Countries and Regions

	Table of Contents
p. 7 of 20 BACK | NEXT I. Country Performance Assessment II. Country Operational Strategy III. Sector Strategies IV. Regional Cooperation V. Donor Activities and Aid Coordination VI. Cofinancing and Catalyzing External Resources VII. ADB’s Operational Program VIII. Economic and Sector Work Program IX. Local Cost Financing

Country Assistance Plans - Viet Nam

---

II. Country Operational Strategy

A. Country Operational Strategies Since 1993

30. Two documents have guided ADB’s operations in Viet Nam since 1993: an Interim Operational Strategy (IOS) included in the September 1993 Economic Review and Bank Operations (ERBOP), and a Country Operational Strategy (COS) published in December 1995. The 1993 IOS addressed four priority areas: (i) financial support for an intensive program of rehabilitation, upgrading and development of the country’s physical infrastructure; (ii) promotion of economic and sectoral policy reforms to improve public sector efficiency and promote private sector development; (iii) support for measures to boost domestic resource mobilization, including reform of the financial sector, institutional restructuring, and promotion of cost recovery in public services; and (iv) rehabilitation of social infrastructure and promotion of human development and environmental preservation.

31. The 1995 COS builds on the previous approach and further refines it. Its thrust can be summarized in the sentence “sustainable growth with equity”. Economic growth, a prerequisite for poverty reduction, is pursued through creation of a stable macroeconomic environment; policy reform and institutional development; and infrastructure development. Equity and poverty reduction are to be enhanced through a focus on human development and regional balance. Sustainability is to be ensured through an emphasis on environmental management in the coastal, highland, and urban areas. The emphasis in subregional cooperation is placed on the development of transport corridors. Geographically, the COS advocates a concentration on the three development zones¹ identified by the Government and on the transport corridors which link them, while sectorally agriculture and rural development are to receive priority.

B. Progress in Implementation

32. Government policies and actions and ADB operations during the 1993-99 period have been in line with the approach proposed in the strategy. Policy reform (in agriculture, financial, and state-owned enterprise sector) and infrastructure development (notably in road transport, power, irrigation and flood protection) have figured prominently in Bank operations. As a result, once projects under implementation or in the advanced stage of design are completed, the upgrading of Highway 1, linking the country from north to south will have been completed, key subregional links to Cambodia, Lao PDR and Thailand will have been agreed to and finalized, and all provincial towns’ water supply systems will have been rehabilitated, through the combined action of ADB and other external aid agencies. Technical assistance (TA) support has been provided for capacity building and institutional development. Social infrastructure investment has focused on human development in the areas of secondary and vocational/technical education and rural population and health services. Urban environmental improvement through provision of water supply and sanitation, water resource management, and forestry, have been the areas of concentration in the environmental area.

33. The 1993 IOS and 1995 COS explicitly recognized that, given the large policy reform and rehabilitation needs resulting from years of relative isolation from other market economies, Viet Nam’s development financing needs were necessarily broad, and assistance was required in many sectors. Accordingly, the strategies were also somewhat broad, and the ensuing program has reflected this orientation. An evaluation of Viet Nam’s COS and CAP, completed in December 1999, concluded that, while ADB operations had responded to the prevailing circumstances, in the future: (i) a narrower focus should be pursued; (ii) a long-range focus and greater synergy should be developed among TA operations; (iii) the emphasis on rapid legal and regulatory reforms in program lending needs to be tempered by realistic assessment of the consensus-based decision-making process in Viet Nam; and (iv) a sharper geographic focus and strengthening of the VRM would be desirable to improve project administration and implementation. These principles are being incorporated in the preparation of the new COS.

C. Guiding Principles in the COS under Preparation

34. Preparation of the new COS started in 1999. The first COS mission, fielded in May-June 1999, reached an agreement that the focus of future ADB operations would be on “poverty-reducing development”, which is consistent with the ADB’s renewed emphasis on poverty reduction and with the Government’s priorities. Given the overall low level of income resulting from stunted economic growth in the past decades, and the still fairly equitable distribution of income, a Bank-supported poverty reduction strategy for Viet Nam must rest on two pillars: (i) economic growth and private sector development, pursued through policy reform and an improved infrastructure endowment; and (ii) improved human and social capital, the latter including the governance and legal framework for development. In addition, to maximize impact, geographic and socio-economic targeting should be employed to address the multiple dimensions leading to poverty through mutually reinforcing interventions at the regional level. Natural resource management to reduce vulnerability and ensure sustainability must be systematically built into this approach.

35. The proposed program is aligned with the above strategic priorities as follows:

1. Economic growth and private sector development will be supported through policy reform in the financial and productive sectors, to promote a second wave of liberalization in agriculture and facilitate development and export competitiveness of the domestic private sector, particularly small and medium enterprises (SME). Removal of barriers to SME development (for instance, licensing requirements, limited access to financing compared to SOEs) will also benefit the private sector at large. Support for reforms will be complemented by investment in the needed infrastructure for provincial and lower level roads and power transmission and distribution, and by improvements in the management of the natural resource base. These operations will account for approximately one half of the Bank’s loan and TA portfolio (both in number and amount) during the program period.

2. Improvement of human and social capital will be achieved through investment in secondary education, health (subject to further analysis), and urban development in provincial and district towns. Improvement in governance and public sector management will be supported through fairly large-scale TA operations.

3. Targeting will be achieved by concentrating up to one third of ADB operations on the Central Region, with special emphasis on the North Central Coast and the Central Highlands, which are among the poorest subregions in Viet Nam. In the resource-poor, flood-prone and narrow North Central Coast, operations will focus on a combination of commune-level poverty reduction and income generation, and improved livelihoods through water resource and coastal zone management. In the more fertile Central Highlands, whose ecological, economic, and population balances are endangered by a combination of in-migration, overexploitation of forest resources, and water-intensive conversion to perennial cash crops, operations will focus on watershed management of forest and water resources. Provision of road and urban infrastructure will complement these operations, by ensuring development of, and access to, markets.

D. Poverty Partnership Agreement

36. The COS formulation process is ongoing, and will be completed in the first half of 2001, in coordination with the Government’s 2001-2005 Plan and 2001-2010 Strategy. COS preparation will follow the steps envisioned in the recently approved ADB Poverty Reduction Strategy. A comprehensive background poverty assessment, titled Attacking Poverty, prepared jointly by the Government, donors, and NGOs was discussed at the December 1999 Consultative Group Meeting held in Hanoi. Building on this basis, and on the ongoing activities of a Poverty Task Force in which ADB is actively participating, a draft Poverty Reduction Strategy (PRS) is under preparation, drawing on and feeding into the preparation of the Government’s 2001-5 Plan and 2010 Strategy. Consultations on the draft PRS will be held at the subregional level during the fall of 2000, leading to discussion of the draft PRS at the December 2000 Consultative Group Meeting. On the basis of this joint effort between the Government, civil society, and the international community, ADB’s Poverty Analysis will be finalized. A High Level Forum, linked to this process, will be held in the first quarter of 2001. Preparation of an integrated ADB Country Strategy and Program (CSP) and formulation of a Partnership Agreement between ADB and the Government will take place in the first half of 2001.

Back E. Implementation Assessment	Next III. Sector Strategies