After 30 years of the Renovation, Vietnam has made great achievements
in economic development and social progress. Besides its efforts, Vietnam has
enlisted the support of international community to promote internal strength
along with taking the advantage of all opportunities and overcoming the
national difficulties as well as negative impacts of the global economic crisis
in order to maintain stability the macroeconomic as well as ensure social
security. In the period 1993-2015, with approximately $US 85 billion of the
committed capital, $US 72 billion of the signed capital and $US 53 billion of
the disbursed capital, Official Development Assistance (ODA) has become a
significant source of additional capital with many comparative advantages.
Compared to commercial loans on international capital markets, the financial
conditions of ODA brings more preferential treatments. Hence, Vietnam can
implement a huge of programs and projects of social infrastructure in the areas
of health, education, poverty reduction, as well as institutional development
and human capacity building.
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INTRODUCTION
1. The necessary of the study
After 30 years of the Renovation, Vietnam has made great achievements
in economic development and social progress. Besides its efforts, Vietnam has
enlisted the support of international community to promote internal strength
along with taking the advantage of all opportunities and overcoming the
national difficulties as well as negative impacts of the global economic crisis
in order to maintain stability the macroeconomic as well as ensure social
security. In the period 1993-2015, with approximately $US 85 billion of the
committed capital, $US 72 billion of the signed capital and $US 53 billion of
the disbursed capital, Official Development Assistance (ODA) has become a
significant source of additional capital with many comparative advantages.
Compared to commercial loans on international capital markets, the financial
conditions of ODA brings more preferential treatments. Hence, Vietnam can
implement a huge of programs and projects of social infrastructure in the areas
of health, education, poverty reduction, as well as institutional development
and human capacity building.
In 2010, the average of Gross Domestic Product (GDP) per capita of
Vietnam was $1.168/person1 - higher than the starting level of middle-income
countries (as classified by the World Bank). Consistent with the practice of
international development assistance, the donors apply the different policies to
support the low-income least developed countries group and the middle-
income countries group. Becoming a middle-income country has made all the
aid policies for Vietnam change. It means the nature, the scope, the structure,
the conditions and the method of providing ODA for Vietnam will be different
from the last period of Vietnam. With the aim of maximizing the effectiveness
of these funds, serving the economic and social development, this apprently
leads the needs of the new policy and insitution for ODA in Vietnam.
In fact, there was still some limitations and weaknesses in mobilizing and
utilizing ODA in recent years presenting in low disbursement ratio has
affected the investment performance of some programs and projects. The
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Reports of the 10th Party Central Committee, Jan 2011
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Congress’s forum and national citizens are concerned about the safety of the
public debt, specially the high proportion of ODA debt. The total foreign debts
of Vietnam by 31 December 2013, was more than $US 36 billion and
accounted by 37,3% GDP2.
In order to realize the Government's guidelines on ODA funds and to
maintain the needs of deverloping investments as well as to ensure national
public debt sustainability in the context of Vietnam becoming MIC, it needs to
be changed not only the macro vision and strategy but also the solutions in
management and utilization ODA effectively in all levels. These are the new
challenges posed to those working in economic research, policy makers and
those who implement practices in mobilizing and utilizing ODA in Vietnam.
However, so far, no in-depth studies mentioned about this urgent issue above.
That’s why this thesis named “The Official Development Aid (ODA) in the
context of Vietnam becoming middle-income country (MIC)” has
contributed to resolve part of the requirements which set out for the use of
these funds in the new stage of the development of country.
2. Research questions
The thesis identified four (04) following research questions:
What social and economic achievements does ODA contribute to when
Vietnam has become the MIC?
What is the nature, the characteristics, the conditions and the
methodolities of providing ODA when Vietnam became a MIC?
Which factors affect to ODA in Vietnam when becoming the MIC?
What are the recommendations for improving the policy framework for
ODA in Vietnam when switching to MIC?
3. Research objectives
This study has the following targets:
Assessing the impact of ODA to the economic and social areas of
Vietnam in general and in the new conditions;
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No.3 Newsletter of Public Debt, Ministry of Finance, 2014
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Identifying the factors that influenced to ODA in the context of
Vietnam that became a MIC;
Proposing the policy recommendations for ODA in Vietnam as a
member of MIC;
Contributing to some aspects of ODA when Vietnam is a MIC through
a review of experiences and practices in Vietnam in order to get various, new
and updated approaches from the concept, characteristics, trends and academic
perspectives.
4. Research Object and Scope
4.1. Research obect
The Official Development Assistance (ODA) in the thesis includes the
grant aid, concessional loans, the less concessional loans from the
governments and international financial institutions.
4.2. Research scope
Since the target set out in, the thesis focuses on the 1993-2015 period
of ODA, analysing of the emerging issues in the period 2010-2015 (the
period when Vietnam began to become middle-income country MIC). The
ODA metioned in the thesis has analysised in general, do not go into a in-
depth way.
In terms of space, the thesis has been researched in the territory of
Vietnam; the lessons of international experiences are analyzed based on the
reports and available data sources from the regional and international
contries having context, economic and social conditions similar to Vietnam.
Thus, there can be detected some general aspects which identify ODA in a
good way for MIC.
5. New contributions of the thesis
The thesis “The Official Development Aid (ODA) in the context of
Vietnam becoming middle-income country (MIC)” has some new meaningful
contributions in terms of theory and practice. Apart from that, it helps to raise
the efficiency of ODA and concessional loans in the new context of Vietnam.
Specific:
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Firsly, to contribute to knowledge about development aid in developing
countries based on the experience of Vietnam, including:
The thesis describes that the new features in the mobilization and
utilization of ODA, in terms of middle-income countries MIC, are moving
from “aid” relationship to become “development partners” relationshio. It
requires proactive efforts of Vietnam in order to use effectively and then
will “deny” ODA in the future.
The thesis has constructed the concept of the Official Development
Assistance in middle-income conditions MIC in Vietnam, including the
grant ODA, concessional loans and less-concessional loans (preference than
commercial loans).
The thesis has identified the rule of ODA along with the development
of a country, specificially Vietnam. From there, the thesis develop a
roadmap for ODA in Vietnam in parallel with the development process in
the middle-income countries. At the same time, the thesis also provides the
analysis of: the middle-income country with a “graduation” schedule for
ODA, should set up the own strategy for supplying ODA as a “diplomatic
tool” and extend cooperation relationship in economic, trade and investment
with other the least-developed low income countries.
The thesis has identified the properties of the new factors affecting
the ODA in Vietnam with the context of MIC (the economic - political
relation as well as the relation of strategic partners and the ownership). The
thesis has been interpreted two factor groups affected ODA in Vietnam: (1)
factors derived from aid provider (aid strategies and policies of donors, the
economy and the political situations as well as the fluctuations that may
occur in the donor countries, the international atmosphere and the
development of economic-politic relations, between the donors and aid
recipients); (2) the internal factor from Vietnam (the economic- political
enviroment in Vietnam; the ODA policies; and the ODA absorption capacity
of Vietnam).
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Secondly, base on the factors affecting ODA, analysis the effectiveness
in LIC, put in a new context in Vietnam (MIC), the thesis proposed
recommendation on ODA policies.
6. Research methodologies
In this thesis, both of qualitative and quantitative methods are applied.
The quantitative methods is used for assessing the impact of ODA to the
development of the economy, the sociaty and the state management. The
qualitative method is applied in assessing the factors affecting the ODA in
Vietnam. Specifically, the two main methodologies in this thesis are: (1)
Desk-study; (2) Interview/Expert consultation.
7. Structure of the thesis
Apart from the Introduction, Conclusion, Appendix, List of References
the thesis is presented in four chapters:
Chapter 1. Literature review
Chapter 2. The rationale and practical basis on ODA of a country when
becoming a MIC.
Chapter 3. Status of ODA in Vietnam in terms of MIC.
Chapter 4. The perspective and orientation of ODA in Vietnam in future
time.
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CHAPTER 1. LITERATURE REVIEW
1.1. The Official Development Assisstance ODA
The Official Development Assisstance includes the ODA capital and the
concessional loans from the foreign donors for Vietnam government, which
was determined in the Law on Public Investment, is public investment capital,
so that becomes the impacted objective of this law. Budget capital for public
investment stipulated in this Law includes funds derived from the State
budget, government bonds, local government bonds, official development
assistance (ODA), overseas concessional loans, government credits for
investment and development purposes, retained revenues of the state budget
that have not been recorded in the state budget balance and other loans
secured by the local budget for public investment purposes3.
ODA - a popular perpective in Vietnam - stands for Official Development
Assistance. There are many different definitions of ODA from the
international organizations and even in Vietnam, ODA is also definitioned
in many different ways in some organizations such as the Organization for
Economic Cooperation and Development OECD, World Bank, Decree on
Management and Utilization of ODA in Vietnam, Law on Public Debt
Management 2009.
The thesis defined the official development assistance includes the grant
aids, concessional loans, less concessional loans from the goverments, the
intergovernmental organizations, the organizations in UN (United Nations),
the international financial institutions provided for the low-income or
developing governments in order to contribute for economomic and social
development.
1.2. The Aids in the middle-income countries MIC
There are a wide range of opinions on whether or not continuing the aids
for MIC and which priority areas should be aided for MIC?
1.3. The factors affecting the aids
The researches focus on analyzing: the relationship between the politics
and the aids, the relationship between the policy environment and
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Law on Public Investment 2014.
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development aid, the relationship between the sponsoring strategies, aid
receiving strategies and development fundings.
1.4. Assending the efficiency of development aid
Many studies not only pointed out the relationship between the aid and
the growth but also indicated the improvement of the aid’s effective. There
are, however, still a lot of controversies about that relationship.
1.5. The Official Development Aid in Vietnam
It can devide research on ODA in Vietnam into three main groups: The
overview of ODA in Vietnam, ODA by the sectors and ODA by the donors.
The advantage of these studies are adhesion the international standard
concepts as well as the in-depth analysis and the international comparison
examples. Besides, there is a plenty of reality analysis, including some
perfect lessons for Vietnam. All these reports, in recent time, showed some
significant evaluations, the practice lessons and made some basic statements
and forecasts about ODA in Vietnam in MIC stages. However, those
recommendations are still theoretical and not really suitable for the
conditions of Vietnam, especially when Vietnam was a member of MIC.
Apart from the managing units’ reports, many of state-level research, there
are many scientific research projects, PhD thesis have studied about ODA.
Most of those researches has concentrated analyzing the current situations of
ODA in Vietnam along with the challenges in the period that Vietnam was not
a MIC. Although they had proposed some solutions to improve the
efficiency of managing and using ODA, the factors impacting to the
efficiency of ODA and ODA management mechanism had not analyzed
specificially.
In summary, the studies of development aid in the world and Vietnam
have mentioned many aspects of theory and practice for mobilization and
utilization of ODA in Vietnam. They are the most important input-
information for the thesis. However, along with many basic changes of
Vietnam (which has become a middle-income country, the change in the
funding policy of the international community and the Party’s guidelines
and policies in the new context), ODA mobilization and utilization activities
require the fundamental changes. The present studies have not really
pointed out this urgent issue. Therefore, the implementation of the research
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“The Official Development Assisstance (ODA) in the context of Vietnam
which became a middle-income country (MIC)” will contribute theoretical
and practical significance for the policy making and management of ODA in
Vietnam in the next time.
CHAPTER 2.
THE RATIONABLE AND PRACTICAL BASIS ON ODA OF A
COUNTRY WHEN BECOMING A MIC
2.1. The regularity of ODA in the development process of a
country
According to the theory of economic growth by Professor W.W Rostow
launched in 1961, there are 5 stages of the development process of a
country: Traditional society, Preconditions for take-off, Take-off, Drive to
maturity and Age of mass consumption. Moving to the preconditions for
take-off, and take-off are a turning point marking the beginning of the
development process. In this time, the domestic savings is not much
meanwhile the investment demands still climb gradually, especially in the
infrastructure. The export capacity remains limited, mainly in the
agricultural and forest products with low added value, in parallel with the
lack of foreign currency for import demand of machinery, equipment and
technologies in order to support the process of industrialization. Therefore,
a country begining development period has faced to the two deficiencies: the
investment capital and the foreign currency. ODA helps to balance these
deficiencies.
For sustainable development, the ODA recipient countries must be
aware of the possibility of repayment in the future. As a result, ODA must
be used effectively as well as aiming at increasing the competitiveness of
the economy. Another key factor is that national leaders must always think
of a time when the country will not need ODA (ODA graduation). To
sustainable develop, a country needs to define ODA is only used in the
transitional period. To be able to “graduate ODA” in a short time,
increasing the domestic savings has to be paid more attention.
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2.2. The characteristics of the MIC
According to World Bank’s classification of a country with the income
per capita, there are 4 groups: low-income countries, lower-middle income,
upper-middle income and high-income countries. As the classification in
2014, starting from 2015, the middle-income countries must have average
GNI per capita from $US 1.045 to $US 12.745; in which, for the low
middle-income countries, the average GNI per capita is from $US 1045 to
$US 4125 and the high middle-income countries is approximately from $US
4126 to $US 12745.
As classified by World Bank and Organisation for Economic Co-operation
and Development, Vietnam is among of the countries with low middle-income
with GNI per capita in 2010 was $1270 and in 2012 was $15604.
2.3. ODA in a middle-income country - the international experiences
and lesson learnt
An aid is confirmed as ODA if it three conditions: the resource, the aim
and the Grant element. The concessional loans are forms provided loans with
preferential terms than the commercial loans, but the Grant element is
unqualified 25% of the total aid. ODA has many different types to classify:
by aid modalities, ODA providers or ODA conditions.
Overall, ODA of MICs is significantly lower than LICs. The proportion
of ODA for LICs is 10% by ODA / GNI, for LMICs is 1% and for UMICs is
nearly a zero. While MICs has risen spectacularly the needs in development,
the international donors are planning to cut down the fianancial aids for MICs.
In some cases, the donors are closing aid programs in several MIC. The
transition, behaviors and strategies of the recipient countries play an
extremely important role in this situation. It is true that the clearer the
strategy, the higher ODA’s efficiency, for example Kenya, Thailand. In the
contrast, with a unclear strategy, ODA will become a sharp knife and trap that
country into a bad debt such as Brazil.
2.4. The Analytical Framework of Thesis
2.4.1. The changes of ODA when Vietnam has become a MIC
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In terms of the middle-income country (MIC), the donors have changed
the development policy for Vietnam. According that, ODA of Vietnam in
MIC context has changed with the following characteristics: The scale of
ODA for Vietnam decreased gradually in the period 2011- 2015 and then
fell sharply after 2015. The structure of ODA has turned out, while the
grant ODA and concessional ODA loans are declining, some donors have
opened new channels to provide funding for the less concessional ODA
loans. Method of the government cooperation has moved to the direct
relationships between entities of the Parties. The government plays a
catalytic role in policy and institutions to create a favorable environment for
entities, There is a wide range of the aid approaches and modalities will be
applied with the extension of the participation of the non-governmental
organizations and the the private sectors in the development proces. The
division of labor and synergy between all the donors for exploit the
comparative advantage that has have an upward trend. The emerging
economies and South-South cooperation will add significant resources for
development cooperation.
2.4.2. Asseding ODA in Vietnam before and after becoming a MIC
Within the thesis, some evaluation criterias chosen to use are: The
contribution to GDP growth, the contribution to the total development
investment capital of society and FDI attraction; ODA’s support for the
acceptance of scientific achievements and modern technologies, the
development of human resources, the support for the poverty reduction, the
improvment of government management; ODA and the public debt. However,
besides the obvious benefits on economic and social development which ODA
gives to the developing countries, there are many problems in mobilization
and utilization of ODA at both macro and micro level in a lot of the
developing countries around the world, including Vietnam. On a macro level,
ODA and public debt are “hot’” issues that should be considered carefully. On
the micro side, Vietnam has some important issues in the management of
ODA such as the limited efficiency of ODA; the low disbursement rate, the
wates of some ODA projects.
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2.4.3. The factors impacting ODA in Vietnam in terms of MIC
There are two main groups that affect to ODA when Vietnam is a
member of MIC: (1) the factors from the aid donors and (2) the internal
factor