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10 June 2009

Global lender calls on Vietnam to tighten monetary policy

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Vietnam should tighten monetary policy to rein in credit growth and support the dong currency, the International Monetary Fund was quoted by Reuters as saying Tuesday.

The IMF also said Vietnam should revise its 2009 fiscal plan to curtail government financing needs and keep a close eye on banks to ensure that they are properly assessing and reporting credit risks on their loans.

In a mid-year report to a donors meeting, the IMF said substantial easing of monetary policy since late last year, combined with plans for significant fiscal stimulus, "could put the external position under pressure, and possibly jeopardise the stabilisation gains achieved in the latter part of 2008."

It said Vietnam was weathering the global financial crisis relatively well but would need to adjust policies to keep the economy on an even keel.

The IMF advised monetary operations to "rein in dong liquidity and through an accelerated phasing out of the current interest rate subsidy schemes."

In addition, the IMF said an adjustment in policy rates may be needed if credit expansion continues to accelerate.

"In this context, we would urge the State Bank of Vietnam to lift the cap on lending rates, which is hindering bank operations, as soon as possible," the IMF said.

It said Vietnam's current stimulus plan could potentially raise the government's financing requirement to 12.5 percent of GDP in 2009, which would be difficult to fund without adding pressure on the balance of payments.

The IMF recommended the government's financing requirement, including drawdown of deposits, be limited to 8.5 percent of GDP.




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