VIETNAM AND THE IMF ENTER A NEW PHASE

UNCLAS HANOI 001016 SIPDIS SENSITIVE STATE FOR E, EB, and EAP STATE PASS USTR FOR EBRYAN STATE ALSO PASS USAID ANE AFERRARA and DMCCLUSKEY TREASURY FOR OASIA USDOC FOR 4431/MAC/IFP/OKSA/HPPHO BANGKOK FOR USAID E.O. 12958: N/A TAGS: EFIN ECON VM SUBJECT: VIETNAM AND THE IMF ENTER A NEW PHASE SENSITIVE BUT UNCLASSIFIED - PLEASE HANDLE ACCORDINGLY. ¶1. (U) IMF Resident Rep confirmed to Econ/C April 13 that the GVN and IMF had agreed to allow their three-year loan arrangement under the Poverty Reduction and Growth Facility (PRGF) to expire on April 12. Agreed in 2001, the loan had made available up to SDR 290 million to support the GVN's development program from 2001-2004. Some SDR 124 million was disbursed to Vietnam between April 2001 and June 2002, she said. The IMF released a press statement --cleared in advance with the GVN -- on this development on April 13. ¶2. (U) The rep went on to say that the IMF had been pleased with Vietnam's growth and poverty reduction achievements over the past decade and the strong economic performance of recent years. However, disbursements under the PGRF had been held up since late 2002 as the IMF sought agreement on measures to enable the GVN to meet IMF general policy regarding audit and accounting arrangements for central banks of borrowing member countries. According to the rep, the measures proposed by the IMF were not compatible with GVN law. Thus, after many months of trying, the two sides had finally agreed to allow the PGRF to expire without additional disbursements. ¶3. (U) Despite the loan's expiration, the IMF remains fully committed to continuing an effective partnership with the GVN to support the implementation of the Comprehensive Poverty Reduction and Growth Strategy. According to the rep, the IMF will continue a regular policy dialogue with the GVN through its resident office in Hanoi and periodic missions as well as provide technical assistance and training. Moreover, the IMF will continue to cooperate closely with the multilateral development banks engaged in Vietnam (e.g. World Bank and ADB) and contribute to the broader policy dialogue between the GVN and the other donors in the Consultative Group process, she said. ¶4. (SBU) Comment: As the rep noted, there was no way to bridge the gap between the IMF's need to audit the books of the State Bank (the central bank) and the GVN's inability to allow this audit. The expiry of the loan provided a convenient exit from the arrangement for both sides. This amicable outcome was better than expected because it allows the IMF to remain fully engaged (at GVN insistence),while removing the major irritant in this key relationship. While we would much prefer that Vietnam remain in compliance with the IMF program, at least the IMF will remain on the scene to offer guidance to the GVN on the macro side of the house. BURGHARDT