State-owned enterprise (SOE) restructuring has proceeded more rapidly in Viet Nam than, for example, in China and India. The government tightened the budget constraints facing SOEs virtually simultaneously with price liberalisation. While a large number of mostly small SOEs were liquidated soon after reform began, others were able to adjust through various cost-cutting measures, including sizeable labour force reductions. The government put in place a safety net composed of severance pay and early retirement schemes that, combined with natural attrition, yielded a reduction in the SOE workforce of almost one million people in less than a decade. While the largely voluntary nature of the schemes may have caused some adverse selection and made them more costly than necessary, the benefit has been to avoid social discontent. High private-sector employment growth has been a major contributor to the programme’s success.

Still, the process is not complete. Initial restructuring was ...