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More work needed to heal ailing economy, says IMF official
Denying rumors that Vietnam is seeking an IMF loan, an assistant director at the global body says the country needs to transform broad strategy into concrete policy.
Measures by Vietnam officials to control inflation and a widening trade imbalance may need a boost to improve market confidence, a senior International Monetary Fund (IMF) official said this week.
Shogo Ishii, assistant director at the IMF’s Asia and Pacific Department, denied market reports that Vietnam was seeking an IMF loan program to avoid an economic crisis.
“I can confirm that the authorities have not indicated any interest in a future fund program,” Ishii said in an interview.
“We have never even discussed one.”
The IMF and member governments are sensitive to such speculation because it can be seen as a sign of economic trouble and may send investors scurrying for a safe haven.
Vietnam’s stock market has fallen nearly 50 percent this year and its dong currency and economy are under pressure from inflation, which hit 26.8 percent in June due to rising food prices.
The central bank said the dollar/dong exchange rate was more stable after it doubled the daily trading band last week in the face of mounting selling pressure on the currency.
Vietnam’s trade deficit, which is raising pressure on the dong, nearly tripled for the six months through June to US$14.78 billion.
Faced with an overheating economy, the government cut its 2008 growth target to 7 percent from 8.5 to 9 percent.
“We have been intensively discussing the economic assessment and policy accommodations, particularly about Vietnam’s near-term challenges and what measures are needed,” Ishii said.
“We think they need to do more,” he added.
Vietnamese authorities said they planned to follow a number of measures to cool rapid credit growth and bring inflation under control by tightening monetary policy as well as cutting expenditures and public investments, particularly in state-owned enterprises.
Ishii said it was important that the authorities translate this broad strategy into a concrete and convincing policy package and communicate it clearly to markets and investors in a timely fashion.
Over the past several weeks, the IMF has warned Vietnam that the country’s lack of timely economic and financial data has contributed significantly to investor sentiment volatility since last year and more transparency would help calm speculation and encourage a more rational debate.
The IMF has recommended several areas in which the government should act, including raising interest rates.
While the central bank has hiked the base rate three times this year, the IMF believes it needs to go further to provide better returns and bring credit growth and inflation under control.
The IMF has also called for clear signals that spending and borrowing by state-owned enterprises is being reined in and their operations are limited to core business areas.
In addition, the fund has urged a revision in the 2008 fiscal plan, including a sharply lower deficit than in 2007, and pressed Vietnam to introduce more currency flexibility.
With export growth in Vietnam still robust, there are few signs that demand for the country’s goods is slowing, which economists say weakens arguments for a significant decline in the currency.
Still, if inflation continues moving higher with second-round effects and Vietnam begins losing competitiveness, then a steeper depreciation may be necessary, they add.
Thanhnien
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