November 21, 2001
On behalf of my Vietnamese authorities, I would like to express my appreciation to the Fund staff for their unyielding efforts in working closely with the Vietnamese authorities to complete the 2001 Article IV Consultation and the First Review of the 3-year medium-term economic program supported by the Poverty Reduction and Growth Facility (PRGF). We look forward to continued close cooperation between the Fund staff and the Vietnamese authorities in the years ahead.
In 2001, the Vietnamese authorities stayed the course in pursuing comprehensive reforms while maintaining sound macroeconomic policies. The economy is performing relatively well considering the global downturn and the domestic difficulties caused by natural disasters. Macroeconomic policies are generally on track. The authorities managed to maintain high growth in the industrial sector, continued to promote the growth of the services sector and enhanced socio-cultural performance in various areas, including poverty reduction and job creation. All of these were achieved while keeping appropriate restraint on inflation. The government’s budget revenues were also favorable.
However, given the global downturn, coupled with various domestic and external difficulties, the Vietnamese authorities have revised some of their economic targets downwards. Although the revised growth projection is not as high as originally targeted, the Vietnamese economy is still expected to grow by around 7 percent in 2001, which is relatively high when compared with its neighboring countries. The industrial, agricultural, and services sectors are estimated to grow by 10.7 percent, 2.6 percent and 6.6 percent, respectively. Per capita income has grown to above US$ 400 in 2001. Inflation remained subdued, with an annualized rate of -0.4 percent in October 2001. Export performance is favorable but still below the target level because of various problems in the global market. Total export value in 2001 is now expected to grow by 8 percent instead of the targeted 16 percent, while total import value is expected to grow by 2.3 percent.
All economic sectors have contributed to the growth of the economy, with the private sector playing an increasingly important role. In spite of declining foreign investments, gross national investment for 2001 is expected to increase by 24.7 percent compared with last year. The completion of the procedures for the ratification of the Bilateral Trade Agreement with the US and the ongoing negotiations for Vietnam’s accession to the WTO are testimonies of Vietnam’s commitment to accelerate its trade reforms and seek greater integration into the global economy using a well defined roadmap. The Vietnamese authorities are doing their best to overcome the current difficulties and challenges to create the prerequisites for faster and more sustainable economic development in the coming years.
Since the Board’s approval of Vietnam’s PRGF in April 2001, the authorities have undertaken enormous efforts to meet its commitments in the structural areas, namely the reform of its banking, state-owned enterprise (SOE), and trade sectors. The objective of these reform efforts are, in the first place, to benefit the country itself as they are needed to accelerate economic development towards achieving the ultimate goal of alleviating poverty amongst its population.
Given the circumstances, fiscal policy remains prudent to meet the necessary cost of structural reforms. Budget expenditures are focused on key social services, especially primary education and basic health care, as well as basic economic and social infrastructure, particularly in the rural areas. The authorities are seeking to limit the overall budget deficit within the range of 3-4 percent of GDP. As regards monetary policy, the authorities are implementing a prudent credit policy with emphasis on credit quality. Furthermore, the authorities are pursuing appropriate interest rate and exchange rate policies to enhance public confidence in the domestic currency. The exchange rate is being managed more flexibly to better reflect market conditions.
With regard to banking reforms, the authorities aim to build up a sound banking industry and improve the efficiency of financial intermediation. To this end, Vietnam has adopted an overall reform plan designed to maintain the stability of the banking industry, consistent with the program’s medium-term macroeconomic framework. This is being supported by individual reform plans for the large state-owned commercial banks (SOCBs) to focus on restoring and strengthening their financial soundness, efficiency and competitiveness.
As for the SOE reforms, in September 2001, the Third Plenum of the Central Committee of the Communist Party of Vietnam adopted a Resolution setting out the guidelines and tasks for the periods of 2001-2005 and 2001-2010. The Resolution outlines overall solutions to restructuring SOEs and improving their management. This is an important milestone which reflects the authorities’ firm determination to accelerate the process of SOF, reforms. As a necessary adjunct to SOCB reforms, the Vietnamese authorities aim to reinforce this program over time by including additional nonviable loss-making SOEs for closure or liquidation, and highly leveraged SOEs in the list of enterprises to be subject to reform. In addition, private sector development is another priority which has been facilitated by various measures adopted by the authorities, including the recent adoption of the Enterprise Law.
Trade liberalization has been faster than expected to meet the commitments under the ASEAN Free Trade Area (AFTA) and the recently concluded bilateral trade agreement with the United States. Trading rights for domestic firms have been fully liberalized. As a result, the commitments under the program have been accomplished ahead of schedule.
In poverty reduction, the relevant Vietnamese authorities have begun to draft the full Poverty Reduction Strategy Paper with the assistance of the World Bank and IMF, and have benefited from wide participation by concerned ministries, agencies, and representatives of the donor community and NGOs. According to the schedule, the first draft will be presented to the upcoming Consultative Group Meeting in December, and the final version will be completed in the first quarter of next year to be submitted to the Prime Minister for approval. According to the new poverty line, there are presently about 2.8 million poor households country-wide, accounting for 17.2% of the total number of households. Recently, the authorities approved the national programs for poverty reduction and job creation for 2001-2005, aiming to reduce the proportion of poor households to 10% by the end of the period. The authorities are determined to make full use of all available resources to improve basic infrastructure for economic development, paying special attention to the rural and remote areas.
In conclusion, I would like to reiterate the Vietnamese authorities’ determination to fulfill the commitments under the PRGF, and look forward to the Board’s understanding of the difficulties and challenges which could arise unexpectedly. With the enormous efforts of the Government and the people of Vietnam, coupled with the support and assistance of the international community, Vietnam will be able to make as much progress as possible on the back of increasing globalization. In this context, the Vietnamese authorities highly appreciate the support of the Board to complete the first review under the PRGF. The authorities continue to value highly the assistance provided to them by the international community, particularly the IMF.