Vietnam loses IMF funding after dispute

The non-disbursement follows a prolonged dispute between the IMF and the government over the accounting and auditing arrangement for the central bank.
The disagreement means that Vietnam will not be able to receive further lending from the IMF until the government can meet criteria set by the fund, according to an IMF official.
“The lending window is always available to Vietnam should it require further lending resources although at present Vietnam does not appear to need or desire these resources,” Susan Adams, IMF’s senior resident representative in Vietnam told Vietnam Investment Review.
“However the government would first need to address the IMF safeguard recommendations before the IMF board could give its approval for further loans.”
In April 2001, the IMF signed a loan arrangement of total SDR290 million ($426 million) with the Vietnamese government to support the country’s development programme during 2001-2004.
It was agreed the loan would be disbursed in seven equal tranches over three years before it expired in April 2004. However, there were only three tranches of $182 million disbursed between April 2001 and June 2002.
The disbursement was held up in late 2002 when the IMF, following an on-site safeguard assessment at the State Bank, found there remained a number of significant weaknesses in the country’s banking sector including the external audit mechanism, the financial reporting framework and internal controls.
It then requested that the 2003 audit of the State Bank be conducted by an international auditing firm and that the central bank’s net international reserve be made available for review by the fund’s staff.
The Vietnamese authorities, however, argued that the conditions set by the IMF were unacceptable because the intervention of an international audit firm would contradict Vietnamese law. Under the law only a state-controlled auditor is entitled to audit the national bank, and the net international reserve’s review would violate the state secrecy law.
“We regretted the non-disbursed amount, but we have no choice because [the IMF requirements] are incompatible with the legal framework in Vietnam,” confirmed Le Minh Hung, deputy director of the

central bank’s international cooperation department.
The IMF played down the rumour that Vietnam had been singled out for special treatment.
“Vietnam is not being treated in any special or more harsh manner than our other borrowing member countries. In each country, a safeguards assessment is done with respect to the central bank reserves and accounting framework,” Adams said.
“Some countries already meet certain standards of transparency. Vietnam does not, and therefore the recommendations from the IMF would enable greater transparency in accounting and audit arrangements,” she said.
The IMF announced last week that it would continue its effective partnership with the Government of Vietnam to support the implementation of its Comprehensive Poverty Reduction and Growth Strategy (CPRGS).
The IMF will maintain a regular policy dialogue with the government in areas of core fund expertise, including tax policy and administration, budget management, monetary and financial sector policy, and macroeconomic statistics, and will seek to build capacity through training activities in Vietnam and abroad.
The State Bank, in a diplomatic reply, reiterated that the temporary discontinuation of the IMF’s loan packages would not affect the bilateral relations and said that it would continue to cooperate closely with the fund through broader dialogues.