Vietnam Secures Continued Support from Aid Donors

Contacts: In HanoiBradley O. Babson
Fax: (84) 4 843 2471

In WashingtonGraham Barrett
(202) 473-4051
Fax: (202) 522 3405

HANOI, December 6, 1996A review of recent economic developments and the tasks and challenges of Vietnams new phase of economic growth and renovation dominated the discussions at the fourth gathering of international aid donors with the Government of Vietnam in Hanoi this week.

Deputy Prime Minister Phan Van Khai reassured donors that the Government is firmly committed to deepening economic and public administration reforms following this past years Party Congress and the adoption of an ambitious new Five Year Plan to industrialize and modernize Vietnams economy as it prepares to enter the next century. "Although the accomplishments under the Doi Moi renovation policy are encouraging, they should not be allowed to breed complacency, for the tougher part of the journey is still ahead," Deputy Prime Minister Phan Van Khai remarked in his opening address to the meeting.

Participants congratulated Vietnam on its continued strong economic performance in 1996, noting that growth will exceed 9 percent, inflation will remain under control, and investment will reach nearly 30 percent of GDP, fueled by strong growth of FDI disbursements of over $2.3 billion for the year. Emerging macroeconomic issues were highlighted, notably the high current account deficit of 12 percent of GDP. Deficits of this magnitude would not be sustainable and would jeopardize Vietnams future creditworthiness and its ability to sustain high growth over the medium term.

"There is a need to sustain the macroeconomic stabilization effort and to deepen structural reforms despite increasing complexities, in order to achieve the pace and pattern of growth necessary to generate employment and to reduce poverty rapidly," noted Consultative Group Chairman, Mr. Javad K. Shirazi of the World Bank.

Donors strongly supported the objectives of the Governments new Five Year Plan to seek rapid and efficient industrialization development while aggressively promoting rural development and poverty reduction. The major challenges in meeting these goals were identified as: mobilizing the necessary investment capital from domestic and foreign sources, improving the policies and institutions necessary for enhancing the economys efficiency and international competitiveness, developing and harnessing Vietnams rich potential in human resources, and containing environmental degradation. As a vivid demonstration of confidence in Vietnam, the donors pledged $2.4 billion for 1997 to support structural reforms and the implementation of the new Planan amount which exceeds the $2 billion recommended by the World Bank. This does not include the important financial contribution of the NGO community and the financial resources expected to be transferred under the International Monetary Funds Extended Structural Adjustment Facility of $180 million in 1997.

There was broad agreement that a determined effort to deepen and accelerate reforms is needed to meet these challenges, and that priority should be given to tax reform, the financial sector, private sector development, state enterprise reforms and trade liberalization, while continuing development of the legal system and administrative reform efforts to reduce red tape and to improve accountability and transparency. Raising domestic savings and investment efficiency were noted by many Donors as particularly important.

Donors emphasized the importance of increasing the efficiency of investment and ensuring that project selections conform to the Governments strategies and priorities for national development, while cautioning that large capital-intensive projects need careful consideration at this stage of economic development to ensure that they conform to Vietnams long-term comparative advantage. Creating a supportive environment for dynamic growth of small and medium-sized businesses and rural industries was considered essential for job creation and new growth opportunities.

Donors also called on Vietnam to increase the open flow of information and transparency in the handling of public funds and public decision-making to further improve the environment for an efficient market economy and to promote investor and public confidence.

Meeting Vietnams goals for rural development and poverty reduction was singled out for special attention. "Vietnam will need to stay the course of the Doi Moi reform process and pick up the pace if rapid poverty reduction is to be achieved and sustained," said Mr. Roy Morey of the United Nations Development Program.

In implementing the Budget law, Donors urged the Government to provide improved ways for collaboration with local governments in effectively delivering services and investments targeted at poverty reduction and social sector development. Important measures to achieve these goals include fiscal decentralization, increased delegation of administrative authority and capacity building of lower levels of government, equitable allocation of the central budget, and economic policies that do not discriminate against agriculture. Donors also stressed the importance of social aspects of rural development, especially for ethnic minorities.

Education was highlighted as a high priority. Ensuring that basic social services are provided to the rural population, that children are educated to participate in Vietnams future modernized economy, and that there is greater equity in public expenditures, were targeted areas of education reforms.

Donors praised Vietnams commitment to environmental management and noted that the Five Year Plan contains a number of important initiatives for sustainable development and protection of natural resources. Concerns were raised, however, about the rate of deforestation and risks of environmental degradation during the industrialization process.

Quality of external resources to support Vietnams development programs also received attention. Though rapid progress has been made in absorption of both official development assistance (ODA) and foreign direct investment (FDI) projects, constraints on timely implementation still remain. For ODA, speeding up decision-making, clarifying and streamlining procedures, resolving procurement problems, improving the flow of counterpart funds, and adopting standardized policies for resettlement of people affected by infrastructure projects, were identified as areas needing more attention. For FDI projects, donors commended improvements in the recent amendments to the Foreign Investment law, but called for greater attention to issues affecting the success of these projects, including further streamlining of approval requirements and procedures, creating conditions for fair competition between the State and Non-State sectors, and putting in place appropriate mortgage security rights.

*The Consultative Group for Vietnam met on December 5 and 6, 1996 under the Chairmanship of Mr. Javad K. Shirazi, Director, Country Department 1, East Asia and Pacific Region of the World Bank. The Vietnamese delegation was led by His Excellency Deputy Prime Minister Phan Van Khai, and included Mr. Tran Xuan Gia, Minister of Planning and Investment; Mr. Vo Hung Phuc, Vice Minister of Planning and Investment; Mr. Vu Khoan, Vice Minister of Foreign Affairs; Mr. Le Duc Thuy, Deputy Governor of the State Bank of Vietnam; Mr. Doan Ngoc Giao, Vice Chairman of the Office of Government; and Mrs. Le Thi Bang Tam, Vice Minister of Finance. Professor Do Quoc Sam participated as an Honored Guest. The meeting was organized in consultation with the Government of Vietnam.

The meeting was attended by delegations from Australia, Belgium, Canada, China, Denmark, Finland, France, Germany, Italy, Japan, Korea, the Netherlands, New Zealand, Norway, Russia, Singapore, Spain, Sweden, Switzerland, Thailand, the United Kingdom, and the United States of America. The international organizations participating in the meeting included the Asian Development Bank, the European Commission, International Finance Corporation, International Monetary Fund, Kuwait Fund for Arab Economic Development and the United Nations Development Program. Attending as observers were Brunei, Indonesia, Malaysia, the Philippines, International Fund for Agricultural Development, Organization for Economic Cooperation and Development, United Nations Childrens Fund, United Nations Food and Agriculture Organization, United Nations Fund for Population Activities, United Nations High Commission for Refugees, United Nations Industrial Development Organization, World Food Program, World Health Organization, and Action Aid (representing non-governmental organizations active in Vietnam).