ADB warns against stop-start policy

In its Asian Development Outlook 2012 (ADO), launched on October 3, the Asian Development Bank (ADB) lowered Vietnam’s growth forecast to 5.1 percent for 2012 and 5.7 percent for 2013, in light of the weakness in external markets and domestic credit. Inflation is projected at about 7 percent by end of 2012.

That would put the year-average rate at 9.1 percent, lower than previously projected because of sharp decline in food prices and weaker-than-anticipated domestic demand. By the end of 2013, inflation is forecast to quicken to 9.4 percent because of increases in global food prices and pickup in domestic demand, while fiscal policy is likely to be relaxed.

The pace of economic growth will likely be influenced by progress in addressing financial sector vulnerabilities. Cycles of rapid credit expansion followed by policy tightening and downturns in economic growth, together with property weakening, have put the banking sector under increasing stress, ADB said.

Uncertainties about the size of nonperforming loans and the risk profile of some bank balance sheets, particularly those with exposure to unprofitable and overstretched state-owned enterprises, raises questions about their capital adequacy. The growth outlook centers on these finance sector risks that could intensify until the nonperforming loan problem is addressed decisively. The report stresses increased transparency needs to be at the heart of the reform process.

“The historic tendency for stop-start policy should be avoided. The focus needs to remain on structural reforms” said Tomoyuki Kimura, ADB Country Director for Vietnam. “A government commitment to a credible reform roadmap with time-bound actions should revive lending and improve market confidence.”

ADB also show its supports to the Government approved reform plans for the finance and state-owned enterprise sectors and acknowledges important steps taken to date such as the merger of several weak banks. It is however not clear how and when further proposed actions under these two plans will be implemented.

By B. Minh - Translated by Uyen Phuong

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