News Brief: IMF Completes First Review of Vietnam's PRGF Program and Approves US$52 Million Disbursement
November 21, 2001
The Executive Board of the International Monetary Fund (IMF) today completed the first review for Vietnam under the Poverty Reduction and Growth Facility (PRGF)1 (see Press Release No. 01/12). The Board also approved the release of a further SDR 41.4 million (about US$52 million) from the PRGF arrangement, which would bring total disbursement under the program to SDR 82.8 million (about US$105 million).
After the Executive Board's discussion on Vietnam, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:
"The Vietnamese authorities have made commendable progress so far in implementing their three-year program. Economic performance has continued to be positive, despite the weakened external environment, and the adherence to sound macroeconomic policies and the firm implementation of the reform agenda will sustain further progress in raising growth and reducing poverty.
"The authorities' program continues to provide for a restrained credit policy and a cautious fiscal stance. Credit growth has fallen considerably so far in 2001 and a further deceleration is being targeted to help stem nonperforming loans (NPLs) at the state-owned commercial banks (SOCBs) and strengthen the financial discipline of state-owned enterprises (SOEs). The fiscal policy allows room for a slight easing to cushion the impact of the global slowdown on growth, in particular through higher social and infrastructure spending and to meet structural reform costs.
"Progress has been made in implementing key structural reforms, and the Executive Board commends, in particular, the authorities' recent trade measures, whose firm and steady implementation will help position Vietnam to benefit fully from a global upturn. Further efforts to promote private sector activity and foreign direct investment will also improve conditions for sustained growth.
"The Board looks forward to early and sustained reform of the state-owned commercial banks (SOCBs) and state-owned enterprises (SOEs), which is key to medium-term macroeconomic stability and growth. The government's recent approval of the restructuring plans and recapitalization guidelines for the four large SOCBs is welcome and should now be implemented vigorously under the close monitoring of the State Bank of Vietnam. Careful attention will need to be paid to performance against the specific milestones on the resolution of NPLs and strengthening of credit risk management, as key conditions for a phased recapitalization. Loan classification will need to be brought in line with international accounting standards at the latest by end 2001 to set a transparent and realistic basis for monitoring SOCB reform.
"It will be important to make up for the delays in SOE reform, so as to achieve the original program targets. Early actions needed to accelerate reforms include the issuance of debt restructuring and safety net guidelines, steps to strengthen the integrity of the equitization process, and the publication of a detailed three-year roadmap," Mr. Sugisaki said.
1 On November 22, 1999, the IMF's facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility (PRGF), and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. At this time for Vietnam, pending the completion of a PRSP, a preliminary framework has been set out in an interim PRSP. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½ grace period on principal payments.