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IMF Sees Strong Vietnamese Economy In 2005

January 5, 2005 5:30 p.m.

WASHINGTON -- Vietnam's economy should expand at a healthy pace this year, as long as the government continues market reforms and keeps inflation under control, the International Monetary Fund said Wednesday.

"Vietnam's economic growth is projected to remain strong in 2005 and beyond, with real GDP growing at about 7% per year," the IMF said in a press summary of its annual review of Vietnam's economy.

The economic outlook remains favorable, "provided the authorities can contain second-round inflationary effects from the recent supply-side price shocks," the IMF said. Inflation rose to 10% in September 2004 from 3% year over year at the end of 2003, reflecting a jump in food prices.

Vietnam's central bank has recently taken a number of measures to control credit growth and contain prices, including curbs on lending by state-owned banks and cutting tariffs on petroleum and steel products. The IMF said the central bank may have to raise interest rates to bring down inflation.

The IMF said rapid credit growth is also a concern, given poor loan quality and weak balance sheets in the banking system.

"Maintaining rapid credit growth to meet the government's short-term growth target could lead to mounting quasi-fiscal liabilities, which could threaten fiscal sustainability and long-term growth," the IMF said.

Vietnam should speed up reforms of state-owned banks, the IMF added.

The government faces rising costs of restructuring state-owned banks and companies, stagnating oil revenues and costs associated with trade liberalization. The IMF urged Vietnam to look for ways to keep up tax revenues as a share of the economy.

The IMF praised Vietnam's efforts to join the World Trade Organization as quickly as possible.

-By Elizabeth Price, Dow Jones Newswires; 202-862-9295; Elizabeth.Price@dowjones.com