Vietnam's sweeping administrative cuts stir investors' anticipation, worries

By Francesco Guarascio and Phuong Nguyen

HANOI (Reuters) - Communist-run Vietnam is planning its boldest bureaucratic reform in decades, slashing ministries, agencies and broadcasters in a bid to reduce bottlenecks and red tape, but risking short-term "paralysis", officials and investors said.

Under the plan, five ministries, four government agencies and five state TV channels would be among the bodies that will cease to exist, according to Communist Party documents reviewed by Reuters and reports in state media. The proposal is still in its preliminary stages and is subject to changes by the time is set to be voted in parliament in February.

No figure has been circulated about the number of jobs that could be cut, but thousands of state employees are likely to be affected, based on the magnitude of the cuts envisaged in the documents.

Vietnam, a Southeast Asian industrial hub, relies heavily on foreign investment in manufacturing, which fuels a booming export-oriented economy.

However, in recent years investors' discontent has grown louder over delays in project approvals and regulatory reforms compounded by a sweeping anti-corruption campaign.

Responding to that criticism, Vietnam's new Communist Party leader To Lam this month launched a massive overhaul of state bodies, soon after he was appointed to the country's most powerful job.

Vietnam's home and foreign affairs ministries did not reply to requests for comment.

The bold move comes about a year before the Communist Party congress, which in early 2026 will decide whether to confirm Lam in his job.

It also coincides with similar post-pandemic government cost-cutting measures being implemented or pledged across the world, including by Argentina's libertarian President Javier Milei and U.S. President-elect Donald Trump. 

Among the planned measures, the investment ministry, which is responsible for approving industrial projects, will be merged with the finance ministry.

For a while "investors may experience delays or uncertainty as the new structures are established and the dust of this top-level governance merger settles," said Leif Schneider, head of international law firm Luther in Vietnam.

But "the long-term outlook is more optimistic," he added, saying Vietnam could become a more investor-friendly destination if the reform is executed effectively. 

MIXED VIEWS

Nine investors, diplomats and officials interviewed by Reuters shared the same mixed assessment with many anticipating new administrative delays in the short term.

"Expect paralysis to be the normal for a while," said a Western Hanoi-based diplomat, who also speculated that the reform may also be an attempt by Lam to consolidate power.

Two foreign investors expected the reform would bring about long-awaited simplified procedures for businesses, although it was likely to slow project approvals for some months.

They declined to be identified to speak more freely.

Australia's ambassador in Hanoi Andrew Goledzinowski likened the current phase to Vietnam's wide-ranging economic reforms of the 1980s, which turned the war-torn Communist country into a major trading nation in the following decades.  

"Vietnam's New Era is dawning at a critical time" as investors seek safe havens in a phase of growing protectionism, Goledzinowski wrote in a social media post.

"Money is like water," he noted, however. "When it is blocked, it goes elsewhere."

(Reporting by Francesco Guarascio, Phuong Nguyen and Khanh Vu; Editing by Lincoln Feast.)