There will also be a more flexible exchange rate mechanism for the dong, which is allowed to trade within a narrow band against the US dollar, Mr Dung said in a televised National Assembly address.

Vietnam has scaled down its annual economic growth forecast to around 6.5 per cent for this year and next, from 8.5 per cent last year, as it battles economic problems including double-digit inflation and a large trade gap.

'Interest rates remain high and lending has slowed down, so businesses and producers have faced difficulties,' Mr Dung said. 'Inflation and the global downturn have clearly had a negative impact on our economy in late 2008.'

The premier said that in 2009 'we will continue to reduce interest rates' after the central bank this month cut the benchmark rate to 12 per cent, the second drop in two weeks, in order to stimulate the economy.

But Mr Dung said the government would also keep a close eye on inflation, which has caused public anger and driven labour unrest this year, and would tighten monetary policy if necessary to control it.

The consumer price index fell to 26.7 per cent in Oct against the same month last year, from 27.9 per cent in Sep, as global energy and commodity prices have dropped off.

'We will closely follow upheavals in domestic consumer prices and developments and movements in international markets, to respond appropriately and not allow inflation to increase again,' Mr Dung said.

He also promised more flexible forex management after the central bank last week widened the dong's trading band, effectively allowing the currency to fall against the greenback to make Vietnamese exports cheaper.

'We will manage the foreign exchange rate more flexibly to more efficiently react to turbulence in capital flows, to support exports, to contain the trade deficit, to maintain the stability of the balance of payments, and to maintain the necessary foreign currency reserves,' Mr Dung said.

The assembly heard this week that the State Bank of Vietnam has foreign currency reserves of US$22 billion (S$33.27 billion).

Mr Dung also pledged to step up 'monitoring of banks and financial services and real estate trading,' after rampant credit growth and skyrocketing property prices contributed to Vietnam's economy overheating this year.

'In 2009, we have to continue to contain inflation, prevent a recession and maintain sustainable growth, while fiscal policies must more efficiently support monetary policies,' said Mr Dung.

Next year 'the government will continue to suspend projects that are not truly necessary, or inefficient ... and closely control the investments of state-owned enterprises,' the premier added.

The assembly last week approved a 2009 government budget projecting spending of 491.3 trillion dong, which would allow for a budget deficit worth 4.82 per cent of gross domestic product, state media reported. -- AFP