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Public Policies
Vietnam
In the Field
Encourage Vietnam to reform public investment,
and sustain its efforts for economic stimulus
Context
The global crisis of 2008 shook up Vietnam, a recent member of
the WTO (since 2007). The country's exports - driver of its
economic growth - and capital investment fell sharply. While the
government in Hanoi was attempting to control an unbridled
inflation (12.6% in 2007, 23% in 2008) with an austerity program,
it needed to put into place a series of stimulus measures, for 8.3
billion US Dollars (or 8.5% of GDP in 2009).
This plan allowed it to limit the waves of lay-offs and to maintain
its economic growth at 5.32% in 2009 (with the global recovery, it
established itself at 6.8% for 2010). But the trade deficit and the
current balance deepened. Under pressure, the Dong (national
currency) depreciated against the US Dollar.
Also confronted with a budget deficit (9% of GDP), the Vietnamese government called on donors to fund its
stimulus plan.
Objectives
The Public Investment Reform program (PIR), in which the AFD is participating, aims at improving effectiveness in
public investment (in the management and transparency of projects and in the disbursement of public
development aid). The donors are encouraging the country to increasingly consider environmental and social
consequences of the projects, and to promote the participation of private enterprises in funding infrastructures.
The PIR helps Vietnam to:
- maintain its economic growth and therefore its rhythm of development;
- keep its jobs;
- respond to considerable infrastructure needs.
Description of the projects (PIR1 and PIR2)
The AFD (partnered with the World Bank for this project) offered Vietnam a budget aid for 2009 (PIR 1 project).
This rapid response from the donors was nevertheless conditioned on the adoption of a program of reforms. The
improvement of the effectiveness of public investment was an issue. Three principal conditions were required:
1. Introduce more competition and transparency in the public markets;
2. Improve the consideration of the environmental and social impacts of the projects;
3. Reduce the duration of execution and increase the rate of disbursement of the projects financed by public
development aid.
The donors have defined ten or so measures necessary prior to the payment of funds: Some are part of the Six
Banks Group's action plan presented to Vietnam (AFD, ADB, World Bank, JICA, KEXIM, and KfW). Encouraged
by this method, the government published, for example, a decree according to which the indemnity for
expropriated families (due to a public investment project) must be determined according to market prices.
The same decision was included in the government's budget for the year 2010 (PIR2). It pursues the same
principal objectives. Once again, the AFD exchanged aid for the implementation of new measures or policies.
Among them, the introduction of environmental evaluations for all future investment projects, the end of the
tutelage of the ministry of Construction over public civil engineering enterprises - source of conflict of interests and even the clarification of public-private partnership rules in view of stimulating the interest of private enterprises
in funding projects.
The definition of PIR 2 took place in a different context from that of the first installment: Vietnam had already come
out of the global crisis, but unlike its neighbors in Southeast Asia, it must now meet several structural challenges
(its trade and budgetary deficits, cleaning up its public sector, pressures from the depreciation of the Dong). The
government started to attack these macroeconomic imbalances in February 2011 (raising interest rates, auditing
public groups, etc.).
Impact
The PIR contributed to sustaining the economic stimulus in Vietnam
(therefore protecting jobs) and restoring investor confidence in the
country. This participation in the budget of the State helped Vietnam
launch indispensable infrastructure construction sites, for example.
The measures that must trigger the payment of budgetary aid aim to
introduce more transparency in public investment. And they encourage
the participation of the private sector in the funding of infrastructures.
In the end, the program will ensure better environmental protection,
thanks to the systematization of impact studies for projects.
Dates and amounts
Launch: Project initiated in 2009, operational beginning of 2010 (PIR 1) and beginning of 2011 (PIR 2)
Funding:
- PIR 1: sovereign loan of 100 million Euros (to the Vietnamese minister of Finance) earmarked for the state
budget, co-financed with the World Bank (500 million US Dollars).
- PIR 2: sovereign loan of 35 million Euros to the state budget, co-financed with the World Bank (350 million US
Dollars).
For more information go to: www.afd.fr