Countries and Regions

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p. 4 of 7 BACK | NEXT Executive Summary I. Development Agenda II. Asian Development Bank Development Experience III. Asian Development Bank Strategy IV. Operational Approach V. Three-Year Assistance Program VI. Performance Monitoring and Evaluation

Country Strategy and Program 2002-2004: Socialist Republic of Viet Nam

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III. Asian Development Bank Strategy

A. Poverty Reduction

42. The country strategy and program (CSP) is based on Viet Nam's development goals and priorities for poverty reduction as articulated in the SEDS 2001-2010, the draft CPRGS, and ADB's long-term strategic framework. It also reflects consultations held during CSP preparation with the Government, nongovernment organizations (NGOs), other funding agencies, and stakeholders. The overall objective is to help achieve poverty reduction targets by combining employment-generating economic growth with interventions aimed at reducing social and regional imbalances. Key areas for ADB assistance have been defined around the shared strategic priorities of sustainable growth, inclusive social development, and good governance (see Figure in the executive summary). In addition, ADB will support more balanced regional development by focusing on the relatively impoverished Central Region of Viet Nam.¹⁵ The CSP matrix (Appendix 3) shows the link between (i) key development challenges, (ii) the proposed ADB approach, (iii) the specific operational instruments in the 2002-2004 program in support of ADB's strategy, and (iv) key indicators for monitoring progress in implementing the strategy. The following paragraphs summarize the salient features of ADB's country strategy and program for 2002-2004.¹⁶

B. Strategic Priorities for ADB Assistance

1. Sustainable Economic Growth

43. ADB will assist Viet Nam in accelerating employment generation and growth through support for rural development and private sector development.

a. Rural Development

44. ADB support for rural development will focus on (i) raising agricultural productivity and (ii) promoting agro-industrial development.

1. Agricultural Productivity. While the prospects for intensifying production by increasing inputs have reached their limit, raising the level and quality of public spending on agricultural research and extension is likely to have a strong impact on productivity. ADB will provide assistance for strengthening agricultural research and extension services and other institutional improvements (development of market information channels, quality controls). ADB will encourage better outreach to poor, female, and ethnic groups in extension activities and credit. Support will be provided through sector development program lending and TA operations.

2. Agro-Industrial Development. The agro-industrial sector, which is currently relatively undeveloped in Viet Nam, can contribute significantly to diversifying demand for agricultural output, increasing agricultural value added, and creating opportunities for rural nonfarm employment. ADB will help promote linkages between suppliers and agroprocessors through support for growth of private agro-enterprises. The emphasis will be on removing constraints to further development of these enterprises including access to land, credit, and information on technology and markets. Efforts will also be made to ensure access of women to these opportunities.

The emphasis of ADB support for rural development is thus on promoting linkages between the rural farm and nonfarm sectors, especially through production and processing of more diversified and higher value-added crops. The proposed geographic focus on the Central Region will also reinforce ADB support for rural development, although the main objective of the geographic focus is to promote more balanced regional development by targeting one of the poorer areas.

b. Private Sector Development

45. Private sector development will be critical to achieving the Government's objective of sustained growth with employment generation. The preceding subsection on rural development discussed how ADB will support the strengthening of the agricultural value chain through development of private agro-enterprises. More broadly, ADB will support private sector development by (i) helping improve the business environment, (ii) catalyzing private participation in infrastructure, and (iii) selectively supporting financial sector development.

1. Improving the Business Environment. ADB assistance will help address some of the policy barriers at the national level, and, in parallel, focus on administrative obstacles and problems of limited capacity at the local level with special emphasis on domestic SMEs. Constraints at the national level, notably in the area of taxation, regulations on registration and licensing, and customs regulation, will be addressed through a sector development program and advisory activities. At the local level, efforts will focus on promoting flexible approaches to addressing constraints related to land, credit, and other factors controlled by local authorities. ADB will also support processes at both levels to enable continuing dialogue between the Government and private entrepreneurs, and adoption of the measures identified through this dialogue.

2. Promoting Private Participation in Infrastructure Provision. ADB assistance for promoting private participation in infrastructure provision will include:

1. in the power sector, encouraging the "unbundling" of generation, transmission, and distribution; the creation of an independent regulator to facilitate clearly defined contractual arrangements for power supply; and the entry of commercial producers in the long term;

2. in the water supply sector, developing the legal and regulatory framework for private sector participation, and establishing transparent and predictable mechanisms for tariff setting and tariff adjustments; and

3. through private sector operations, promoting transactions that will catalyze private investment and play a demonstration role, contributing to the development of best practices applicable to the Vietnamese situation.

In addition, ADB will support the development of private domestic contractors directly by pursuing their increased participation in the implementation of ODA and publicly funded infrastructure investment and maintenance, and indirectly through promotion of housing finance.

3. Strengthening the Financial Sector. Given the dominant role of banks in the Vietnamese financial system, their restructuring is clearly a prerequisite for financial sector development in general and for ensuring the sustainable flow of financial resources to private enterprises in particular. Development of nonbank financial intermediaries, such as leasing and insurance entities, is also crucial over the medium term. They can provide alternative sources of funds and help reduce the systemic risk inherent in a bank-centered financial system. Further, financial markets and private sector development require financial infrastructure, such as accounting systems, frameworks for corporate governance, and regulatory enforcement to enhance the efficiency of financial intermediation. Given these considerations, and the comprehensive framework for banking sector restructuring developed by the World Bank and International Monetary Fund (IMF) under the Poverty Reduction and Growth Facility (PRGF)/Poverty Reduction Support Credit (PRSC) framework, ADB assistance in the financial sector will focus on four areas: (i) construction of financial infrastructure; (ii) development of nonbank financial intermediaries; (iii) development of money, capital, and housing mortgage markets; and (iv) support for state-owned commercial bank (SOCB) restructuring within the framework of the PRGF/PRSC.

46. There is a strong linkage between microfinance and poverty reduction. ADB could play an important role in this sector, by helping systematize a rich but varied and uneven grassroots experience developed by NGOs, domestic mass organizations, and bilateral aid programs. Through preparation of a rural finance strategy and following implementation of ongoing TA on the legal framework for microfinance, the scope for ADB assistance in the subsector will be delineated more precisely.

47. ADB will be engaged only peripherally and as needed to complement its focus on domestic private sector development, in SOE reform and downsizing.¹⁷ Engagement in this area is very resource intensive, and other aid agencies¹⁸ have been providing substantial support. Neither will ADB become directly engaged in support for foreign-invested enterprises and the ongoing trade reforms that are being directly supported under the PRGF/PRSC.¹⁹

2. Inclusive Social Development

48. Certain groups of the population are particularly vulnerable to social and economic marginalization because they have limited access to assets and opportunities. This is especially true for the poor with low levels of human capital, ethnic minorities, and women in certain spheres of activity. Low-income households typically have lower levels of human capital because of greater difficulties in accessing health and education services, especially if user fees are involved. Women have proportionally less access to secondary and higher education and to productive assets such as land, credit, and knowledge. Ethnic minorities, partly because of the remote areas they inhabit, also tend to suffer greater exclusion from services and economic opportunities. The three dimensions often compound each other, with low-income ethnic minority women being a particularly disadvantaged group.

49. To increase inclusion of these groups in the development process, ADB will adopt an integrated, mainstreamed approach, building the poverty, gender, and ethnic dimensions into relevant areas of assistance (Appendix 6 contains a summary of the gender strategy). One approach to such mainstreaming in the context of promoting economic growth through rural and private sector development (paras. 44-45) will be to ensure that ADB operations focus on proactively promoting access of women and ethnic minorities to credit, extension services, and training. Another approach, which particularly benefits ethnic minorities, is the proposed geographic focus on the Central Region where more than a quarter of Viet Nam's ethnic minority population live (paras. 55-56 and Appendix 7). In addition to such mainstreaming, ADB operations will enhance inclusive social development through education and health sector interventions aimed at building and preserving the human capital of the poor.

a. Education

50. ADB will support the Government's goal of universalizing lower secondary education by 2010 and gradually expanding upper secondary education. This support will promote inclusive social development by helping remove current inequities in post-primary education, including the elimination of gender and ethnic disparities in access. ADB support for universalization of lower secondary education will complement efforts at improving primary education quality supported by other ODA sources. It will also broaden the knowledge base of the future Vietnamese labor force and complement operations aimed at improving productivity in the area of sustainable economic growth.²⁰ Following completion of the secondary education sector master plan, currently under preparation with ADB support, it is expected that the following issues will be addressed.

1. In lower secondary education, the emphasis will be on (a) universal access with particular focus on education of girls, ethnic minorities, and on disadvantaged areas including the Mekong River Delta, Central Highlands, and the Northern Uplands; (b) improved quality through continued support for the national program for modernization of curricula and textbooks; and (c) decentralization in education management.

2. In upper secondary education, in addition to the above issues of access, quality, and decentralized management, attention will focus on "positioning" upper secondary education in terms of curriculum structure and career pathways, to meet the more diverse needs of a market-oriented economy.

b. Health

51. ADB assistance in the health sector will seek to increase access of the poor to health services and to reduce their vulnerability to health shocks. The focus will be on improving the quality of, and the poor's access to, health services, including access for women, ethnic minorities, and residents of remote areas, through support for health infrastructure and development of health personnel. ADB operations will also aim to strengthen provincial preventive health systems for dealing both with traditional diseases and emerging issues in public health, such as occupational and environmental health, and food safety. The critical issue of developing sustainable schemes for health financing for the poor, including relevant health insurance approaches, will be addressed through further analytical work. Given the significant progress in reducing population growth and the dynamic role of NGOs in reproductive health support, ADB operations in the population subsector will be discontinued.

3. Good Governance

52. Implementation of the necessary actions to achieve Viet Nam's development and poverty reduction objectives will place considerable demands on the country's governance systems. ADB assistance during the next CSP period will focus on addressing the key constraint to good governance, namely the organization and capacity of the public administration system. National-level support for this purpose will be provided through cluster TA, economic and sector work (ESW), and possibly lending operations for:

1. implementation of the next stages of PAR. This will include redefining the roles, functions, mandates, and structures of government agencies; strengthening policy formulation and coordination; and promoting efficient service delivery arrangements; and

2. civil service reform, including issues related to remuneration, right-sizing, and capacity building.

53. Action in these two areas will also support the Government's systemic approach to reducing opportunities for corruption. At the local level, decentralized operations will improve the capacity of local governments to plan, implement, manage finances, and set monitorable service delivery standards. Decentralized operations will also encourage local governments to be more participatory and responsive, with emphasis on effective implementation of the Government's grassroots democracy policy.

54. ADB's focus on support for PAR will be complemented by more limited and indirect interventions in the legal and financial management areas:

1. selective support will be provided to improve the legal and regulatory framework at the sector level through sector development programs, policy dialogue in loan projects, ESW, and TA operations, to promote more efficient and effective operation of the market economy and private sector development;²¹ and

2. financial management and implementation performance will be supported through selective action to improve financial accountability in ADB projects and sectors of involvement.

No direct ADB assistance is proposed in national-level financial management issues (public expenditure review, public investment program, auditing reforms) as it is expected that other aid agencies (World Bank, IMF, European Union, German Agency for Technical Cooperation) will be providing support in these areas. ADB will, however, continue to be indirectly involved and monitor progress in these areas to ensure linkages and complementarity with its assistance in other areas of governance.

4. Geographic Focus on the Central Region of Viet Nam²²

55. As industrialization and urbanization increase in Viet Nam, efforts and resource reallocation will be needed to ensure that people living in more remote regions, in particular ethnic minorities, share in the benefits of growth and fully realize their development potential. By focusing a share of its assistance on the Central Region, particularly the poorer Central Highlands and North Central Coast, ADB will seek to ensure more balanced regional development. The proposed geographic focus will increase the development impact of ADB interventions, improve implementation supervision, and build local capacity more systematically. It will also result in better coordination with the activities of other aid agencies whose area-based and rural infrastructure development projects are located in other regions of Viet Nam.²³

56. Operations in the Central Region (Appendix 7) will include community-level livelihood projects and infrastructure expansion. Community-level livelihood projects, focused on poor districts in a small number of contiguous provinces, will aim to enhance food security, create income generation opportunities, and build small-scale infrastructure relying on participatory approaches. The link between resource depletion and poverty reduction will be addressed through forestry, watershed, and coastal resource management. Efforts will be made to address women's needs and ensure balanced gender access to activities under these projects. To complement the community-based approaches, ADB will support infrastructure expansion within the region, in particular, roads, water resources,²⁴ and urban development in priority provincial and district towns.²⁵

C. Cross-Cutting Concerns

1. Environment

57. Environmental sustainability of the strategy will be ensured by the natural resource focus of the livelihood improvement interventions in the Central Region. These will be designed to take into account the relevant environmental constraints and issues: forestry-related in the Central Highlands and coastal resource-based in poor seaside lowlands. In addition, support for provincial and district town development in the Central Region will help reduce migration to large urban centers and related environmental stress. Moreover, the dispersed nature of agricultural, agroprocessing, and nonfarm SMEs, supported through the rural and private sector development strategy, will tend to diffuse the environmental impact of economic development. Support to enable local governments to address environmental concerns in the design and implementation of local development plans will also be considered.

2. Regional Cooperation

58. Viet Nam stands to benefit from regional cooperation through cross-border trade and access to markets within the GMS subregion. To this end, ADB assistance will help to further develop the subregional transport system and to improve intersector linkages through the development of economic corridors. In addition, ADB assistance will support expansion of subregional tourism. GMS cooperation in the environment sector has focused on the protection and sustainable management of shared resources. In this regard, the ADB-assisted subregional strategic environment framework and the subregional environmental monitoring and information system will help Viet Nam better manage its environmental resources and provide the country with an early warning system for threats to its ecosystem. Other regional initiatives with potential benefits include Viet Nam's interconnection to the planned GMS power market and telecommunications backbone. Both will require "software" support for the harmonization of standards and protocols.

D. Risks and Mitigating Measures

59. The proposed CSP will involve some risks, which can be partially addressed through mitigating measures as follows.

1. Prolonged difficult conditions in the external environment could weaken demand for exports and further slow down FDI inflows and thereby retard poverty-reducing growth. If this situation was combined with mixed signals from the Government regarding its commitment to reforms and to private sector development, the level of private investment needed for sustained high growth and financing of the development agenda would not materialize. ADB will engage the Government in continuing policy dialogue on these issues, and will support mechanisms for dialogue between the Government and the private sector at both the national and local levels.

2. Public policies may fail to adequately address growing regional disparities, polarizing the fast-growing and lagging regions, and jeopardizing broad-based growth. This is of particular concern to ADB as the CSP proposes to focus on the relatively impoverished Central Region. The development impact of ADB operations will depend on a matching commitment from the Government to developing this region. ADB will need to work both with the Ministry of Planning and Investment and the concerned sector ministries to ensure adequate allocation of resources to the region, and with provincial governments to ensure that poor areas within the region receive priority.

3. It may be difficult to overcome ingrained cultural attitudes toward specific population groups such as ethnic minorities that have benefited only marginally from development, or have been affected by dysfunctional patterns of mainstreaming. ADB should foster debate and encourage objective assessments by stakeholders of policies that hinder inclusive social development.

4. Progress in implementing the strategy could be hindered by limited government capacity and poor coordination among different ministries, agencies, and levels of government. Efforts to support decentralized implementation of projects will need to address problems of coordination between the central and local levels, and the limited capacity at the local level for planning, implementing, and monitoring.

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