Vietnam urged to pick up slack in economic reforms

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Nation slips several notches on world competitiveness index

Joint-Stock Commercial Bank for Foreign Trade of Vietnam, or Vietcombank, employees count dong bank notes in Hanoi. Experts have advised the government to continue reforming the banking sector.

International development partners including the World Bank and the International Monetary Fund have urged the government to remain focused on reforming the economy to break the pattern of recurring instability.

The partners said at a meeting with Prime Minister Nguyen Tan Dung on Tuesday that they will continue to provide technical advice and support to Vietnam in addressing the structural issues, but also require the government's political will and commitment to the reform process.

According to the World Bank, a review of Vietnam's recent economic performance shows that it has faced recurring and increasingly severe macroeconomic instability over the last four years. "Stability has been short-lived as symptoms are being addressed, not the root causes," the bank said.

The Washington-based lender, therefore, called for the long-term implementation of Resolution 11, a group of measures introduced by the government in February to restore economic stability.

Withdrawal of the Resolution may give temporary relief to overleveraged small and medium-sized enterprises, but will likely result in a bigger episode of macroeconomic instability and could eventually lead to a balance of payment and banking crisis, it warned.

Benedict Bingham, IMF Senior Representative, said Vietnam's structural reforms over the last two years have slowed down and it's necessary for the government to send concrete signals that reform momentum will resume, giving hope to investors.

Monetary policy needs to focus on stability while fiscal policy needs to set out a clear consolidation path in the short and medium terms, Bingham said, calling for efforts to restructure both the banking and corporate sectors as well.

More visible progress on state-owned enterprise (SOE) restructuring is needed and there should be no more credit support for highly indebted enterprises, he said.

Tomoyuki Kimura, Country Director of the Asian Development Bank, said the key to successful SOE reform is to infuse SOEs with private sector discipline and competitive market pressures.

The government should not focus on just the number of equitizations but also on quality and efficiency gains. While reforming and monitoring large SOEs, Vietnam also needs to align staff incentives with efficient performances, he said.

Speaking at the meeting, PM Nguyen Tan Dung assured the development partners that the government intends to continue implementation of Resolution 11 and step up reform efforts.

Vietnam has fallen six places to the 65th spot in global economic competitiveness rankings, the World Economic Forum said in an annual report Wednesday.

The country has lost ground in 10 of the 12 "pillars" used to measure the competitiveness index, according to the report. It said only a significant improvement in the macroeconomic environment, which improved 20 places to 65th, limits Vietnam's fall in the rankings.

Among the country's competitive strengths are its fairly efficient labor market, its innovation and a relatively large market size, the World Economic Forum said.

Going forward, Vietnam will have to build on its strengths while addressing the economy's numerous challenges, including infrastructure quality, institutional environment and intellectual property protection, it said.

Last year the country had risen 16 places to 59th in the competitiveness ranking.

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