Documentof
The World Bank
FOR OFFICIAL USE ONLY
Report No: 42896 -VN
INTERNATIONAL DEVELOPMENT ASSOCIATION
PROGRAMDOCUMENT
FOR
A PROPOSEDCREDIT
INTHE AMOUNT OF SDR92.1 MILLION
(US$150.0 MILLIONEQUIVALENT)
TO
THE SOCIALIST REPUBLIC OF VIETNAM
FORA SEVENTHPOVERTY REDUCTIONSUPPORT OPERATION
May 27,2008
PovertyReductionand EconomicManagementUnit
East Asia and PacificRegion
This documenthas a restricteddistribution and may be usedby recipients only inthe performance oftheir official
duties. Its contentsmay not otherwise be disclosedwithout World Bank authorization.
VIETNAM GOVERNMENTFISCAL
- YEAR
January 1-December 31
CURRENCYEQUIVALENTS
Currency unit =Dong
US$l-00= 16,000 Dong(May 2008)
ABBREVIATIONS AND ACRONYMS
ADB Asian Development Bank
CFAA CountryFinancialAccountabilityAssessment
CG ConsultativeGroup
CPAR CountryProcurementAssessment Review
CPIA CountryPolicyand InstitutionalAssessment
CPRGS ComprehensivePoverty Reductionand GrowthStrategy
CPS CountryPartnership Strategy
DA DepositAccount
DFID Departmentfor InternationalDevelopment
DSA Debt SustainabilityAnalysis
FDI ForeignDirect Investment
GDP Gross Domestic Product
GSO General Statistics Office
HCS HanoiCore Statement
ICR ImplementationCompletionReport
IDA InternationalDevelopment Association
IEG IndependentEvaluationGroup
IMF InternationalMonetaryFund
JSAN Joint StaffAdvisory Note
JSB Joint Stock Bank
MARD Ministry of Agriculture and RuralDevelopment
MDG Millennium Development Goals
MOET Ministry of EducationandTraining
MOF Ministry of Finance
MOH Ministry of Health
MOHA Ministry of HomeAffairs
MOJ Ministry of Justice
MOLISA Ministry of Labor, Invalids,and SocialAffairs
MONRE Ministry ofNaturalResourcesandthe Environment
MOT Ministry of Trade
MPI Ministry of Planningand Investment
NGO Non-GovernmentalOrganization
NSC NationalSteeringCommittee
ODA Official DevelopmentAssistance
OOG Office of Government
PCU ProgramCoordinationUnit
PEC Party's Economic Commission
PEFA Public Expenditureand FinancialAccountability
PER-FA Public ExpenditureReview-IntegratedFiduciaryAssessment
PRGF PovertyReductionand GrowthFacility
PRSC PovertyReductionSupport Credit
PWD PeopleLivingwith Disabilities
QEA Quality at EntryAssessment
FOR OFFICIAL USEONLY
REDD ReducingEmissions from DeforestationinDevelopingcountries
SAV StateAudit ofVietnam
SBV StateBank ofVietnam
SEDP Socio-EconomicDevelopmentPlan
SFE State Forestry Enterprise
SOCB State-OwnedCommercial Bank
SOE State-OwnedEnterprise
SPS Sanitary and Phytosanitary
TABMIS Treasury andBudget ManagementInformationSystem
TRIPS Trade-Relatedaspectsof IntellectualProperty rights
VBF Vietnam BusinessForum
VDR Vietnam DevelopmentReport
WTO World Trade Organization
Vice President - James W. Adams, EAPVP
CountryDirector Ajay Chhibber, EACVF
Sector Director VikramNehru, EASPR
Task Manager --- MartinRama, EASPR
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
SOCIALIST REPUBLICOF VIETNAM
SEVENTHPOVERTYREDUCTIONSUPPORT OPERATION
TABLEOFCONTENTS
I. INTRODUCTION..............^,................................................................................. 1
I1. COUNTRY CONTEXT ........................................................................................... 3
A. MEDIUM-TERMOUTLOOK AND DEBT SUSTAINABILITY........................ 3
B. DEVELOPMENT OUTCOMES............................................................... 4
C. RECENT ECONOMIC DEVELOPMENTS.................................................. 6
I11
. THE REFORMPROGRAM ....................................................................................... 8
IV. BANK SUPPORTTO THE GOVERNMENT PROGRAM..........................................
A. LINK TO CPSAND RELATIONSHIP TO OTHERBANK OPERATIONS...........9
B. COLLABORATION WITH IMFAND OTHER DONORS................................ 9
C. ANALYTICAL U N D E R P ~ I N G........................................................
S 12
D. LESSONSLEARNED......................................................................... 13
V . THE PROPOSED CREDIT ..................................................................................... 16
A . MAINFEATURES............................................................................. 16
B. BUSINESSDEVELOPMENT................................................................. 17
C. SOCIAL INCLUSION......................................................................... 20
D. NATURAL RESOURCES..................................................................... 22
E. MODERN GOVERNANCE................................................................... 22
F. TRIGGERS FOR PRSC 8..................................................................... 24
VI. OPERATION IMPLEMENTATION ........................................................................ 27
A. POVERTY AND SOCIAL IMPACTS....................................................... 27
B. ENVIRONMENTALASPECTS.............................................
C. IMPLENTATION. MONITORING AND EVALUATION..............
D. FIDUCIARY ASPECTS....................................................................... 31
E. DISBURSEMENTAND AUDITING... .............................................. 31
F. RISKS AND RISK MITIGATION........................................................... 31
i
ANNEXES
ANNEX 1: IMFLETTEROF ASSESSMENT [TO BE PROVIDED AS AN ADDENDUM]. ............................. .33
ANNEX 2: LETTER OF DEVELOPMENT POLICY [LETTER FROMTHE GOVERNMENT ON
THE REFORM PROGRAM ]................................................................................ .34
ANNEX 3: MONITORING PROGRESSTOWARDS DEVELOPMENT OUTCOMES.................36
ANNEX 4: DONOR SUPPORTTO PRSC7...................................................................... 45
ANNEX 5: POLICY ACTIONS OVER THIS PRSC CYCLE .................................................. 47
ANNEX 6: SUPPORTING DOCUMENTATION FORPRIORACTIONS INPRSC7...................58
ANNEX 7: VIETNAM AT A GLANCE (INCLUDES COUNTRY MAP).................................. 67
TABLES INTEXT
TABLE 1: RESOURCESMOBILIZED THROUGH PRSC OPERATIONS.................................. 3
TABLE 2: SELECTEDECONOMIC INDICATORS ........................................................... 4
TABLE 3: PROGRESSTOWARDS THE MILLENNIUM DEVELOPMENT GOALS...................5
TABLE 4: DONORCO-FINANCING OF PRSC OPERATIONS............................................ I 1
TABLE 5: KEY PRIORACTIONS UNDER PRSC 7........................................................... 19
TABLE 6: TRIGGERSFOR PRSC 8............................................................................. 25
FIGURES INTEXT
FIGURE 1: SUPPORTING THE IMPLEMENTATIONOF SEDP 2006-2010.............................. 10
BOXES INTEXT
BOX 1: FEEDBACK ON APPROACHES TO CONDITIONALITY INVIETNAM...................15
Task Team
Core Team: Martin Rama (Task Manager), Keiko Kubota (Senior Economist), Quyen Hoang Vu
(OperationsAnalyst), Hoi-Chan Nguyen (Senior Legal Counsel) and Thang-Long Ton (Economist).
Contributors: Noritaka Akamatsu, Maria DelJina Alcaide Garrido, Nga~Nguyet Nguyen, Minh Van
Nguyen, Quang Hong Doan, Duc Minh Pham, Viet Tuan Dinh, Dzung The Nguyen, Thanh Thi Mai,
Binh Thanh Vu, Hoa Thi Mong Pham, Carolyn Turk, Richard Spencer, Douglas Graham, Severin
Kodderitzsch, Samuel S. Lieberman, Simon Lucas, Jennifer Thomson, Hung Viet Le, Viet Quoc Trieu,
Phuong Thi Minh Tran, VanAnh Thi Tran andJeffrey Waite.
Peer Reviewers: Milan Brahmbhatt and Jeni Klugman.
Team Assistants: Dung ThiNgoc Tran, Ha Thi ThuLe and Michael Figueroa.
..
11
SOCIALIST REPUBLIC OF VIETNAM
SEVENTHPOVERTY REDUCTIONSUPPORT OPERATION
CREDIT AND PROGRAMSUMMARY
Borrower: The Socialist Republic of Vietnam
ImplementingAgency: The State Bank of Vietnam (SBV)
Amount: SDR 92.1 million(US$I50.0 million equivalent)
Terms: StandardIDA terms: 40-year maturity with a 1O-yeargrace period.
Description: A seventh Poverty Reduction Support Credit (PRSC 7), as the second
operation in a cycle aimed at implementing Vietnam's Socio-Economic
Development Plan (SEDP) 2006-2010, approved in June 2006.
Benefits: The present operation provides further support to Vietnam's reform
program. The currentcycle of PRSCs is a vehicle for the World Bank, and
the international partner community more broadly, to support a country
that has a strong recordof economic growth and poverty reduction. It also
recognizes the government's continued efforts to pursue and deepen
reforms.
The proposed operation supports actions to restructurethe state sector and
promote business development. It also covers measuresaimed at fostering
social inclusion and better managing natural resources. And it supports
governance reforms in areas such as public financial management, public
administration and legal and judicial development. These fundamental
reforms provide the foundation upon which the government can then
effectively implementsectoral policy actions.
The preparationof this operation provided an opportunity to improve the
content of specific policy actions and to ensure the timeliness of their
adoption. Its follow up will allow monitoring the impact of the overall
program on broader development outcomes.
This support is timely in light of the current global and regional
environment, characterized by higher prices for food and fuel in
international markets and an economic slowdown in industrial countries.
The potential volatility of capital inflows makes it important for Vietnam
to secure resources on a long-term basis and to signal the support of the
internationalcommunityto its reformprogram.
Risks: Vietnam's own success in integratingin the world economy and attracting
investments from abroad has brought new challenges. Strong capital
inflows and government interventions in the exchange rate market to
prevent the appreciationof the dong resulted in higher inflation, a current
account deficit and an asset price bubble in 2007. Bank lending and
investments of state-owned enterprises (SOEs) in the stock market and in
real estate amplified these trends. Market sentiment might have reversed
...
111
in2008.
Sound macroeconomic management will be critical to sustain a strong
economic performance and continued poverty reduction in this more
turbulent environment. The government has recently announced that
fighting inflation is its top priority in the short term, even at the cost of
slower economic growth. The World Bank is engaged in a policy dialogue
with the government on how to reign in inflationary pressure using a
combination of credit contraction, fiscal prudence and increased exchange
rate flexibility, among others. However, the capacity to conduct monetary
and financial sector policy is still limited due to the still ongoingtransition
to a market economy.
To address this risk, the current credit supports measures aimed at
enhancing the effectiveness of macroeconomic policies. They include the
assessment of SOE investments in the financial and real estate sectors, the
strengthening of banking supervisionand corporate governance in banks,
andthe adoptionof criteriato prioritize public sector investments.
Increased global integration is producing winners and losers, and testing
the ability of Vietnam to preserve social inclusion. The economic hubs of
the country are growing faster than rural and especially remote areas,
whereas increasedcompetition from abroad could adversely affect specific
sectors or populationgroups.
The credit addresses this risk by supporting measures to gather feedback
on potential social and environmental impacts, to improve the design of
the health insurance program, to extendthe old-age pensionprogram to the
informal sector of the economy, and to fund participationby the poor in
mainstreamprograms.
Another risk is associated with land and has a governance dimension.
Forest land which was used by ethnic minorities as a public good is
increasingly being used for commercial forestry or agriculture. Rapid
urbanization and infrastructure development are leading to massive land
conversion and reclamation. Capital gains on land have become an
important source of inequality. This credit supports measures for
participatory land-planning in forestry, for better management of local
infrastructurefunds, andto monitorthe assets of relevantcivil servants.
Disbursement: Single-tranche operation, with credit disbursed upon declaration of
effectiveness.
Co-financing: Numerous bilateralandmultilateraldonors have expressedtheir support to
the PRSC process in Vietnam. Nineteenof them have participated in the
preparation of PRSC operations in Vietnam, including this credit, and
have been actively involved in the policy dialogue. Subject to
confirmation, the following donors expressed their intentionto contribute
resources to this operation, either through grant finance or throughparallel
lending: the Asian Development Bank (ADB), Australia, Canada,
Denmark, the European Commission, France, Germany, Ireland, Japan,
the Netherlands, Spain, andthe UnitedKingdom.
ProjectID number: P105287
iv
INTERNATIONALDEVELOPMENTASSOCIALTION
PROPOSED CREDIT
TO THE SOCIALIST REPUBLIC OF VIETNAM FOR
A SEVENTHPOVERTY REDUCTION SUPPORT OPERATION
I. INTRODUCTION
1. Emergingfrom massive poverty at the launchingof DoiMoi, in 1986, Vietnam seeks to
become a middle-income country by 2010. Over these years, comprehensive economic reforms
have led to rapid economic growth and remarkable progress on development outcomes. On current
trends, Gross Domestic Product (GDP) per capita will have crossed the US$ 1000 benchmark earlier
than 2010. This in itself would be an impressive accomplishment. However, attainingmiddle-income
status is seen as more than a quantitative goal. Referring to such status, rather than to any specific
growth rate or threshold for GDP per capita, is a way to emphasize the need for a different, more
sophisticated set of economic institutions. Reaching middle-income status requires further financial
deepening to support capital mobilization, the regulation of access to and pricing of infrastructure
services, the gradual development of modern social insurance, more effective tools for environmental
protection, legalandjudiciary reforms, andthe effectivecontainment of corruption, amongothers.
2. The Socio-Economic Development Plan (SEDP) 2006-2010, approved in June 2006,
articulates this vision. Unlike previous five-year plans, which focused on quantitative targets as if
the state was still in charge of producingmost goods and services, the SEDP emphasizes development
outcomes and the policy reforms needed to attain them. It relies on data analysis, rather than
administrative reporting, to substantiate its diagnostics and recommendations. It has also led to the
adoption of a framework to monitor progress towards attaining development outcomes. The process
through which the SEDP was prepared was more encompassing than in the past. Extensive
consultations were held, going beyond the boundaries of government, and involving businesses,
grassrootscommunities, overseasVietnamese and donors.
3. In the SEDP, the government sets out intended actions that fall broadly into four main
pillars: (a) the promotion of growth and transition to a market economy; (b) reducing poverty and
ensuring social inclusion; (c) managing the environment and natural resources in a sustainable
manner; and, (d) building institutions that can support the strategy. The first three pillars are
explicitly listed in the SEDP, whereas the fourth one is introduced in the monitoring and evaluation
framework as the foundationto make progress on the other three.
4. The donor community has chosen to align its efforts behind the SEDP, while
acknowledging that other key documents will shape reforms in the coming years. Such
alignment is a testimony to the strong ownership of the reform program by the government of
Vietnam. It also reflects satisfactionwith the process through which the SEDP was prepared. In the
case of the World Bank, the Joint Staff Advisory Note (JSAN) submitted to the Board in December
2006, and the Country Partnership Strategy (CPS) submitted in January 2007 concluded that the
SEDP had incorporatedthe necessary Poverty Reduction Strategy principles, was broadly sound and
was a planthat could bothdeliver growth and reducepoverty.
1
5. At the same time, donors recognize that some of the reforms neededwill be challenging,
requiring attention to their content and timeliness. The SEDP represents a sustainable
development strategy only provided that macroeconomic management remains prudent and state
sector reform is not delayed. Moreover, the list of policy reforms considered by the SEDP is
remarkably broad, which makes prioritization and sequencing a necessity. There is consensus that
supporting the reform agenda of Vietnam does not entail favoring one of the SEDP pillars over the
others. But it requires beingselective within each of the pillars,and payingattentionto the content of
the most important measures. This is seen as a critically important time for engagement by the
international community. Vietnam's ability to sustain its remarkable growth trajectory over several
more decades, and eventually become an industrial country, may be determined during the next few
years. The reforms associated with attaining middle-income status are more complex than those
neededto move away from central planning. Active engagement should contributeto improvingthe
content and coherence of such reforms.
6. The issuance of the SEDP supported the preparationof a new series of operations,from
PRSC 6 to 10. PRSCs are well-suitedto address the challenges mentioned above. The cross-cutting
nature of the policy dialogue they support strengthens coordination among line ministries and
government agencies. Their emphasis on a selected number of policy actions facilitates an in-depth
discussion of their content. Their otherwise demanding annual sequence, combined with the fonvard-
looking nature of the triggers used to launch the preparation of the next operation in the cycle, helps
keeping the pace of reform. Progress made on public financial management over the last decade
mitigatesthe risks associatedwith directbudget support.
7. The proposed credit is the second in a five-year cycle aimed at supporting the
implementationof the SEDP. The Program Document for PRSC 6, submitted to the Board in June
2007, charts the current series of operations. The CPS foresaw the allocation of US$ 150 million to
each of the PRSCs in this second cycle. Even at this level, the allocationwould entail a decline in the
share of policy lendingin annual commitments to Vietnam comparedto the early stages of the PRSC
process. It would also entail a decline in the share of the World Bank contribution to PRSCs relative
to other donors, and a decline in the share of policy lendingcompared to the budget expenditures of
Vietnam. The amount was increased to US$ 175 million for PRSC 6, but will remain at the level
foreseen by the CPS for this credit.
8. The volume of resources mobilized through PRSC operations is significant. About US$
1.5 billion were committed in budget support over the first six operations. Ofthis amount, some US$
1.3 billion were disbursed by end-2007, with the rest to follow by June 2008 (Table 1). Over the ten
PRSC operations, some US$3 billion could be channeledto a very successful reformer.Inadditionto
providing resources to the budget, PRSC operations served as an effective coordination device,
supported by an increasingly large number of donors. PRSCs have been co-financedby bilateraland
multilateralagencies, either throughgrants or through parallel lending. More importantly,the process
saw a transition in the role of co-financiers, from providers of finance to partners substantially
engaged in the preparationof the operations and the policy dialogue with government. This dialogue
is organized by policy areas, in which donors engageselectively, based on their interests andtechnical
capacity on the ground.
9. However, unlike other developing countries with an ongoing PRSC process, Vietnam is
not dependent on donor resources. Overall, and in spite of their large number of co-financiers,
PRSC operations in Vietnam amount to less than 2 percent of public expendituresand about a third of
the additionalcost of economic reforms. That PRSC resources are not essential makes it all the more
important that the policy dialogue supports the government's priorities and builds on solid analytical
underpinnings.
2
TABLE1: RESOURCES MOBILIZED THROUGHPRSCOPERATIONS
JS$ million
World co- World co-
Operation Bank financiers Total Year Bank financiers Total
PRSCl (I) 100 22 122 2001 100 0 100
PRSCl (11) 150 23 173 2002 150 30 180
PRSC2 100 31 131 2003 100 17 117
PRSC3 100 116 216 2004 100 69 169
PRSC4 100 120 220 2005 100 78 178
PRSC5 100 156 256 2006 100 112 212
PRSC6 175 190 365 2007 175 168 343
PRSC7 (e) 150 212 362 2008 (e) 150 190 340
Total 975 870 1,845 Total 975 664 1,639
11. COUNTRY CONTEXT
A. MEDIUM-TERM OUTLOOK AND DEBT SUSTAINABILITY
10. Growth accelerated slightly in 2007. Economic growth accelerated slightly, to 8.5 percent,
making 2007 the third consecutive year above the %percent benchmark. Some o f the potentially
adverse shocks that were feared from WTO accession, especially in relation to agriculture and retail
trade, did not materialize. The business climate continued to improve: business sentiment surveys
consistently show an upbeat mood among enterprises, with a large majority o f them foreseeing an
expansion in 2008. The investment rate attained 40.4 percent o f GDP in 2007. Growth was
increasingly driven by the private sector, with 59,000 new enterprises registering during the year, an
increase o f 26 percent with respect to the previous year. Foreign Direct Investment (FDI)
commitments almost doubled, to $20.3 billion, whereas stock market capitalization reached 43
percent o f GDP by end 2007, compared to 1.5 percent two years earlier.
11. Some deceleration in economic growth can be expected in the short term, however,
although medium-term prospectsremainstrong. High inflation and a large current account deficit
have affected investor sentiment, resulting in a slowdown in capital inflows. The stabilization
package adopted by the government in March 2008 also resulted in a decline in stock prices and
dampened the real estate market. Although the government i s using a growth target for 2008 o f 7
percent, the growth rate for the entire year can be expected to be higher (Table 2). Over the medium-
term, a high investment-GDP ratio is expected to support continued strong economic growth.
12. The fiscal stance of the government remains prudent. The overall fiscal balance including
was around 6 percent o f GDP, with the "official deficit" at around 1 percent o f GDP, and "off-
budget" investment expenditures at about 5 percent, similar to that o f previous years. Off-budget
investments include the issuance o f government bonds for education, infrastructure and the re-
capitalization o f state-owned commercial banks (SOCBs). However, they are off-budget only in name.
The choice o f these investments reflects the priorities spelled out in the SEDP, and issuance o f such
bonds is subject to approval by the National Assembly. The stabilization program being implemented
by the government includes a reduction o f recurrent expenditures by 10 percent and a discontinuation
o f public investment projects which are not essential or lack appropriate funding.
3
TABLE2: SELECTED ECONOMIC INDICATORS
2006 2007 (e) 2008 (f) 2009 (f)
GDPgrowth(percentperyear) 8.2 8.5 7.5 8.0
Exportsgrowth(percentperyear) 22.8 21.9 28.0 30.0
Fixedinvestmentgrowth(percentperyear) 8.6 10.1 10.0 10.8
BOPcurrent account (percentofGDP) -0.4 -9.8 -13.5 -9.5
BOPcapital account (percentof GDP) 5.1 24.7 17.6 12.0
Foreignreserves(US$billion) 11.5 21.0 24.5 27.0
Central government bal.(percento f GDP) -0.3 -2.2 -2.2 -2.0
Public debt (percent ofGDP) 41.6 42.2 39.0 39.0
Source; General Statistics Office (GSO) and SBV for 2006 and 2007; World Bank forecasts (base case
scenario) for 2008 and 2009.
13. The level of public debt, at 42 percent of GDP, is moderate and is considered to be
sustainable. The debt burden is similar to that in other ASEAN countries. The baseline scenario of
the most recent Debt Sustainability Analysis (DSA) by the World Bank and the International
Monetary Fund (IMF) is broadly in line with the investment and growth outlook of the SEDP. It
estimates public and publicly-guaranteeddebt to increase from 44 percent of the GDP in 2007 to
around 5 1 percent by 2016, and decline slightly thereafter. This increase, though significant, is still
considered within manageable limits, especially since more than half of it will remain on highly
concessional terms. The concessional component of Vietnam's debt, embodied in long repayment
periods and low interest rates, is reflected in the gap between the nominal level of public debt and its
net present value (about 35 percent of GDP). External debt, both public and private, is projected to
decline somewhat: from a little over 30 percent of GDP tojust under 26 percent in 2017. The ratio of
external debt service payments to exports is estimated to remain about 4 percent during 2007 to 2017.
Vietnam shouldthus remainat low risk of externaldebt distress.
B. DEVELOPMENTOUTCOMES
14. The experience under the previous PRSC cycle shows that reforms have resulted in
substantive progress towards development outcomes. This experience was reviewed when
completingthe fifth PRSC, which was the last operation in the first cycle. Given the comprehensive
nature of Vietnam's reform agenda some areas were bound to register faster progress than others.
However, substantive improvements can be identified across the structural, the social, the natural
resources and the governance pillars of the reformagenda, makingit difficult to pinpoint any of them
as a systematic laggard. Progress has been more uneven within each of the pillars. For instance,
much more has been accomplished in terms of global integrationthan in relation to SOE or SOCB
reform.
15. Progress under the current PRSC cycle can be measured against the specific
development objectives spelled out in the SEDP and other plans and strategies of the
government. A comprehensive system of indicators introducedalongside the adoptionof the SEDP,
at the beginning of this PRSC cycle, should facilitate the monitoring of progress towards attaining
development outcomes. The monitoringframework ofthe SEDP is broad in some areas, especiallyin
relation to economic developments, and parsimonious in others, such as governance and
accountability. Therefore, as part of the preparation of this PRSC cycle a revised set of indicators
was developed. Because reliable data need to be collected from surveys and other sources with
4
demanding implementation requirements, a thorough assessment o f progress towards development
outcomes will be conducted twice during the PRSC cycle. However, more succinct assessments are
conducted for each operation (Annex 3). These more succinct assessments build on the annual report
o f the government to the National Assembly on the implementation o f SEDP. The more thorough
assessments will be aligned its mid- and end-cycle reviews.
TABLE PROGRESSTOWARDSTHEMILLENNIUM
3: DEVELOPMENTGOALS
Goal 1 Eradicateextremepoverty andhunger Progress status
Target 1 Halve between 1990and 2015 the Poverty reducedby more two thirds Already
proportion of people living in poverty between 1993 and 2006. achieved
Target 2 Halve between 1990and 2015, the Proportion reducedby more than two Already
proportion who suffer from hunger thirds between 1993 and 2006 achieved
Goal 2 Achieve universal primary education Progress Status
Target 3 By 2015 boys and girls to complete a Grade 5 completion rate (gross) is 104 Likely to be
full course ofprimary schooling percent for boys and 98 percent for girls. achieved
~-
~ ~~ ~
Goal 3 Promotegender equality Progress status
Target 4 Eliminate gender gaps inprimary and Gender equality at all school levels, Already
secondary educationno later than 2015 except for ethnic minorities achieved
Goal 4 Reducechildmortality Progress status
quarters, between 1990
Goal 6 CombatHIV/AIDS andother diseases Progress Status
Target 7 By 2015 have haltedand begunto Infection rate went up from 0.34 percent Likely to be
reverse the spread of HIV/AIDS in 2001 to 0.44 in 2005 achieved
Target 8 By 2015 haltedand reverse the Malaria cases severely reduced;with Already
incidence of malaria and other diseases only 35 malaria-relateddeaths in 2007 achieved
Goal 7 Ensureenvironmentalsustainability Progress Status
Target 9 Embracesustainabilityand reverse the Forestcover up but loss inclosed- Uncertain to
loss of environmentalresources canopy forest andbiodiversity be achieved
Target 1C Halve, by 2015 the share ofpeople Rapidprogress on drinking water; much Uncertain to
without drinking water and sanitation slower on hygienic sanitation. be achieved
16. Vietnam has outperformed many other countriesin terms of progresstowards achieving
the Millennium DevelopmentGoals (MDGs). Five o f the ten main MDGtargets set for 2015 have
already been attained, and another three could be reached ahead of time (Table 3). However, Vietnam
might only partially achieve the target on reversing the loss o f environmental resources and could
miss the target on halving the share o f the population without drinkingwater and sanitation. Also, it
should be noted that alongside a remarkable performance on nearly all of the MDGs, important
disparities in achievement remain between the Kinh majority and ethnic minority groups. For
example, fewer ethnic minority children are enrolled in school, especially girls. Maternal mortality
and child mortality rates are much higher in mountainous areas where many ethnic minorities live
than in the rest o f Vietnam.
5
C. RECENTECONOMICDEVELOPMENTS
17. There were clear signs of overheating towards the end of 2007, including a substantial
acceleration of inflation. The growth o f consumer prices reached 12.6 percent year-on-year in
December 2007, and accelerated further to 21.4 percent in April 2008. Part o f the acceleration was
due to the rapid increase in world prices for food, especially rice. Food accounts for a large share o f
Vietnam's consumer basket. The implicit peg o f the Vietnamese dong to the US dollar transmitted
international inflation to the domestic market to a larger extent than in other countries in the region.
But non-food inflation also accelerated, from 4.9 percent by December 2006 to 7.7 percent by
December 2007 and further to 11.3 percent inApril 2008.
18. As Vietnam is a net exporter of agricultural commodities such as rice, coffee, and
pepper, it should benefit from higher international prices. But the effects o f higher prices are
unevenly distributed across the population. Provided farm-gate prices increase as fast as border
prices, rice farmers in the large deltas, who are close to the poverty line, should be among the
beneficiaries. On the other hand, migrants to large cities, who are also barely out o f poverty, have
suffered considerably, and some o f the poorest people in the highlands, including ethnic minorities,
are also net consumers o f food. All farmers, including those growing rice in the deltas, have faced
adverse impacts from more expensive imported inputs including fertilizer, insecticides, and petroleum
products.
19. Asset prices also increased rapidly over 2007, but declined in the first half of 2008.
Stock market prices surged during the first half o f the year, followed by real estate prices in the
second half and in the early months o f 2008. The VN Index o f the stock market went from 752 in
December 2006 to 1,171 in March 2007. Rough estimates suggest that the average Price-to-Earnings
(P/E) ratio had reached 37.5 at that point. Most o f the surge was driven by local investors. As the
SBV took measures to cap lending to finance the purchase o f securities, stock market prices receded
but speculative action moved to the real estate market. Caps on lending for real estate and the broader
adjustment package adopted in March effectively stopped the asset price frenzy. By May 2008, the
VN Indexwas down to 420 while the realestate market had cooled.
20. The country's current account deficit reached an unprecedented 9.8 percent of GDP,
but capital inflows were more than adequate to finance this as well as contribute to a
substantial increase in foreign reserves. Although information on the exact nature o f these inflows
is scarce, a large fraction seemed aimed at long-term construction activities. Whether some inflows
were used for speculative purposes is not known with certainty. In 2007, overall exports grew by 23
percent, reaching 68 percent o f GDP by the year end. So far, export performance has not been
affected by the global slowdown, in part because Vietnam's export products and markets are
diversified. The main export items are crude oil, agricultural products, and labor-intensive goods such
as garments and textile, footwear, seafood, and wooden furniture. But imports grew even more rapidly
than exports, almost by 40 percent in 2007 and even faster in early 2008. Imports o f capital goods
and intermediate inputs surged and imports o f consumer goods grew even faster although from a low
base (they represented less than 6 percent o f total imports in 2007). The trade deficit i s bound to
increase in 2008.
21. During 2007 authorities intervened heavily in the exchange market to resist currency
appreciation. The Vietnamese dong remained unofficially pegged to the U S dollar (within a band),
depreciating by only 0.14 percent during 2007, and starting to appreciate in the first months o f 2008.
Butthis was at a time when the US dollar was losing value against other internationalcurrencies, thus
implying a substantial depreciation o f the nominal effective exchange rate. As a result o f SBV
interventions, Vietnam's foreign reserves increased by US$10.1 billion in one year, to reach a record
high o f US$21.6 billion by the end o f 2007, equivalent to 3.3 months o f imports. The slowdown in
6
short-term capital inflows and the high inflation rate have reduced the pressure for nominal
appreciation.
22. Credit growth acceleratedfrom 25.4 percent in 2006 to a peak of 63.2 percent in March
2008. It is difficult to discern any major differencesby type of borrower. For instance, in 2007 credit
to SOEs grew by 52.9 percent, compared to 54.3 percent for credit to other sectors. As of March
2008, outstanding credit to SOEs accounted for 31.1 of total credit. But there are important
differences by type of credit institution and by type of loan. Lendingby SOCBs increased by only 25
percent during 2007; this was due to their efforts to improve the overall quality of their portfolio in
preparation for equitization. Lending by Joint Stock Banks (JSBs), on the other hand, grew by 95
percent. Such a rapid pace of growth raises concerns about the quality of loans, and makes some of
the JSBs vulnerable if liquidity is cut too drastically. As for loantypes, the share funding real estate
investments increasedfrom 3 percentoftotal lendingin early 2007 to about 10 percent inearly 2008.
23. The growth in base money underlying credit growth was in part the result of the rapid
build-up in foreign reserves. Large capital inflows complicated the implementationof monetary
policy, confronting Vietnam with the "impossible trinity" of simultaneously maintaining a nearly
fixed exchange rate, an independentmonetary policy and an open capital account. Massivepurchases
of foreign exchange to prevent the appreciationof the dong hadthe unwanted side effect of increasing
liquidity. Until the last quarter of 2007, SBV was relatively successful at mopping up some of this
additional liquidity through the sale of securities. However, the interest rate offered resulted
increasingly unattractive, especially compared to the returns expected in the real estate market.
Sellingsecurities became difficult, which ledto a ballooningof credittowards the end of the year.
24. I n response to the over-heating of the economy the central bank took contractionary
measures resulting in a sudden shortage in liquidity. Among other things, the SBV stopped
purchases of foreign currency which suddenly stopped injections of liquidity into the financial
system; the SBV also forced placement of central bank securitieswith commercial banks. By March
2008, year-on-year growth for broad money came down to 35 percent, from a peak of 47 percent in
October 2007. Since then, interest rates have eased. The abrupt policy response also led to a
temporary increase in interest rates, peaking at 40 percent in early March. Since then interest rates
have moved closer to the inflation rate, becomingexceedingly high in US dollar terms. International
reservescontinuedgrowing, but at a muchmore modest pace.
25. I n March 2008 that the government decided to adopt a more comprehensive approach
to address the overheating of the economy. This reflecteda switch in policy priorities, from rapid
growth to economic stability. This broader package included a reduction in recurrent government
expenditures by 10 percent, and an announced discontinuation of public investment projects which
are not essential or lack appropriate funding. The package also includesa reductionin the growthrate
of credit to 30 percent and a broadeningof the exchange rate flotation band to *2 percent (up from
*OS percent in January 2007, i0.75 percent in December and k1percent in March2008). The target
for the 2008 GDP growthrate was loweredfrom 8.5 to 7.0 percent.
26. Looking forward, the authorities' ability to ensure macroeconomic stability will be
tested. The surge in international rice prices may recede, at least partially, when the new harvest
comes in, towards the middle of the year. But the growing trade deficit is a concern, and there is
considerable uncertainty regarding capital flows to Vietnam during the rest of 2008. A change in
their composition, towards long-term direct investments, would facilitate the conduct of
macroeconomic policy. On the other hand, a sudden stop or a capital reversal would complicate it
seriously. Further developing a sound banking and financial system and strengthening supervisory
capacityand prudentialregulationswill be importantto weather these challenges.
7
111. THE REFORMPROGFUM
27. There was a considerable acceleration of reformsaround 2001, justifying the first series
of PRSCs,and then again in 2006, at the beginning of the current series. The former involvedthe
passing of an enterprise law that greatly facilitatedbusiness registrationand operation, the signingof
a bilateraltrade agreement with the United States that strengthened global integrationand resulted in
important legal improvements, the adoptionof the first serious steps towards SOE divestiture and the
strengthening of public financial management. The latter was crowned by the accession to the World
Trade Organization(WTO), the adoption of an ambitious bankingreform roadmap, a new resolve to
equitize large SOEs, the transfer of the exercise of state ownership rights out of line ministries and
provincial governments, the drive towards introducing universal programs for social protection, and
the adoptionof a determinedanti-corruptiondrive.
28. The Socio-Economic Development Plan 2006-2010is a milestone in the modernizationof
planningin Vietnam, justifying the alignment of donor support to its implementation. During
its preparation, there was a serious effort to collect inputs from different groups in Vietnamese
society. In addition to internal discussions within government, consultation workshops were held
with local officials, groups of academics, the domestic business sector, international and local non-
governmental organizations (NGOs), people living with disabilities (PLWD), overseas Vietnamese,
women and women's groups, and donors. The draft SEDP was declassifiedfor the first time ever, and
it was discussed by the National Assembly in November 2005, a departure from previous practice
which scheduledNational Assembly discussion after the Party Congress.
29. There is also considerable progress in relation to the use of data and the set up of a
credible monitoringand evaluationframework. Following an established practice, the SEDP sets
the framework for government action and resource allocation including, for the first time, resources
from Official Development Assistance (ODA). But this framework is much more focused on
attaining development outcomes than in the past. Data from representative household surveys are
usedto presenta comprehensive analysis of povertyin Vietnam. The text includescandid discussions
about disadvantaged groups and regions and the challenges presentedby the emergence of a growing
gap between socioeconomic groups. A results framework was recently completed by the Ministry of
Planningand Investment (MPI). This framework is structured logically around a results chain from
inputs to outcomes. It includes a substantial pillar that refers to measuringprogress in the promotion
of good governance, committingthe government to measuringprogress in improvingtransparency and
participation, strengthening decentralization, managing public resources better and reducing
corruption. The framework also recognizes that much of the informationon results will need to be
providedor verifiedthrough independent surveys.
30. The main challenge lies in implementation. Substantive progress requires prioritizing the
many policy actions identified in the SEDP, clarifying their sequence and timing and assessing their
possible cost. There is agreement that prioritization should involve selectingthe key reforms within
each of the SEDP pillars, rather than choosing across pillars. It is also clear that protecting the
prudence that has characterized macroeconomic policy over the last few years and deliveringon state
sector reformwill be essential to containthe growth of explicit and implicit government liabilities and
keep the overall approach to development financially sustainable. Besides, effective implementation
will also require sound reporting systems that can identify and acknowledge shortcomings, supported
by processes for adjustingpoliciesaccordingly.
31. The SEDP is bound to be complemented by other strategic documents and policy
developments over time. While acknowledgingthe mainstreaming of SEDP, it is also understood
that other key documents will also shape reforms in the coming years. Some of the most important
decisions over the last cycle, from the acceleration of negotiations to accede to the WTO to the
8
adoption of the banking reform roadmap to the approval of the Anti-Corruption Law, were not
foreseen as such in the previous five-year plan or in the Comprehensive Poverty Reduction and
Growth Strategy (CPRGS). Also, the plan at times scales up provincial innovations. In approaching
the proposed series of operations, it is therefore important to keep in mind that there will be
departures from the SEDP 2006-2010, especially in the outer years of the program. One of the
reasons for active engagement is precisely to encourage and support departures that could further
deepenthe reformprocess.
IV. BANK SUPPORT TO THE GOVERNMENT PROGRAM
A. LINKTO CPSAND RELATIONSHIPTO OTHER BANK OPERATIONS
32. The Bank's CPS is organized around the four pillars of the SEDP, with PRSCs as the
focal point of the Bank's policy dialogue on the Vietnamese reform program. A program
comprising investment analytical work, lending credits and technical assistance grants supports
implementation at the sectoral level. (Figure 1). There is a strong complementary between the
different components of this program. The overall direction of the policy dialogue is informedby the
analytical work. Concrete policy measures are often made possible by preparatory technical
assistance work, supported by grants, Investment credits also provide an opportunity to pilot new
initiatives and approaches, which are then scaled up through the policy dialogue. The reforms
supported by the latter, inturn, enhancethe effectiveness of sectoral investments.
33. The lending program is being complemented with IBRD resources starting in FY09.
IDA and IBRD investment financing priorities include the energy, transport, tertiary education,
financial, water, urban, agriculture, and health sectors. These operations support the government's
sectoral frameworks and, as with PRSCs, will be carried out in partnership with other donors. A
Development Policy Lending (DPL) was jointly prepared with interested donors to strengthen a
nationaltargeted program for poverty reduction. Additional sector-levelDPL Operations, such as one
currently planned to support higher education reform, will be introduced selectively, as and when
policy reforms, program improvement, andmacroeconomic frameworkwarrant.
B. COLLABORATIONWITH IMFAND OTHER DONORS
34. The International Monetary Fund. The IMF has not had a program in Vietnam since the
expiry of its Poverty Reduction and Growth Facility (PRGF) in April 2004. However, the IMF
remains fully committed to continuing an effective partnership with the government of Vietnam. It
maintains a regular policy dialogue through Article IV consultations, interim staff visits, and its
resident representative office in Hanoi, and seeks to build capacity through training activities in
Vietnam and abroad. It supplements this dialogue with technical assistance in areas of core Fund
expertise, includingtax policy and administration,budget management, monetary and financial sector
policy, and macroeconomic statistics. The IMF continues to cooperate closely with the World Bank
9
I-
in Vietnam, and to contribute actively to the broader dialogue between the government and its
development partners. A joint Bank-Fund DSA was completed in October 2006. The IMF has
provideda Letter of Assessment in relationto the proposed credit.
35. Under the framework of enhanced collaboration, the staffs of the two institutions have
consulted closely with one another across a broad range of issues, and have sought to maintain
appropriately-alignedpositions in their areas of policy engagement. While the World Bank has taken
the lead in supportingthe government's structuraland institutionalreforms in a number of sectors, the
IMF has taken the lead in the policy dialogue on macroeconomic policies. It has also assumed
responsibilityfor advisingon the monetary policy functions ofthe SBV.
36. Other multilateral and bilateraldonors. A total of 11 bilateraland multilateraldonors co-
financed operations in the previous PRSC cycle, and more are expected to contribute to this and
subsequent credits (Table 4 and Annex 4 for details). Apart from co-financingPRSC operations,
bilateraland multilateraldonors have playedan importantrolethroughtheir involvement in the policy
dialogue with the government. Donors participating in the process contributedhuman and financial
resources to assess the policy challenges, coordinate their approaches, and discuss the options with
government, across a range of policy areas. The areas in which donors are involved are chosen in
accordance with their priorities and comparative strengths.
TABLE DONOR
4: CO-FINANCING OFPRSCOPERATIONS
Note: Figures are in million US dollars. Amounts for PRSC 7 are subject to confirmation as the co-financing
support is processed.
37. The preparation of this credit was conducted jointly with donors since its inception, with
regular meetings taking place to reach consensus on how to proceed, to discuss with government and
to assess progress on economic reforms. Building on the effective way donors have worked together
in the preparation of PRSCs in Vietnam, and on their analytical underpinnings, a consensus has
emerged on the steps to prepare subsequent operations in the series. This consensus includes an early
start of the policy dialogue, with a roadmap being drawn up at the end of the summer to set up the
various stages and requirements from the initial formulation of the policy matrix to the assessmentof
triggersto the policy dialogue on specific actions to the negotiationof the credit.
11
38. Preparations for PRSC 7 have built on the foundations of the existing strong donor
commitment to support Vietnam's reformagenda in a coordinatedmanner. This commitment was re-
asserted in the Hanoi Core Statement on Aid Effectiveness (HCS). It is reflected in the intense
meeting frequency of the different working groups that were established to coordinate the views of
co-financiers and share informationpertainingto the PRSC process. Joint working groups of donors,
government and internationalNGOs that meet on a regular basis have helped carry the discussions on
government's plans for reforms to a wide group of stakeholders. With the formation of working
groups organized by policy area, donors have had the opportunity to engage in discussions on reform
with government counterparts on an ongoingbasis.
39. Civil Society. With the support of the NGO Resource Center, civil society organizations
participated actively in the organization of consultations for the preparationof SEDP. NGOs were
also actively involved in the analytical work underlying this series of credits, with their contribution
focusingon infrastructure(especially in the relationto the needs of PWD), the social sectors and legal
development. Substantive inputs were providedon the interpretationofthe key development issues in
each area, the identification of the main strengths and weaknesses of the government's strategy to
addressthose issues, the prioritizationof policy actions within the SEDP framework, andthe selection
ofthe most appropriate outcome indicatorsto measureprogress in each area.
40. A well-functioning mechanism is in place in Vietnam to conduct consultationswith business
associations. Prior to both the year-end CG meeting between government and donors and the
informal mid-year CG meeting, the Vietnam Business Forum (VBF) gathers to discuss the issues of
concern to a range of chambers and associations representing the interests of enterprises. The
discussion is organized around topics such as investment promotion, transparency, tax, labor, and
land. In each of these areas, a list of main concerns is assembled, and the focus is on assessing
progress towards solving them. Many o f those concerns are addressed through policy actions
supported by the PRSC process. At the last VBF, in December 2007, the current cycle of PRSC
operations was discussed, andfeedback from the participatingchambers and associations was sought.
C. ANALYTICAL UNDERPINNINGS
41. While the SEDP articulates a compelling vision, it is a comprehensive and ambitious
document, dealing with almost every aspect of economic reform, Because of its strong focus on
social inclusion and poverty reduction, the SEDP thus offers an opportunity for upstream
harmonizationwhereby government and the internationalcommunity share a common view of what
needs to be done, in the spirit of the HCS. However, over its more than 300 pages (without counting
the monitoring framework) it discusses development orientations for all sectors and fields, with
varying degrees of analytical depth and detail. As a result, aligningto a nationally-ownedstrategy is
not as simple in practice as it may sound. A careful "reading" of the SEDP is critical to translate it
into a concrete set of policy actions to be implemented during the new PRSC cycle. Prioritization,
sequencingand monitoringare part of such "reading".
42. The Vietnam DevelopmentReport (VDR)2007 provides the main underpinnings for the
new PRSC series. This report, entitledAiming High, was presented at the ConsultativeGroup (CG)
Meeting of December 2006. Its main objective was to "translate" the SEDP into a workable set of
policy actions, with proper prioritization and sequencing. It also led to the identificationof a set of
indicatorsto monitor progress towards development outcomes across all pillars of the reform agenda.
The preparationofthe VDR was launchedshortly after the approvalof PRSC 5, in June 2006.
43. While the process was led by the World Bank, several donors contributed think pieces and
backgroundnotes all over the process. Such an arrangement helps to ensure coherence across donors'
programs of support, and to mobilize funding for high priority tasks in each policy area. Participants
12
included the co-financiers of the first PRSC series but also other donors not formally involved in
direct budget support, includingthe United Nations agencies and internationalNGOs. A Reviewing
Committee of recognized Vietnamese experts and policy makers advised on each of the policy areas
and on the overallthrust ofthe report.
44. The joint analytical work conducted in the preparation of the VDR 2007 also led to the
development of a well defined set of monitoring indicators. Those indicators are based on the
monitoring framework for the SEDP but they are fewer in number. In some areas, the set of
indicatorsproposed in Aiming High actually goes beyond the SEDP monitoringframework. This is
the case in relation to governance, where the monitoring experience is more limited and there is a
more limited experience in the use of enterprise and household surveys, as opposed to administrative
self-reporting. This is still work in progress, and important differences remain in the quality and
frequency of the available indicators. Some of those indicators are built on surveys which are
undertaken only every other year, or on administrative data that is not publicly available. In other
cases, small studies are needed to make sense of the available data. These difficulties justify the
decision to conduct a comprehensive assessment of progress towards development outcomes only
twice over the PRSC cycle.
45. The preparation of the VDR 2007 was a milestone in an otherwise broader analytical
program to support the implementation of the reform program. The VDR 2007 built on the
analytical work conducted over the first PRSC cycle, on structural reforms (as summarized in the
VDR 2006, on Business), social inclusion (VDR 2004, on Poverty) and institutional modernization
(VDR 2005, on Governance). A new series of VDRs delves into the four pillars of the SEDP in
greater depth, starting with the VDR 2008, on Social Protection, presented at CG meeting of
December 2007. The following report in the series will be the VDR 2009, on ResourceMobilization.
This report is already under preparation.
46. The VDR 2008 on Social Protection delves further into social inclusionpillar of the SEDP.
The reportcovers three mainareas of socially inclusivegrowth strategy: opportunityto thrive, support
for those left behind, and insurance to cope with shocks. Based on the analyses conducted in the
study, the report derives important policy recommendations on how to extend the coverage of social
protection, how to strengthen the incentives faced by participants and service providers, how to
improve informationsystems and enhance the portability of benefits, and how to manage resources.
Although the general direction of the proposed operation was already determined in the previous
PRSC (inthe form oftriggers), the findings ofthe report informedthe policy dialogue.
D. LESSONSLEARNED
47. The main contribution of PRSCs has been their ability to serve as a platform for a
continued policy dialogue on a broad range of issues with key government counterparts.
However, given the encompassing nature of Vietnam's reform program was not even across and
within pillars. Identifying strong and weak areas in policy making is essential to ensure the
sustainability of this success over time. Starting with PRSC 3, a set of indicators covering a broad
range of policy areas was used to assess progress. Because previous planning documents lacked an
appropriate monitoring framework, outcome indicators had to be inferred from the text of those
documents and from other relevant sectoral strategies andpolicy statements.
48. Overall, progress was slower in policy areas characterized by limited political will,
conflicting institutional responsibilities or insufficient analytical work. The speed at which
progress was made across policy areas within each of these pillars depended on the political will to
implement the reforms. The contrast between rapid progress in the integration with the world
economy and slow reform in the banking sector is revealing in this respect. To some extent, this
13
contrast may reflect a deliberate choice, whereby rapidly movingtowards WTO accession would be a
way to "lock-in" the need for subsequent reforms in the banking sector. In other cases, as in water,
limited progress reflects institutionaloverlap and unclear delimitationof competencies across several
ministries or agencies. Inthe case of corruption, the commitment to fight it is undeniable but is more
recent. This is one area where progress on inputs (such as laws, or coordinatingbodies) may take
quite some time to translate intro progress on outputs and outcomes. Beyond the specifics, the
classification of policy areas depending on the progress made is consistent with the ratings prepared
for the Country Policy and Institutional Assessment (CPIA). Those ratings are above the regional
average in relationto macro-economic management and social inclusion. They are below in relation
to the financial sector, labor and social protection,andtransparency and anti-corruption.
49. Several independent evaluations of the PRSC process in Vietnam have been conducted
so far and they have all been positive. A Quality at Entry Assessment (QEA) for the first PRSC
cycle was done shortly after the approval of PRSC 2, which was the first operation with a broad
scope, covering all the pillars of the reform process. The QEA rated the proposed series as highly
satisfactory in relation to its strategic relevance and approach and to its poverty and social aspects.
All other dimensions were considered satisfactory, and such was also the overall assessment by the
QEA exercise. A review of Implementation Completion Reports (ICRs) by the Independent
Evaluation Group (IEG) reached similar conclusions. Based on relevance and achievements under
most objectives, the overall outcome of the first PRSC cycle was rated satisfactory. So were the
performance by the World Bank and the government. The risk to development outcomes was
considerednegligibleto low, andthe quality of monitoringand evaluationwas ratedsubstantial.
50. Another assessment was conducted after PRSC 4, as part of a broader evaluation of general
budget support commissioned by 24 donors and conducted by the University of Birmingham in 7
countries. This assessment showcased Vietnam as a successful example of government-donor
collaboration, with a strong impact on policies. The main strengths of the process were its poverty
focus, the extent of aid coordination, the regularity of the operations, and the low transaction cost for
government. Identifiedweaknesses included slow disbursement by co-financiers,the insufficiency of
impactanalyses, and poor coordinationwith technicalassistanceprograms.
51. The assessment for Vietnam was updated after PRSC 5 by the same research team, by then
working in a consulting firm. This update was financed by the World Bank as an input for the
preparationof the new PRSC cycle. The updated assessmentconcluded that PRSCswere effective at
supportingpolicy reforms, at linking policy and budgets, at strengthening financial management and
at helping harmonization, The inclusiveness of the process was highly valued. At the same time,
PRSC operations were judged less effective at supportingpolicy breakthroughs and at helpingpolicy
implementation. They were seen as unable to overcome donor fragmentation in areas like public
administrationreform. The recommendations includedmaintainingthe broad scope of the operations,
focusingon policy bottlenecks, andto coordinate more with partnershipgroups with leadingdonors.
52. One of the key lessons learnedfrom the previousseries of operations is the need to have
a comprehensive approach to economic reform. There are important linkages between policy
actions across sectors, so that a piecemeal approach or an excessive selectivity would end up being
less effective. For instance, improving the delivery of social services requires a better balancing of
recurrent and capital expenditures on the supply side as well as a gradual move towards demand-side
financing, especially for the poor. Public financial management reform is thus crucial to deliver
better outcomes in education or health. There are also differences in the readiness of leadership to
embrace change in different areas, with the time of openings and accelerations being difficult to
predict. This calls for readinessacross the entire policy spectrum, accumulatingthe various technical
building blocks necessary to support more ambitious change whenever the government endorses it.
Finally, the fact that PRSCs are the only vehicle for high-level policy dialogue in Vietnam puts a
14
higher burden on the contents o f these operations, which need to serve as a one-stop shop for the
interaction between the government and the donor community.
Box 1. Feedbackon Approachesto Conditionality inVietnam
Ownership. There was a striking consistency across the four consultation sessions in the assertion that
ownership was the most important of the five principles and a prerequisite to making progress in the other
four principles. There was also considerablesupport for the way inwhich approaches to conditionality had
evolved in Vietnam. There was'generalagreement across the stakeholder groups that the series of PRSCs
had been firmly rooted in the Government's own reform agenda, as expressed first through the CPRGS and
then the SEDP. In both the donor and NGO consultations, participants mentioned that this was "best
practice".
Harmonization. Recent alignment to the CPRGS and the SEDP had helped development partners work
more coherently in support of government outcomes. There was general acknowledgementthat the PRSC
operation was a complex one, bringing relatively well together multiple ministries and donors. Government
participants were particularly appreciative of donor efforts to coordinate assistance around the SEDP and
PRSC. There was still concern over the current framework for accountability, Le. the PRSC framework
being similar, but not identical, to the SEDP monitoring framework. There were some strong views that
donors should resist the temptation to use independent monitoring mechanisms. Inputs from NGOs
emphasized how accountability works in practice, outlining the need to engage alternative and independent
viewpoints. Donors also emphasized how harmonization could be improved, suggesting a more structured
approachto engagement inthe PRSC process. This would enable "newcomers" to the process (which grows
annually interms of number of participants)to understandbetter their roles and obligations.
Customization. The general sense was of a process that had become increasingly tailored to country
priorities. The need to balance the desire to promote desirable reforms and the importance of keeping to
country priorities, perhaps described as "the art of the possible", recognized. A repetitive theme refers to
building the analytical capacity on the part of government, so that Government, rather than development
partners, can better lead the process of determining which actions from the wider SEDP agenda should be
prioritized in the agreements, Currently the prioritization and sequencing of actions and triggers was
undertakenmore by donors than by Government. While the Government owns the broad agenda from with
the PRSC operations are derived, the customizationof the PRSC operationswas initiated and led largely by
donors.
Criticality. The size of the policy matrices was kept minimum compatible with an active policy dialogue
across the reform agenda. A multi-sector, multi-agency, multi-donor operation is likely to need a spread of
"benchmarks" in order to keep the operation inclusive and motivating for all participants. While this number
i s higher than in other countries, this i s justified in Vietnam, given the breadthof its reform program and the
maturity reached by the PRSC process. With two dozen line ministries and government agencies and a
dozen co-financiers, drastically narrowing the focus of the policy dialogue, concentrating on just a few
policy actions would amount to demobilizing a large portion of the constituency for economic reform. The
Bank and all co-financiers use the same policy matrix to decide on their level of support, therebyproviding a
single harmonizedplatformfor the policy dialogue and disbursements.
Transparency and predictability. Both predictability and transparency had increased over recent years.
The PRSC process has led to disbursements to the budget on an annual basis, thus meeting the objective of
aligning aid to domesticbudget cycles. Since PRSC 2, commitmentswere made in June of each year, which is
the time when the preparationofthe budget starts. The budget is approvedby the National Assembly towards
November, for the following calendar year. The submissionto the National Assembly already factors in the
amount of resources expectedfrom PRSCs. Although the World Bank inputs were predictable, there was less
predictability over the timing and level of co-financier resourcesthat would be available. Not all donors were
able to commit to financing beyond the current years and as levels of co-financing increase, this adds an
element of uncertainty into the operation.
15
53. In September 2007, there was a series of consultations held inHanoito seek feedback on
World Bank approaches to conditionalityin Vietnam, especially in relationto PRSC operations.
Four separate consultations took place with government officials and elected representatives, civil
society, private sector and with other development partners. All the consultation sessions followed a
similar format of presentations by the World Bank on the evolution of approaches to conditionality
and on the use of policy-basedlendingin Vietnam. The discussions hingedon each of the five "good
practiceprinciples" outlined by the World Bank. Outcomes of consultations were incorporatedby the
Bank team inthe preparationofthis operation(Box 1).
V. THE PROPOSED CREDIT
A. ASSESSMENT OF TRIGGERS FOR PRSC 7
54. The 14 triggers chosen for the preparationof PRSC7 were evenly distributedacrossthe
four pillarsof the reform program. These triggers, inspiredin the SEDP and other key documents
and strategies, were spelled out in the PRSC 6 Program Document. They stand out by their strategic
importance to attain the SEDP objectivestowards the end of the five-year cycle. Triggers should not
be interpretedas conditions but rather as a framework to guide the policy dialogue towards the next
operation. Substantive progress towards meeting the triggers launches the formal preparationof the
next operation in the series. The assessment involves an element ofjudgment, as some triggers may
not be fully met while others may be exceeded.
55. Triggers were discussed over several rounds of technical meetings with 20 line ministriesand
government agencies. The process was coordinated by the PRSC Secretariat at the SBV. The
secretariat reports to the Steering Committee for the PRSC process, which is chaired by the first
Deputy PrimeMinister. The secretariat identifiesthe relevant line ministry or government agency for
each of the policy actions. The technical meetings with those ministries and agencies provide an
opportunityto go indetail intothe specificsof each action, to comment on draft policy documents and
to agree on a time schedule for their completion
56. Eight of the 14 triggers for this operation have been fully met or will be fully met by Board
date, five were partially met and one was not met. The five triggers partially met were: to complete
the equitizationof two SOCBs, with participationof strategic investors; to establish affordable health
insurance premiums based on user-group demand and address adverse selection problem; to adopt
guidelines for Gender Equality Law identifying responsibilities, resources and monitoring
mechanisms; to enact a legal and institutionalframework for integrated river basin management; and
establish clear criteriafor selecting public investment projectsandmechanismsfor their financing and
monitoring. The unmet trigger was to develop a unified national sanitation strategy and encourage
greater commune and privateparticipationin sanitation.
57. The fact that not all triggers were met reflects a relatively weak policy performance. It is
difficult to make comparisons with the previous operation, which was the first one in the cycle and
therefore involvedno triggers. But performance under this operation was weaker than under PRSC 5,
when all 15 triggers had been met. It was somewhat weaker than that under PRSC 4, when three out
of 15 triggers partially met, and similar to that under PRSC 3, when one out of 14triggerswas not met
andtwo were partially met. There were no explicit triggers for PRSC 2.
58. There is general agreement that some of the slippages in relation to the triggers reflect
circumstantial or institutional obstacles to implementation. On the circumstantial side, the
macroeconomic turbulence of end-2007 led to the adoption of a stabilization package including
measuresto contain credit growth, As a result of this package, there was a stock market slump that
made the government reluctant to sell a strategic share of the capital of SOCBs to private investors.
16
On the institutional side, an unclear allocation of responsibilities between ministries prevented any
substantial progress on the sanitation strategy, whereas the more assertive stance of the National
Assembly resulted in delays to approve the health insurance law. An extensive consultation process
on the guidelines for the Gender Equality and the decree on river basin management also led to the
postponement oftheir issuance.
59. The view of the Task Team is that weaker policy performance under this operation does not
reflect a weaker commitment of the government to reform. While the "bottom line" assessmentof the
triggers varies across co-financiers, and various interpretations can be offered for the overall
slowdown in policy performance, there is a determinationof the donor community to remainengaged
in the dialogue with government over economic reforms. There is also a commitment to improve
performance over the next operation inthe series.
60. I n addition to assessingthe triggers, the rounds of technical meetings with government
provide the platform to engage in a broader dialogue. Progress in the implementation of the
reform agenda is assessed on an annual basis through the adoption of a series of benchmarks,
reflected in the policy matrix of each of the PRSC operations. For a measure to be considered a
benchmark, it needsto meet four criteria. First, it needsto be explicitly mentioned in the SEDP 2006-
2010 or be part of some other strategic policy document of the government. Second, the measure has
to be considered in the VDR series or in other analytical documents as conducive to the attainment of
development outcomes. Third, the measure has to be strategic in importance. And fourth, it has to be
monitorable,inthe sense that its completioncan be documented.
61. Over the year elapsed since the last operation in the series, the government of Vietnam
made progress in its reform agenda, across all policy areas. Some of the actions undertaken
during this period are deemed to be more strategic, because of their potential impact on development
outcomes over time (Table 5). Those actions build on the triggers identified in the previousoperation
and are reported in the Financing Agreement. However, as in the previous cycle, each operation
highlights through a comprehensive policy matrix all of the actions that were part of the PRSC policy
dialogue over the preceding year and were completed by the time the negotiationof the credit took
place (Annex 5 for the list and Annex 6 for the supporting documentation). This broader set of
actions does not reflect the use of conditionality. Itsreportingis rather intendedto convey the breadth
and scope of the reforms being undertaken by the government of Vietnam, year after year. By
providing a more comprehensive picture of developments in each policy area, this matrix allows a
better understandingofthe progressbeingmade in eachofthe four pillars ofthe reformprogram.
B. BUSINESSDEVELOPMENT
62. Establishment of consultation and information gathering mechanisms to identify the
social and environmental impacts of accessionto the WTO. The goal is to set up effectiveways to
communicate with stakeholders, to adjust the implementationof policies and to gather feedback on
actual impacts. This is in the understanding that it is difficult to predict ex-ante where adverse
impacts may materialize. Three measures are counted as contributions to this key action during the
period covered by PRSC 7. On June 11, the Prime Minister mandatedthe postingin the Government
website of all drafts of government legal documents for at least 60 days before sending them for
appraisal by the Ministry of Justice (MOJ) and approval by the Office of Government (OOG). On
May 13, 2008, technical guidelines were issued by the Ministry of Natural Resources and the
Environment(MONRE) on the preparation of Strategic EnvironmentalAssessments, applicableto all
sectors. InNovember 2007, the Ministry of Labor, Invalids and Social Affairs (MOLISA) and GSO
agreed that the latter will conduct a representative labor force survey to gather data on activity,
employment and earnings, based on internationalpractice. This survey fills an important statistical
gap. For now, priority has been given to detailed spatial coverage, so that the survey will be
17
conducted annually. It is understood that progress on assessing potential adverse impacts will
continue under the next operation, with emphasis on the action plan for the implementation o f
commitments, to be finalized in 2008
63. Several policy actions recognized as benchmarks in this operation have aimed at actually
implementing the most important commitments made to accede to the WTO. Under this operation,
progress has been made in harmonizing agricultural health and food safety regulatory tools with
international standards, in line with the Sanitary and Phytosanitary (SPS) agreement. An inter-
ministerial circular has also been adopted to tackle the infringement o f copyrights and trademarks on a
commercial scale in line with Trade-Related aspects o f Intellectual Property rights (TRIPS)
Agreement. This circular was critical from a legal point o f view, as intellectual property rights were
covered by the criminal code invague terms only.
64. Assess scope and nature of lending and other transactions among affiliated parties
within Economic Groups and General Corporations. There is a concern that the involvement o f
large SOEs in the financial sector, through their control o f commercial banks and other financial
institutions, could undermine the efficient allocation of capital and be a source o f instability in the
medium run. In the short run, investments by large SOEs in real estate and the stock market probably
fuelled the asset market bubble o f end-2007. As a first step towards regulating these activities, MOF
conducted a first assessment o f the scope of related lending and related party transactions and of their
implications for economic stability and overall efficiency. The assessment reviews outside investments by
71 Economic Groups and General Corporations, assesses the conditions under which they borrow from the
banks they have invested in, and evaluates the extent and pricing of sales among affiliates. This study will
serve as the basis for a concrete set of policy recommendations.
65, Approve equitization plans allowing participation of strategic investors for two SOCBs
and complete the equitization of one of them, Several SOCBs have made progress in their
equitization plans. The most advanced is Vietcombank, which already completed its P O and held its
first shareholders' general meeting. As part of its approved equitization plan, Vietcombank is
authorized to sell up to 20 percent o f its capital to strategic investors in the second quarter o f 2008.
However, strategic investors are not allowed to buy shares below the P O price, at a time when the
stock market slump associated with macroeconomic stabilization has brought share prices to a third of
their IPO level. A waiver o f the minimumshare price can be obtained from the Prime Minister can be
obtained if the technical and financial assistance offered by the potential investor is considered
valuable. The second most advanced SOCB is Mekong Housing Bank, whose equitization plan was
approved in March, 2008. The plan includes the sale o f 15 percent o f the capital to strategic
investors.
18
TABLE5: KEY PRIOR ACTIONSUNDERPRSC7
State sector Assess scope and nature of lendingand other transactions amongaffiliated
reform parties within Economic Groups and GeneralCorporations
Policy Action
~ ~~
Education Revisetuition fees at secondary andtertiary levels, better reflectingmarket
conditions,and enhance policiesto protectthe poor
Health Submit healthinsurance law which better poolsrisks and allows improved
incentivesin paymentto service providers
Social Introducevoluntary pensionprogram for farmers and informalsector, allowing
protection for support for the poor to participate inthe program
Gender Determineinstitutionalresponsibilitiesfor the implementationofthe Gender
EqualityLaw andmonitoringof gender equality
Area Policy Action
Landand Issue guidelines for forest development basedon participatoryland-useplanning
forests and independent monitoring
Planning Establishcriteriafor selectingpublic investment projectsandmechanisms to
processes monitortheir financing and implementation
~ ~~
Public Issueregulationson content and timing of disclosure of SAV reports, including
financial audit reports of individual entities
management
Fighting Implementasset declarationrequirement in regardto senior officials andtheir
corruption immediate families, with penalties for non-compliance
19
66. Other benchmarksrelatedto financial sector reform have aimed at enhancingfinancial sector
stability. A road map to enhance bank supervision, including off-site supervision and risk-
managementtools, was issuedinJuly 2007. Itwas followed by instructionsfor its implementationby
various departments of SBV in February 2008. A decree on the corporate governance of commercial
banks was revisedso as to enhance the role of boardsof directors. The reviseddecree introduces fit-
and-proper rulesfor significant shareholders, boardmembers andmanagers.
67. Several policy measuresrecognized as benchmarks in this credit are expectedto contribute to
further private sector development. The time needed to start a business was further shortened by
unifying tax and business identification numbers. Seal-carvingprocedures, identified as one of the
main sources of delays inregistration,were considerably streamlined. A number of incentivesrelated
to Enterprise Income Tax were abolished in November, 2007, whereas the new law on Personal
Income Tax simplified tax procedures for household businesses. InNovember 139, a decree guiding
the implementationof the EnterpriseLaw specifiedthat all organizations (including foreign-invested
enterprises) and all individuals (including foreigners) have the right to contribute capital and to
acquire states in unlisted companies. In practice, this means that the previous 30 percent cap on
foreign ownership was raisedto 100percent.
68. Adopt market-based pricing systems to estimate the costs of state-funded civil
engineering investments. Cost norms inherited from the periodunder central planning had resulted
in limited competition in public procurement, Such norms tended to be established below market-
level costs thus frequently requiringexceptions for winningbidders. The grantingof such exemptions
was a potential source of corruption. A decree issued in June, 2007 stipulated that estimates of
construction costs had to be based on market prices, prompting the revision of a large number of cost
norms. Four major components concernmaterialcosts, labor costs, price escalation and engineeringcosts.
In a context where surging construction costs is pushingcontractors to default on their obligations, it has
beenagreed that price escalationcan be basedon an indexproducedby GSO.
69. Coping with a rapidly growing demand for electricity and addressing bottlenecks in transport
are among the most pressing infrastructurechallenges faced by the government of Vietnam. In the
case of electricity a market needs to be created in order to ensure affordable prices while attracting
private investment. A crucial step in the organization of such market was undertaken under this
credit, as power transmission and generation assets were separated andtransmission assets were under
a single National Power Transmission Corporation. This will in turn allow the consolidation of
generation assets for their equitization.
70. As regards transport, modern principles of transparency and corporate governance were
adopted for provincial infrastructure funds. These funds are agile at leveraging non-government
resources and rapidly implementing local infrastructure projects. Meanwhile, a strengthened
enforcement of traffic safety regulations, including the mandatory use of helmets when riding
motorbikes, has resulted in a decline in the number of traffic-related fatalities. However, some of
those regulationscould affect the livelihood of PLWD, as they raise the technical standards for three-
wheeled motorbikes and specialized vehicles. Such vehicles are essential for PLWD to access
markets and generate income. Under this operation, measures were adopted to provide financial
support for PLWDto purchase special vehicles.
C. SOCIAL INCLUSION
71. Revise tuition fees at secondary and tertiary levels, better reflecting market conditions,
and enhance policies to protect the poor. As part of the drive towards socialization, MOET has
been actively working on a revisionof tuition fees for secondary and tertiary levels. Greater reliance
on tuition fees is to be supplemented by measures to support access to education by the poor. The
20
period under this operation saw the discussion of this policy reform at the National Assembly,
followed by extensive consultations in all provinces. The process was completed with two major
forums to discuss the new policy and gather feedback, one inthe North and one inthe South, each led
by a highly respected national leader. Agreement was reached on a differentiation of fee levels
between urban, rural and remote areas. New fee levels still have to be adopted, among other reasons
because of the current fight against inflation. But measures were already adoptedto protectthe poor.
Among them is the broadening of the scope of the scholarship program which now covers students
from poor, ethnic and merit households. The scholarship was set at 80 percent of the minimumwage.
A related measure was the establishment of concessional credit for students, to be implemented by
VBSP. As of April, 2008 around 600,000 studentshadreceived credit, for a total of 4.5 trillion dong.
72. The fragmentationand duplicationof data on education has been one of the main obstacles to
an effective management of the system. The allocation of resources and the assessment of
performancehave beenhinderedby this shortcoming. Underthis operation, a roadmap was issuedfor
the development of an education informationsystem, with the IT department of MOET inthe lead.
73. Submit health insurancelaw which better pools risks and allows improved incentives in
payment to service providers. The main action towards meetingthis trigger was the preparation of
the draft Health Insurance Law, discussed by the National Assembly in its May-June session. The
draft law sets the contribution rate for the compulsory as a percentage of the total salary, at a level
ensuring the balance of the health insurance fund under VSS but not exceeding 6 percent. The draft
Law pools risk among participants in the voluntary program by forcing enrollment of all household
members. Previous attempts to pool risk relied on group insurance at the community level, but this
conflictedwith the enforcement of household participation and resulted in serious adverse selection.
The draft Health Insurance Law also makes it possible for provider payments to gradually shift from
fee-for-service to case-base refunds. The latter should provide stronger incentives to contain the
escalationof healthcare costs.
74. Other importantmeasuresrelatedto healthwere also approved duringthe year covered by this
operation. As part of the drive to extend the coverage of mainstream programs, the healthinsurance
premiumpaidby the budget on behalfofthe poor was substantiallyincreased. Inparallel, a50 percent
subsidy was introducedfor the near-poor. On the supply side, the treatment of solid waste discharge
by hospitals was regulated in line with international practices. A Prime Minister decision issued in
April, 2008 specifies the budget sources to be usedin order to upgradehospitalsto the new standards.
75. Introduce voluntary pension program for farmers and informal sector, allowing for
support for the poor to participate in the program. A decree issued in December, 2007 guides the
implementationof the articlesof the Social Insurance Law relatedto the voluntary pension programs.
Benefitformulas are the same in bothcases, with peopleprocessingtheir pension benefitsthroughthe
fund they are contributingtoo at the time of retirement. Reliance on the same benefit formulas allows
the full portability of pension entitlements between the formal and the informal sectors. The
voluntary programalso allows to continue contributing for five more years after the legal retirement
age, Because of the portability of benefits, this feature actually raises the maximum retirement age
for all workers except civil servants. The Decree also opens the possibility for provincial
governments or donors to pay contibutions towards pension on behalfof the poor. Several donors are
currentlyexploringthe possibilityto do so in selectedprovinces.
76. Generous assistance for SOE workers displaced as a result of equitization and restructuring
has been instrumental in ensuring social stability and overcoming resistance to reform. A safety net
program established in 2001, under PRSC 1, has by now assisted close to 250,000 redundantworkers
move out of the state sector without major frictions. Underthis operation, the compensation formula
used by the safety net was revised. More importantly, its scope was extended so as to cover
redundant workers in state-ownedplantationsand farms.
21
77. Determine institutionalresponsibilities for the implementation of the Gender Equality
Law and monitoringof gender equality. MOJ has taken the lead in draftingthe three implementing
decrees. A major consultationon the draft decrees will take place in early June, 2008. While the Law
on Gender Equality is perceived as an important milestone, there is also a consensus that its actual
impact will depend on its implementation and in particular on the adequate monitoring of gender
equality. A first important step in this direction was taken in December, 2007, when a focal agency
was appointed to be in charge of state management in relation to gender equality. To this effect, a
new Departmentfor Gender Equality was established under MOLISA. It is clearly recognized that
this department will need to work with other government agencies in the disaggregation of existing
statisticsby gender andthe generation of new indicatorsto appropriatelymonitor gender equality.
78. In a related development, a Law on the Prevention and Control of Domestic Violence was
passed in November 2007. The two guiding decrees for this law were drafted in a process involving
wide consultation. A National Target Program against Domestic Violence is under preparationand
will be launched inthe secondhalfof 2008.
D. NATURAL RESOURCES
79. Issue guidelines for forest development based on participatory land-use planning and
independent monitoring. A Prime Minister Decision issued in July, 2007 amendedthe five-million
hectare program, aiming at 1 million extra hectares, of which three quarters for protection. Together
with a related circular, this decision opens the possibility for people from ethnic minorities to get
hired for the protectionof the forests. Another decision 147, issued in September, 2007, charted the
policies for the development of production forest in 2007-20 15. Effective implementation will
require close collaboration between several ministries, with a focus on the benefits to local
populations. The inter-ministerialcircular for the implementationof this decision is critical to ensure
such collaboration.
80. Allocate institutionalresponsibilities for integrated river basin management. Under this
operation all responsibilities related to river basin management were transferred to MONRE. This
was made clear by the functional reorganization of the Ministry of Agriculture and Rural
Development (MARD), approved in January, 2008, which does not retain any mandate in this
connection. Shortly after, in March 2008, MONRE was put in charge of Vietnam's representation at
the MekongRiver Council. In parallel, wide consultationswere heldon a draft decree on river basin
management which will establish a Committee for River Basin Management. However, the decree
was not issued intime for this operation, as hadbeenoriginally envisioned.
81. Two other measures are recognized by this credit in relation to natural resources and the
environment. A strategy for naturaldisaster mitigation was adopted in November, 2007. One of its
salient features is to recognize the role of non-structuralmeasures. The adoption of the strategy was
followed by instructions to ministries and provinces to prepare related action plans. The other
relevant measure is the strengthening of incentives for pollution control, under the form of
environmentalprotectioncharges for solidwaste disposal, also inNovember, 2007.
E. MODERN GOVERNANCE
82. Establish criteria for selecting public investment projects and mechanisms to monitor
their financing and implementation. Some progress was made on the monitoring of public
investment projects. Building on a Prime Minister Decision on the implementation of state
investment capital, a circular issued in August, 2007, introduced a series of templates for standard
reporting on investment by ministries, agencies, provinces and General Corrporations. Reporting
22
refers to sector, project type, sources of funding and progress on implementation. The criteria to
select public investment projects were tightened as part of the recent policy package to address
economic over-heating. A letter was issuedto this effect by the PrimeMinister inApril, 2008, as part
of the adjustment package to contain inflation. This letter instructs MPI to review all public
investment projects and suspendthose considered ineffectiveor inefficient. Basedon this letter, MPI
in turn requested all ministries, agencies, and provincesto stop projects without adequate funding or
with outdated objectives. General Corporations were also requested to take costs and benefits into
considerationwhen reassessingtheir investmentprojects.
83. As part of the modernizationof planning processes in Vietnam, further progress was made
under this operation to develop a monitoring framework for the SEDP. A decision issued by MPI in
May, 2007, establishedthe list of indicators, data sources and reportingmechanisms to be used. The
decisionwas followed by a resolutionguidingthe annual progress reportby MPI.
84. Issue regulations on content and timing of disclosure of SAV reports, including audit
reports of individual entities. A decision issued in July, 2007 mandatesthe disclosureof SAV audit
findings and recommendations. Three types of SAV documents are subject to publicity: annual audit
reports, reports on the implementation of audit conclusions and recommendations, and audits of
individual entities. This regulation adequately defines responsibilities for publicity, reports to be
disclosed, timing and means of disclosure. Audit reports have been distributed to members of the
National Assembly, press conferences have been held on the conclusions and recommendations of
several ofthem, and various individual audits have beenposted inthe SAV website.
85. In the area of legal reform, measures adopted under this operation have aimed at openingup
more space for civil society organizations and enhancing the rights of consumers. While not much
progress has been made in establishinga general legal framework for associations, several measures
have been adopted, or are under preparation, to recognize such associations through their ability to
enter in contracts. Inthis spirit, measureswere passedin September and October 2007 to regulate the
establishment and operation of economic collaborative groups and of social and charity funds
respectively. Meanwhile, a Law on the Quality of Products and Commodities and a decree on the
Protectionof Consumer rights were passed in November 2007 and April 2008. These two measures
enhancethe responsibilityof enterprisesvis-a-vis consumers.
86. Progress was made on public administration reform under this operation. Administrative
procedures were further simplified in June, 2007, with the extension of the OSS model to all
ministries and agencies and the introduction of inter-linked OSS. Previously, the OSS model only
appliedto four departments at provincial level, seven procedures at district leveland four at commune
level, A resolution passed in November, 2007, mandates its piloting in seven ministries at central
level, The inter-linkedOSS modelhas already beenintroducedby several provinces. The dealings of
citizens and enterprises with government should also be facilitated through the use of electronic
interfaces. Under this operation, common standards were set for IT applications and e-government
interfaces at centraland provincial levels
87. Pay reform is another integral part of the public administrationreform agenda. An important
measure in this respect was related to the setting of minimum wages. Until end-2007, a single
minimum wage was used as the reference point for all salaries in government administration and as
the floor for earnings in the domestic business sector (including SOEs). This amountedto using one
instrument for two objectives. Moreover, the national treatment principle of WTO will require a
rapidincrease inthe nationalminimumwage, to eventually reachthe level of that applyingto foreign-
invested companies, This rapid increase could have unintended consequences on the government
wage bill. In November, 2007, the national minimum wage was broken down in three levels, by
region, The minimumwage used as the reference point for government salaries was set separately. It
23
remains equal to the lowest minimum wage applying to the domestic business sector. But this
separation, and the multiplication inthe number of instruments, are steps inthe right direction.
88. Implement asset declaration requirement in regard to senior officials and their
immediate families, with penalties for non-compliance. Asset declarationwas introduced by the
Anti-Corruption Law and regulated through a decree issued in March, 2007. Under this operation,
subsequent measures were adopted to actually implement the asset declaration mechanisms. A
circular issued in November, 2007, provided practical guidelines to this effect. Extensive training
was conducted at the end of 2007. Government employees were requested to submit their asset
declarations by February, 2008. An official letter issued in April, 2008, introduced a standard
template for reportingby ministries, agencies and provinces. Compliance is high, with civil servants
subject to disciplinary measures if they do not declare. Verification will be based on denunciations.
So far, a visible episode concernedthe headofthe Supreme People's Procuracyin Ca Mao province.
89. Other anti-corruption measures adopted under this operation focused on human resource
management. In October, 2007, time limits for the rotation of civil servants in sensitive positions
were introduced. The corresponding decree explicitly listed the tasks and occupations considered
sensitive. Line ministries and government agencies are now in the process of submittingtheir lists of
sensitive positions and their rotation plans. In August, 2007, payments of salaries in cash abolished
and replacedby paymentthroughbank accounts.
F. TRIGGERSFORPRSC8
90. The negotiationof the proposed credit includedreaching an agreement on a list of measures
that will in principle be supported by PRSC 8 (Table 6). These measures are inspired in the SEDP
and other key documents and strategies. The list also builds on the progress made in the policy
dialogue with government over the current PRSC cycle. The set of measures chosen as triggers
because of their strategic importanceto attain the development objectives of the SEDP towards the
end of the five-year cycle. They should not be interpretedas conditions. They rather serve as a guide
to focus the policy dialogue during the next annual cycle. Progresstowards meetingthe triggers will
be assessed towards the end of 2008 in order to launchthe formal preparationof the next operationin
the series. It is understood that the assessmentwill be holistic, recognizingthat sometriggers may not
be fully met while other may be exceeded.
91, Strengthen financial management of SOEs and their investments in other entities,
defining the level of such investments. The venturing of Economic Groups and General
Corporationsinto asset markets, on a large scale, might have fueled the asset bubbles of end-2007 and
contributed to macroeconomic instability in the short term. Their investments in banks and other
financial institutions raise the prospect of related party transactions which could increase the
vulnerability of the economy in the medium run. To address these risks, the government will revise
the most importantregulations on the financial management of SOEs. The revisions, to be proposed
by MOF, will based on the assessment of the scope and nature of lending and other transactions
among affiliated parties within Economic Groups and General Corporations, conducted under this
operation.
92. Prepare revised Law on central bank focusing its mandate on and enhancing its
autonomy in regard to monetary policy and financial sector stability. The main building blocks
of the comprehensive roadmap for the reform of the banking sector, approved under PRSC 5, are the
transformation of SBV into a modern central bank and the introduction of a strong commercial
orientation in SOCBs. The latter is to be reached through the participation of strategic investors in
their capital; the former through the adoption of a revised SBV Law. The timing for the submission
of this Law to the National Assembly is still unclear, and the policy dialogue will emphasize the
24
importance of issuing it as soon as possible. But regardless of the formal date of submission,
agreement has been reached on the need to prepare a draft law specializing SBV on the conduct of
monetary policy and the supervision of the banking sector, with as much technical autonomy and
initiative as possible.
93. Adopt a pricingsystem for electricity from renewable energy and provide incentives for
government procurementof energy-efficient equipment. Copingwith rapid growth inthe demand
for electricity is one of the main infrastructure challenges currently faced by Vietnam. The
organization of a market for electricity and the implementationof large investments in generation, by
boththe public andthe privatesector, will be critical to increasethe supply of electricity. However, it
is also clear that electricity could be used more efficiently and the increase in generation capacity
should not come at the expense of the environment. MOIT is the leading agency in this respect.
Under the next operation, appropriate pricing should allow expanding the market for electricity in the
direction of renewable energy. Other steps towards energy savings include the labelingof appliances
and other equipments based on their consumption of electricity, and the introduction of financial
incentives for the public sector to favor energy-efficient equipment when processing procurement
contracts.
TABLE TRIGGERSFORPRSC8
6:
development approvedby the communityof lawyers
Fighting Preparea revisedPressLawto encourage accurate, objective and responsible
corruption reportingon corruption
25
94. Formulate education development strategy to 2020 focusing on equity of learning
outcomes and relevance of contents. Giventhe progress accomplished in extendingthe coverage of
primary and lower secondary education inVietnam, the focus of reforms is gradually shifting towards
improved learning and the fostering of skills. These priorities should be reflected in the education
strategy, currently beingprepared by MOET. At primary level, learningassessments reveal important
inequalities,with childrenfrom disadvantagedbackgrounds doing less well than those from wealthier
families. At higher levels, the main issue is the relevance of the education imparted, especiallyin the
case of vocational education and universities. The strategy is expected to include concrete
recommendations, from the allocation of budgetary resources to the revisionof education curricula to
the governance of tertiary-level institutions,to addressthese challenges.
95. Approve a strategic plan to ensure prudentialand effective investment of social security
funds. Due to the youth and rapid formalization of the labor force, the old-age pension program of
Vietnam is quickly accumulating reserves. The expansion of the old-age pension program to the
informal sector, implemented under this operation, should accelerate this trend. But the viability of
the program in the long run depends critically on the soundness of the investments made with
contributionsfrom workers and employers. The recordso far is not reassuring, as VSS has invested
in low-returnassets, in accordance with the Social Insurance Law. During the next operation, VSS
will develop a strategic planto identify potential investments, develop an investment portfolio, choose
forms of investment and decide on the share of different asset classes. The process will include the
identification of appropriate benchmarks, with priority given to security over profitability. Based on
the plan, recommendations will be made to expand the list of asset classes considered in the Social
Insurance Law.
96. Approve a strategic plan to ensure prudentialand effective investmentof social security
funds. Due to the youth and rapid formalization of the labor force, the old-age pension program of
Vietnam is rapidly accumulating reserves. The expansion of the old-age pension program to the
informal sector, implemented under this operation, should accelerate the trend. But the viability of
the program in the long run critically depends on the soundness of the investments made with
contributionsfrom workers and employers. The record so far is not reassuring, as VSS has invested
in low-returnassets, in accordance with the Social Insurance Law. During the next operation, VSS
will develop a strategic planto identify potentialinvestments, develop an investment portfolio, choose
forms of investment and decide on the share of different asset classes. The process will include the
identification of appropriate benchmarks, with priority given to security over profitability. Based on
the plan, recommendations will be made to expand the list of asset classes considered in the Social
Insurance Law.
97. Establish criteria and time bound plan to assess the quality of forest resources
nationwide. There is recognitionthat Vietnam has made progress in expanding forest coverage, but
forest quality remains a concern. The ongoing restructuringof state-owned forestry enterprises and
the associated transfer of forest landto households and businesses makes it urgent to have a reliable
assessment of forest quality. The conversion of forests of allegedly low quality into agriculturemay
also have social implications, as ethnic minority groups tend to use such forests as a public good
whereas farmers from the majority group are more likely to use it as farmers. The assessment of
forest quality could also be important for Vietnam to access global financing mechanisms related to
climate change, such as ReducingEmissions from Deforestation in Developing Countries (REDD).
Under the next operation, MARD will establish criteria to classify forests based on their quality,
develop a plan to apply this classification throughout the country, and start its implementation in
selected provinces. It is expected that the resulting classification will provide a useful baseline to
support monitoringand guide policy decisions inthis area.
26
98. Approve national target program on adaption to climate change and allocate
institutionalresponsibilitiesfor its implementation. Vietnam is one of the countries that would be
most severely affected by the rise in the sea level as a result of climate change. Because of its long
coastal line and heavy population density, it is also particularly vulnerable to floods and typhoons,
which can also be expected to become more common. Realizing these challenges, the government
decided to embark early on in the preparation of a plan for adaptation to climate change. Led by
MONRE, this plan will take the form of a National Target Program, to be approved under the next
operation in the cycle. It is expected that this plan will clearly assign responsibilities to line
ministries, government agencies and provincial authorities, so as to avoid duplication and overlaps.
Special importance is given to the coherence between this target program and the natural disaster
mitigationstrategy adopted under this operation.
99. Formulate public debt management law consolidating the management of domestic and
external debt. Much progress has been accomplished in public financial management reform. The
Law on the State Budget, passed in 2002, fundamentally transformed the expenditure side, whereas
the tax reform strategy currently under implementationis modernizingboth tax instruments and tax
administration. Less progress has been accomplished in relationto the management of public assets
and liabilities. An important milestone in this direction will be the preparationof the Law on Public
Debt, by MOF. This law will unify the management of domestic and externaldebt. Such unification
is all the more important at a time when the Vietnamese economy i s fully integratinginto the world
economy, and the buying and selling of government bonds becomes a critical ingredient in the
conduct of macroeconomicpolicy.
100. Establish the National Bar Association, with governing documents and structures
approved by the community of lawyers. This trigger is basedon Resolution49 of the Politburo,on
the Judicial Reform Strategy to 2020, which refers to the need of creatingfavorable legal conditions
to promote the self-management status of lawyers' organizations, while enhancingtheir responsibility
towards their members. The trigger is considered important to build institutional momentum for
further legalandjudicial reform. It is expectedthat self-managementby the NationalBar Association
will bring new dynamics for the profession by building competencies and providing training, by
establishing standards for quality of legal services, and by demanding stronger administration of
justice and overall respect of rule of law. A first National Congress is planned for the summer of
2008.
101. Preparea revisedPress Law to encourage accurate, objective and responsible reporting
on corruption. The fight against corruption encompasses measures across a range of policy areas,
from simplifying administrative proceduresand reducingred tape to monitoringthe assets and income
of civil servants. Several such measures are supported by the current operation. However,
investigationand reportingby the mediaare also calledto play a crucial role in uncoveringcorruption
cases. The revision of the Press Law, in the next year, offers an opportunity to better protect the
journalists and media outlets which report on corruption, while at the same time dissuading libel and
defamation. Ideally, such dissuasion should rely on civil measures rather than criminal prosecution.
But it is recognized that progress in this direction may be gradual, and assessingthe progress towards
meetingthis trigger couldbe difficult.
VI. OPERATIONIMPLEMENTATION
A. POVERTY AND SOCIAL IMPACTS
102. Some of the policy actions supported by this operation could affect specific population
groups but most of the social impacts are bound to be broad. The ongoingrestructuringof state
27
sector falls in the first group, as does the increase in tuition fees for secondary and tertiary education.
With a reformprogram as comprehensive as that of Vietnam, however, social impacts are boundto be
felt across the entire society, possibly over a long period of time. PRSCs support a fundamental
transformation of the Vietnamese economy, including an increasingreliance in market mechanisms
and a growing integration in the world economy, Rapid economic growth is a testimony to the
soundness of this reform program. The rapid reduction in poverty associated with this success
suggests that adverse social impacts are limited. However, global integration (especially since the
accession of Vietnam to the WTO) is bringingunprecedenteddynamism to the economic hubs of the
country, which could result in growing regional disparities. The scarcity of qualified personnel
associated with this dynamism may also lead to a higher skill premium, and growing disparities
between households. Perhaps the biggest impacts are happening in connection to land. In urban
areas, agglomeration effects are leading to a surge in the price of prime land, resulting in massive
gains for landlordsand growing costs for the rest. Meanwhile, forests that were traditionally usedby
ethnic minority people as a public good are increasingly being converted into commercialforests or
agricultural land.
103. In cases where the reform program affects identifiable population groups, the credit
also supports measures to offset the adverse impacts. For instance, under this operation the social
safety net to assist redundant workers from SOEs is extended so as to also cover workers from state-
owned farms, plantationsand forests undergoingequitizationor restructuring. Similarly, the revision
of tuition fees for secondary and tertiary education, aimed at better aligning them with market
conditions, is complemented by the adoptionof two large-scaleprograms, one on scholarships andthe
other on concessionalcredit for students.
104. Addressing the more widespread social impacts of rapid growth, agglomeration effects
and land appreciation is more difficult. Attempts to identify beforehandwho wins and loses from
WTO accession have proveninconclusive. A review of a dozen studies basedon computable general
equilibrium models and almost as many sectoral studies, reportedin the VDR 2006- Business, shows
that few results are robust across studies, suggesting their high sensitivity to the methodology and
assumptions used. In a similar spirit, a retrospective assessment of a previous phase in the trade
liberalizationprogram of Vietnam concludes that the studies of the time were not able to foresee its
actual consequences. Because of these uncertainties, addressing the social impacts of the reform
program supported by PRSCs requires complementary policies that are flexible enough to provide
support to those who lose, evenwhen it is not possible to tell beforehandwho they are.
105. The analytical work underpinningthis operation has paid special attention to risks and
vulnerabilities, and the most effectiveways to address them. The VDR 2008 -Social Protection,
updates the poverty assessment of Vietnam, analyzes in detail the situationof ethnic minorities, and
identifies the main shifts and shocks of the current stage of economic development, from the
epidemiologicaltransition to growing traffic fatalities, to anti-dumping measures by trade partners.
Its findings provide credence to the strategy chosen by the government of Vietnam to address these
risks and vulnerabilities. Such strategy includes a series of targetedprograms. However, its two main
components are the redistribution of budgetary resources from richer to poorer provinces and the
adoptionof universalsocialprotectionprograms in which participationby the poor is subsidized.
106. The current credit includes several policy actions clearly aimed at offsetting trends
towards growing inequality. Among them is the strengthened enforcement of regulations and
improved education programs in relation to traffic safety, the increase in the health insurance
premiumpaidon behalfof the poor and for the first time the partial subsidizationofthe near-poor, the
introduction of a voluntary pension program for farmers and informal sector allowing for budget
support for the poor, and the issuance of guidelines for forest development based on participatory
land-use planning and independent monitoring. Importantly, the credit supports the establishment of
consultationand informationgathering mechanisms to identify the social impacts of accession to the
28
WTO. The goal is to establish effective mechanisms to communicate with stakeholders, to adjust the
implementationof policiesandto gather feedback on actual impacts.
B. ENVIRONMENTAL ASPECTS
107. The proposed PRSC operation explicitly supports an important number of policy
actions with environmentalobjectives. Nine actions are grouped in the Pillar I11actions targeted to
natural resources. They focus on land and forests (forest development guidelines and land auction
polices, water (river basin management, sanitationstrategy, and a naturaldisaster mitigation strategy),
andthe environment (performance contracts for sewerageand drainage, cleaner productionincentives,
strategic environmentalassessment guidelines, and adoption of a climate change action plan). Other
policy actions have important positive implications for the environment, such as inclusion of social
and environmental impacts of WTO accession and safe treatment of waste and water discharge from
hospitals. More complete information on these policy actions is included in other sections of this
document.
108. There are no direct investments supported by the PRSC with measurableenvironmental
impacts but to the extent that the PRSC can be considered responsible for triggering new
development patterns or accelerated growth, it could potentially generate unintended indirectnegative
impacts. These could involve privatesector development, SOE reform, trade integration, and planning
processes.
109. Some policy actions promoted under the PRSC itself mitigate or counter possible
impacts. The strategic environmental assessment (SEA) guidelines policy action of this PRSC is
particularly important as good SEAS can adequately assess economy-wide or sector-wide
developments potentially triggered by PRSC-supported reforms. Additionally, support by the
Swedish-funded SEMLA program has been important in providing support for the strengthening and
implementation of SEA policies. Other SEA work is underway by a range of donors, including the
World Bank.
110. In addition,the World Bank and many other donors participateactively in a program to
support harmonization of environmental assessment procedures between themselves and the
Government as well as to build capacity at various levels. A Technical Working Group of the
Partnership Group on Aid Effectiveness(PGAE), co-chairedby the ADB and MONRE, is currently
undertaking a variety of actions in this area. Funding is provided by various sources, including a
World Bank-managedtrust fund managedby the Ministry of Planning.
111. Supporting analytical World Bank work is being carried out on a number of
environmental topics in Vietnam, A Poverty-Environment Nexus analysis will be completed this
year and raise awarenesson the interactionbetween environmentalissues and poverty. A major study
on the pollution caused by the manufacturingsectors will also shortly be distributed giving decision-
makers additional tools to address environmental pollution. Other recent publications have tackled
issues of solid waste, biodiversity, climate change, fisheries and aquaculture, and water quality in
river basins. A great range of analytical work supported by other PRSC donors has helped fillthe gap
between SEDP objectivesand policy actions supported by the PRSCprocess.
112. Despite progress in the environmental assessment policy environment and good
analytical and project work in a range of sectors, Vietnam faces significant environmental
challenges. Although not caused by or related to this PRSC operation, challenges are mounting in
terms of the environmentaland healthcosts of water and air pollution; worrisometrends in the loss or
poor management of natural resources such as forests, biodiversity, and fisheries; and finally the still
unknown but potentially significant impacts of climate change. The forthcoming PRSC operation
intends to strengthen its handling of climate change by making this a trigger. Most of the major
29
challenges Vietnam faces in the environmental arena are going to require multi-pronged and long-
term solutions outside ofthe PRSC framework.
C. IMPLEMENTATION,MONITORING AND EVALUATION
113. Steering and Monitoring. The National Steering Committee (NSC) for the implementation
of PRSC operationswas established in 2002. It is chaired by the first Deputy PrimeMinister,Nguyen
Sinh Hung, and brings together representatives from key economic ministries and agencies, such as
the Ministry of Finance(MOF), the Ministry of Trade (MOT), the SBV, MOLISA, the MOJ, MARD,
the Ministry of Educationand Training (MOET) and the Ministry of Health (MOH), among others.
Members of the NSC thus have authority over the entire range of policy areas covered by the PRSC
process. The participationof the OOG and the Party'sEconomicCommission(PEC) in the NSC also
allow for a better coordinationof policy decisions, and to elicit sufficient support for the most critical
reforms. SBV is assigned as the agency responsible, in close collaborationwith the World Bank, for
preparation and implementation of PRSCs. A Deputy Governor of SBV acts as Standing Vice
Chairman of the NSC. Representatives from a total of more than 20 line ministries and government
agencies participatedinthe preparationofthe proposedcredit.
114. Given the intensive and complex coordination that is required to manage this very
comprehensive reformprogram, SBV has created a ProgramCoordinationUnit (PCU) with dedicated
staff from SBV. The PCU has helped facilitate the policy dialogue of the World Bank and donors
with line ministries. The Department for InternationalDevelopment of the United Kingdom(DFID),
Switzerland(SECO), Australia (AusAid) and the World Bank have providedfinancial support for the
PCUduringthe preparationof PRSCs4 to 7.
115. Administration. Strengtheningthe managementof public expenditures has beena priority of
the Government over the last decade and significant progress has been made in this respect. A first
Country Financial Accountability Assessment (CFAA) was undertaken in 2000-01. A Public
ExpenditureReview-IntegratedFiduciaryAssessment (PER-FA) carried out in 2004 andpublishedin
2005, provided an update and review of the implementation of the recommendations of the 2001-
CFAA and also suggested reforms in other areas. The government has made steady progress in
implementing the 2004 PER-IFA recommendations. Major developments in public financial
management include empoweringthe National Assembly with increased government accountability
for the use of public resources; increasing transparency for all agencies using budget resources,
including SOEs, public investment projects and statutory funds; establishing the State Audit of
Vietnam (SAV) as a technically independent unit under the National Assembly; and gradual
integration of capital and recurrent expenditures through fonvard-looking budgets and resource
allocationnorms. Twenty-six nationalprivate sector accountingand 37 auditingstandards, consistent
with international practice have been issued. The government is currently undertaking a major
investment in a new and integrated Treasury and Budget Management Information System
(TABMIS). Progress is being made in developingnew business processes for TABMIS, includinga
unified Chart of Accounts, further integration of recurrent and capital budget execution processes,
clarifying issues related to reporting ODA on budget, and developing standard reports to strengthen
budget execution.
116. A CFAA Update has been commenced and will be available later in 2007. The Update will
provide an assessment of the public financial management through examining budget development,
budget execution- accounting, internal and externalreporting, internal controls, internaland external
auditing, monitoring and legislative oversight and scrutiny, financial management capacity and
financial accountabilityrisks.
30
D. FIDUCIARY ASPECTS
117. Fiduciary arrangements. The fiduciary risks of the current public financial management
systems, (budgeting, accounting, reporting and auditing) are assessed as moderate. Since the IMF
does not currently have a program in Vietnam, it is not possible to rely on its assessment of the
control environmentof the SBV. However, the enactment of the Audit Law in 2005 helps address the
issues relatedto audit and accountingarrangements. The Audit Law has established the SAV as an
independent institution reporting the National Assembly with the Auditor General being appointed
and dismissed by the National Assembly. Audit reports were made public for the first time in 2006.
The SBV will be subject to auditingby SAV on an annual basis.
118. Deposit account. To address fiduciary risks inthe foreignexchange controlenvironment, the
Borrower will open and maintaina dedicated deposit account (DA) in US dollars for the Borrower's
use once the Credit is approved by the Board. The DA will form part of the country'sofficial foreign
reserves. An equivalent amount will be creditedto an account of the government availableto finance
budgeted expenditures. If after deposit in the DA the proceeds of the Credit or any part thereof are
used for ineligible purposes, as defined in the Financing Agreement, the Bank will require the
Borrowerto either returnthat amount to the DA to be usedfor eligible purposes, or refundthe amount
directly to the InternationalDevelopment Association(IDA).
119. Through SBV, the Borrower will report the exact sum received into the DA, ensure that all
withdrawals are for "eligible" expenditures, indicate to JDA details of the Treasury account to which
the Vietnamese dong equivalent of the Credit proceeds will be credited, and submit a report on
receipts and disbursements for the DA. The Government will, if considerednecessary by IDA, allow
an independent externalaudit of the dedicated foreign currency DA. These processesand controls are
intended to provide assurancethat IDA funds have arrived at their intended destinationto be used for
their intendedpurposes, and are subject to the Borrower'srulesand regulations.
E. DISBURSEMENT AND AUDITING
120. Disbursement, reporting and auditing arrangements. The Credit will follow IDA
disbursement procedures for development policy lendingoperations, and the Credit proceeds will be
disbursed in compliance with the stipulatedrelease conditions. Various measureshave been taken to
ensure that the overall fiduciary policies and institutions are adequate to proceed with support from
IDA and other development partners. Analytical underpinnings for the operation include the 2002
Country Procurement Assessment Review (CPAR), the 2005 PER-FA and the CFAA under
preparation. Disbursement will not be linked to any specific purchases and no procurement
requirementswill have to be satisfied.
F. RISKS AND RISK MITIGATION
121. The present operation is a vehicle for the World Bank, and the donor community more
broadly,to stay engagedwith a client that has delivered an outstandingperformance in terms of
economic growth and poverty reduction. It also recognizes the commitment of the government to
pursue and deepen its reform strategy, as reflected over the last few months in major milestones,
including the entry into the WTO, the approval of an ambitious banking reform roadmap and the
adoptionof a determined stance in the fight against corruption. Active engagement should strengthen
the coherence ofthe program, especiallybecausethe effectiveness of sectoral policy actions hinges on
the success of more fundamental governance reforms in areas such public financial management,
public administration reform and legal and judiciary development. Engagement should also help
31
improve the content o f specific policy actions, to ensure the timeliness o f their adoption, and to
monitor the impact o f the overall program on broader development outcomes. The value o f this
engagement is all the more important given that this would be the last cycle o f general budget support
operations in concessional terms, hence providing an exceptional window for high-level policy access
in a country that is not aid dependent.
122. At the same time, its own success confronts Vietnam with new challenges. The reform
agenda has not progressed at the same pace across all fronts, and private sector response has been
much stronger in some areas than in others. As a result, the country is facing potentially dangerous
imbalances. The biggest risks faced by Vietnam are related to the sustainability o f its remarkable
performance, economically, socially and institutionally.
123. Three different risks of a diverse nature need to be considered. In the short term, the
largest vulnerability stems from possible turbulence in the financial sector. The development o f
capital markets has vastly outpaced that o f the supervisory and regulatory capacity o f monetary
authorities. This situation calls for a rapid upgrading o f policies related to the financial sector, capital
markets and the monitoring o f capital inflows. The government at the highest level is committed to
addressing this risk.
124. The second risk stems from global integration, resulting in massive inflows o f FDIto the
growth poles o f the country and increased competition in formally protected sectors, may also test the
ability o f Vietnam to preserve social inclusion. There is a risk that some groups could lose in the
short term, and a clear prospect o f a widening urban-rural gap. Rapid feedback channels from
affected stakeholders, inclusive policies in the social sectors, and transparent mechanisms to transfer
resources to the poorer regions are among the mitigating measures supported by the proposed series o f
operations.
125. The third group of risk is governance reforms not keeping pace with rapid
developments, in particular in the areas of urbanization and infrastructure development. Cases
o f corruption and social strife are increasingly related to land zoning and land compensation.
Tackling this risk requires rapid progress in transparency at various levels, from regional planning to
infrastructure master plans to land use to appropriate taxation to the monitoring o f assets of the
relevant civil servants. This area receives special attention in the proposed series o f operations,
including the recommendation to use public auctions when the state leases or allocates land, and
several actions to improve transparency inpublic administration.
32
ANNEX1:IMFLETTER ASSESSMENT
OF
[To be providedas an Addendum]
The IMF Letter of Assessment has beenrequestedfrom the IMF at the time of negotiationand will be
providedas an addendumbefore the BoardDate.
33
ANNEX2: LETTER DEVELOPMENT
OF POLICY
(LETTER FROM THE GOVERNMENT THE REFORM PROGRAM)
ON
NGAN HANGNHA NUfk WET NAM
Dja chi : 47 - 49 Lf Tliiri Td, H i N<>i
T c ~: (83-4) 8242.479 Fax (84-4) 8268.765
May 27,2008
Mr.RobertB. Zoellick
President
The World Bank
Washington, DC
Deitr Mr.Zoellick:
Starting in 2001, the World Bank and the donor community more broadly have
supported the economic renovation program of Vietnam through a series of six Poverty
ReductionSupport Credits (PRSCs).
During this period, our economy grew at an annual rate close to 8 percent per year in
real terms. The fraction of the population living below the internationalpoverty line, which
stood at 38 percent in 1998, had declined to less than 16 percent by 2006. This penod has
also seenconsiderablc progress in social indicators, with Vietnam now beingon a solidtrack
to attain or exceedmost Millennium Development Goals. (`onsiderahle progresswas made in
relation to businessdevelopment, public financial management, public administration reform
and the strengthening of governance more broadly. Last year, Vietnam's process of global
integrationwas crowned with its accession to the WTO.
Building on the successes of economic rcfonns since the beginning of Doi Moi,
Vietnam's Socto-Economic Development Plan (SEDP) for 2006-2010 W;~S approved by the
National Assembly on June 29, 2006. In December 2006, the SEDP was presented to the
Boardof Executivc Directorsof the World Bank.
A key goal of the SEDP is to sustain rapid economic grawth so that Vietnam can
move out of low income status by 2010 and lay the foundations to become an industrial
country by 2020. The SEDP affirms that rapidgrowth should go handin handwith improved
sustainability, and improved quality and competitiveness of the economy. Importance i s
attached to in-depth development while wider development should not be forgottcn.
Economic growth should be linked with povcrty reduction, cultural development,
comprehensive human development, exercise of democracy and social equity. The SEDP
also aims to narrow the deveiopment gaps amongregions, step by step, while preserving and
improving the environment. We would like to draw your attention to the Chapter IV of the
SEDP which provides the Development Orientation of various sectors over the period 2006-
2010.
Overall, the objectives, tasks and solutions of thc SEDP can be mapped on to three
pillars (a) business development, (b) natural resources and the cnvironment and (c) social
equity. Chapter I V highlights the goals, tasks, and solutions for achieving agricultural
development, industrialmodcmization, and service sector growth. Chapter VI1 of the SEDP
identifies the roles of various sectors in business development, including the role of the
pnvate sector as a driving force. We aim to create favorable conditions for the development
34
of the private sector without limiting its scales, fields or regions. Chapter 1V.H details thc
goals, tasks, and solutions for the social sectors, while Chapter 1V.G identifies goals and
policies for the sustainable developmcnt of natural resources and protection of the
environment
In order to achieve the objcctives of economic growth, business development,
environmental sustainability and social equity, we need to improve the institutional
framework of the socialist oriented market economy in a comprehensive manner. The
mcasurcs to this effect are especially highlighted in Chapter IX. The chapter emphasizes
legal reforms for supportinga market economy, the imponanceof improving the quality of
public administration,and strengtheningthe fight against corruption.
The government's resolution No. 3/2007/NQ-CP identifies the tasks of various
ministries and agencies for implementing the SEDP and the state budgct during this year.
This resolutionaffirmsour commitmentto successfully achievingthe targets identified in the
SEDP.
The tasks listedin this resolutionbear a close resemblance with the policy actions and
triggers identifiedin the previous operation in the series (PRSC6) and in the proposedcrcdit.
Jointly with the following operations in the series, the proposed credit effectively supports
the implementation of the reform agenda outlined in the SEDP. The proposed credit also
contributes to harmonization, in the spirit of the Hanoi Core Statement on Aid Effectivcness.
Our government appreciates the technical inputs providedthrough this process, as well as the
resources to implement policy reforms and the rcduced transaction costs in conducting the
policy dialoguc with the donor community.
Our government therefore requests the Association's assistance through this seventh
PRSC, in recognition for the progress made in the implementation of our development
strategy. We recognizethat many difficult challenges lie ahead, but we are confidcnt that wc
will be able to overcome them. We also recognizethat the internationalenvironment is more
uncertain at present and priority needs to be given to economic stability. We hope that we
can count an the support of the Association to address these challenges and dit'ficulties and
makc progress in the implementationof our reformprogram, with the ambition of becoming
D middle-incomecountry by the end of the decade.
We look forwardto your continucdsupport.
Yours sincerely,
~"^
I- '
Nguyen Van Giau
Governor
35
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ANNEX4: DONOR SUPPORT To PRSC7
Donor Co-financing Mainareasof involvementinPRSC 7
amount
Asian Development Slobal integration, state sector reform, financial sector
Bank (ADB) reform, privatesector development, infrastructure,
:ducation, health, water, the environment, planning
processes,public administrationreform and fighting
:orruption.
Agencia Espaiiolade 5,000,000 Education, social protection, gender, land and forests and
Cooperacion planningprocesses.
Internacional(AECI)
Agence Francaise de 10,000,000 State sector reform, financial sector reform, privatesector
Developpement (AFD) development, infrastructure, water, environment, and
public financial management.
Australian Agency for TBD Global integration, health, gender, water and fighting
International corruption.
Development(AusAID)
CDNlO,OOO,OOO Financialsector reform, private sector development,
education, gender, environment, legal development and
fighting corruption.
~
Danish International DKr61,000,000 Global integration, state sector reform, financial sector
DevelopmentAgency reform, gender, land and forests, water, environment,
(DANIDA) public financial management, legal development, public
administrationreform and fighting corruption.
UK Department for Global integration, private sector development, education,
International health, gender, social protection, water, environment,
Development(DFID) public financial management, legal development and
fighting corruption.
European Commission 15,000,000 Global integration, education, health, legal development,
public administrationreform and fighting corruption.
Germany (GDC) 6,000,000 Infrastructure, land and forests, water and the
environment.
Ireland(IrishAid) 7,500,000 Education,health, gender, financial sector reform, private
sector development, public financial management and
fighting corruption.
Japan Bank for TBD Global integration, state sector reform, financial sector
International reform, private sector development, infrastructure,
Cooperation(JBIC); education, health, social protection, gender, landand
and the Japan's ODA forests, water, the environment, planning processes,
Task Force public financial management, legal development, public
administrationreform and fighting corruption.
NetherlandsDirectorate 6,000,000 Health, gender, land and forests, water, environment,
General for International public financial management, public administration
reform and fighting corruption.
45
ANNEX4: DONOR SUPPORT To PRSC7 (CONTINUED)
Donor/NGO Mainareasof involvement inPRSC7
Belgium I Education, health, water andpublic financial management.
Finland I Global integration,land and forests and water.
NGO Community Global integration,education, social protection, gender, land and forests and
planningprocesses.
Swedish International State sector reform, private sector development, legaldevelopment, public
Development Agency administrationreformand fighting corruption.
(SIDA)
UnitedNations Gender, legaldevelopment, public administrationreformand fighting
Development Program corruption.
(UNDP)
USAgency for State sector reform, financial sector reform, education, health, social
International protectionandthe environment.
Development (USAID)
46
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ANNEX 6: SUPPORTING DOCUMENTATION PRIORACTIONS UNDER PRSC 7
FOR
Area
Global BEstablish consultation and Prime Minister Letter 732/TTg-TCCB of June 11,2007
integration informationgathering mandatingthe posting on the Governmentwebsite of all drafts
mechanismsto identifythe of government legal documents for at least 60 days before
social and environmental sending them for appraisal by MOJ and approval by OOG.
impactsof WTO accession
a MONRE's technical guidelines issued on May 13,2008 on the
preparationof Strategic EnvironmentalAssessments,
applicableto all sectors.
MOLISA Letter 4010LDTBXH-LDVL and GSO Letter
904/TCTK-DSLD ofNovember 2007, agreeing that from
2008, GSO will take the lead in conductinga representative
and integratedlabor force survey to gather data on activity,
employmentand earnings.
Harmonizeagricultural GovernmentDecree 02/2007/ND-CP of January 05,2007 on
health and food safety plant quarantine;
regulatorytools with
internationalstandards in a MARD Decision 34/QD-BNN ofApril 23,2007 publicizing
line with the SPS agreement the list ofplant quarantine objects which must undergo
epidemic potential analysis before being importedto Vietnam;
MARDDecision35/QD-BNNApril 23, 2007 publicizing the
HScodetable ofthe list ofobjects subject to plant quarantine
inViet Nam;
a MARD Decision 48/QD-BNN May 29, 2007 issuing
regulations of granting plant quarantine licenses for objects
subject to PRA (pest risk analysis) beforebeing importedto
Viet Nam;
MARD Decision 54/QD-BNN June 15, 2007 regulatingplant
quarantine uniforms, badges, insignia, nameplates and cards as
well as allocation and utilization ofthese for officials;
a MARD Circular 88/TT-BNN ofNovember 1, 2007 guiding
the implementationof local plant quarantine;
a MARDDecision 89/QD-BNN November 1,2007 regulating
the state management of fumigation for objects subject to
plant quarantine;
a MARD Decision 23/QD-BNN March 28, 2007 specifying the
list of plant protection drugs permitted, restrictedor banned in
Vietnam;
a MARDDecision 63/QD-BNNJuly 27, 2007 on revisingthe
Regulationon plant protection drug management;
aMARD Decision 94/QD-BNNNovember 26,2007 adding a
number of plant protection drugs to the list of plant protection
drugs in Vietnam;
-
(Continued)
58
ANNEX6: SUPPORTINGDOCUMENTATIONFORPRIORACTIONS UNDERPRSC 7 (CONTINUED)
Pillar I:
Area Prior Action
3lobal 1 Tackle the infringement of P Inter-ministerial Circular 01/2008/TTLT-TANDTC-
ntegration copyrightsand trademarks VKSNDTC-BCA-BTP of February 29,2008 of MPS, SPC,
:continued) on a commercial scale in MOST and MOJ on criminal indictmentsof breaching
linewith TRIPSAgreement copyrightsand trademarks.
State sector P Assess scope and nature of D MOFReportto be providedto the Bank and co-financiers
-eform lending and other prior to Board date.
transactions among
affiliated parties within
Economic Groups and
General Corporations
Financial D Approve equitization D Prime Minister Decision 1289/QD-TTg of September 26,
sector reform plans allowing strategic 2007 on the equitization plans for Vietcombank, authorizing
investors for two SOCBs the sale of up to 20 percent ofthe capitalto strategic investors
and complete the inits first phase.
equitization of one of them Prime MinisterDecision 313/QD-TTgof March24,2008 on
approval ofthe equitizationplan for Mekong Housing Bank,
including the sale of 15 percent of the capital to strategic
.................................................................................................................................... ...................................................................................................................................................................................
investors. ...........................................................................
D Issue a road map to SBV Governor Decision 1976/QD-N
enhance bank supervision, 2007 approving the plan for organizational and operational
including off-site reform of bankingsupervision.
supervisionand risk- SBV Instruction 1094/KH-NHNNon January 3,2008 to all
managementtools
............................................................................................................. epartments guiding the implementation of the plan.
.....................................................................................................................................................................................
m Enhance the role ofthe The revisedGovernment Decree 49 expected to be approved
banks' boards of directors in before Board date
linewith internationalbest
practices
~~ ~
Private Simplify enterprise Government Resolution 59/2007/NQ-CP of November 30,
sector registrationincluding by 2007 on measures related to administrative procedure
development unifyingtax and business reforms.
identification numbers and
streamliningseal carving
........................................................................................................................
procedures
Rationalizeincentives Circular 134/2007/TT-BTCof November 23, 2007, abolishing
relatedto EnterpriseIncome a series of incentivesunder the law on Enterprise IncomeTax.
Tax and simplify tax Law on Personal IncomeTax No. 04/2007/QH12 dated
procedures for household November 21,2007, and effective from January 1, 2009.
businesses ..........................................................................................................................................................................................................................
Raise the cap on Government Decree 139/ND-CP of September 5,2007
shareholdings by single guiding the Enterprise Law which allows 100 percent in
foreign investors in unlisted unlisted companies.
companies
(Continued)
59
ANNEX6: SUPPORTING DOCUMENTATION PRIOR ACTIONS UNDERPRSC 7 (CONTINUED)
FOR
Pillar I:Business development
Area Prior Action Sumortine Documentation
Infrastructure Adopt market-based GovernmentDecree 99/2007/ND-CP of June 13,2007 on the
pricing systems to estimate management of construction costs, stipulating that the costs
costs of state-funded civil needto be basedon market prices.
engineering investments MOC Circular 05/2007/TT-BXDof July 25,2007 on
guidelines for cost planning and managementof work
constructioninvestment.
MOC Circular 06/2007/TT-BXDof July 25, 2007 on
guidelines for constructioncontracts.
MOC Circular 07/2007/TT-BXDof July 25,2007 on
guidelines for methodology of pricing constructionmachinery
and equipmentoperating ina shift.
MOC Letter 1599lBXD-VPof July 25,2007 on methodology
for determinationof constructionprice index 2007
MOC Letter 1600lBXD-VP of July 25,2007 on publication of
investmentnorms inwork construction.
MOC Letter 1601/BXD-VP of July 25,2007 on publication
of constructionprice index.
MOC Letter 1751lBXD-VPof August 14,2007 on
publication of cost norms of project management and
investmentconsultancyin construction.
MOC Letter 2800lBXD-VP of December31,2007 on
publication of constructionprice index (2007).
Prime MinisterDecision 13l/QD-TTg of August 9, 2007
promulgatingthe regulations on hiring foreign consultants
in construction activities inVietnam.
MOC Circular 09/2007/TT-BXDof November 2,2007 on
guidelines for determining and managingthe costs of hiring
foreign consultants inconstruction,removingcaps for
engineeringconsultant costs.
MOC Circular 09/2008/TT-BXDof April 17,2008 providing
guidelines for the adjustmentof constructionprice and
contract due to material price fluctuation.
Separatepower Prime Minister Decision 110, dated July 18, 2007, on the
transmission and generation National Power Development Master Plan Period 2006-
assets and regroup 2015 with orientation to 2025.
transmissionassets under a
single National Power Letter 1339NPCP-DMDNof the Office of the Government
TransmissionCorporation dated March 3, 2008 approving the establishment of
National Power Transmission Corporationto operate under
the holdingcompany model.
(Continued)
60
ANNEX6: SUPPORTING DOCUMENTATION PRIOR ACTIONS UNDER PRSC 7 (CONTINUED)
FOR
Pillar I:Businessdevelopment
Area PriorAction
Infrastructure Decision 2223/QD-EVN-HDQT of Electricity of Vietnam
(continued) dated April 11,2008 on the establishment ofNational Power
TransmissionCo
Introducemodem principles GovernmentDecr D-CP ofAugust 28,2007 on the
oftransparency and organizationand operation of local development investment
corporate governance in funds (LDIFs).
provincial infrastructure
funds MOF Circular 139/2007/TT-BTC of November 29,2007
guiding Decree 138.
MOF Decicion 07 on January 29,2008 adoptingthe standard
charter for LDIFs.
Reduce traffic fatalities GovernmentResolution32/NQ-CP ofJune 29,2007,
through strengthened including strongly enhancedawareness, and the set up of a
enforcement and improved traffic monitoring system and compulsory wearing ofhelmets.
educationprograms GovernmentDecree 51/2008/ND-CPof April 22,2008
regulatingfunctions, tasks, powers and organizational
structure of MOTwhich includesthe newly established Traffic
Safe artment.
Facilitate access to driver Prime Minister Decision 1491/QD-TTg ofNovember 8, 2007,
training and testingand adoptingsupportingmeasuresincluding financial support for
provide financial support to PLWDs inthe Northern Mountains and Central Highlandsto
purchase special vehicles replace motorizedcarts and trucks.
for people living with
disabilities Prime Minister Letter 1992/TTg-CN ofDecember 21,2007 on
regulationsfor production, assembling, importing and
operatingofthree-wheeledmotorbikesand specialized
vehicles for PLWD.
MOTDecision 62/QD-BGTVT of December 28,2008 and
Decision 03/QD-BGTVT of February 22,2008 regulating
quality control interms oftechnical safety and environmental
protectionfor producing, assembling and importingthree-
wheeled motorizedvehicles for PLWD.
DecisionOYQD-BGTVT of March20, 2008 guiding the
driver training, testing and licensingfor PLWD.
(Continued)
61
ANNEX6: SUPPORTINGDOCUMENTATION PRIORACTIONSUNDERPRSC7 (CONTINUED) FOR
Pillar 11: Social Inclusion
Area PriorAction Documentation
Education Revisetuition fees at rn Prime Minister Directive21/2007CT-TTg of September4,
secondaryand tertiary 2007, andDecision 157/2007/QD-TTg of September 27,
levels, better reflecting 2007, establishing concessionalcredit for students, to be
market conditionsand implementedby VBSP.
enhance policiesto protect
the poor MOLISA Circular 27/TT-BLDTBXH ofNovember 30,
2007, guiding Decision 157 on how to identify the poor.
PrimeMinisterDecision 152/2007/QD-TTgof September 14,
2007, increasing scholarships for students from poor, ethnic
andmerit householdsto 80 Dercent ofthe minimumwaae.
Issue roadmap for education MOET Letter93/TT-BGDDT of May 5,2008 requesting
informationsystemto relevant departments and agencies to report to MOET's IT
strengtheneducation Department.
management
Health Submit health insurance Draft Health InsuranceLaw, discussed by the National
law which better pools Assembly inMay-June2008 session.
risksand allows
improved incentives in
payment to service
....................................................................................................................................
providers
Increasethe health Decision289/QD-TTgof March 18, 2008 on policies
insurancepremium paid on supportingethnic minority, poor, near-poor,and fishery
behalfof the poor and householdsandhouseholdsunder socially targeted policies.
partially subsidizethe near-
poor ...... .......................................................................................................................................................................................................
Regulate safe treatment of MOH Decision43/QD-BYT of November 30,2007 onthe
solid waste discharge by managementregulations for solidwaste of all healthcare
hospitals inline with facilities, allowing environmental protectionstaffto inspect
internationalpractices medicalfacilities.
Prime Minister Decision58 of April 29, 2008 on targeted
public entities including healthcare unitsto reduce pollution
and environmental degradation, specifyingthe sources for the
support.
Social Introducevoluntary Government Decree 190/2007/ND-CP of December28,2007,
protection pensionprogramfor providing guidelines for the implementationof several articles
farmers and informal ofthe Law on Voluntary Social Insurance.
sector, allowing for MOLISA Circular 02/TT-BLDTBXHof January 31,2008,
support for the poor to
participatein the program guiding Decree 190and allowing for support from budget and
other sources for the poor.
................................................................................................................................................................................................
Adjust safety net for GovernmentDecree 110/2007/ND-CPof June 26,2007 on
redundant SOE workers to policies for redundant SOEs workers after equitization.
cover state-owned
plantations and farms MOLISA Circular 18/2007/TT-BLDTBXHof September
10,2007 guiding Decree 110.
(Continued)
62
ANNEX 6: SUPPORTINGDOCUMENTATION PRIORACTIONS UNDERPRSC 7 (CONTINUED)
FOR
Pillar 11: SocialInelusion
Area Prior Action Documentation
Gender Determine institutional GovernmentDecree 186/ND-CP of December25,2007,
responsibilities for the assigningMOLISA to be incharge of state management in
implementationof the relationto gender equality.
Gender Equality Law and
monitoringof gender MOLISA Decision 363/QD-BLDTBXH of March, 18,2008
equality regulating function, tasks and organizational structure of the
new Departmentfor Gender Equality.
GovernmentLetter 4825NPCP-VX of August 8,2007,
assigningMOJ to take the lead in drafting three guiding
decrees for the Gender Equality Law on state management,
administrativepenaltiesfor gender violation and gender
equality promotion.
Create legal framework for Law on Prevention and Control of Domestic Violence,
domestic violence 02/2007/QH12, dated November 21, 2007, effective from
preventionand control July 1, 2008.
Pillai
Area Prior Action
~~~
Land and Issueguidelines for forest Prime Minister Decision 100/2007/QD-TTg of July 5, 2007,
forests development based on amendingthe five-million hectare program, aiming at one
participatoryland-use million extra hectares, of which three quarters for protection.
planningand independent
monitoring Inter-ministerial Circular 58/2008 of May 2, 2008 of MPI,
MARD, MONRE and MOF guidingDecision 100for the
paymentof forest protection services
Decision 147 of September 10, 2007, on policies for
developmentof production forests in2007-201 5.
Circular 05/2008/TT-BNN of January 14,2008, guidelines on
planning for forest protection and development.
Inter-ministerial Circular guiding Decision 147, to be issued
by MARD-MOF-MPI before Board date.
Water Allocate institutional Government Decree 01/2008/ND-CP of January 3,2008 on
responsibilities for the functions and tasks of MARD,which does not include
integrated river basin any responsibility in relation to river basin management.
management Government Decree 25/2008/ND-CP of March 4,2008,
assigning MONRE as Vietnam's representative at the
MekongRiver Council.
(Continued)
63
ANNEX6: SUPPORTINGDOCUMENTATION PRIOR ACTIONS UNDERPRSC7 (CONTINUED)
FOR
Pillar
Area PriorAction
Water Adopt naturaldisaster PrimeMinisterDecision 172/2007/QD-TTgof November
(continued) mitigationstrategy with 16,2007 onthe approval of the nationalstrategy for natural
attentionto non-structural disaster mitigation.
measures and guidelines for
provincialandministerial Instruction45PCLBTW ofthe NSC for FloodPreventionand
actionplans ControldatedMarch31,2008 providingguidelines for
ministries and provincesto preparetheir action plans.
The rnStrengthenincentivesfor Government Decree 174 ofNovember29,2007 stipulating
environment solid waste management environmentalprotectioncharges for solid waste.
usingeconomic instruments
Pillar IV: Modern Governance
Area Prior Action Documentation
Planning Establishcriteria for MPICircular 05/2007/TT-BKHof August 9,2007, guiding
processes selectingpublic investmer PrimeMinisterDecision52/2007/QD-TTgintroducing
projectsand mechanisms standard reportingon investment by ministries,agencies,
to monitortheir financing provincesand General Corporations.
and implementation PrimeMinister Decision390/QD-TTgof April 17, 2008 on
the administrationof capital investmentand public
expenditures for 2008 to curb inflation, instructingMPIto
review all public investmentprojectsand suspendthose
considered ineffectiveor inefficient.
MPILetter 3119/BKH-THof May2,2008 instructingall
ministries,agencies, and provincesto stop projectswithout
adequate funding or with outdated objectives. SOEs are
also requestedto take costs and benefits into investment
consideration.
Establishlist of indicators, MPIDecision555/2007/QD-BKHof May 30,2007 on the
datasourcesandreporting monitoringand evaluationframeworkbasedon the
mechanismfor monitoring performanceofthe implementationofthe SEDP for the
of SEDP 2006-2010period.
Government Resolution02/2008/NQ-CP of January 9,
2008 assigningMPIto draft a decree for annual reporting
on criteria of the SEDP M&E framework.
(Continued)
64
ANNEX6: SUPPORTING DOCUMENTATION FORPFUORACTIONS UNDER PRSC7 (CONTINUED)
Area
Public Issue disclosure D SAV Decision 03/QD-KTNN of July 26,2007, regulating
financial regulations on content and the disclosure of audit results and reports on the
management timing of SAV report, implementation of SAV's audit conclusions and
includingaudits reportsof recommendations, defining responsibilities for disclosure,
individualentities reports to be disclosed, timing and means of disclosure.
D Published summaries of the SAV audit reports on its
I website on 2004 and 2005 state budget finalization annual
accounts and extracts from reports of individual audits are
being published inthe SAV audit magazine.
Legal Create a facilitating legal D GovernmentDecree 151of October 10,2007 on
development framework for the organization and operation of economic collaborative
establishment and operation groups.
of economic collaborative
groups and socialand D Government Decree 148 of September 25,2007 on
charity funds organization and operation of social and charity funds.
D MOF Decision 10 of May 2008 guiding Decree 148
providing regulation on financial management of social and
charity funds.
Enhancethe responsibility rnGovernmentDecree 55/2008/ND-CP of April 24,2008
of enterprises vis-a-vis guiding the 1999 Ordinanceon the Protection of Consumer
consumers and strengthen Rights and replacing Decree 69 of 2001.
the handlingof consumer
complaints o Law on the Quality of Products and Commodities, No
05/2007/QH12 passed on November 11,2007, effective on
July 1, 2008.
IPublic ExtendOSS to all ministries rnPrime Minister Decision 93/2007/QD-TTg of June 22,
administratior and agencies and introduce 2007 on the "one-stop shop" and inter-agency "one-stop
reform inter-linked OSS to further shop" mechanisms in local state administrative agencies.
simplify administrative
procedures
....................... ................. .........................................................
..................................
rn Dissociatecivil service pay Government Decrees 166, 167 and 168 ofNovember 16,
structure from minimum 2007 separately setting the minimum wage schemes to be
wage settingby widening applied by state units, domestic private businessesand FDI
the range of minimum sector.
wages MOHA-MOF Circular OYTTLT of December 10,2007
regulatingthe minimum wage applying to government
agencies, political and socio-political entities, and public
utility organizations.
MOLISA Circular 31/TT-BLDTBXH of December 28,
2007, to adjust pensions and social insurance allowances
according to Circular 05.
(Continued)
65
ANNEX6: SUPPORTINGDOCUMENTATIONFORPRIOR ACTIONSUNDERPRSC 7 (CONTINUED)
Pillar IV:Modern Governance
~~~~ ~~ ~
Area Prior Action Documentation
Public 0 Formulatecommon MIC Decision 19/2008/QD-BTTTT of April 9,2008
administratior standards for IT application regulatingthe standards for IT applications instate agencies.
reform and e-government interface
(continued) at central and provincial MIC Decision20/2008/QD-BTTTT ofApril 9, 2008 adopting
levels the list of standards for IT applications instate agencies.
Prime MinisterDecision 43/2008/QD-TTg of March 24,
2008 onthe approval of the Plan for IT applications in the
operation of government agencies in 2008.
Office of the GovernmentNotice 248 ofNovember 26,2007
on the Conclusionsofthe Deputy Prime MinisterNguyen
Thien Nhanat the meetingwith MIC leadership on Nov 12,
2007 on the Planfor IT applications in state agencies for
2007-2010 period.
Fighting Implement asset GI Circular 2442/TT-TTCP ofNovember 13, 2007, guiding
corruption declaration requirement i the implementation of Decree 37/2007/ND-CP of March 9,
regard to senior officials 2007 on asset declaration.
and their immediate
families, with penalties fo GI Letter 533/TTCP-CCTN of April 2,2008, guiding the
non-compliance contents of and formats for assets declaration.
Introducemandatory Government Decree 158/2007/ND-CP of October 27,2007
rotation for sensitive on time limits for the rotation of civil servants in sensitive
government positions and positions, providing the list of positions to be rotated on a
payment of government regular basis; the frequency of rotations in each case is to
salaries through bank be decided by heads of agency.
accounts Prime MinisterDirective 20/2007/CT-TTg of August 24,
2007, on the payment of all salaries through bank accounts.
SBV Instruction05/2007/CT-NHNN on October 11, 2007
on formulating bank accounts to pay salaries inthe civil
service.
Note: Actions in bold are included inthe FinancingAgreement for the operation.
66
ANNEX7: VIETNAM ATA GLANCE(INCLUDES COUNTRYm p )
9/28/07
East
Key Development Indicators Asia & Low
Vietnam Pacific income Age dlrtribution, 2006
(2008) I Male Female
Population,mid-year (millions) 84.1 1,900 2,403 70-74
Surfacearea (thousandsq. km) 329 16,300 29,215
Populationgrowth (%) 8044
1.2 0.8 1.8
Urbanpopulation(% of total population) 27 42 30 50-54
4044
GNi (Atlas method,US$ billions) 57.7 3,539 1,562 30.34
GNi per capita (Atlas method, US$) 690 1,863 650 20-24
GNIper capita (PPP, international$) 3,300 6,821 2,698 10-14
w
GDP growth (%) 8.2 9.4 8.0 15 10 5 0 5 10 15
GDP per capita growth(%) 6.9 8.6 6.1 oercent
(most recent estimate, 200&2008)
Povertyheadcountratio at $1 a day (PPP,%) 9
Povertyheadcountratio at $2 a day (PPP, %) 37 IUnder-5 mortality rate (per 1,000)
Life expeclancyat birth (years) 71 71 59
Infantmortality(per 1,000live births) 16 26 75
Child malnutrition(% of children under 5) 28 15
Adult literacy, male (% of ages 15 and older) 95 72
Adult literacy,female ( O hof ages 15 and older) 87 50
Gross primaryenrollment,male (% of age group) 98 115 108
Gross primaryenrollment,female (% of age group) 91 113 96
Access to an improvedwater source (% of population) 85 79 75
Access to improvedsanitationfacilities (% of population) 61 51 38 I OViatnam 0EastAsia 8 Pacific I
Net Aid Flows 1980 1990 2000 2006 a
(US$ millions)
Net ODA and omcial aid 277 181 1,681 1,905 IGrowth of GDP and GDP per capita (%)
Top 3 donors (in 2005):
Japan 4 1 924 603
France 15 12 53 97
United Kingdom 3 0 0 97
Aid (% of GNi) 3.0 5.5 3.7
Aid per capita (US$) 5 3 22 23
Long-Term EconomicTrends 0-
95 00 05
Consumerprices (annual% change) 36.4 -1.7 7.5
GDP implicit deflator (annual% change) 42.1 3.4 7.3 +GDP - GDP per capita
6,482.8 14,167.8 16,409.5 I
Exchangerate (annualaverage, local per US$) 0.6
Terms of trade index(2000 = 100) 100 97
1980-90 1990-2000 2000-06
(average annualgmrdh %)
Population,mid-year(millions) 53.7 66.2 77.6 84.1 2.1 1.6 1.3
GDP (US$ millions) 6,472 31,173 59,343 4.6 7.9 7.6
(% of GDP)
Agriculture 38.7 24.5 20.4 2.8 4.3 3.9
industry 22.7 36.7 41.6 4.4 11.9 8.1
Manufacturing 12.3 18.6 21.3 1.9 11.2 11.7
Services 38.6 30.7 38.1 7.1 7.5 7.2
Householdfinal consumptionexpenditure 84.3 66.4 61.8 9.8 5.9
General gov'tfinal consumptionexpenditure 12.3 6.4 5.9 3.2 7.2
Gross capitalformation 12.6 29.6 35.7 19.8 11.3
Exportsof goodsand services 36.0 55.0 73.5 24.1 18.8
Importsof goods and services 45.3 57.5 76.8 20.2 20.2
Gross savings -2.3 30.5 36.9
Note: Figuresin italics are for years otherthan those specified. 2006 data are preliminary. .. indicatesdata are not available
a. Aid data are for 2005.
DevelopmentEconomics,DevelopmentData Group (DECDG)
67
Vietnam
Balance of Payments and Trade 2000 2006
(US$ millions) Governance indicators, 2000 and 2006
Total merchandiseexports(fob) 14,483 39,826
Total merchandiseimports(cif) 15,637 44,691 Voice and accountability k
Nettrade in goods and services -238 -2,784
Political stability
Workers' remittancesand
compensationof employees (receipts) 2,000 4,000 Regulatory quality
Currentaccountbalance 642 -165 Rule of law
as a % of GDP 2.1 -0.3 Control of corruption
Reserves,includinggold 3,030 11,485 0 25 50 75 1W
Central Government Finance sZDOB Countryo percentile rank (0-100)
02000 highervalues implybetterratmgr
(% of GDP)
Current revenue(includinggrants) 20.4 27.1 Soum: Keufmann-Kraay-Mastruui, Wodd Bank
Tax revenue
Currentexpenditure 15.9 18.6
TechnoloQyand Infrastructure 2000 2005
Overallsurplus/deficlt -2.0 -0.3
Pavedroads (% of total) 25.1
Highestmarginaltax rate (%) Fixedline and mobile phone
Individual 50 40 subscribers(per 1,000people) 43 306
Coruorate 32 28 High technology exports
(% of manufacturedexports) 11.0 5.6
External Debt and ResourceFlows
Environment
(US$ millions)
Total debt outstandingand disbursed 12,825 19,267 Agriculturalland (% of land area) 28 31
Total debt service 1,310 954 Forestarea (% of land area) 37.7 41.7
Debt relief (HIPC,MDRI) - - Nationallyprotectedareas (% of landarea) .. 4.4
Total debt (% Of GDP) 41.1 36.7 Freshwater resourcesper capita (cu. meters) .. 4,410
Total debt SeNlce (%of exports) 7.6 2.6 Freshwaterwithdrawal( O h of internalresources) 79.5
Foreigndirect investment(net inflows) 1,298 1,954 C02 emissionsper capita (mt) 0.69 0.94
Portfolioequity (net inflows) 0 0
GDP per unit of energy use
Composition of total external debt, 2005 (2000 PPP $ per kg of oil equivalent) 4.2 4.2
Energy use percapita (kg of oil equivalent) 482 612
IBRD 0
(US$ mi//ions)
IBRD
Total debt outstandingand disbursed 0 0
Disbursements 0 0
Principalrepayments 0 0
Interestpayments 0 0
IDA
Total debt outstandingand disbursed 1,I 3,663
13
Disbursements 114 341
Private Sector Development 2000 2006 Total debt service 9 56
Time requiredto start a business(days) - 50 IFC (fiscalyear)
Cost to start a business (% of GNI per capita) - 24.3 Total disbursedand outstandingportfolio 223 77
Time requiredto registerproperty (days) - 67 of which IFC own account 107 75
Disbursementsfor IFC own account 25 13
Rankedas a majorconstraint to business Portfoliosales,prepaymentsand
(%of managerssurveyed who agreed) repaymentsfor IFC own account 16 13
Access to/cosl of financing .. 40.5
Access to land .. 25.9 MlGA
Gross exposure 46 126
Stock marketcapitalization(% of GDP) New guarantees 10 0
Bank capital to asset ratio(%)
Note: Figuresin italicsare for years otherthan those specified. 2006 data are preliminary. 9/28/07
.,indicatesdata are not available. -indicates observationis not applicable.
DevelopmentEconomics,DevelopmentData Group (DECDG).
68
Millennium Development Goals Vietnam
With selected targets to achieve between 1990 and 2015
(estimate closestto date shown, +/- 2 years)
Goal 1:halve the rates for $1 a day poverty and malnutrition 1990 1995 2000 2005
Poverty headcount ratio at $1 a day (PPP,% of population)
Poverty headcount ratio at nationalpoverty line (% of population) 28.9
Share of income or consumption to the poorest qunitile (%) 7.7 7.2 7.0
Prevalenceof malnutrition (YOof children under 5) 45.0 44.9 33.8 28.4
Goal 2: ensure that children are able to complete primary schooling
Primary school enrollment (net,%) 90 95 88
Primary completion rate (% of relevant age group) 96 94
Secondary school enrollment (gross,%) 32 65 76
Youth literacy rate (% of people ages 15-24) 94 94
Goal 3: eliminate gender disparity in education and empower women
Ratioof girls to boys in primary and secondaryeducation (%) 93 96
Women employedin the nonagricultural sector (% of nonagricultural employment) 52 51 50 49
Proportion of seats heidby women in national parliament(%) 18 19 26 27
Goal 4: reduce under4 mortality by two-thirds
Under4 mortality rate (per 1,000) 53 44 30 19
Infant mortality rate (per 1,000live births) 36 32 23 16
Measles immunization (proportionof one-year olds immunized,%) 88 95 97 95
Goal 5: reduce maternal mortality by three-fourths
Maternal mortality ratio (modeledestimate, per 100,000 live births) 130
Birthsattended by skilied healthstaff (% of total) 77 70 90
Goal 6: halt and begln to reverse the spread of HlVlAlDS and other malor diseases
Prevalenceof HiV (% of population ages 15-49) 0.5
Contraceptive prevalence (% of women ages 15-49) 75 77
Incidenceof tuberculosis (per 100,000people) 202 192 184 175
Tuberculosis cases detected under DOTS (%) 30 82 84
Goal 7: halve the proportion of people without sustalnable access to basic needs
Access to an improvedwater source (% of population) 65 68 78 85
Access to improved sanitation facilities (% of population) 36 43 53 61
Forest area (% of total land area) 28.8 37.7 41.7
Nationally protectedareas (% of total land area) 4.4
C02 emissions (metrictons percapita) 0.3 0.4 0.7 0.9
GDP per unit of energy use (constant 2000 PPP $ per kg of oil equivalent) 3.1 3.8 4.2 4.2
Goal 8: develop a global partnership for development
Fixedline and mobile phone subscribers (per 1,000 people) 1 11 43 306
Internet users (per 1,000people) 0 0 3 129
Personal computers (per 1,000people) 0 1 8 13
Youth unemployment(% of total labor force ages 15-24) 3.2 4.8 4.6
iducation Indicators (%) Measles immunization (%of 1-yearolds) CT indicators (per 1,000 people)
i1
100,
4Qo
75.
300 n
50.
W
25 2WO 2W2 2W5 E
1990 1895 2000 2W5 2WO 2002 2005
&Primary net enrollment ratio
-0- Ratioofgirlstoboysinprimary8 OFixed + mobile subscribers
OVielnam 0EastAsia 8 Pacific
secondary education Internet users
Note: Figuresin italics are for years other than those specified... indicatesdataare not available. 9/28/07
Development Economics, Development Data Group (DECDG).
69
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3434
23 Ha Nam 54 Dong Thap
24 Thai Binh 55 Ben Tre Quang Ngai
Quang Ngai
25 Ninh Binh 56 An Giang 3535
26 Nam Dinh 57 Vinh Long Ngoc Linh
Ngoc Linh
(3143 m)
(3143 m)
27 Thanh Hoa 58 Tra Vinh
28 Nghe An 59 Kien Giang 36
36 Kon Tum
Kon
29 Ha Tinh 60 Can Tho 38
38
30 Quang Binh 61 Hau Giang CentralCentral
14�N 14�N
31 Quang Tri 62 Soc Trang PleikuPleiku
37
37 Quy Nhon
Quy Nhon
63 Bac Lieu HighlandsHighlands
64 Ca Mau
39
39
Tuy Hoa
Hoa
C A M B O D I A 40
40
Buon Ma
Buon Ma
ThuotThuot
42
42
41
41 Nha Trang
Nha rang
Gia Nghia
Gia Nghia
12�N To
To Da Lat
Da Lat 12�N
Kampong Cham
Kampong Cham
Dong
Dong
43
43
To
To 4444 45
45
Kampong
Kampong Xoai
Xoai
Chhnang
Chhnang Mek 46
46 Phan Rang-
Phan Rang-
Thap Cham
Thap Cham
Tay Ninh
Ninh 48
48
gno Thu Dau
Thu Dau 47
47
MotMot 49
49
Bien Hoa
Bien Hoa
Gulf 50
50 Phan Thiet
Phan Thiet
52
52
of 5454 Ho Chi Minh City
Ho Chi Minh City
5656 Cao Lanh
Cao Lanh Ta An
Tan 51
51
Thailand Long Xuyen
Long Xuyen 5353 My Tho
My Tho Vung Tau
Vu
VIETNAM Phu Vinh Long
inh Long Ben Tre
Ben
Quoc 6060 5757
10�N Rach Gia
Rach Gia Can Tho
Can Tho 5555 10�N
59
59 6161 Tra Vinhinh
Vi Thanh
Thanh 5858
This map was produced by
Soc Trang
Soc rang Delta
the Map Design Unit of The 6262
World Bank. The boundaries, 63
63 ng
colors, denominations and Bac Lieu
Bac Lieu
Ca Mau
Ca Mau
any other information shown 50 100 150 200 Kilometers
6464 M e k o0
on this map do not imply, on
the part of The World Bank
Group, any judgment on the
legal status of any territory, 0 50 100 150 Miles
or any endorsement or
a c c e p t a n c e o f s u c h
boundaries. 104�E 106�E 108�E
JANUARY 2007