The public is currently concerned over this question: can Vietnam sink in debt? Duong Duc Ung, a senior policy advisor for the Ministry of Planning and Investment and Vietnam’s leading ODA expert, talks with Tu Giang

The government has emphasised national ownership of ODA usage, particularly in the Hanoi Core Statement on aid effectiveness. Is it one way we’re trying to reduce the influence of international donors in our development?

ODA ownership is not a specific matter to Vietnam. It is a principle for many aid-recipient countries in the world.
In history, especially during the Cold War, aid was used as a conditional tool of donors over recipients. But the situation has changed now. Both donors and recipient nations are aware that ODA usage should be controlled by recipients to ensure its effectiveness.
In Vietnam’s case, ODA accounts for 17 per cent of state investment and 11 per cent of total social investment. These figures are not as big as those of other developing nations, so Vietnam’s development does not depend on ODA aid. ODA is a promotional but not a decisive factor for us.
On the other hand, Vietnam is an aid-recipient country, but let’s look at the way we receive aid. Donors are committed to give us an aid package of $10 million, for example, and then they spend it in their own way. Thus, aid cash still remains in their pockets. So how to control aid has remained a question for us.

In previous consultative group meetings, donors urged Vietnam to implement their requests, like an increase in the price of power, for example. Isn’t that pressure, or a condition?

If we think it is pressure, we only understand the surface of the matter.
Any ODA project includes two packages: material (cash) to build infrastructure facilities and attached policy.
For example, the World Bank has a policy that Vietnam’s electricity sector should be privatised and the sector’s businesses should operate on a revenue basis if Vietnam wants to have more WB aid for the sector. They requested the power prices be increased and not subsidised.
Initially, the government accepted the condition because we needed aid for development. But in fact we could not carry out the commitment because of strong public reaction.
For a poor country like Vietnam, the power price is a social matter, as a majority of the people cannot afford a high power price.
The government is aware that the power sector should operate according to the market economy and the prices should not be subsidised. But this process needs time.
In this case, the donor and Vietnam did not agree with each other. But finally, the World Bank accepted our solution.
Or look at the case with the IMF, which always includes a policy package in its aid loans. If Vietnam did not obey, the IMF would suspend loans immediately.
Currently, the organisation cut an aid of $150m. For the loan disbursement, they had requested the State Bank of Vietnam be equitised and audited. We could not meet the request because the State Bank is a state management bank, not a commercial bank.
Another case is with ADB. The bank asked the government to set up a national water council if Vietnam wanted it to disburse an aid package for irrigation construction in Tay Nguyen central highlands. But Vietnam could not do it because of our reasons. Ultimately, the two parties could not meet.
In short, any aid project includes a policy package, which is probably considered a condition, or pressure, as you might call it.
When Vietnam agrees to accept an aid loan, we must consider the attached policy package. If we accept an ODA loan but we do not implement the attached policy package, we will face big problems.

But donors’ requests have reduced recently?

Right. There are two reasons. Firstly, the donors have gotten to know more about Vietnam. They have mentioned repeatedly that it is not the way to improve aid effectiveness if Vietnam’s policy package implementation is a condition for donors’ aid disbursement.
For example, Poverty Reduction Support Credit is the World Bank’s current soft loan for Vietnam, in which we need to implement several attached policies. For various reasons, Vietnam could not fulfill some policies, the World Bank continued to disburse the aid. This is different from previous loans from the World Bank and other donors. It is a big move.
Secondly, Vietnam itself has achieved big progress. For the WTO accession, we have adjusted many laws and programs like the enterprise law, investment law, SOE equitisation, public assets management, and public administration reform. We have been very fast on this roadmap without hesitation like in the past. And our development roadmap has satisfied the donors.
I think as Vietnam integrates deeper into the world economy, the pressure on us will continue to reduce.

Public opinion currently raises concerns about ODA debts, which future generations will have to pay. Can you comment on this?

Vietnam’s ODA disbursed loans have accumulated approximately $10 billion. It means that every Vietnamese bears a debt of $37.50. For a five-member poor household in the countryside, it is a huge debt that they will have to save their whole lives. For this reason, the matter of ODA debt is worth being concerned about.
But Vietnam’s ODA debt indicators compared with GDP, export revenues, debt services…are all under international standards and in safe areas. The World Bank, IMF and other donors have concluded so.
Vietnam needs at least $10.5bn of ODA for the 2006-2010 period. In addition to current ODA outstanding balance, our ODA debt will remain in a safe round.
The government has approved the foreign debt payment strategy by 2010.
But in the future, when FDI and private sector investment increases, our ODA debt will reduce. It is a visible tendency.

What is Vietnam’s ODA debt payment for foreign donors? As far as I know, the government has paid more than $20m to the World Bank.

Vietnam began paying ODA debts (including principal and interest) in 2002, 10 years after the first aid agreements were concluded.
I don’t think payment is a burden for the state budget. The Ministry of Finance reported that we paid the debts on time.
In agreements with donors, France, for example, there is a term that if any of the debts are not paid on time, the donors will immediately stop disbursing aid.
It is a very strict and close term.
Japan also pays great attention to this matter. They are concerned about whether Vietnam will ask to be ranked as a poor nation and thus enjoy debt removal status. Japan will not give aid to a nation asking for aid removal. They have accepted that Vietnam has not been slow in any loan payment. The government has been implementing this very seriously.
In short, Vietnam’s debt services are in a safe circle.

Many ODA-funded projects are delayed for many reasons. What is the clearest consequence?

When we conclude an aid agreement with the World Bank, for example, we have to bear the responsibility to pay a fee of 0.5 per cent immediately for the aid we have not spent.
If we have not spent the aid for five years or more we have to pay the fees anyway. We might throw a huge sum of money through the window as the World Bank’s aid loans add up to hundreds of millions of dollars.

I know that a World Bank-funded project in the health sector could not be finished in 10 years. How do projects of these kinds affect Vietnam and the donors as well?

Such projects have resulted in terrible consequences because of their ineffective investment.
An example is the JBIC-funded O Mon thermal power plant. Because we were slow in approving a tender package, the tender winner refused the result when we announced their name. They said material prices had increased over a long period of time, so they needed to recount the prices of that tender package. As a consequence, we needed to reorganise tender.
This power plant had been delayed for several years while the world’s technology had advanced far ahead. In this case, we could not ensure investment effectiveness, so we lost business opportunities and we lost face with the donors.
We lack capital but we cannot absorb it when the donors give it to us. It is a big disadvantage.

Are there many projects like that?

All the World Bank-funded projects are delayed compared with agreements and have to take longer to be implemented.
In regard to the ADB, it has only one project that has been finished in time in terms of capital disbursement and implementation. The project was related to infrastructure development in the southern provinces.

Source: Vietnam Investment Review,No. 754, 2006