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The Vietnam News

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IMF ends Vietnam aid over central bank dispute

BANGKOK - The International Monetary Fund has ended a $400m Vietnamese structural reform programme after it was stalled for nearly two years by a dispute over the transparency of Vietnam's central bank.

About $173m of the IMF's intended $400m (?330m, £218m) multi-instalment loan facility, which began in 2001, was disbursed before the programme was derailed by the IMF's request for an independent audit of the central bank's foreign reserves. Vietnam's secrecy- obsessed Communist authorities balked at the demand, which the IMF said was a routine safeguard required of all borrowers. Hanoi's unyielding opposition to the audit was also probably fortified by its doubts about fulfilling the ambitious pace of financial sector and state enterprise reforms mandated by the IMF loan programme, analysts said.

After prolonged negotiations failed to resolve the impasse, the IMF said in a statement yesterday that the three-year loan arrangement "would expire without additional disbursements". But the fund will maintain a presence in Vietnam and provide continuing technical support and training.

The loss of the IMF loan - used to bolster foreign reserves - is not expected to cause any immediate difficulty for Vietnam's fast-growing economy, despite its widening trade deficit, analysts said. Hanoi receives up to $2bn in assistance each year from the World Bank, the Asian Development Bank and other bilateral donors. These agencies will not suspend their support, despite the IMF's decision. Vietnam's foreign reserves, now estimated at about $5.5bn - or the equivalent of about 10 weeks worth of imports - have also been bolstered by strong private capital inflows, especially remittances from Vietnamese working abroad.

"In terms of near-term, external financing needs for Vietnam and the need for money from the IMF, that really doesn't look like it's going to be a problem now," said Brian Coulton, sovereign analyst for Fitch Ratings. "The balance of payments performance has been better than expected." But the end of the IMF programme raises questions about how Vietnam will proceed with the much-needed overhaul of its state banks, bogged down in bad debts, mostly owned by money- losing state enterprises.

The IMF says state banks must resolve their large non-performing loan problem to lay a solid foundation for Vietnam's future economic growth. But that will require cutting off the lifeline of state bank credit to unviable state enterprises, and Hanoi has been hesitant about a reform that will result in huge job losses for state company workers. "Quite where the reform process is going to sit right now is a question," said Mr Coulton. "The IMF programme was a good discipline for them."

By Amy Kazmin - The Financial Times - April 13, 2004.


MF halts lending program to Vietnam

HANOI - The International Monetary Fund on Tuesday said it has halted a multi-million dollar lending program to Vietnam after a long-running dispute with the country's central bank over disclosure of its foreign reserves.

In 2001, Vietnam and the IMF agreed to a three-year loan worth $425 million aimed at poverty reduction and economic growth. Between April 2001 and June 2002, the IMF disbursed a total of $182 million in loans. However, the loans have been held up since late 2002 because of an IMF requirement that Vietnam allow independent auditing of the State Bank of Vietnam's foreign reserves.

Vietnam has objected to the requirement, saying the disclosure would violate its current state secrecy laws. The State Bank has said that under Vietnamese laws, it can only allow the government's auditing agency to review its accounts. Efforts to negotiate between the two sides were unsuccessful. Because of the two-year impasse, the lending program expired on Monday with no additional disbursements. In a statement, the IMF said it "will maintain a regular policy dialogue" with Vietnam, and will continue to provide technical assistance and training.

The IMF loans make up only a small part of Vietnam's international aid package from donor nations and organizations, which is more than $2 billion a year. However, the latest move could send a negative signal to the country's foreign donors, who have praised Vietnam in the past for its commitment to economic liberalization.

It could also undercut Vietnam's attempts to join the World Trade Organization next year since the world body's rules require transparency and compliance with international standards. This is the second time the IMF has stopped its lending program in Vietnam because Hanoi had failed to meet the required conditions. The IMF first entered into a lending agreement with Vietnam in November 1994 but withdrew its support in 1996.

The Associated Press - April 13, 2004.