Donors urge Vietnam to speed up reforms

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Vietnam needs to accelerate its economic reform process as it grapples with high inflation and other problems, international donors say.

The country, which earlier this year refocused its attention away from growth to stabilizing the economy, is battling Asia's highest inflation rate of around 20 percent and urgently needs to push through economic reforms, donors said.

"It would be much easier for Vietnam to pursue its restructuring agenda now than have to restructure after it's hit by a crisis," said Victoria Kwakwa, World Bank country director for Vietnam, at the donors' meeting in Hanoi on Tuesday.

Since February, policymakers have been trying to stabilize an economy beset by multiple challenges including dwindling foreign reserves, a yawning trade deficit, downward pressure on the dong and runaway inflation.

The country needs to proceed with reform of the banking sector, privatize state-owned enterprises, simplify administrative procedures and do more to fight corruption, donors said at the meeting.

Together the donors pledged almost US$7.4 billion in development aid for Vietnam for 2012, against the $7.9 billion they promised for 2011, Minister of Planning and Investment Bui Quang Vinh said at the end.

He described it as a "very positive" outcome given the difficulties facing some of Vietnam's top donors, which include Japan hit by a massive earthquake and tsunami in March and the EU, which is mired in a debt crisis.

"˜Under control'

Vietnam has inflation under control and expects the pace of price increases in the country to slow to about 9 percent next year as it continues to implement Resolution 11, Prime Minister Nguyen Tan Dung said Tuesday.

Resolution 11, approved in February, aims to tighten fiscal and monetary policies.

Economic growth next year is targeted at about 6 percent, while the trade deficit in 2012 is estimated at 10 to 12 percent of exports, he said.

Vietnam's trade deficit may amount to $10 billion in 2011, the government said in its report for Tuesday's meeting.

The economy, a production hub for companies from Intel Corp. to Honda Motor Co., may expand by 5 percent or less next year, estimates from UK-based Capital Economics Ltd. show. That would be the slowest pace since 1999.

According to the International Monetary Fund and the World Bank, Vietnam may undermine progress toward economic stability if it loosens its monetary policy now.

"The authorities need to move rapidly and decisively to ensure financial sector soundness while re-establishing macroeconomic stability," Sanjay Kalra, the IMF's resident representative in Vietnam, said in comments prepared for the meeting. "Failure to do so, or even loosening policies now, would jeopardize the gains already made."

The World Bank said in a report after the meeting that development partners have congratulated the government for its impressive record of poverty reduction over the last 15 years, during which about 28 million people are estimated to have been lifted out of poverty.

However, they raised concerns that the pace of poverty reduction is slowing down, calling for a multi-dimensional approach to addressing the remaining pockets of poverty.

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