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���������ֳ�-London-12 June 2002: ���������ֳ�, the international rating agency, today assigned Long-term foreign and local currency ratings to the Socialist Republic of Vietnam of 'BB-' (BB minus) and 'BB' respectively, with a Positive Outlook in place. The Short-term foreign currency rating is assigned at 'B'. ���������ֳ� recognises significant momentum in Vietnam's economic reform programme as it proceeds along the transition path from a centrally planned to a more market oriented economy and notes that good macroeconomic performance in recent years and modest external debt levels will help the authorities manage a challenging economic restructuring process.

Among such strides made by Vietnam in the past few years, ���������ֳ� notes that trade liberalisation has proceeded at a rapid pace. This has been cemented by the recent US Bilateral Trade Agreement and other commitments setting in train sizeable tariff and quota reductions and further opening of the economy to foreign investment. In addition, measures to encourage private sector activity including the Enterprise Law, have paid dividends in terms of growth and job creation, with 34,000 new business registrations in the last two years investing capital of more than 6% of GDP. These reforms have helped Vietnam maintain a high GDP growth rate - averaging around 7% per annum during the past five years despite external shocks - and secure a 50% increase in GDP per head since 1995. Inflation has also been low, while rapid merchandise export growth - averaging 20% per annum in USD terms since the mid-1990s - has contributed to three consecutive years of current account surpluses of 2% to 3% of GDP.

Vietnam's vulnerability to external shocks also looks relatively low by virtue of a modest external debt burden. Gross external debt (in convertible currencies) is around USD12.5 billion or 38% of GDP, but is mainly on concessional terms from official lenders, a reflection of Vietnam's relatively early stage of economic development. This implies low external debt service, estimated at 7.5% of current external receipts (CXR) in 2002. Net external debt is estimated at 18.5% of CXR, also lower than the average for countries in the 'BB' range. And with low short-term external debt and official foreign exchange reserves of USD3.8bn, external liquidity appears comfortable, although large domestic foreign currency deposits in the banking system are a potential source of external liquidity risk.

���������ֳ� cautions, however, that the domestic economy is in considerably poorer financial health. The banking system in particular remains dominated by state-owned banks with severe asset quality problems and insufficient capital. ���������ֳ� estimates that, thanks to heavy exposure to loss-making state owned enterprises, the non-performing loan ratio for the banking sector as a whole could be up to 50% of total loans. The authorities have well-designed plans to address banking sector problems under the auspices of IMF and World Bank support programmes, but tackling them will require simultaneous restructuring of state-owned enterprises. This is an area where progress to date has been slow. Restructuring will also entail sizeable fiscal costs - perhaps in the region of 10% to 15% of GDP - which will add to a rising general government debt to GDP burden. This is of some concern given other pressures on the public finances - including from declining non-oil tax revenues - and limited capacity for domestic deficit financing Furthermore the political regime will also need to prove adaptable if it is to effectively manage the challenges posed by economic development and liberalisation. Nevertheless, given that Vietnam's banking sector is relatively small and that the state-owned enterprise sector is not a particularly large employer, the restructuring process should be a manageable one, if dealt with expeditiously.

Providing that Vietnam maintains its current reform momentum and macroeconomic performance into the medium term, there are prospects for improvements in sovereign creditworthiness, as reflected in the Positive Outlook.

CONTACT: Brian Coulton, London Tel: +44 (0)20 7417 6284; David Riley, London +44 (0)20 7417 6338; Therese Feng, New York +1 212 908 0230; Peter Tebbutt (Financial Institutions), Singapore +65 6337 5619