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Old September 18th, 2009, 11:13 PM
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Default ADB gives Vietnam $500 mln loan to support economy

The Asian Development Bank (ADB) on Tuesday approved a US$500 million short-term loan to Vietnam to bolster the economy and create jobs as the Southeast Asian country is buffeted by the global downturn.

The five-year loan from the ADB's Countercyclical Support Facility (CSF) will provide budgetary support for Vietnam for public expenditure programs this year and next, it said in a statement.

Vietnam has unveiled a raft of economic stimulus measures since late last year that the government says will cost $8 billion, but there have been questions over how it will finance the projects. The government has sold very little debt this year, with market yield bids consistently higher than its ceiling.

A particular worry for the ADB was the effect of weaker job creation on Vietnam's relatively young population, said Jaseem Ahmed, Director of the ADB's Financial Sector, Public Management and Trade Division for Southeast Asia.

“The need for the stimulus in Vietnam is very urgent because of the shortfall in employment generation,” he told Reuters.

Without the stimulus measures, gross domestic product (GDP) growth could fall to as low as 2 percent this year, whereas with the measures it should be about 4.7 percent, Ahmed said.

Anything under 5 percent “could lead to higher unemployment and under-employment among the young labor force”, the ADB statement said.

Even if the economy grows 3-5 percent, the country may only create 300,000-700,000 additional jobs each year during 2009-2010, the ADB said.

About 1.7 million young people enter the labor force annually. In the loan proposal, the ADB said the stimulus measures would push the country's budget deficit to 10.3 percent of GDP, but the government's debt position was expected to be sustainable despite the increased deficit.

The overall budget deficit was 4.1 percent of GDP last year.

The loan proposal also said Vietnam's gross international reserves declined to $17.6 billion at the end of June 2009, equivalent to about 3.7 months of import cover, from $23.0 billion at the end of December 2008.

Ahmed said he did not have an updated figure, but said “we think that they have probably stabilized”.

Vietnam remained at low risk of external debt distress despite the deterioration in economic conditions and the global downturn, “reflecting Vietnam's mostly concessional and long-term structure of external debt. The outlook for public debt is less favorable”, it said.

At 44.4 percent of GDP, Vietnam's public debt was “moderately high” for a developing country and “underscores the need for medium-term fiscal consolidation”.

External balances were vulnerable to “modest shocks”, it said.

Source: Reuters
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