This Statement provides an update on developments based on information that has become available since the issuance of the staff report (EBS/02/101, 6/7/02). These developments do not change the thrust of the staff appraisal.

1. Recent developments. Based on preliminary data through early June, the program remains broadly on track:

• The exchange rate has continued to depreciate gradually in recent weeks, and by a total of 1¼ percent against the U.S. dollar and 3¾ percent in real effective terms so far this year. Gross official reserves have risen moderately as programmed to US$3.5 billion as of June 7 (8¼ weeks of prospective imports).

• There have been tentative signs of a recovery in exports. For April and May combined, exports rose by 4 percent year-on-year, the first increase in seven months. Non-oil exports grew by 9 percent, with notable improvements for textile, footwear, and handicraft exports, and in particular to the United States.

• Through April 2002, bank credit and broad money grew at an annual rate of 21½ percent and 23¼ percent, respectively, somewhat ahead of the program.

• The fiscal stance in the first quarter was relatively tight, in line with seasonal patterns, with an annualized budget deficit of 1¼ percent of GDP, against a program target of 4 percent of GDP. Both revenue and expenditure are running somewhat higher than programmed, with a shift towards capital expenditure.

• As of mid June, 297 state-owned enterprises (SOEs) have completed equitizations, outright sales, or liquidations, relative to the target of 400 set for the release of the second tranche under the Bank’s Poverty Reduction Support Credit, which is envisaged for August.

2. Status of the prior actions. The authorities have confirmed that all prior actions noted in EBS/02/101 have been completed. (A full list of the prior actions for Board consideration of the PRGF review is summarized at the end of this statement.) In particular:

• The State Bank of Vietnam (SBV) has agreed with each of the four large state-owned commercial banks (SOCBs) on a work program to prepare a credit manual containing all credit policies and procedures, which incorporates necessary improvements based on each bank’s recent experience. These work programs have been prepared with Fund technical assistance and are already being implemented by the SOCBs, including with external experts.

• The Prime Minister has approved a decision providing for the terms and conditions of recapitalization bonds for the SOCBs, which are fiscally sustainable and consistent with program understandings. Specifically, the decision provides for the issuance of such bonds totaling D 8 trillion D 8 trillion (1½ percent of GDP) over the period 2002-04, with a 20-year maturity at a fixed interest rate of 3.3 percent.

• The SBV has agreed with each SOCB on cumulative targets for the resolution of nonperforming loans (NPLs), which in the aggregate are consistent with the NPL resolution target of D 3.5 trillion set as a structural performance criterion for end-September 2002.

• A special monitoring unit has been formally established to assist the National Steering Committee for Enterprise Reform and Development (NSCERD) with enforcement power to oversee the implementation of the SOE reform plan. While the group is organizationally attached to the Office of Government, and not within the NSCERD as originally envisaged, the Bank and Fund staffs consider its intent and mandate to be consistent with program understandings. Technical assistance from the Bank will be necessary to ensure strong implementation.

• In addition to the approval in April of Decree 41 specifying guidelines for safety nets for labor redundancies, the government approved on June 19 Decree 64 setting out, inter alia, guidelines for debt resolution for equitized SOEs. This latter action was taken short of the normal five-day minimum period required for Board consideration of the PRGF review. The delay was due to the fact that the guidelines were part of a comprehensive decree designed to speed up and improve the transparency of equitization, which took longer than expected to finalize. The authorities have consulted with Bank and Fund staff on earlier drafts of these guidelines, and the approved guidelines are consistent with staff recommendations.

3. In other related developments, the SBV has agreed with each of the SOCBs on the year 2000 audit qualifications that are to be eliminated by end 2002, thus meeting ahead of time the end-June benchmark under the next PRGF review. With respect to the Fund’s safeguards assessment, the authorities reported that the State Auditor is now finalizing the audit of the year 2001 financial statements of the SBV, and work to restate these accounts in accordance with international accounting standards is underway.

Vietnam: Summary of Prior Actions for Second PRGF Review

Vietnam: Summary of Prior Actions for Second PRGF Review

	Policy Action/Conditions	Timing
	Banking reform
1.	Issue implementation guidelines to apply State Bank of Vietnam (SBV) Decision 1627 to all loans (excluding policy loans) of commercial banks.	Completed April 16, 2002.
2.	Agree with each state-owned commercial bank (SOCB) on a work program to prepare a credit manual, including all credit policies and procedures, which incorporates necessary improvements based on each SOCB’s recent experience.	Completed June 14, 2002.
3.	Government approval of the terms and conditions of bank recapitalization bonds that are fiscally sustainable and recapitalize the banks in stages as planned.	Completed June 14, 2002.
4.	Agree with each large SOCB (Vietcombank, Incombank, Bank for Agriculture and Rural Development, and Bank for Investment and Development) on cumulative targets for loan resolution for end-September 2002.	Completed June 12, 2002.
	State-owned enterprise reform
5.	Equip the special monitoring unit in the National Steering Committee for Enterprise Reform and Development (NSCERD) with enforcement power to oversee implementation of state-owned enterprise (SOE) reform plan.	Completed June 14, 2002.
6.	Government approval of implementation guidelines on SOE debt resolution for equitized SOEs and safety nets for labor redundancies.	Completed April 11 and June 19, 2002.

View Table

Vietnam: Summary of Prior Actions for Second PRGF Review

	Policy Action/Conditions	Timing
	Banking reform
1.	Issue implementation guidelines to apply State Bank of Vietnam (SBV) Decision 1627 to all loans (excluding policy loans) of commercial banks.	Completed April 16, 2002.
2.	Agree with each state-owned commercial bank (SOCB) on a work program to prepare a credit manual, including all credit policies and procedures, which incorporates necessary improvements based on each SOCB’s recent experience.	Completed June 14, 2002.
3.	Government approval of the terms and conditions of bank recapitalization bonds that are fiscally sustainable and recapitalize the banks in stages as planned.	Completed June 14, 2002.
4.	Agree with each large SOCB (Vietcombank, Incombank, Bank for Agriculture and Rural Development, and Bank for Investment and Development) on cumulative targets for loan resolution for end-September 2002.	Completed June 12, 2002.
	State-owned enterprise reform
5.	Equip the special monitoring unit in the National Steering Committee for Enterprise Reform and Development (NSCERD) with enforcement power to oversee implementation of state-owned enterprise (SOE) reform plan.	Completed June 14, 2002.
6.	Government approval of implementation guidelines on SOE debt resolution for equitized SOEs and safety nets for labor redundancies.	Completed April 11 and June 19, 2002.