April 6, 2001
Over the past ten years, Vietnam has achieved significant progress in economic development through the implementation of various economic reforms mainly in the areas of banking, state-owned enterprises and trade with support from the international community. Indeed, the economic progress has contributed to improving social conditions in Vietnam, with a significant decline in the level of poverty. However, much more remains to be done to further reduce poverty and Vietnam hopes that it can continue to count on the international community and bilateral partners for their support. The authorities believe that strong and sustained economic growth is a prerequisite for the country to meet its objectives of reducing poverty and improving the living standards of the people of Vietnam. In this context, we would like to express our gratitude to the management and staff of the Fund for their close cooperation with the Government of Vietnam to establish a three-year medium-term economic program (2001–03) to be supported by the Poverty Reduction and Growth Facility.
2. Economic Development in the Year 2000
Last year, Vietnam continued the course of comprehensive reform, pursued sound macroeconomic policies, and gradually regained the momentum of growth. This development was of paramount importance given the fact that the world was entering a new millennium with both opportunities and challenges of globalization. Vietnam’s GDP growth reached 6.7 percent, which exceeded the target set out by the National Assembly of Vietnam and remarkably higher than that of 1999. The declining trend of economic growth, which started in 1996 and deepened in the following years, had been curbed. Gross official reserves leveled off to USD 3 billion at end 2000. Despite rapidly rising consumption, the non-food inflation rate was 2 percent in December 2000 (12-month basis). In the context of the overall growth of the economy, agriculture output grew quite rapidly despite the losses caused by natural calamities. Exports increased quickly, reaching USD 180 per capita, or more than 3 times higher than the pace of GDP growth and exceeding the threshold for less developed country status in terms of foreign trade. Many successes were accomplished in poverty reduction. All economic sectors contributed to the economic growth, with the private sector developing remarkably well since the Law on Enterprises came into effect. The flourishing economy had generated more investment resources for Vietnam. Although foreign investment declined, gross national investment in 2000 increased by nearly 20 percent compared with that of the previous year, thanks to the enhancement of internal resources. Prices were stable while the exchange rate was allowed to respond to market forces. Budget revenue was higher than anticipated, thus keeping the deficit within the acceptable limit. The balance of payments improved and this contributed to the increase in official reserves. The signing of the Bilateral Trade Agreement with the US and the ongoing negotiations to join the WTO reflected Vietnam’s increased efforts to accelerate reforms to open its economy and actively integrate it into the global economy with an appropriate roadmap. The Government of Vietnam is doing its best to overcome the current difficulties in order to create the prerequisites for faster and more sustainable economic growth in the early years of the new century.
3. Long-term Development Vision
In its long-term economic development strategy, to help the country achieve industrial status with rapid, effective and sustainable development, Vietnam will speed up the process of industrialization and modernization by fully deploying all its internal resources as well as external support and by actively integrating itself into the international economy. The overall target of this strategy is to lift the country out of its underdevelopment status, significantly improve the living standards of its population, reach an annual economic growth rate of 7.5 percent and double its GDP from current levels by 2010. The basic thrust of Vietnam’s economic strategy is to become an advanced economy by the year 2020, gradually enhancing its position in the international community. As part of this long-term strategy, Vietnam will consistently pursue its multi-sector economic development policy. All sectors of the economy that operate under the country’s legal framework are important components of the socialist-oriented market economy and will be allowed, in the long run, to develop and to cooperate and compete with each other. The private sector will be encouraged to develop in all the fields as permitted by law. Vietnam will continue to refine its macroeconomic management instruments, making the improvement in economic as well as social sector development strategies. Transparency and equality in the State budget expenditures will be ensured. The tax system will be continually improved, consistent with the country’s situation and with its international commitments. Appropriate measures will be taken to reform the state-owned commercial bank (SOCB) system to develop reputable and competitive monetary businesses. The administrative intervention of the governmental agencies into lending decisions of the SOCBs will be removed. In general, Vietnam’s macroeconomic policies that aim at speeding up reforms, developing open and competitive markets and improving access to international markets, will help promote and maintain sustainable growth.
4. The 2001–2003 Medium-term Economic Development Program
In this context, the Government of Vietnam has adopted a medium-term economic reform program for the 2001–2003 period, in which the objective of restoring growth closer to its potential in a low inflation environment is set as a key target of the poverty reduction strategy. To this end, Vietnam will pursue sound macroeconomic policies, give priority to key structural areas, namely banking and state-owned enterprise (SOEs) reforms, and trade liberalization measures. As regard to banking reform, the authorities aim to restore the soundness to the whole system and improve the efficiency of financial intermediation. Vietnam has adopted an overall reform plan designed to maintain the stability for the banking industry, consistent with the program’s medium-term macroeconomic framework that focuses on strong efforts to stem the flow of bad loans, phase out policy lending, and conduct banking operations on a commercial basis. With regards to SOE reforms, Vietnam has adopted a three-year reform plan for the 2001–2003 period, which aims at curbing SOE losses and improving the efficiency and competitiveness of the enterprise sector. As a necessary adjunct to SOCBs reform, Vietnam aims to reinforce this program over time by including additional nonviable loss-making SOEs for closure/liquidation, and highly leveraged, larger SOEs in the list of enterprises subject to reform. In trade reform, Vietnam’s policy is being charted on the basis of commitments under the ASEAN Free Trade Area (AFTA) and the recently concluded bilateral trade agreement with the United States. This includes the adoption and publication of a long-term import-export regime for 2001–2005, and a timetable for the phased removal, on a multilateral basis, of quantitative restrictions (QRs) that will be replaced by tariffs. Trading rights for domestic firms have been fully liberalized. To bring into full play their ownership, relevant Vietnamese authorities started the drafting of the Interim Poverty Reduction Strategy Paper (I-PRSP) in April 2000 with assistance of the World Bank and IMF and have benefited from a wide range of consultations with concerned ministries, agencies, representatives of the donor community, and other participating organizations.
The authorities firmly believe that with the considerable efforts of the Government and the people of Vietnam coupled with the support and assistance from the international community, Vietnam will be able to overcome the various difficulties and fully employ its internal resources as well as make the best use of external assistance to ensure political and socio-economic stability which will be necessary for sustainable long-term economic development. Vietnam highly appreciates the multi-faceted support and assistance provided by the international financial community, including the IMF.
Finally, I would like to reaffirm the Vietnamese authorities’ strong commitment to adhere to the reform program. The program envisaged in the I-PRSP is indeed important to fight poverty and raise the living standards of the Vietnamese people. In this connection, the authorities will greatly appreciate support from Executive Directors for Vietnam’s request for a three-year arrangement under the PRGF which will give a much needed boost to the authorities’ efforts to achieve the country’s objectives.