state-owned holding companies play an intermediary step in this privatization process, allowing a more market based business approach for businesses owned by the government. Vietnam’s leaders recognise the need to privatize many of the SOE’s in order to advance the economy. An additional stimulus are the ongoing EU-Vietnam Free Trade Agreement (FTA) and Trans-Pacific Partnership (TPP) negotiations. In order to be competitive in the global market, the state owned firms need to be privatized because they are often poorly managed and inefficient. ((https://www.gov.uk/government/publications/vietnam-state-owned-enterprise-reform/vietnam-state-owned-enterprise-reform) Vietnam will remove the 49% cap on foreign ownership at some listed companies, a move that will help boost market liquidity and accelerate the government’s sluggish process of privatizing state-owned enterprises. (http://blogs.wsj.com/frontiers/2015/06/26/vietnam-to-scrap-49-limit-on-foreign-ownership/)
18. Difference between developed country and developing country. The motivations: Developed country - globalization, innovation Developing country - financial motives
19. Initially, Singapore Post was a part of the Telecommunication Authority of Singapore. Singapore Post Limited was listed on the Singapore Exchange in 2003. Fully liberalised since April 2007, The Government decided to open the Basic Mail Services market, (This includes the collection and delivery of letters and postcards, within, into and out of Singapore) “Liberalisation is expected to generate cost savings of S$8 million to S$25 million per year over the next two to three years, to largely benefit businesses.” Hwee Ling ( The learning economist, 2008) With this, new players will be allowed in both domestic and international mail services. SOURCE / Eckert, S. (2009). Postal reform around the globe: Comparing the Asian and European experience. Policy and Society, 27(3), 261-272. (http://www.sciencedirect.com.kuleuven.ezproxy.kuleuven.be/science/article/pii/S144940350800043X) On liberalisation & De-regulation in Singapore (The learning Economist 2008) http://econsiseasy.blogspot.be/2008/09/on-liberalisation-de-regulation-in.html Singapore Trade and Investment Risk Report
20. http://www.abc.net.au/news/2014-05-21/background-to-thailand-martial-law-declaration/5466676 Therefore. Who is the Prime Minister, which side is in power, has strong relationship with who will be on board and leading the SOEs, and where the revenues of the SOEs will be used in.
21. http://www.oecd.org/daf/ca/corporategovernanceprinciples/37340295.pdf