VIETNAM’s ECONOMIC ENVIRONMENT Vietnam Investment and Trade 2002 April 25, 2002 Dr. Susan J. Adams IMF Resident Representative

THE MACROECONOMY IS GENERALLY SOUND  Inflation is low  Real GDP growth is high  Current account deficit is low  Fiscal deficit is low  Gross official reserves are adequate  Exchange rate is stable

INFLATION IS MANAGEABLE

REAL GDP GROWTH IS HIGH AND WILL ENABLE POVERTY REDUCTION

Annual GDP Growth in the 1990s

SUSTAINABLE CURRENT ACCOUNT BALANCES

Annual Export Growth in the 1990s

AND A CAUTIOUSLY EXPANSIONARY FISCAL STANCE

OFFICIAL RESERVES CUSHION IS ADEQUATE

SO….WHY DOES VIETNAM HAVE A PRGF PROGRAM?  Because growth is a necessary but not sufficient condition for poverty reduction.  Good growth matters  Sustained growth matters: so structural reforms are essential in the transition process to achieve Vietnam’s own growth goals.  …and because the PRGF loans are at highly concessional rates!

THREE PLANKS OF STRUCTURAL REFORMS IN THE PRGF PROGRAM 1. Trade liberalization 2. Banking reform 3. SOE reform ….all while maintaining macroeconomic stability and growth.

TRADE LIBERALIZATION  Ahead of schedule in AFTA commitments to reduce QRs and tariffs  Proceeding with USBTA implementation; full legislative agenda planned this year  WTO accession is an achievable goal in the next 4-6 years. TRADE CREATION IS THE KEY TO JOB CREATION AND GROWTH—1.4 million new job seekers every year will need to be absorbed by a rapidly growing private sector in exports.

BANKING REFORM  Fund focuses on CENTRAL BANK and SYSTEMIC banking reforms  Vietnam needs to focus on creating a two- tiered banking sector, leveling the playing field in a highly segmented arena, and developing capital markets  Non-bank financial institutions will play an increasing role in Vietnam’s transition.

SOE REFORM  The Fund is concerned with the fiscal consequences of not moving ahead with SOE reform.  Lack of SOE reform in turn will stall financial sector reform, as NPLs will continue to mount.  SOE reform costs are not a high as in other transition economies.

TRANSITION PARTNERS  Structural adjustment takes A LONG TIME  Poverty elimination takes even LONGER  Institutional reform takes generations The Fund lacks a comparative advantage in the above areas. For this reason, we rely on UN partner agencies, the World Bank, ADB, bilateral donors and NGOs to provide that expertise. THE PATH OF VIETNAM’s TRANSITION AS A MIXED ECONOMY IS THE KEY.

Emergence of a Mixed Economy

FDI: the international comparisons

ODA and FDI flows

CURRENT CHALLENGES to Encourage More FDI and Trade  Making the exchange rate predictable and at the same time flexible enough to help push competitiveness and cushion exogenous shocks.  Creating a transparent and simple tax base that is enforceable and encourages investment and business activity.  Right-pricing of capital; developing capital markets  Leveling the playing field for banks.  Creating transparent property/asset rights.

THANK YOU! Visit us virtually at the new IMF Website in Vietnam: Or visit us personally in Hanoi: IMF Office 63 Ly Thai To Street, Suite 601