Vietnam Growth Requires Reform, National Assembly’s Ngan Says

Vietnam’s government will need to accelerate economic structural reforms to boost growth that was at a 13-year low last year, National Assembly Vice Chairwoman Nguyen Thi Kim Ngan said.

“The economy will continue to face difficulties this year” amid an international slowdown and domestic challenges, Ngan said yesterday at a conference held by the National Assembly’s economic committee in the southern city of Nha Trang.

Vietnam’s government is trying to revive expansion that last year was the least since 1999, after rising levels of bad debt crimped lending. Prime Minister Nguyen Tan Dung has approved a master plan to revamp the economy and last month set up a steering committee to restructure banks by 2015, even as the market is “skeptical” about a quick resolution, said Alain Cany, co-chairman of the Vietnam Business Forum Consortium.

The economic slowdown may “not change much” this year, Victoria Kwakwa, the World Bank’s Vietnam country director, said in an interview in Nha Trang yesterday. The government in particular needs to focus on resolving non-performing loans, she said. “It will help restart the process of banks beginning to have the confidence to start lending again in a more prudent way,” Kwakwa said.

The State Bank of Vietnam last month cut interest rates after inflation slowed in March, the seventh policy easing since the start of 2012 as the monetary authority struggles to spur lending. Gross domestic product expanded 4.89 percent in the first three months of the year from the same period a year earlier, government data showed.

Bad Loans

Establishing a debt asset management company as part of the plan to restructure banks will be delayed until at least the end of April, Vu Duc Dam, chairman of the Government Office, said on March 29. The government had planned to set up the management company in March, according to Le Xuan Nghia, a member of the National Financial and Monetary Policy Advisory Council.

Vietnam needs to “urgently put in place a non-performing loan resolution mechanism” and strengthen risk management and corporate governance systems, Deepak Mishra, the World Bank’s lead economist in Hanoi, said April 5 at the Nha Trang conference. Vietnam’s economic challenges “can’t be fixed by repeatedly easing monetary and fiscal policies,” he said.

The bad-debt ratio dropped to 6 percent of outstanding loans as of Feb. 28, from “about 8 percent” last year, Dam said earlier. Bank lending contracted in the first two months after growing 9 percent last year, which was the slowest pace in at least two decades. The monetary authority will promote credit flows to spur economic growth, it said on April 4, reiterating its target of 12 percent credit growth this year.

Restructuring

“The government needs to improve its current master plan to restructure state companies and overhaul the banking system, otherwise it will not work effectively as it lacks clear action plans,” Truong Dinh Tuyen, a member of the National Financial Monetary Policy Advisory Council, said yesterday after the conference. “Government plan for restructuring state companies needs to impose market standards with a specific time frame for companies on issues including information disclosure,” he said. “The bank restructuring plan needs to be more specific with clearer goals and timelines.”

Vietnam’s economy grew 5.03 percent last year, the slowest pace since 1999, and the World Bank predicts expansion of 5.5 percent this year. That would mark the first time in at least two decades that the nation expands less than 6 percent for three straight years.

The benchmark VN index has gained more than 20 percent this year as easing in some advanced economies spur inflows into emerging markets. The dong traded at 20,925 per dollar.

To contact Bloomberg News staff for this story: Nguyen Dieu Tu Uyen in Hanoi at uyen1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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