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Whether Vietnam should rely on ODA or not?
16/07/2014

(VOV) – Official Development Assistance (ODA) has been a key source of funds, helping, Vietnam make great socio-economic strides in the comprehensive renewal process.

Over the past two decades foreign countries have provided US$80 billion in ODA, and the funding has been used quite effectively in the country.

Now that Vietnam has become a middle income country and whether it should continue to rely on the preferential capital sources remains an open question.

Questions have also arisen as to what other capital sources Vietnam should use to manage continued development during the renewal process in line with new demands.

Duong Duc Ung, former Director of the External Economic Department under the Ministry of Planning and Investment, shed light on the issue in an exclusive interview granted to VOV.

Following are key excerpts of the interview:

VOV: Over the past 20 years, nearly US$80 billion in ODA has been granted to Vietnam. How have the funds helped Vietnam during the national economic development and international integration process?
Ung: Through 19 consultative group (CG) meetings from 1993 to 2012, donors committed US$78 billion in loans to Vietnam. The figure hit nearly US$80 billion if one takes into account the capital in 2013 and first half of this year.

However, it’s important to note that Vietnam became a middle income country in 2010 and donors agreed not to make an ODA commitment for just one year; instead, they decided to give their commitment at any time of year.

This is an important message, demonstrating that Vietnam holds dialogue with donors for ODA on the basis of equality, mutual trust and cooperation for shared development.

Each year, Vietnam disburses around US$3 billion in ODA to help balance the macro-economy, ensure financial sources for investment development, and support sectoral development, especially infrastructure.

Vietnam fulfilled its millennium development goals (MDG) in poverty reduction in 2008, well ahead of its 2015 target. The achievement is highly attributable to the effective use of ODA.

VOV: The annual disbursed capital (US$3 billion) is said to meet only 60% of the need for development targets. What are the ramifications of such slow disbursement on the economy?
Ung: Slow disbursement is akin to someone that needs food but when the food comes he doesn’t eat it.

Slow disbursement of huge assistance capital over the past 20 years reflects weak absorbability, leading to following consequences:

First, slow investment causes economic losses due to the time value of money.  A delay in a planned project results in a delay in the economic benefits from the project and therefore lowers the present value of the project.

Second, slow disbursement is a waste of economic resources for not only Vietnam but also for the global community. If Vietnam does not have an immediate use for the capital, it should be sent to other countries who can better utilize it.

Third, it diminishes the trust of foreign investors in the nation. When signing agreements, Vietnam promises to carry out projects on schedule and make effective use of the resources.

If the nation does not make good on its commitments, it will cause huge economic losses and damage Vietnam’s prestige.

VOV: What are the main causes of slow disbursement?
Ung:  Some of the projects require contributory capital from the government and the government has been slow in making these payments causing unnecessary delay in disbursing related ODA funds as well.

There is also general lackadaisical oversight of ODA projects. Far too many management agencies are not clear of their role in the ODA process and its importance.

ODA procedures of both Vietnam and donors are too cumbersome and inconsistent.

Lastly, ODA management regulations are not strictly observed while project management capacity is weak and unprofessional.

VOV: Many experts say that it is time for Vietnam to lessen its reliance on ODA and to high time shift to other capital with tighter conditions. What do you think?
Ung: Vietnam has made the transition from a poor developing nation  into a middle income nation according to world standards. Thus it cannot continue to enjoy as much ODA as it has in the past.

It is time for the country to look forward to other sources of funds which are less preferential than ODA but more preferential than other commercial loans.

New loans will have higher interest rate and shorter time periods for repayment, but the borrower will have more choices, including choosing currencies like Yen, Euro or US dollar.

This will provide both opportunity and challenges for Vietnam.

VOV: A decline in preferential assistance means that Vietnam must adjust macro policy. What is your approach to building policy for lessening reliance on ODA?
Ung: Traditionally, ODA is often used to develop infrastructure and supply high quality public services in line with citizens’ payment capacity.

To use less preferential loans effectively, Vietnam should devise incentives and create a highly competitive environment on an equal footing for all economic sectors, including private businesses.

For example, private businesses should be encouraged to invest in building a highway alongside World Bank loans. This approach will help create equality in the market and on the other hand optimize the engagement of all sectors in national economic development.

VOV: Thank you very much.

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