Foreign development assistance (ODA) has admittedly contributed significantly to Vietnam's impressive economic growth by funding many of its major development projects.

However, economists say, the country's massive need for capital had forced it to acquiesce with donors' every demand.

This meant most of the aid monies went back to businesses from the donor countries, they said.

Vietnamese businesses had to be content with crumbs and do subcontract work for ODA-funded projects, they added.

However, now that it has become easier for Vietnam to raise capital from other sources, the government should have a rethink, experts suggest.

It should not accept unfavorable offers and should have clear guidelines on ODA thrust areas, they said.

Preferential, but for whom?

Donors have either provided or pledged over US$37 billion in ODA to Vietnam, 47 percent of which has been spent.

However, donors usually spell out their conditions before beginning ODA negotiations with Vietnam and other recipient countries.

Dr Duong Duc Ung, a senior official in the Ministry of Planning and Investment, said such conditions were like prerequisites.

“We have to accept them before the negotiations can begin,” he told the Thoi Bao Kinh Te Saigon (Saigon Economic Times).

“Only the interest rates are negotiable.”

European countries, for instance, often require Vietnam to buy equipment, materials, and consulting services from their enterprises.

They include bidding requirements that Vietnamese enterprises can rarely meet to become a partner in any project.

Thus, the only option for them is to participate in ODA-funded projects as subcontractors.

In the 1990s the Song Da Conglomerate built the Hoa Binh hydro-power plant, arguably Southeast Asia's largest.

However, it could not even bid for the smaller, ODA-funded Ham Thuan - Da Mi hydropower plant later – as it was precluded by stipulations on the number of hydropower plants a bidder must have built and minimum annual revenues.

For a country like Vietnam, where infrastructure reconstruction only began recently, such requirements are huge barriers.

Ironically, some unscrupulous, foreign experts hired at exorbitant costs for some projects have, in turn, hired Vietnamese experts to do the job at much lower rates and pocketed the difference.

Vu Khoa, chairman of the Vietnam Contractors Association, said Vietnamese contractors had had to accept this “unfair” situation for years, considering it “part of the game”.

However, he wanted the government to reconsider its approach to ODA negotiations failing which the country would continue to suffer losses and a reduction in the efficiency of the loans.

“Of course, there won't be complete fairness, but it's now time to fight for that,” he said.

Pham Sy Lien, deputy chairman of the Vietnam Federation of Civil Engineering, said in some areas Vietnamese contractors could do the same job as foreign ones at two-thirds the cost.

“How could it be ‘preferential' if ODA is even more ‘costly’ than a commercial loan?” he asked.

Ung said that in many cases projects executed by foreign firmswere of better quality.

He added, however, “there are cases where we were tricked, when costs were unreasonably high,” and stressed the need to improve the assessment of ODA projects.

Learn to say no

Ung said the serious shortage of funds had forced Vietnam to yield too easily to donors' harsh demands.

“They may yet have consequences and affect ODA efficiency. [But] We've rarely rejected [ODA] capital.”

He said the government had to be more firm in assessing ODA offers and look for funds from other sources.

“We have to learn to say no to inappropriate conditions, and should not worry about capital shortage.”

The government should be clear about which areas to employ ODA funds in, he said.

In many other countries, ODA is only used for large infrastructure projects; smaller projects are funded by the exchequer.

Besides, with its average economic growth of 8.5 percent, Vietnam is in a position to raise funds from many other sources.

Ung pointed out that since 2001 ODA had made up just 11 percent of gross capital formation and this was expected to decrease even further.

Source: TBKTSG