Vietnam's edge over neighbours threatened by failure to reform HANOI - Vietnam risks losing its competitive advantage over its wealthier neighbours if it does not swiftly adopt the sort of structural reforms they were forced to take after the Asian financial crisis, the region's premier development bank warned Saturday. Currency devaluations and other reforms adopted in the past two years have made other Southeast Asian countries more attractive to foreign investors, putting a heavy onus on Hanoi to respond in kind, the Asian Development Bank said after a two-week mission here. "The concern for Vietnam is that it has become less competitive compared with its neighbours than it was a few years ago, not because it hasn't grown but because other countries reformed much more," said the ADB's Pricipal Country Officer for Vietnam, Alessandro Pio. While acknowledging that good macro-economic management by the government had kept Vietnam's key economic indicators stable, Pio outlined five major concerns about the future after his fortnight of talks with top officials, businessmen and donors. A sharp fall in foreign investment in recent years not only threatened future economic growth but also showed reduced private sector confidence in Vietnam's economy, Pio said. A decline in the ratio of fiscal revenues to GDP also suggested a rising level of tax evasion which raised long-term concerns about the sustainability of public spending. Pio said the ADB was worried about the government's failure to take more practical steps to address the huge exposure of the banking system to state sector debt despite some legal and regulatory reforms. "We have to say that the visible action taken by the government up to this point has not been very strong ... We would hope to see some concrete action before the end of the year," he said. The ADB official also urged the government to do more to open up the economy to the discipline of world markets despite an understandable anxiety to avoid external shocks. He noted that Vietnam registered a balance of payments surplus in 1999 for the first time in several years, but expressed concern that this achievement stemmed as much from limiting import growth to two percent as from a 23 percent boost in exports. "This can only be done for so many years without the constraints on imports becoming binding on the growth of the economy," he warned. Pio also expressed concern about the efficiency with which Vietnam had used the large sums in aid pledged by foreign donors over the past six years. He said that between 1993 and 1999 Vietnam had received pledges of around 15 billion dollars in development assistance, 1.8 billion of it from the ADB. But in practice just 30 percent of the development assistance the ADB had allocated to Vietnam was actually used. In 1999 just 16 percent of the loans earmarked by the bank were taken up within the year. Pio called on the government to streamline its system for disbursement by delegating more decisions to lower-level officials to avoid projects being deferred. He said the ADB had agreed a lending programme of 1,045 billion dollars for the years 2001-3, most of it concessionary loans from the Asian Development Fund, as well as a technical assistance programme averaging 10 million dollars a year. Up to a third of the lending programme would be focussed on Vietnam's flood-prone north-central coast and the central highlands -- two of the poorest areas of the country -- as part of the new policy the ADB adopted last year to focus on poverty reduction. Pio praised the government's own achievements in poverty reduction noting that poverty levels in Vietnam had fallen from 58 to 37 percent between 1993 and 1998 according to a measure of absolute poverty adopted by a lenders' conference last December. AFP - April 15, 2000.