Regions and Countries

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p. 4 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program 2005-2006: Socialist Republic of Viet Nam

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IV. Country Performance and Assistance Levels

A. Lending Level Proposed

20. Since 2002, the ADF lending has been based on the performance-based allocation (PBA) system. Viet Nam was assessed as performing between the base and the high case against the twelve 2002 country-specific triggers. The high case was met for five triggers: three macroeconomic (broad money growth, revenue growth, and budget allocations to poverty programs); one structural (authorization to all banks to issue certificates of deposit); and one portfolio indicator (contract awards achievement). The base case was met for five structural triggers (power tariff increase, establishment of a level playing field, submission of the Bankruptcy Law, application of corporate governance standards to joint-stock banks, removal of secondary education fees for poor students). Performance for two portfolio indicators (timely loan effectiveness and submission of comments to memorandums of understanding and aides memoire) fell into the low case.

21. The CSPU identifies a possible blended lending program of approximately $388 million per year for 2005 and 2006, in addition to private sector operations and cofinancing (Appendix 1, Table A.10). The allocation of ADF funds will depend upon the revised PBA policy, to be finalized later in 2004. For planning purposes, the annual ADF allocation has been set at a core lending level of $178 million, subject to change based on the revised PBA policy. Additional standby loans are listed in order of priority. Loans currently listed as stand-by in 2006 will form the core of the 2007 ADF program. Adjustments to lending levels resulting from the finalization of ninth ADF replenishment and the application of PBA will be managed (i) by advancing the approval of loans currently programmed as stand-by, and (ii) through revisions in the size of a few program and sector loans. The CSPU includes a possible OCR lending program for 2004- 2006, based on an annual average of $187 million. The amounts and specific projects for OCR financing will be adjusted as needed after completion of the OCR assessment and further government decisions. OCR lending program for 2007 will be discussed under the new CSP which will cover the program period 2006-2008.

22. The lending and TA program have been designed to reflect the three pillars and the geographic focus identified in the CSP. According to ADB’s project classification guidelines, approximately 17% of ADF loans (14.5% of lending) during 2005-2006 will be core poverty interventions, and 58% of loans will be poverty interventions (69.7% of lending). Six of the ADF projects identified for 2005-2006, totaling $321 million, will focus on the central region.

B. Nonlending Program

23. The nonlending program for 2005-2006 (Appendix 1, Table A1.11) is designed to support the lending program’s main thrusts, with an annual base case scenario of about $4.7 million from the Technical Assistance Special Fund and Japan Special Fund. Adjustments may become necessary to respond to changes introduced during country program confirmation mission and during preparation of the full CSP. TA cofinacing will be actively sought in 2005 given Viet Nam’s large needs for capacity building, sector analysis, and institutional development.

C. Summary of Changes to Lending and Nonlending Programs

24. Many of the loans and TAs proposed for 2005-2007 were already included in the 2004- 2006 CSPU. The main adjustments to the lending and nonlending program from 2005 onward (with relevant references to the 2004 program) are briefly discussed below, by area of strategic priority.

1. Sustainable growth. The investment project in support of Agriculture Science and Technology, as well as its related ADTA, has been temporarily postponed because of resource constraints. Subprograms II and III of the second Financial Sector Program Loan (FSPL II) have been combined in one 2004 loan, while a similar cluster approach may be adopted for the SME Development Program, by introducing a Subprogram II and related ADTA in 2006. In light of the renewed emphasis on infrastructure proposed in the new CPRGS chapter—as well as government requests for OCR support—the lending and TA pipelines in the transport and power sectors have been strengthened. OCR operations initially planned in the transport sector focus on highways, most notably the GMS Kunming-Haiphong corridor, discussed under point (v) below. ADTA in 2005 will provide a Framework For Highway Development, serving both the GMS project and future government plans and ADB operations in the sector. An ADTA in 2005 will support restructuring in the power sector and a possible TA loan in 2006, complemented by a sequenced package of OCR investment in transmission and generation in northern Viet Nam in 2004, 2005, and 2006. To this end, a Northern Power Transmission Expansion loan has been added in 2005, and the 2006 Power Sector Development loan has been refocused on power generation and expanded in size. PPTAs for power sector development have been further added in 2006. The private-sector pipeline will be defined as prospective opportunities develop further, with a focus on infrastructure and finance.

2. Inclusive social development. No significant changes to the program are proposed. The loan amount for Strengthening of Preventive Health Services has been reduced because of ADF funding limitations, but it should be increased again once ADF availability is confirmed. The TA for Assessment and Monitoring of Poverty Reduction is now on standby for 2004. Its scope is being redefined following completion of the 2003 joint poverty assessment.

3. Good governance. Subprogram II of the program loan to support implementation of the PAR master program—initially scheduled for 2006—is now on standby for both 2005 and 2006. A PPTA for its preparation is confirmed in 2005, with possible additional PPTA for Subprogram III in 2007. The exact timing of the loan will depend on government confirmation and implementation progress under Subprogram I.

4. Geographic focus on the Central Region. ADF funding constraints and, in some cases, longer preparation schedules have shifted possible timing of four projects focusing on the central region: Central Region Water Resources (moved from 2004 to 2005); Forests for Livelihood in the Central Highlands (from firm to standby in 2005); Central Region Sustainable Urban Improvement, and Livelihood Improvement in the Central Coastal Provinces (both changed from firm to standby in 2006). The timing of the related capacity-building TAs has also been adjusted. As a result of the rescheduling of the Central Region Water Resources loan, the PPTA for a follow-up project has also been postponed to 2007.

5. Regional cooperation in the GMS. Detailed engineering and design (through a TA loan in 2005) will support preparation of investment for the Hanoi-Lao Cai expressway (in 2006 stand-by), while the Hanoi-Lao Cai railway upgrade is scheduled as stand-by in 2005. The communicable Disease Control in Border Areas project was advanced from 2006 standby to 2005 in order to timely address the recent communicable disease issues including SARS, and Avian Flu. The Propoor Tourism Development Project, Southern Coastal Corridor Project, Power Interconnection-Phase I project, and Flood Management have been placed as stand-by in 2006, pending the progress of project preparation. The full GMS TA program, including concept papers, is discussed in the RCSP. The future GMS program will be further prioritized based on the resource availability and subregional project criteria.

25. Changes to the Economic, Thematic and Sector Work (ETSW) program listed in the previous CSPU include a new ADTA in 2005 to support Development of the 2006-2010 Plan, Strategy, and Program. The TA will develop inputs for the preparation process of the government’s next 5-year plan and ADB’s next CSP for Viet Nam. Additional ETSW will be developed as needed in preparation for the new CSP and to support the OCR pipeline once the main sectors and specific projects are confirmed.

26. For reference, the 2004 Assistance Program for Lending Products and the 2004 Assistance Program for Nonlending Products and Services are provided in Table A4.1 and Table A4.2, respectively.

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