Consultative Group Meeting for Vietnam 2011
“Accelerating economic restructuring and poverty reduction”
CG meeting agreed on Restructuring the Economy and Ensuring Social Stability as key medium-term priorities
Hanoi, December 6, 2011 - The Consultative Group Meeting between the Government of Vietnam and Development Partners was held today with delegates agreeing to work towards accelerating Vietnam’s economic restructuring and addressing new poverty dynamics.
Prime Minister Nguyen Tan Dung attended the first session of the meeting and updated participants on Vietnam’s performance in 2011 and the Government’s policy directions for 2012. According to the Prime Minister, continuing the stabilization efforts, speeding up economic restructuring and poverty reduction are key Government’s priorities for 2012 and beyond. The Government will focus on restructuring three key areas — public investment, state owned enterprises and banking sector. At the same time, the Government considers enhanced social welfare and solutions to other social issues both objectives and means to sustainable development, and aims to reduce poverty by 2 percentage points next year.
Development Partners urged the government to continue implementation of measures to stabilize the economy, initiate reforms to restructure the economy and to reduce poverty. In support of government’s reform effort they pledged 7.39 billion USD ODA to Vietnam for 2012.
VIETNAM’S MACROECONOMIC CONTEXT AND RESTRUCTURING AGENDA:
Delegates discussed recent macroeconomic developments in Vietnam and commended the Government for steadfast implementation of Resolution 11, including tightening of monetary policy, reducing fiscal deficit and safeguarding the stability of the financial system.
Mr. Sanjay Kalra, Resident Representative of the IMF advised the Government to move rapidly and decisively to ensure financial sector soundness while reestablishing macroeconomic stability, as failure to do so may jeopardize the gains so far. He advised that: (i) monetary and exchange rate policies need to focus on building confidence in the dong, lower inflation expectations, and rebuild reserves; (ii) fiscal policy should support monetary policy more in reducing inflation; and (iii) vulnerabilities in the financial sector need to be addressed without delay.
Regarding the restructuring agenda, Development Partners supported the decision to consolidate public investment, and to focus on improving its productivity.
Mr. Deepak Mishra, Lead Economist of the World Bank in Vietnam, representing Development Partners noted that the public investment regime has increasingly become unaffordable and contributed to rising level of public debt. Effective restructuring of public investment is an imperative. Measures that could improve the effectiveness of public investment include reforming land use rights, changing the fiscal incentives for the local governments, and strengthening legislative framework for public investment.
RESTRUCTURING THE FINAINCIAL SECTOR
Delegates agreed that Vietnam’s banking sector is showing signs of stress after prolonged macroeconomic instability. Development partners welcomed the Government’s commitment to restructure the financial sector, and indicated that they stand ready to support government in these important reform efforts.
CG participants listened to Malaysia’s experience with restructuring of its financial sector from Ms. Latifah Merican-Cheong, Advisor, Office of the Chairman, Malaysian Securities Commission, and discussed lessons relevant to Vietnam. Key lessons include: (i) commitment and participation at the highest levels; (ii) a comprehensive and well sequenced plan aligned with the country’s economic transformation objective; (iii) clear and robust institutional structure to implement the plan; (iv) transparency in the conduct of the reforms; (v) communication strategy with consistent messages; and (vi) cooperation between stakeholders.
Mr. Tomoyuki Kimura, ADB Country Director, urged that reforms must touch all aspects of the financial sector, including the state owned enterprises, the capital markets and the banking sector. On behalf of development partners, he encouraged the Government to begin the IMF-WB Financial Sector Assessment Program (FSAP) to comprehensively assess the state of the financial sector. The findings of the assessment will help identify and estimate the precise magnitude of risks, and will provide a prioritized set of recommendations with which all stakeholders can coordinate and integrate their assistance to financial sector restructuring.
Several participants shared their experience on restructuring of SOEs and the financial sector. The Korean Ambassador to Vietnam, Mr. Ha Chan Ho, shared Korea’s experience with SOE restructuring, with key lessons for Vietnam, including: (i) sound labor relations; (ii) strong leadership of SOE restructuring process; and (iii) an enhanced monitoring and evaluation system. The discipline introduced as part of the reform, such as guidelines on management greatly increased the efficiency of the institutions. On the financial sector, the Ambassador noted that restructuring is more painful when it is forced by the external environment and advised the Vietnamese Government to “be prepared and take proactive action”. The Australian Ambassador, Allastar Cox, stressed that a forensic audit of all the banks, with results being made public, should be the first step in financial restructuring.
NEW POVERTY DYNAMICS
Development partners congratulated the Government for its impressive record of poverty reduction over the last 15 years, during which about 28 million people are estimated to have been lifted out of poverty. They also raised concern that the pace of poverty reduction is slowing down, and some part of the population is chronically poor, especially among the ethnic minorities. Development partners called for more differentiated and multi-dimensional approach to addressing the remaining pockets of poverty.
United Nations Resident Coordinator, Ms Pratibha Mehta said that the social protection system will need to be reviewed and adapted to cover emerging forms of poverty, and to strengthen their role in preventing people from falling back to poverty. This should go hand in hand with restructuring the economy. She noted that while rural poverty remains dominant, urbanization and migration to cities are generating new forms of poverty, which are less obvious and may even escape official statistics on poverty. The poor face severe constraints including access to housing, sanitation, social services and social inclusion. They are also more vulnerable to economic shocks and inflation.
In this context, it is important for poverty measurement to capture non-monetary dimensions of poverty, including by institutionalizing use of multi-dimensional poverty indicators.
CG participants also called for a more systemic response on the part of government to address rising vulnerability, including the development of a modern social protection system and stronger coordination across various ministries and government agencies on poverty reduction policies and programs.
REPORTS FROM VIETNAM BUSINESS FORUM AND HIGH LEVEL FORUM ON AID EFFECTIVENESS
Delegates heard reports from the Vietnam Business Forum, part of the CG process held on December 2nd, 2011. The Forum sentiment survey this year showed that business morale is at a three year low, and so business community has called for the Government to take concrete actions on the three areas of reforms earlier stated by the Government.
On the High level forum on Aid Effectiveness held in Busan, Korea, from November 29th to December 1st, 2011, the delegates were informed that a new global partnership has been formed, and the forum’s diversified partners have confirmed the shared principles, goals and commitments toward global partnership as stated in the Busan Outcome Document. The messages from the Busan Outcome Document were shared with delegates, including 1) shared principles and inclusive partnership, 2) commitments and actions, 3) country level framework for mutual accountability, 4) from aid effectiveness to development effectiveness, 5) South – South and triangular cooperation, and 6) private sector and development.
In her summary of CG proceedings, the World Bank Country Director for Vietnam, Victoria Kwakwa, noted that the Government’s selection of restructuring of public investment, state owned enterprises and financial sector as key reform priorities for the next five years is an important first step. What is needed next is strong political will to bring a sense of urgency to concretizing the details of this restructuring and driving implementation in a credible way. She emphasized that Development Partners stand ready to support Government to achieve this restructuring and to put in place a strong system of social protection that will address Vietnam’s existing poverty and emerging new dynamics.
Minister of Planning and Investment Bui Quang Vinh concluded the meeting by thanking the Development Partners for the affirmation of their continued support to Vietnam as the country embarks on its restructuring agenda. He assured Partners that ODA resources would be used efficiently in support of Vietnam’s development and stressed the Government’s appreciation for Development Partner policy advice. He indicated the Government’s desire to continue regular dialogue with Partners on Vietnam’s development challenges.