Reforming the State Bank of Vietnam towards an Independent Central Bank: the Application of New Public Management in Vietnam

Abstract

In many open-rich financially developed countries, the central bank (CB) plays an important role in the development of a sound and effective financial system in par- ticular, and economic development and stabilization of the economy in general. In these countries, the governance of the CB is based on the three main principles of New Public Management (NPM) known as the three ‘pillars’, which includes: (i) central bank independence; (ii) central bank accountability, and (iii) central bank transparency. Among them, central bank independence is considered the key and pri- mary ‘pillar’. This implies that the reform of the central bank towards an independ- ent entity thereby could be seen as one of the most important elements of a public administration reform program in developing countries (LCDs), and Vietnam should not be an exception. The State Bank of Vietnam (SBV) – as the Vietnam’s Central Bank – has been operating successfully in the last decades and has contributed greatly to Vietnam’s development. However, the dependence of the SBV on the Government has shown a number of weaknesses that should be overcome as soon as possible in the next stage of the development process, especially when Vietnam becomes an official member of the World Trade Organization (WTO) in 2018. In this paper, three issues will be covered, including: (1) The independent central bank and its positive impact on the development and stabilization of the economy as a theoret- ical framework for discussion on the need for and the way of the reform of the cen- tral bank in developing countries; (2) a factual analysis of the SBV’s problems resulting from its high dependence upon the government, as well as opportunities and challenges of reforming the SBV towards an independent central bank; (3) rec- ommendations for solutions to ensure the success of SBV reform in the future.