On his two-day visit, part of his first Asia tour since taking office last month, Zoellick praised Vietnam for its path from war-shattered command economy to emerging tiger status and its efforts to share wealth equitably.

Vietnam -- a low-income country of 84 million people that saw economic growth of 8.2 percent last year -- has been hailed for cutting poverty from nearly 60 percent in the early 1990s to less than 20 percent now.

Zoellick, a former US trade representative, said Vietnam -- which joined the World Trade Organisation (WTO) this year -- had boomed because of its "ability to leverage the openness of the international trading system."

But he urged more changes as Vietnam seeks to become a middle income country by 2010, with per capita income of 1,000 dollars a year, and move beyond key industrial sectors such as textiles, fisheries and minerals to more value-added goods.

With strong competition in dynamic Asia and the risk of external shocks such as the 1997 Asian crisis, Vietnam needed to diversify and develop "the flexibility to be able to adapt," Zoellick told a media briefing.

In its second phase of development, the World Bank chief said in Hanoi, Vietnam must "build the institutions for the future," which included "improving governance, transparency, rule of law, financial systems."

Vietnam has attracted seven billion dollars in foreign investment so far this year, a new record, but many investors complain of red tape, graft and a lack of legal certainty and transparency in the rules for doing business.

Zoellick said Vietnam needed to boost the private sector because there was still "a great entrepreneurial spirit in this country that hasn't been tapped."

Education also needed to be boosted at all levels, he said, to "improve the skill level so as to be able to compete at a higher value-added level."

Zoellick praised Vietnam's anti-poverty efforts and rural electrification but said challenges remained in fighting HIV/AIDS, extending water and sanitation services and bringing wealth to ethnic minorities.

The World Bank chief said rural regions needed better services and opportunities to stem urban flight, which was putting great stress on major cities, a problem Zoellick said that "we need to do more work on."

"I'm not sure there can be many more scooters on these roads without creating some big problems," he said, referring to Hanoi's motorcycle-choked streets that have among the world's highest densities of traffic.

Zoellick said he was glad to hear Prime Minister Nguyen Tan Dung stress the need for environmentally sustainable development.