News Brief No. 02/53

News Brief: IMF Completes Second Review of Vietnam's PRGF Program and Approves In Principle US$53 Million Disbursement

June 21, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Vietnam's arrangement under the Poverty Reduction and Growth Facility (PRGF). The Board also determined that Vietnam's Comprehensive Poverty Reduction and Growth Strategy (CPRGS) provides a sound basis for Fund concessional financial assistance.

The Board's decision will become effective after the World Bank's review of the CPRGS, which is currently scheduled for July 2, 2002. Vietnam will be able to draw SDR 41.4 million (US$53 million) from the arrangement.

Vietnam's three-year IMF-supported program was approved on April 6, 2001 (see Press Release No. 01/12). It amounts to SDR 290 million (US$370 million), of which SDR 82.8 million (US$106 million) has been disbursed.

The PRGF is the IMF's concessional facility for low-income countries. 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.

PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.

After the Executive Board's discussion on Vietnam, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following statement:

"The Vietnamese authorities have continued to make progress in implementing their three-year program, which seeks to improve competitiveness and spur investment in order to foster high growth and rapid poverty reduction. Economic performance under the first-year program was relatively strong and based on generally sound macroeconomic policies and progress in structural reforms. However, delays continued to be experienced in reforming state-owned enterprises (SOEs).

"The second-year program is therefore appropriately centered on a firmer implementation of the structural reform agenda, along with continued discipline in macroeconomic management. To promote growth and investment, the authorities will need to press ahead with steps to further open the economy to the private sector and to reform the trade regime and the state-owned commercial banks (SOCBs) and SOEs.

"The budget deficit will be capped at a financeable level, but adhering to this limit and ensuring medium-term sustainability will require strengthened revenue performance and spending discipline. Credit growth will continue to be restrained, to keep inflation low and to protect banks' asset quality. External debt management will remain prudent and will continue to rely primarily on concessional financing.

"The authorities are expected to press ahead with restructuring the four large SOCBs, bringing loan classification and provisioning in line with international best practices. Under the bank restructuring program, strategic equity participation by a foreign investor in one of the SOCBs is envisaged to take place by end-2003.

"To advance SOE reform, more forceful implementation of the authorities' three-year reform plan will be required. Recent steps taken to accelerate the pace of equitization will need to be fully implemented, and over time, the reform plan should be extended to cover the larger, heavily indebted SOEs.

"The authorities' Comprehensive Poverty Reduction and Growth Strategy has been prepared in a commendable participatory process. Its successful implementation will require careful prioritization and costing, strong expenditure management and monitoring, and a full assessment of the social impact of reform.

"In view of the encouraging progress thus far and the authorities' commitment to accelerate reforms in critical program areas, the Executive Board completed the second review under the arrangement, and granted waivers for the nonobservance of a number of performance criteria under the program, as well as for a minor incident of misreporting of reserves data," Mr. Sugisaki said.