Nov 16, 2012

Vietnam - Long road ahead for bank reforms

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VietNamNet Bridge – Viet Nam had stabilised its economic conditions, but the process of banking reform remains ahead, said Aninda Mitra, head of Southeast Asia Economics at ANZ Bank, at a conference in Ha Noi yesterday, Nov 13.

"The shift to a viable banking system will take time and continue to stress growth prospects," he said, noting that the domestic situation was affected by global growth, which remained highly uncertain.

"Europe will continue to deleverage and this will limit global growth recovery in this year; and as what happens in China affects all of Asia, China's rebalancing will be particularly important," he said.

Aninda said local economic activities including industrial production, construction and vehicle import and sales remained weak, and slowing credit growth continued to be a significant hindrance.

Lower rates of inflation and trade imbalance were lowering pressure on the domestic currency, but increasing healthcare costs were impacting the already controlled inflation.

According to ANZ research, Viet Nam was expected to reach an inflation rate of 8 per cent this year, the highest level compared with that of five other ASEAN nations studied, including Indonesia, Malaysia, Philippines, Singapore and Thailand.

The country's gross domestic product (GDP) was estimated to grow 5.2 per cent, while the current account and State budget balance were forecast to witness deficits of 1.5 per cent and 5 per cent, respectively.

Central Institute for Economic Management deputy director Vo Tri Thanh said that despite decelerated inflation, declining trade deficit, improving payment balance and increasing foreign reserves, there were risks of high inflation returns, sizeable budget deficits, increasing bad debts and undermined confidence in stability.

He noted that the country's ability to sustain and recover growth in the face of local and global shocks was much weaker than that of many East Asian economies.

Aninda said banking restructuring and Government debt management would be important goals for Viet Nam.

"Bad debt solution programmes are being discussed at the highest levels and will be announced within the next few days; I hope they will begin to be implemented at the end of the next quarter and help improve confidence in production and business activities and the financial market," said Thanh.

He said the next three years would see many "turning points" for domestic economic development, where the nation would have to take strong actions addressing currency policies, institutional reforms and integration.

"Businesses should learn to adapt to a world wit h high uncertainties," he said.

Aninda said the country had also seen significant positive developments. Foreign direct investment (FDI) was relatively high compared with that in nearby countries, and exports were undergoing a structural change as FDI shifted towards more high-tech areas.


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