Consultative Group Meeting 2004

DONORS PLEDGE CONTINUED SUPPORT FOR VIETNAM’S POVERTY REDUCTION AND GROWTH OBJECTIVES TOWARDS THE NEXT 5-YEAR SOCIO-ECONOMIC PERIOD

HANOI - December 2, 2004 - At the conclusion of the Twelfth Consultative Group (CG) Meeting on Vietnam, chaired by the Government of Vietnam and the World Bank, donors expressed continued support to the objectives and approach of Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (CPRGS). As the country starts preparing the next Socio-Economic Development Plan (SEDP), 2006-2010, d elegates emphasized the need to accelerate implementation of reforms for Vietnam to reach its full potential and continue to reduce poverty at a rapid pace, and to apply the CPRGS process in the new SEDP.

In support of this commitment, donors pledged US$ 3.4 billion in assistance for the coming year, almost US$ 600 million higher than the pledge of US$ 2.8 billion at last year’s CG. Of the total increase, around US$ 170 million is due to exchange rate changes since last year and about US$ 100 million is due to the inclusion for the first time of International NGO’s in this year’s CG pledge. The French Government’s pledge of around US$ 400 million was more than three times higher than its pledge at last year’s CG-meeting.

“Fast and sustainable development should remain as our top priority in the next five years. While making every effort to achieve high growth, we always attach great importance to resolving social issues with poverty reduction as the top priority. In this regards, support from the donors is necessary, both support pledged so far and looking towards the future. The people and Government of Vietnam sincerely thank the donor countries and international organizations for their valuable support.” Deputy Prime Minister H.E. Mr. Vu Khoan said in his opening remarks.

Meeting Vietnam’s social and economic targets

The CG meeting opened with a discussion of recent progress in reaching Vietnam’s social and economic targets for the 2001-2005 SEDP and in implementing the CPRGS. Challenges facing the country, as it starts preparing the next SEDP were highlighted. The Government also reported on the main findings of its second annual progress report of the CPRGS.

“Embarking upon the second five-year plan, 2006-2010, we can capitalize on the significant achievements accomplished by the “doi moi” policy. The next socio-economic development plan would include a new system of more qualitative targets and far fewer quantitative ones. Besides economic targets it would include targets for quality of life and human development. As such, the plan must concretize the targets set in the Comprehensive Poverty Reduction and Growth strategy, Vietnam’s Millennium Development Goals. The plan will be built from the bottom up, after many rounds of consultation with stakeholders. Citizen participation in allocating resources and monitoring project implementation will certainly enhance the effectiveness of resource use”, said Meeting Co-Chair, H.E. Mr. Vo Hong Phuc, Minister for Planning and Investment.

While commending Vietnam’s strong economic progress in the last few years and its record of prudent macroeconomic management , delegates emphasized the need to accelerate implementation of reforms to ensure continued rapid poverty reduction. “Sustaining economic growth and poverty reduction over the medium term hinges both on a continuation of its past prudent macroeconomic stance and stronger structural reforms. Accelerating banking sector reforms is of particular importance, with the recent rise in credit growth being a cause for concern given uncertain loan quality”, Mr. Shogo Ishii, Chief of Mission for Vietnam, IMF, noted. Donors acknowledged that the problems of the financial sector are manageable for now, but could grow rapidly as Vietnam integrates with the World economy. Strengthening the corporate governance of state-owned commercial banks, and focusing the State Bank of Vietnam on the supervision functions of a modern central bank were seen as important actions to consider.

Donors complemented the Government for the recent achievements in economic growth and poverty reduction and for its strong ownership of the CPRGS. Donors offered support to address growing inequalities driven by ethnicity, location and gender. They also took note of recent encouraging steps in the fight against HIV/AIDS.

“The main challenge for the future is to improve the quality of growth, to ensure that the benefits of growth are shared as widely as possible across all social and economic groups, and equally by women and men, boys and girls. Regarding HIV/AIDS, the recently approved National Strategy represents a sound basis for further action. But to succeed, a crucial factor will be the commitment of national leaders from Government, the Party, the National Assembly, and mass organizations to forge a truly national effort to stem the spread of the virus and stamp out stigma and discrimination against people living with HIV/AIDS.” noted Mr. Jordan Ryan, United Nations (UN) Resident Coordinator and Resident Representative, United Nations Development Programme (UNDP).

Donors pledged their support to Government’s preparation of the next SEDP, and warmly welcomed the intention to apply the process of the CPRGS in the SEDP. This implies intensified efforts to fill analytical gaps, to provide for debates and discussions and to engage in a process, which can represent the views of a broad range of stakeholders. Delegates agreed to report back on progress in this regard at the next Mid-Year CG-meeting.

“It is essential that the next Five-Year Plan will shift away from the production target-oriented approach of a planned economy and towards modern indicative planning. At the moment, the CPRGS and the 5-year Socio-Economic Development Plan co-exist in Vietnam. Japan supports the direction agreed at the Mid-year CG meeting that the CPRGS should be integrated into the next Five Year Plan. In this context, it is important that the prominent elements in the CPRGS, such as the outcome-oriented planning and the broad-based participatory approach, will be brought into the next Five-Year Plan ”, said H.E. Mr. Norio Hattori, Ambassador of Japan.

Government reported on recent significant progress in the WTO accession negotiations, as well as the resulting challenges in implementing WTO commitments and fully taking advantage of the benefits of WTO membership. Donors pledged their support to assist the Government in meeting these challenges in the context of the new SEDP.

“The EU, as Vietnam’s most important trading partner, is pleased to have signed a bilateral agreement regarding Vietnam’s accession to WTO. The deal gives crucial momentum to the accession process. WTO accession is a huge opportunity for Vietnam, but a huge challenge as well: the economy will be opened up fully to international competition and must be structurally prepared so that the possible negative social consequences can be mitigated.” said the Dutch Ambassador, H.E. Mr. Gerben de Jong, on behalf of the European Union.

Strengthening Vietnam’s competitiveness and fighting corruption

As part of the CG process, the Vietnam Business Forum was held Monday this week between representatives of the business community and the Government. Representatives of the Business Forum reported the continued favorable Vietnamese business outlook. At the same time the business community urged the Government to maintain the momentum of reform. Donors noted that enhancing competitiveness was a major challenge for Vietnam especially as it prepared to accede to the WTO. A better investment climate was viewed by delegates as both promoting economic growth as well as reducing poverty.

On behalf of the Vietnam Business Forum Mr. Deepak Khanna, IFC Country Manager stated “The Business Forum welcomes the frank and constructive dialogue it has been having with the Government. The Government’s willingness to seriously consider the concrete suggestions put forward by the business community augurs well for improving the investment climate in Vietnam. Various surveys confirmed the attractiveness of Vietnam as an investment destination. Converting these expectations into reality needs even closer collaboration between Government and business. Much remains to be done to streamline procedures, curb corruption, improve infrastructure and level the playing field with state enterprises.”

The Government presented recent initiatives to tackle corruption. Donors encouraged the Government to use the diagnostic assessment currently being conducted as a basis for a coherent anti-corruption strategy. Donors agreed that elements of a solution to corruption issues in Vietnam included: A comprehensive legal framework, public administration reform, transparency and accountability, a more significant role for the media, SOE and financial sector reform, and a careful screening of policy lending.

H.E. Ambassador of Denmark, Mr. Peter Lysholt Hansen stated : “The Government’s and National Assembly’s high-level commitment to tackle corruption and to work with donors to achieve this is commendable and now needs to be implemented in practice. Corruption increases the cost of doing business and the victims of corruption are too often the poorest and most vulnerable members of society. Increasing transparency and accountability at all levels of Government, as well as comprehensive legal reform are key to achieve genuine progress. Priority should be placed on improving transparency in public financial management, resource allocation, procurement, audit and inspection, and fees and charges for public services, as well as on the essential role of a free press in fighting corruption.”

ODA effectiveness and reduced transaction costs

Donors complimented the Government for its progress achieved in implementing the harmonization action plan, as recorded in the annual report of the joint Government-Donor Partnership Group for Aid Effectiveness. Donors also took note of the activities carried out under the comprehensive capacity building program to enhance Government’s capacity to implement ODA. Delegates agreed that efforts should be taken to move the aid effectiveness to the next level, by working directly with Government systems. Delegates also agreed that the revised ODA decree 17 and the new ODA master-plan should pay a facilitative role in aligning the ODA utilization with the new SEDP.

“ADB will be working with the Government and the ODA community to develop a common set of indicators for the highest level development goals and also for short- to medium-term development outcomes. For this purpose, the indicators of the CPRGS, the VDG’s, and the SEDP should be measurable. The data supporting the indicators should be reliable and collectable in an economically efficient manner. We view the development and agreement on these indicators as crucial to the successful implementation of the CPRGS, VDG’s as well as to more effective donor coordination”, said Mr. Bradford Phillips, Country Director of ADB.

In his closing remarks, Mr. Klaus Rohland, World Bank Country Director for Vietnam, underlined that this meeting was taking place at a decisive juncture. “In the next five years, Vietnam should have acceded to the WTO and completed its transition to a market economy. The nature of planning would need to adapt to this transition. This second generation of planning would see a diminished role for Government as a producer of goods and services. The Government would instead focus on  strengthening the foundations of a market economy that would encourage business development.  Its role would be essential in areas where the market will not deliver, such as targeted poverty reduction programs, social protection, infrastructure development and ensuring a clean and safe environment for future generations”, ended Mr. Rohland.

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