The Official Development Aid (ODA) in the context of Vietnam becoming middle-income country (MIC)

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The Official Development Assistance (ODA) in the thesis includes the grant aid, concessional loans, the less concessional loans from the governments and international financial institutions.

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Nội dung Text: The Official Development Aid (ODA) in the context of Vietnam becoming middle-income country (MIC)

1 2 INTRODUCTION Congress’s forum and national citizens are concerned about the safety of the public debt, specially the high proportion of ODA debt. The total foreign debts 1. The necessary of the study of Vietnam by 31 December 2013, was more than $US 36 billion and After 30 years of the Renovation, Vietnam has made great achievements accounted by 37,3% GDP2. in economic development and social progress. Besides its efforts, Vietnam has In order to realize the Government's guidelines on ODA funds and to enlisted the support of international community to promote internal strength maintain the needs of deverloping investments as well as to ensure national along with taking the advantage of all opportunities and overcoming the public debt sustainability in the context of Vietnam becoming MIC, it needs to national difficulties as well as negative impacts of the global economic crisis be changed not only the macro vision and strategy but also the solutions in in order to maintain stability the macroeconomic as well as ensure social management and utilization ODA effectively in all levels. These are the new security. In the period 1993-2015, with approximately $US 85 billion of the challenges posed to those working in economic research, policy makers and committed capital, $US 72 billion of the signed capital and $US 53 billion of those who implement practices in mobilizing and utilizing ODA in Vietnam. the disbursed capital, Official Development Assistance (ODA) has become a However, so far, no in-depth studies mentioned about this urgent issue above. significant source of additional capital with many comparative advantages. That’s why this thesis named “The Official Development Aid (ODA) in the Compared to commercial loans on international capital markets, the financial context of Vietnam becoming middle-income country (MIC)” has conditions of ODA brings more preferential treatments. Hence, Vietnam can contributed to resolve part of the requirements which set out for the use of implement a huge of programs and projects of social infrastructure in the areas these funds in the new stage of the development of country. of health, education, poverty reduction, as well as institutional development 2. Research questions and human capacity building. The thesis identified four (04) following research questions: In 2010, the average of Gross Domestic Product (GDP) per capita of What social and economic achievements does ODA contribute to when Vietnam was $1.168/person1 - higher than the starting level of middle-income Vietnam has become the MIC? countries (as classified by the World Bank). Consistent with the practice of international development assistance, the donors apply the different policies to What is the nature, the characteristics, the conditions and the support the low-income least developed countries group and the middle- methodolities of providing ODA when Vietnam became a MIC? income countries group. Becoming a middle-income country has made all the Which factors affect to ODA in Vietnam when becoming the MIC? aid policies for Vietnam change. It means the nature, the scope, the structure, What are the recommendations for improving the policy framework for the conditions and the method of providing ODA for Vietnam will be different ODA in Vietnam when switching to MIC? from the last period of Vietnam. With the aim of maximizing the effectiveness 3. Research objectives of these funds, serving the economic and social development, this apprently This study has the following targets: leads the needs of the new policy and insitution for ODA in Vietnam. Assessing the impact of ODA to the economic and social areas of In fact, there was still some limitations and weaknesses in mobilizing and Vietnam in general and in the new conditions; utilizing ODA in recent years presenting in low disbursement ratio has affected the investment performance of some programs and projects. The 1 Reports of the 10th Party Central Committee, Jan 2011 2 No.3 Newsletter of Public Debt, Ministry of Finance, 2014 2
3 4 Identifying the factors that influenced to ODA in the context of Firsly, to contribute to knowledge about development aid in developing Vietnam that became a MIC; countries based on the experience of Vietnam, including: Proposing the policy recommendations for ODA in Vietnam as a The thesis describes that the new features in the mobilization and member of MIC; utilization of ODA, in terms of middle-income countries MIC, are moving Contributing to some aspects of ODA when Vietnam is a MIC through from “aid” relationship to become “development partners” relationshio. It a review of experiences and practices in Vietnam in order to get various, new requires proactive efforts of Vietnam in order to use effectively and then and updated approaches from the concept, characteristics, trends and academic will “deny” ODA in the future. perspectives. The thesis has constructed the concept of the Official Development 4. Research Object and Scope Assistance in middle-income conditions MIC in Vietnam, including the 4.1. Research obect grant ODA, concessional loans and less-concessional loans (preference than commercial loans). The Official Development Assistance (ODA) in the thesis includes the grant aid, concessional loans, the less concessional loans from the The thesis has identified the rule of ODA along with the development governments and international financial institutions. of a country, specificially Vietnam. From there, the thesis develop a roadmap for ODA in Vietnam in parallel with the development process in 4.2. Research scope the middle-income countries. At the same time, the thesis also provides the Since the target set out in, the thesis focuses on the 1993-2015 period analysis of: the middle-income country with a “graduation” schedule for of ODA, analysing of the emerging issues in the period 2010-2015 (the ODA, should set up the own strategy for supplying ODA as a “diplomatic period when Vietnam began to become middle-income country MIC). The tool” and extend cooperation relationship in economic, trade and investment ODA metioned in the thesis has analysised in general, do not go into a in- with other the least-developed low income countries. depth way. The thesis has identified the properties of the new factors affecting In terms of space, the thesis has been researched in the territory of the ODA in Vietnam with the context of MIC (the economic - political Vietnam; the lessons of international experiences are analyzed based on the relation as well as the relation of strategic partners and the ownership). The reports and available data sources from the regional and international thesis has been interpreted two factor groups affected ODA in Vietnam: (1) contries having context, economic and social conditions similar to Vietnam. factors derived from aid provider (aid strategies and policies of donors, the Thus, there can be detected some general aspects which identify ODA in a economy and the political situations as well as the fluctuations that may good way for MIC. occur in the donor countries, the international atmosphere and the 5. New contributions of the thesis development of economic-politic relations, between the donors and aid The thesis “The Official Development Aid (ODA) in the context of recipients); (2) the internal factor from Vietnam (the economic- political Vietnam becoming middle-income country (MIC)” has some new meaningful enviroment in Vietnam; the ODA policies; and the ODA absorption capacity contributions in terms of theory and practice. Apart from that, it helps to raise of Vietnam). the efficiency of ODA and concessional loans in the new context of Vietnam. Specific: 4
5 6 Secondly, base on the factors affecting ODA, analysis the effectiveness CHAPTER 1. LITERATURE REVIEW in LIC, put in a new context in Vietnam (MIC), the thesis proposed recommendation on ODA policies. 1.1. The Official Development Assisstance ODA 6. Research methodologies The Official Development Assisstance includes the ODA capital and the concessional loans from the foreign donors for Vietnam government, which In this thesis, both of qualitative and quantitative methods are applied. was determined in the Law on Public Investment, is public investment capital, The quantitative methods is used for assessing the impact of ODA to the so that becomes the impacted objective of this law. Budget capital for public development of the economy, the sociaty and the state management. The investment stipulated in this Law includes funds derived from the State qualitative method is applied in assessing the factors affecting the ODA in budget, government bonds, local government bonds, official development Vietnam. Specifically, the two main methodologies in this thesis are: (1) assistance (ODA), overseas concessional loans, government credits for Desk-study; (2) Interview/Expert consultation. investment and development purposes, retained revenues of the state budget 7. Structure of the thesis that have not been recorded in the state budget balance and other loans Apart from the Introduction, Conclusion, Appendix, List of References secured by the local budget for public investment purposes3. the thesis is presented in four chapters: ODA - a popular perpective in Vietnam - stands for Official Development Chapter 1. Literature review Assistance. There are many different definitions of ODA from the Chapter 2. The rationale and practical basis on ODA of a country when international organizations and even in Vietnam, ODA is also definitioned in many different ways in some organizations such as the Organization for becoming a MIC. Economic Cooperation and Development OECD, World Bank, Decree on Chapter 3. Status of ODA in Vietnam in terms of MIC. Management and Utilization of ODA in Vietnam, Law on Public Debt Chapter 4. The perspective and orientation of ODA in Vietnam in future Management 2009. time. The thesis defined the official development assistance includes the grant aids, concessional loans, less concessional loans from the goverments, the intergovernmental organizations, the organizations in UN (United Nations), the international financial institutions provided for the low-income or developing governments in order to contribute for economomic and social development. 1.2. The Aids in the middle-income countries MIC There are a wide range of opinions on whether or not continuing the aids for MIC and which priority areas should be aided for MIC? 1.3. The factors affecting the aids The researches focus on analyzing: the relationship between the politics and the aids, the relationship between the policy environment and 3 Law on Public Investment 2014. 6
7 8 development aid, the relationship between the sponsoring strategies, aid “The Official Development Assisstance (ODA) in the context of Vietnam receiving strategies and development fundings. which became a middle-income country (MIC)” will contribute theoretical 1.4. Assending the efficiency of development aid and practical significance for the policy making and management of ODA in Many studies not only pointed out the relationship between the aid and Vietnam in the next time. the growth but also indicated the improvement of the aid’s effective. There are, however, still a lot of controversies about that relationship. CHAPTER 2. 1.5. The Official Development Aid in Vietnam THE RATIONABLE AND PRACTICAL BASIS ON ODA OF A It can devide research on ODA in Vietnam into three main groups: The COUNTRY WHEN BECOMING A MIC overview of ODA in Vietnam, ODA by the sectors and ODA by the donors. 2.1. The regularity of ODA in the development process of a The advantage of these studies are adhesion the international standard country concepts as well as the in-depth analysis and the international comparison According to the theory of economic growth by Professor W.W Rostow examples. Besides, there is a plenty of reality analysis, including some launched in 1961, there are 5 stages of the development process of a perfect lessons for Vietnam. All these reports, in recent time, showed some country: Traditional society, Preconditions for take-off, Take-off, Drive to significant evaluations, the practice lessons and made some basic statements maturity and Age of mass consumption. Moving to the preconditions for and forecasts about ODA in Vietnam in MIC stages. However, those take-off, and take-off are a turning point marking the beginning of the recommendations are still theoretical and not really suitable for the development process. In this time, the domestic savings is not much conditions of Vietnam, especially when Vietnam was a member of MIC. meanwhile the investment demands still climb gradually, especially in the Apart from the managing units’ reports, many of state-level research, there infrastructure. The export capacity remains limited, mainly in the are many scientific research projects, PhD thesis have studied about ODA. agricultural and forest products with low added value, in parallel with the Most of those researches has concentrated analyzing the current situations of lack of foreign currency for import demand of machinery, equipment and ODA in Vietnam along with the challenges in the period that Vietnam was not technologies in order to support the process of industrialization. Therefore, a MIC. Although they had proposed some solutions to improve the a country begining development period has faced to the two deficiencies: the efficiency of managing and using ODA, the factors impacting to the investment capital and the foreign currency. ODA helps to balance these efficiency of ODA and ODA management mechanism had not analyzed deficiencies. specificially. For sustainable development, the ODA recipient countries must be In summary, the studies of development aid in the world and Vietnam aware of the possibility of repayment in the future. As a result, ODA must have mentioned many aspects of theory and practice for mobilization and be used effectively as well as aiming at increasing the competitiveness of utilization of ODA in Vietnam. They are the most important input- the economy. Another key factor is that national leaders must always think information for the thesis. However, along with many basic changes of of a time when the country will not need ODA (ODA graduation). To Vietnam (which has become a middle-income country, the change in the sustainable develop, a country needs to define ODA is only used in the funding policy of the international community and the Party’s guidelines transitional period. To be able to “graduate ODA” in a short time, and policies in the new context), ODA mobilization and utilization activities increasing the domestic savings has to be paid more attention. require the fundamental changes. The present studies have not really pointed out this urgent issue. Therefore, the implementation of the research 8
9 10 In terms of the middle-income country (MIC), the donors have changed 2.2. The characteristics of the MIC the development policy for Vietnam. According that, ODA of Vietnam in According to World Bank’s classification of a country with the income MIC context has changed with the following characteristics: The scale of per capita, there are 4 groups: low-income countries, lower-middle income, ODA for Vietnam decreased gradually in the period 2011- 2015 and then upper-middle income and high-income countries. As the classification in fell sharply after 2015. The structure of ODA has turned out, while the 2014, starting from 2015, the middle-income countries must have average grant ODA and concessional ODA loans are declining, some donors have GNI per capita from $US 1.045 to $US 12.745; in which, for the low opened new channels to provide funding for the less concessional ODA middle-income countries, the average GNI per capita is from $US 1045 to loans. Method of the government cooperation has moved to the direct $US 4125 and the high middle-income countries is approximately from $US relationships between entities of the Parties. The government plays a 4126 to $US 12745. catalytic role in policy and institutions to create a favorable environment for As classified by World Bank and Organisation for Economic Co-operation entities, There is a wide range of the aid approaches and modalities will be and Development, Vietnam is among of the countries with low middle-income applied with the extension of the participation of the non-governmental with GNI per capita in 2010 was $1270 and in 2012 was $15604. organizations and the the private sectors in the development proces. The division of labor and synergy between all the donors for exploit the 2.3. ODA in a middle-income country - the international experiences comparative advantage that has have an upward trend. The emerging and lesson learnt economies and South-South cooperation will add significant resources for An aid is confirmed as ODA if it three conditions: the resource, the aim development cooperation. and the Grant element. The concessional loans are forms provided loans with 2.4.2. Asseding ODA in Vietnam before and after becoming a MIC preferential terms than the commercial loans, but the Grant element is unqualified 25% of the total aid. ODA has many different types to classify: Within the thesis, some evaluation criterias chosen to use are: The by aid modalities, ODA providers or ODA conditions. contribution to GDP growth, the contribution to the total development investment capital of society and FDI attraction; ODA’s support for the Overall, ODA of MICs is significantly lower than LICs. The proportion acceptance of scientific achievements and modern technologies, the of ODA for LICs is 10% by ODA / GNI, for LMICs is 1% and for UMICs is development of human resources, the support for the poverty reduction, the nearly a zero. While MICs has risen spectacularly the needs in development, improvment of government management; ODA and the public debt. However, the international donors are planning to cut down the fianancial aids for MICs. besides the obvious benefits on economic and social development which ODA In some cases, the donors are closing aid programs in several MIC. The gives to the developing countries, there are many problems in mobilization transition, behaviors and strategies of the recipient countries play an and utilization of ODA at both macro and micro level in a lot of the extremely important role in this situation. It is true that the clearer the developing countries around the world, including Vietnam. On a macro level, strategy, the higher ODA’s efficiency, for example Kenya, Thailand. In the ODA and public debt are “hot’” issues that should be considered carefully. On contrast, with a unclear strategy, ODA will become a sharp knife and trap that the micro side, Vietnam has some important issues in the management of country into a bad debt such as Brazil. ODA such as the limited efficiency of ODA; the low disbursement rate, the 2.4. The Analytical Framework of Thesis wates of some ODA projects. 2.4.1. The changes of ODA when Vietnam has become a MIC 4 http://databank.worldbank.org/data/views/reports/tableview.aspx?isshared=true 10
11 12 2.4.3. The factors impacting ODA in Vietnam in terms of MIC In terms of economy, ODA is considered a positive impact on the There are two main groups that affect to ODA when Vietnam is a national social and economic development (such as gross domestic product, member of MIC: (1) the factors from the aid donors and (2) the internal development investment). In recent years, ODA is present in almost all factors of Vietnam. areas of economic and social infrastructure in Vietnam. The ODA-funded projects have contributed to the economic growth and improve people's CHAPTER 3. STATUS OF ODA IN VIETNAM IN TERMS OF MIC lives. In overview, ODA is just one of the various funds supported social and economic development. That means to let ODA be able to contribute to 3.1. The background social and economic growth, the institutional ODA environment is Vietnam has risen to overcome a poor and underdeveloped country with a obviously suitable. GDP per capita $98 in 1990 to become the developing country – a MIC – with Although ODA is only occupied by about 3-4% of GDP, 10% of total a GDP per capita reached $1,168 in 2010. However, in the current stage of development investment capital of society (in the period 1993-2015) but has a development, Vietnam has faced to many complex difficulties and challenges. significant proportion of the total investment from the state budget (46% in the The political and regional security still remain a couple of potential period 1993-2015). This is a huge significant because the budget for the complication; the world economy has recovered slowly; there is some development investment is still limited while the demand of the development difficulties to ensure macroeconomic stability and economic paradigm when of socio-economic infrastructure is increasing. Thus, as can be easily seen that shifting from the labor-intensive economy to the effitive and competitive ODA would help solve a part of “the thirst for capital” and bring new vitality capital and productivity; the unsustainable poverty reduction and the rich-poor to the developing countries, contribute to change for many economies if it is gap tends to increase; the natural disasters, the diseases and the climate used effectively. changes; the weakness of the institutional management system and the human Looking at the whole period 1993-2015, the total development capacity. investment capital of society ofVietnam is high, average by 35.2% of GDP Because of the new developed economy stage, Vietnam is not one of and the average growth rate of 14% per year. In the MIC stage, the average the priority countries to provide ODA capital. The partners has agreed to growth rate of the total development investment capital of society decreased move to a new stage, becoming development partnership, consultation by about 6%. In particular, the proportion of development investment from the policies. In addition, concessional loans and grant aid are only reducing but state budget, despite of the undeveloped trend since Vietnam into MIC, still also are replaced by more difficult conditions loans (with short term and stood at 23% of total development investment capital of society and 8% of higher interest rates). The partners’ governments are aiming to the prospects GDP (the average in the period 1993-2015). With domestic savings and that they are no longer to be a direct foreign loan receiver. Instead of that, national savings in 2012 accounted for only about 30.7% and 31.6% of GDP they only play a role as catalysts in the region where the enterprises respectively, the increase of the total development investment capital of increasingly have chance to engage more directly. society, including public investment, has created a large gap between savings In the new period when the requirements are different, Vietnam need a and investment in the economy. Without a strategic direction of public suitable policy in mobilization and utilization the foreign funds, especially investment, including foreign debt... this can partly caused a latent risk of ODA. economic instability in the country. 3.2. Assesding ODA in Vietnam before and after beocoming a MIC 3.2.1. ODA contributes to develop the economy 12
13 14 3.2.2. ODA contributes to develop the social development 3.2.3. ODA and the Public debt In the period 1993-2015, the grantaids accounted for 10% of total the ODA loans and public debt became a hot issue in parliamentary Vietnam signed ODA. These funds are intended for the projects of technical assistance, National Assembly as well as in public opinions in recent time. including training of human resources, improving the higher quality of According to the Ministry of Finance, the total foreign debt (including preparation of planning projects. ODA has helped the poverty reduce in order borrowings and repayment of Government loans and government-guaranteed to improve the disparity of people living in developing countries. ODA also debt) on 31 December 2012 in Vietnam was more than $42 billion, by 55.7% has enhanced the institutional capacity of management for the developing of GDP. 80% of Vietnam's ODA loans was from the other countries and countries through the supporting programs and projects as well as the legal or international financial institutions to which Vietnam’s government had administrative reform and building the economic management policies which committed to repay in accordance with the conditions in the specific is consistent with the international practices. international agreements on ODA signed. To receive grant aid, the 3.2.3. ODA has low effeciencies due to receiving capacity of Vietnam Government of Vietnam must contribute counterpart funds in kind or value. Besides the positive aspects of ODA for Vietnam as presented above, in Therefore, the use of ODA must always be considered, calculated between fact, ODA has revealed a few limitations and weaknesses in recent years, efficiency - cost to insure the ability to repay foreign debt and the maintenance which was shown in low disbursement rate. It impacted on the investment of the national prestige. Indeed, ODA was not “gratuitous gift” and not as a performance of a number of programs and projects. Although ODA has many loan can be used arbitrary as we want. In terms of the economic aspects, ODA advantages, the disbursement is occupied close to 74% the already signed is not accounted a hige proportion, about 3-4% of Vietnam's GDP. Therefore, agreements for the period 1993-2015; it means that around $US 19 billion this fund can not replace the internal resources. It’s just been an additional have not been disbursed. The objective reasons for the delay is partly due to work and has catalyzed for the development process. the different provisions of the international donors, so the combination of Since Vietnam became the MIC, the lending conditions are tighter and these regulations has made some progress, but still very congested. At the ODA is more expensive. Vietnam should actively and conscious control of same time, the most important reason is the weakness subjective debt at a safe level, decide to approve and implement the probably programs organizational project management, especially the diffuculties of the site and the projects, with the inspection, the supervision and the participation of clearance, the implementation of resettlement and arranging couterpart funds the authorities, the community and the scientists. These are also the leading for carrying out the project from Vietnam side. principles that should be followed in the process of the general foreign debt Besides, the development strategy and planning to mobilize and utilize and particularly ODA. ODA capital in the sector is still irrational. Other reasons such as the low level 3.3. The factors affecting to ODA when Vienam becoming a MIC of management capacity, the lack of experiences in the process of receiving 3.3.1. The factors from the ODA providers and processing project ... make the efficiency and the quality of the From the donor side, the first factor dominates ODA is the strategy and investments in these funds low. The more ODA received, the ultilization of policies of donor aid. In each period, the donors will identify which areas to ODA should be paid attention to be more effective. The ODA management focus on, which country and the way to provide ODA based on the strategies. authorities and ODA benefited units ODA should have policies and concrete If the strategic goal of providing ODA from the donor countries changes, this actions to promote the strengths as well as minimum the disadvantages of will affect the recipient country on both the structure and the management ODA. policy of ODA. In Vietnam, there are about 50 bilateral and multilateral donors activating with different accents in aid policy, the priority directions by 14
15 16 sector and geographical territory and various the procedures provide ODA. most donors to terminate the program of ODA for Vietnam on a massive That’s why the role of recipient Government will be limited in the framework scale and to maintain these programs in the form of technical assistance. agreement reached through negotiations. Thirdly, the absorption capacity of ODA of Vietnam. In order to The second factor is the political and economic situation, as well as the enhance the absorption capacity of ODA, Vietnam should take a series of fluctuations that may occur for the donors. When there are fluctuations, the measures such as improving the capacity of ODA management at all levels, policies and regulations on ODA management are changed based on the raising the awareness as well as the knowledge of ODA in the new period. evaluation of ODA loans have been made in recent years by each donor. Besides that, the permission for the private sectors to approach the ODA is A third factor is the international atmosphere and the development of an effective way to diversify the type and improve the absorption capacity economic-political relations, between the donors and the recipients. If the of ODA for Vietnam. On the other hand, Vietnam needs to learn experience atmosphere and relationships that are positive, facilitating in maintaining and in managing ODA from the countries which are similared about the scaling up ODA, even for the harmonization of procedures between the two socioeconomic conditions, especially the countries that has just moved from sides. Recently, Vietnam has upgraded the relationship to the level of “the LICs to MICs. strategic partnership” with a number of countries and transnational organizations. The international integration in all fields of our country not CHAPTER 4. THE PERSPECTIVE AND ORIENTATION OF ODA only brings many opportunities but also open up for more effective advantages IN FUTUTRE TIME of the external resources. Currently, due to Vietnam has become a middle- income country, that makes ODA to Vietnam be decreased, not a signal that 4.1. Some views on the ODA in Vietnam in the context of MIC donors have lost confidence in Vietnam. Views on development aid in the future: 3.3.2. The internal factors of Vietnam The developement assistance in general, first of all ODA fund (grant As analyzed in chapter theoretical basis, there are three main internal aid and ODA loan) will decline in the short term. Next, after an increasing factors of Vietnam: period, the concessional loans will be reduced and stop when reaching a The first is the social and economic environment in Vietnam. Vietnam lower middle-income landmark. Therefore, in the short term, Vietnam has started to stabilize macroeconomy, but still remain some risks from needs to balance between the domestic and foreign capital with the trend inflation, bad debts, forex reserves ... and Vietnam needs to paid more that the domestic capital plays a decisive role whereas the foreign capital attentions on the loosening fiscal policy. plays an important role. In parallel with the balance of capital, Vietnam needs more efforts to find the domestic sources, reducing the dependence Secondly, Vietnam’s ODA receiving policies. Vietnam continues to on foreign loans. advocate mobilization and utilization ODA as well as concessional loans from donors. In the period after 2015, ODA and concessional loans may The foreign loans have to secure the sustainable public debt. tend to decrease due to two basic reasons: (1) the domestic saving for Therefore, Vietnam should choose the suitable debt portfolio; controlling development investments will be improved, at the same time, the policies strictly the less preferential interest rate loans; calculating reasonable of will be issued to encourage private sectors participate in public investment, loans restructuring to avoid the risk of exchange rate and interest rates. especially in economic and social infrastructure; (2) GDP per capita of The external debts has almost reached the safe-level, around 64% of Vietnam is forecast genarally to reach over $US 3000 in 2020. That makes GDP in 2015. The most important requirement now is how to mobilize and utilize ODA and concessional loans in a effectivel way, focusing on 16
17 18 prioritized sectors and priority areas, avoiding the spread, and need to be Currently, the internal accumulation of Vietnam reaches over 30% of GDP. associated with the repayment liability by all the branches, the localities and Vietnam, therefore, can be much more autonomous in the development benefited units. investment capital. Vietnam should begin its ODA graduation roadmap. 4.2. Basis for proposed solutions Recommending the ODA graduation roudmap for Vietnam: To study and propose solutions to mobilize, manage and utilize In the period from now to 2020: Vietnam is a low-middle income effectively the development assistance in the context of the MIC, the thesis country, the development funds structure is shifting towards that ODA will based on: plummet whereas less-concessional loans will increase. Vietnam needs to The Government guidelines and policies of the socio-economic develop a new strategy for the mobilization and ultilization of the ODA development and insitutional management such as the Strategy of socio- based on the following principles: economic development 2011-2010, Decision No. 958/QD-TTg dated July ODA has contributed significantly to the development of the 27, 2012 of the Prime Minister approving the public debt and national investment, the socio-economic development, but merely still a catalytical foreign debt strategy in the period 2011 – 2020 and the vision to 2030, additional funds. Vietnam should be mostly based on the internal sources Decision No. 432/QD-TTg dated 12/4/2012 approving the Sustainable (the budget revenues, the investment capital from the domestic and foreign Development Strategy for Vietnam during the period 2011-2020... sectors). The requirements of the development when Vietnam has entered a Mobilizing and usingutilizing the development funds to ensure socio- new phase – the middle-income country. Becoming a middle-income economic efficiency and to secure the foreign debt as well as the public country, the aid policy for Vietnam has changed (reducing the preferential debt; terms; the conditions and the repayment of loans is becoming tougher with The managment and ultilization of the development funds must be the higher interest rates, the shorter grace period, the shorter repayment period), subjects to the supreme supervision of the National Assembly, the Vietnam's status has changed from “aid provider-receiver” relations into Government and the citizens. “development partner” relations. The strategy for ODA and less-concessional loans have to put in the The ability and the practical conditions of Vietnam, the shortcomings overall demand of the national investment capital, in particular that type of and emerging issue relating ODA in recent years. The issues related to the foreign capital (ODA, the concessional loans from the foreign donors, FDI public debt, actual implementation of ODA projects and the concessional ...), especially the collaboration between the development funds and FDI. loans that are referenced to propose appropriate solutions. Establishing the catalogs of all the priority programs and projects The international experiences and lesssons from the countries having using ODA and projects which is calling the FDI investors (by industry and similar contexts like Vietnam. economic region). 4.3. The orientation and solution for the development assistance in Ensuring the ownership, highlighting the responsibility of the ODA Vietnam in the context of MIC recipients and the effectiveness as well as the broad effects should be the 4.3.1. Developing a “ODA graduation” roadmap to step into a new first criteria in determining the policy of using ODA and less-concessional development period loans. Although ODA is an important fund with many advantages, Vietnam Enhancing the ability of ultilization other financial funds without needs to rely on its internal resources for sustainable development. affecting the debt sustainability and macroeconomic stability. Strengthening 18
19 20 the domestic financial systems, including the development of domestic Do not use the concessional loans for the programs and projects financial markets and improving the access availability of the international under the duties of the government expenditure or not generating the direct financial resources. revenues. The prioritized list of using the development funds for this phase must Focusing on using the concessional loans for the programs and adhere to the following principles: projects having direct revenues and increasing the application of on-lending The annual and mid-term (5 years) list of ODA programs and projects mechanism for the entire concessional loans. must be within the framework of the 5-year and annual Public Investment The government should closely cooperate with donors to encourage Plan. Those plans must be subject to regulate with the debt secure ceiling. and support the direct development – partner relations between entities of Reserve grant aid and concessional loans for unaffordable direct both partie. This will help to take advantages in the science and technology, payback projects; some projects which can recover the capital but serving advanced management experience and the development of human resources. the national and social benefits; the projects for strengthening the Strengthening the comprehensive development partnership: Vietnam institutional capacity; used for project preparation, human resources, respects and complies with the international standards of the development technology transfer, innovation and creativity. cooperation to strengthen its global partnerships and needs the further The concessional loans using for the sectors with directly generate contribution plan for the world’s development. revenues and being able to repay the loans. Strengthening the development cooperation to learn about how to The ministries and local governments must build-up the programs for provide the development assistance to prepare for the period that Vietnam mobilize the development funds, instead of the distributed and isolated begin providing ODA for some least developed low income countries. projects. 4.3.2. Ensuring the sustainable secure of public debts Expanding the on-lending mechanisms; Local infrastructure As becoming a MIC, the mainly loans are from less-concessional loans investment projects applied on-lending mechanisms from the central with the harder financial conditions and more expensive than concessional budget; the field may consider to use the state fund to participate in the loans (the interest rate, the repayment period and the grace period is close to public-private partnerships (PPP), building the socio-economic the capital market conditions), the ensure for public debt must be reflected infrastructure. Selection criterias should consider both of the socio- fully in the attraction and ultilization of ODA capital and the other economic value added indicators and the internal rate of return (IRR). concessional as well as less-concessional loans. With the special cases (the insufficiency of the concessional loan that Besides, not only more expensive, the other thing needs to be paid leads to use two sources in a project or to use absolutely less concessional attention is ODA’s repayment period. Vietnam should implement a series of loans for the non-recover projects) should have the specific explanations measures to ensure the safety of the public debt. Firstly, the determination of about the reasonable volumme of loans in order to ensure safe debt priorities and the investment criteria to decide ODA projects are the most limitation. important mission. ODA planning should be linked closely with the national In the period after 2020: Basically ODA almost has stopped, except development planning. Secondly, Vietnam needs to combine the policies on for some ODA programs and projects being implemented during transition mobilization and utilization for using loans with monitoring indicators on safety period, instead of the less-concessional loan and ODA striving to 0 by 2030. debts at the macro level as well as building the effective loans monitoring The funding principles applied for this period are: mechanisms. The construction of the mechanisms for the private sector 20
21 22 accessing ODA and the on-lending mechanism should be significantly paid Actively participate in developing the strategic partnership with each attention to define. Thirdly, Vietnam needs to consider a long-term strategy developed country partner as the group of six development banks, the toward decreasing ODA, then graduate ODA. European Union, the countries providing aid to Vietnam. Each strategy should Another important issue is to establish a repay fund. The debt repayment clearly be identified the priority support/investment, the investment list of obligation of Vietnam is increasing. That means more attention on the program or project. efficiency and the proactively repayment of foreign loans plan should be paid. In the context of decreasing grant aid and concessional loans while the 4.3.3. New thinking about partnerships less concessional loans tend to increase, Vietnam should lead the development partners to provide technical assistance in order to support the economic and In the new context, strengthening development partnerships with the social development and to promote the economic cooperation for both of donors and the role of government have changed, becoming a “catalysts” side, parties’ benefits. enabling the direct cooperation subjects to change from the “provider- receiver” relations into the development partnership relations. That new 4.3.4. Developing mechanisms to enhance participation of the citizens context is continuing to require the policy coordination of the Government, When Vietnam became the MIC, the ODA approach has changed, the because the donors’ mechanism and procedure is still very different, in order concessional ODA scale got a reduction, the most important thing needs to do to make cooperation into essential and effective ways. In the context that is to improve the efficiency of ODA. One of the measures is to improve the Vietnam are considered as a strategic partnership with many countries, it sustainability of the ODA projects’ results after project completion, at the should has more specific policies to take advantage of the comparative same time reducing the lost in the process of project implementation. On the advantages from each partner, then go to the substantive and effective other hand, we need to conduct a series of steps right from designing project, partnership relations. evaluating project, make decisions, implemention and handovering the results Specifically: for beneficiaries. The stakeholders should be involved from the start and fully To need to identify the development partners is not only a donor to at all stages in the project cycle. When transfering the project’s results, the provide aid, but also a policy dialogue partners; sharing experiences and managers and beneficiaries together handover the project and be responsible knowledge on the development issues. The requirements for the policy and observe carefully. In addition, we also need to design M&E activities for dialogues between the Government of Vietnam and the development partners ODA projects from the central to local levels along with the participation of should deepen the content, widen the participations’s scope in the the citizens. development process, and then the results of dialogues should be monitored Specifically: and implemented in practice. The transparent information mechanism to all stakeholders: the Proactively building national ODA strategy, outlining the priority government authorities, the civil society organizations, the professional directions and the criteria used for ODA. associations, the people community. Some experiences show that ODA partner relationships will need to be Developing the mechanisms to monitor and evaluate the public deeper and even should focus more on the ideas, knowledge and the investment projects, including ODA and to clarify the roles involved in developing solutions. To satisfy this change, ODA needs to involve more and monitoring of local communities. becoming an overall package of ideas, knowledge and financial resources. Developing the mechanisms for all beneficiaries to understand their ODA should be used more strategically and more prudent to mobilize the roles, rights and responsibilities of taking over the ODA projects. private capital participate into the public resources. 22
23 24 Developing a comprehensive partnership with the private sectors from CONCLUSION sharing information to jointly implementing the projects. The forward step for the position of Vietnam was established in 2010. Besides, the private sectors should be equally with the public sectors Vietnam officially transformed from a low-income country to a middle- based on sharing the responsibilities and benefits as well as the risks along income country. Vietnam is entering a decade with aim of implementing the with the government in using the funds. fundamental objectives to become a modern industrialized in 2020. The Proposed policy framework for the private sectors accessing to ODA transfer of two decades is also the transition into a new period of ODA in Identifying the principles “ODA beneficiaries are responsible for Vietnam paying the debt and as well as sharing risk with the Government”. To secure Vietnam needs to change the perception, the vision, the macro strategic the loan, we need to design the strictly financial mechanisms such as the principles as well as the solution to organize, manage and implement ODA regulations on the mortgage for using ODA loans and less concessional loans. effectively at all levels in order to some aims: to realize the policy of the Party It is very important to ensure to share maximum of all risks and and the Government related to ODA and the need of development investment responsibilities between the public sectors and the private sectors. in the context of Vietnam becoming MIC; to be consistent with the aid PPP approach is a form which be able to take advantage from the huge policies to Vietnam as well as ensuring sustainable public debt of countries. resources of the private sectors. This model not only reduces the pressure on Therefore, the study of ODA in the new context of Vietnam, is pretty the government’s budget, but also creates an additional space for the growth necessary and makes sense. of the private enterprise. Therefore, the combination in PPP, including the The thesis “The Official Development Aid (ODA) in the context of ODA utilization, is considered as an effective solution to help boost economic Vietnam becoming middle-income country (MIC)” has focused on the growth. official development assistance when a country reaches the middle-income Researching the alternatives for the private sectors to access directly to levels, particularly when Vietnam began to enter the transition period. Based the funds, such as the model of tripartite “funding agencies - banks – on the analysis and evaluation of ODA in Vietnam in two stages (LIC & investors” projects. The bank or the government can play a mediating role in MIC), defined characteristics, nature of development aid as well as the factors funding, even though the project investor is a private enterprise. affecting aid in the context of Vietnam is a MIC, this thesis has proposed Researching the models of the Development Fund that acts as a lending some new viewpoints, orientations and policy recommendations to ODA of entity for ODA funds. Vietnam in the coming time. Continue to encourage and support the private enterprise to approach ODA and less-concessional loans indirectly through the on-lending mechanism or participating in the implementation of ODA programs and projects, or the implementation of the projects in the credit line framework of the donors. Enhancing the capacity for the private enterprise, especially the capacity of project management, investment and innovation… 24