Economic flaws top CG agenda

December 10, 2012 | 11:45
(0) user say
This Monday’s Consultative Group meeting for Vietnam aims to advise the government on ways to address a series of economic bottlenecks.

World Bank country director for Vietnam Victoria Kwakwa, who will be co-chairperson of the Consultative Group (CG) meeting themed “Laying the foundation for sustainable growth,” said last week that this event would focus on Vietnam’s socio-economic situation in 2012 and 2013, education and skills, land policy and CG’s development orientation.

“A lack in skilled workers and land issues have been one of enterprises’ biggest concerns in Vietnam. These bottlenecks must be removed,” Kwakwa told a press meeting in Hanoi.

“This CG is a policy dialogue with Vietnam’s government and donors having straight talks about how to help Vietnam achieve sustainable development for a better future,” Kwakwa said. “The CG has no longer been a forum to ask and give ODA because the situation is different now.”

According to the World Bank, Vietnam has become a middle-income country, and the relations between Vietnam and international donors have been gradually shifting from an ODA ask-and-give status to another status where Vietnam and the donors are equal partners.

This CG will be co-chaired by Prime Minister Nguyen Tan Dung. It will also be attended by the government’s other officials, and representatives from international organisations and embassies.

Also at this event, participants will adopt the CG’s new name “Vietnam Development Partnership Forum” (VDPF), and drop the mid-year CG meeting as organised in the past. Henceforth, the two-day once-a-year forum will be organised at year’s end, as from 2013.

Vinh said the VDPF would feature expanded participation, including authorities from provinces and cities, and economic experts, in addition to state officials and leaders of international organisations and embassies.

The first CG for Vietnam took place in Paris in 1993. Since then, total ODA committed to Vietnam was nearly $70 billion. For instance, the figures were nearly $7.4 billion in 2012, $7.9 billion in 2011, over $8 billion in 2010, over $5 billion in 2009, over $5.4 billion in 2008, over $4.4 billion in 2007, $3.747 billion in 2006, $3.4 in 2005, $2.84 billion in 2004 and $2.5 billion in 2003.

ODA disbursement reached $2.94 billion in 2010, $3.65 billion in 2011 and an expected $3.9 billion this year. Vietnam currently has 51 international donors including 28 bilateral donors and 23 multilateral donors.

Preparing for the Consultative Group (CG) meeting this week in Hanoi, representatives of some of Vietnam’s major donors Japan, IFC and Asian Development Bank are emphasising the need for greater transparency to help the government improve its macroeconomic  management.

Simon Andrews
IFC Regional Manager Vietnam, Cambodia, Laos, Myanmar and Thailand

2012 has been a busy year for Vietnam. Despite the current woes in the banking sector and the state-owned sector, progress has been made on stabilisation and the government has remained committed to a painful but necessary readjustment with positive results – the currency has stabilised, inflation has moderated, the trade balance has improved and foreign exchange reserves have strengthened.
However, the hard and the tough decisions do not end here.  As we prepare for the new year Vietnam faces the decisions that will have a bearing on the country’s economic fate in the coming period.  Vietnam aspires to be industrialised country by 2020 – the decisions that are made in 2012 will be an important factor in reaching that goal, in particular the decisions Vietnam makes about its banking sector and its SOEs.

The government has made the very important first steps in recognising the need for banking sector reforms, but more needs to be done quickly and decisively to resolve the situation and strengthen the banking sector. IFC’s experience in financial markets around the world shows that a good understanding of the exact level of non-performing loans is critical to recognising losses, preparing resources and adopting the right mechanisms to address the issue. Delays in acting will keep Vietnam on a lower growth trajectory for some time, eroding Vietnam’s fundamental competitiveness just as Vietnam emerges as a middle-income country.  

At the core of the current situation is corporate governance. Money can solve Vietnam’s non-performing loan problem and can recapitalise its banks and businesses, but without fundamental changes in corporate governance, the root cause of the fragility in the banking sector and the inefficiency in the state-sector will not be addressed.

Yasuaki Tanizaki
Japanese Ambassador to Vietnam

In the 20 years since we re-started ODA provision to Vietnam, Japan has been supporting Vietnam’s economic development as the leading donor. Vietnam’s economic growth is important not only to the improvement of its social welfare, but also to the East Asian region’s development. Therefore, Vietnam has been one of the prioritised countries in our ODA policy.

Actually, the volume of Japan’s ODA to Vietnam has continuously been increasing. In the last fiscal year, we have committed to ODA loans worth $2.7 billion, which is the biggest amount ever.

The two governments have worked together to strategically allocate ODA from Japan into important economic infrastructures. Besides, Japan’s ODA has been effectively utilised in numerous roads and bridges in countryside, as well as in health care centres and so forth. I am proud that Japan’s ODA has contributed to the Vietnam’s growth and welfare so far.

As of the end of 2010, Japan’s ODA disbursement to Vietnam totaled nearly $10 billion, which means Japan is the biggest bilateral development partner of Vietnam. In the last fiscal year, from April 2011 to March 2012, the total amount of about $1.35 billion was disbursed.

These disbursement figures indicate that most projects have been implemented nearly as scheduled. Still, there are some cases where construction works are delayed due to land acquisition problems, as well as cases where the bidding process is taking unexpected time.
I would like to ask Vietnam’s government for its further efforts to smooth implementation of projects.

In this fiscal year, we continue our development cooperation to Vietnam effectively and broadly, including expansion of loaning programmes like Support Programme to Respond to Climate Change that have budgetary-supports effects. As a result, in the first half of this fiscal year, Japan has already pledged to provide about $1.4 billion of new ODA loans. Although this would depend on the progress of project preparation by Vietnam’s government, I hope that, overall this fiscal year, Japan will be able to provide the amount nearly equal to what we have pledged last year.

Tomoyuki Kimura
Asian Development Bank
Country Director

Earlier this year, ADB commended the government’s recognition of the urgent need for reforms as reflected by the fact that restructuring of the financial and state-owned enterprise (SOE) sectors are pillars of reform in the Socio-economic Development Plan. The government has since drawn up plans for restructuring in these areas.

We strongly believe that successful implementation of these reform plans will be key to placing Vietnam on a sustainable growth path. Compared to regional countries Vietnam’s policy ability to cope with external shocks remains limited, but the implementation of sound monetary and fiscal policies and restoration of macroeconomic stability has provided the government with a little breathing space to more proactively initiate structural reforms. ADB recognises that economic restructuring is a long-term and complex task. We identify three areas key to overcoming obstacles to reform implementation.

Firstly, transparency of the reform process needs to be enhanced so that progress may be monitored. From the public’s point of view, there appears to be little progress in implementing reform plans. This lack of information is raising doubt about the government’s commitment to reform. Improved information disclosure will immediately improve investor confidence and perception.

Secondly, uncertainty in the size of financial and SOE liabilities mean the government needs to adequately provide for the cost of restructuring. There is, however, a lack of provisioning in the budget. History shows that the cost of post-crisis financial and enterprise restructuring is usually high. The potential cost of this exercise may rise significantly due to opaque accounting practices and lack of transparency that mean SOEs may accumulate ever larger contingent liabilities that will need to be revealed and reduced over time. Adequate budget provisioning is essential to implementing the reform plans.

Finally, the reform process is enhanced, and opposition to reform more likely to be overcome, if extensive and genuine consultations and discussions are undertaken between all stakeholders so that everyone understands the underlying rationale for policy changes.

By Thanh Thu

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional