Vietnam's economic recovery from the spillover effects of the Asian crisis has continued and the pace of policy reform has stepped up. The government's program seeks to build on this record and policy momentum. A cautious fiscal stance will ensure a sustainable public debt burden. The liberalization of the exchange regime and improving the business environment will be essential to restore investor confidence. Attaining the objectives of the program will hinge on the close coordination of credit policy with state-owned commercial bank (SOCB) reform.

Abstract

Vietnam's economic recovery from the spillover effects of the Asian crisis has continued and the pace of policy reform has stepped up. The government's program seeks to build on this record and policy momentum. A cautious fiscal stance will ensure a sustainable public debt burden. The liberalization of the exchange regime and improving the business environment will be essential to restore investor confidence. Attaining the objectives of the program will hinge on the close coordination of credit policy with state-owned commercial bank (SOCB) reform.

April 6, 2001

This Statement provides information on developments since issuance of the staff report (EBS/01/43, 3/23/01). These developments do not change the thrust of the staff appraisal.

1. Macroeconomic performance so far in 2001 has generally been in line with program expectations, reflecting robust domestic demand but in a weaker external environment. Core inflation in March continued to run at 2 percent. In the first quarter of 2001, retail sales, a key indicator of domestic demand, were up by 9 percent compared with the same period last year, while export growth (in U.S. dollar terms) slowed sharply to 14 percent and import growth to 8 percent, as was expected. Non-oil export growth was also 14 percent, with the largest slowdown reported for coffee, footwear, and electronics. Gross official reserves remained broadly stable at US$3.1 billion (as of mid-March), as was the exchange rate vis-à-vis the U.S. dollar in the first quarter. The annual growth in credit and broad money aggregates is estimated to have slowed to around 35 percent at end-January 2001, consistent with program targets for end-March. Information on the first quarter’s fiscal performance is still very limited, but initial indications suggest government revenue has been running above the same period last year, continuing to benefit from relatively strong oil exports.

2. The Ninth (Five-Year) Party Congress, set to take place from April 19, is expected, among other things, to endorse a socioeconomic plan for the period 2001–05, which is envisaged to be consistent with the medium-term macroeconomic framework laid out in the I-PRSP (EBS/01/32) that is to be supported by the proposed PRGF arrangement.

3. The Government of Vietnam has recently confirmed that all prior actions reported in EBS/01/43 have been completed. (A full list of the prior actions for Board considerations of the PRGF arrangement is provided in Table 1.) In particular:

Table 1.

Vietnam: Completed Prior Actions for the First-Year PRGF Program

(In percent of GDP unless otherwise noted)

article image
  • The overall restructuring framework for the state-owned commercial banks (SOCBs) was adopted by the government on March 17. This framework is consistent with the key parameters laid out in the MEFP, especially in paragraph 17. Moreover, to oversee implementation of the framework, a steering committee was established on March 27, headed by the First Deputy Prime Minister and including the vice-ministers of Finance, Justice, Police, and Planning and Investment and officials from the State Bank of Vietnam.

  • The restructuring plan for the Vietcombank was adopted on March 22. This plan conforms to the principles set out in the overall restructuring framework, and provides in particular for phased recapitalization of this bank over three years, conditional on specified improvements in bank performance and financing availability.

  • The government formally accepted on March 22 offers from bilateral donors to finance audits on international accounting standards of Vietcombank and Incombank, the two key SOCBs, setting the stage for the selection of auditors on the timetable envisaged under the program.

  • The timetable for a phased removal of quantitative restrictions (QRs) on a multilateral basis on six product groups was published on April 3. Under this timetable (Table 2), QRs on clinker and paper will be removed at the latest by end-2001, and those on all others items will be removed within 21 months, at the latest by January 1, 2003.

Table 2.

Vietnam: Timetable for Removal of Quantitative Restrictions on Imports

article image
Source: Vietnamese authorities, as published on April 3, 2001.

4. Implementation of the prior actions noted in Table 1 represents a significant start of reforms in areas that are critical for the achievement of the program’s macroeconomic objectives. During the PRGF arrangement, firm implementation of the SOCB and SOE reforms, in particular, will be vital to protecting medium-term fiscal sustainability and to restoring growth. Progress in these critical reform areas is therefore being monitored through structural performance criteria and benchmarks, and will be a principal focus of the first PRGF review. As indicated in the staff report, the number of structural performance criteria and benchmarks in these two areas has also been streamlined, in close coordination with the monitoring of detailed implementation envisaged as tranche release conditions under the Bank’s Poverty Reduction and Support Credit, which is expected to be considered by the Bank Board on May 3.

Vietnam: Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility — Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by Authorities of Vietnam
Author: International Monetary Fund