Diversifying PRSPThe Vietnamese Model for Growth-Oriented Poverty Reduction

Izumi Ohno

National Graduate Institute for Policy Studies (GRIPS)
i-ohno@grips.ac.jp
August 2002

*Prepared as a background paper for workshops at the World Summit on Sustainable Development(Johannesburg, August 30 and September 1, 2002). The author has benefited greatly from the inputs
of a large number of Japanese officials and experts involved in the PRSP process, including the
Ministry of Foreign Affairs, Japan Bank for International Cooperation (JBIC), and Japan
International Cooperation Agency (JICA).

Diversifying PRSPThe Vietnamese Model for Growth-Oriented Poverty Reduction

1. Introduction and Summary
The international community is accelerating efforts to reduce poverty in developing countries. The United
Nations Millennium Development Goals (MDGs) and the World Bank-supported Poverty Reduction
Strategy Paper (PRSP) are now linked as the end and the means and are exerting great influence on thedevelopment strategies of poor countries. Since poor countries are highly diverse in socio-economic
structure as well as causes of poverty, policy measures and institution building efforts must be tailored to
the needs of each country. Despite the great excitement over the lofty goal of poverty reduction, appropriate
matching between alternative strategies and individual countries remains very weak. As PRSP enters into
the implementation stage, we need to urgently strengthen intellectual inputs in this area to effectivelytranslate the global targets into realistic and concrete actions at the country level.

We propose to classify poor countries by (i) relationship with donors; (ii) presence or absence of a national
development strategy and its quality; and (iii) causes of poverty. We will discuss how these differences
should be reflected in the formulation and implementation of PRSP, and call for greater flexibility in termsof its contents, modality, and procedures.

We also present the Vietnamese PRSP, driven by strong country ownership and aspiration for rapid growth,
as one possible model for a growth-oriented PRSP. Vietnam’s PRSP is inspired by the country’s uniquegeographical and historical position, especially the surrounding Asian dynamism as an enabling
environment for economic catch-up. However, even without such a regional advantage, trade- andinvestment-driven growth and poverty reduction can be pursued by individual countries outside East Asia as
well.

Economic cooperation should be geared to the circumstances of each recipient country. For poor countries
with aspirations and potential for growth like Vietnam, cooperation in the areas of infrastructuredevelopment, human resource development, technology transfer and industrial studies are particularly
effective.

12. Global Development Trend and PRSP
Since the late 1990s, poverty reduction has become an overarching goal for all economic assistance to poor
countries.

What is the PRSP?

At the center of this new approach is the Poverty Reduction Strategy Paper (PRSP). The PRSP initiative
was launched by the World Bank and the IMF in late 1999 in connection with the Enhanced Heavily
Indebted Poor Countries (HIPCs) Initiative. In principle and ideally, the PRSP is (normally) a three-yearroadmap for social and economic development of a poor country, produced under strong national
ownership and broad partnership among various stakeholders. Initially, only a small number of poor
countries seeking for special debt reduction under the original HIPCs initiative were asked to prepare
PRSPs. But the scope of PRSP was subsequently enlarged to include all poor countries (namely, allrecipients of concessional assistance from the International Development Association (IDA) and the
IMF-supported Poverty Reduction and Growth Facility (PRGF)).

The World Bank recently adopted a policy to strengthen the linkage between PRSP and Country Assistance
Strategy (CAS), linking poverty reduction efforts with the access to IDA funding. Moreover, the Bank isalso urging other donors to adopt PRSP as the vehicle for aid partnership efforts. For poor countries, PRSP
is becoming the main tool for budgeting, prioritizing, project selection, evaluation, and donor coordination.
Once agreed, PRSP may strongly bind the overall socio-economic policy framework of that country.

There are eighty countries eligible for IDA lending, of which seventy-six currently receive IDA support(either financial or non-financial) (World Bank data, July 2002). As of June 2002, more than sixty countries
are engaged in the PRSP process, including those in the initial stage of formulation. Among them, eighteencountries (of which twelve are from Africa and four from Latin America and the Caribbean) havecompleted Full-PRSPs and subsequent joint staff assessment by the IMF and the World Bank [World Bank
2002b]. Forty-four countries have prepared Interim-PRSPs, with African countries accounting for morethan half. Vietnam became the first East Asian country to complete a Full-PRSP in May 2002. The Boardsof the IMF and IDA reviewed it at end-June and early July 2002, respectively.

To assess the PRSP experiences two years after introduction, the IMF and the World Bank undertook acomprehensive review in early 2002. As part of this process, the World Bank organized an international
conference of various stakeholders including representatives of developing countries, donors, research
institutions and NGOs in January 2002. The final review report was presented to the IMF/WB Joint
2

Development Committee in April 2002. The report states that “there is broad agreement among low-income
countries, civil society organizations and their development partners that the objectives of the PRSP
approach remain valid” and that the World Bank and the IMF “will play a catalytic role in launching
PRSPs.” At the same time, the report recognizes that “the PRSP approach requires flexibility so that boththe process and the content of poverty reduction strategies can vary across countries in light of national
circumstances” [IDA/IMF 2002a].

PRSP and MDGs

Moreover, the United Nations Group has linked up with the World Bank in fighting poverty. Following the
UN Millennium Summit in September 2000, the UN General Assembly adopted the UN Millennium
Development Goals (MDGs) in September 2001. MDGs call for concrete social achievements by 2015,
including halving the ratio of people in extreme poverty. After September 11th, the poverty-terrorism nexus
was rediscovered and the international community hardened its resolve to address the poverty problem. In
the ongoing global enthusiasm over MDGs, the UN International Conference on Financing forDevelopment in Monterrey, Mexico in March 2002 adopted the “Monterrey Consensus” recommending
further aid increase, debt reduction, and partnership between developing and developed countries topromote trade and investment for the benefit of developing countries.

In this way, MDGs have been set up as the development goal and PRSP is promoted as the procedural
framework. World Bank economists estimate that an additional US$40-70 billion—or doubling the global
ODA—is required annually to achieve MDGs [Devarajan et al. 2002].

Japan and PRSP

While most of the Japanese aid officials and experts endorse the basic principles of PRSP, including
national ownership and aid partnership, they express concern about its uniformity of approach, shortage ofstrategic contents, and increased budgetary and human resource burden on both donors and recipients.
While the advocates of PRSP readily admit the crucial linkage between economic growth and poverty
reduction at the general level, they tend to focus exclusively on pro-poor measures (e.g., education, health,environment, gender, rural infrastructure, etc.) in actual implementation. Serious discussion on thegeneration of economic growth is desperately lacking.

Shigeru Ishikawa, Professor Emeritus at Hitotsubashi University and leading figure in Japanesedevelopment economics, regards PRSP as “the World Bank’s new aid policy which essentially shifts thegoal from ‘growth promotion’ to ‘poverty reduction’.” He further notes that it is “a highly deficient proposal3when viewed as a system of action plans to be properly supported by fiscal resources.” Ishikawa argues that,for poverty reduction efforts to be truly effective, it is necessary to deeply analyze the causes of poverty ineach developing country and to design an appropriate mix of (i) measures directly targeting the poor; and(ii) support for broad-based growth, in which increased savings are channeled through the fiscal andfinancial systems to address specific needs including poverty reduction1 [Ishikawa 2002].

3. Types of Poor Countries and Appropriate Responses
Poor countries are highly diverse in their social, economic and political conditions. In order to localize
PRSP, the following three criteria are especially important: (i) relationship with the donors; (ii) presence orabsence of a national development strategy and its quality; and (iii) causes of poverty.

Relationship with donors

The first determinant is the relationship between the developing country and its donors. This affects thedegree to which the developing country can maintain ownership vis-à-vis donors, as well as the scope of
PRSP’s influence on the overall policy framework of that country. Three specific points are given:z

The existence or absence of direct linkage between PRSP and debt relief: For many poor countries in
Sub Saharan Africa and Latin America, the preparation of a PRSP is the precondition for obtaining
debt relief under the Enhanced HIPC Initiative (see Figure 1). Equally for donors, it is an important
tool for aid resource management and evaluation of development impact. By contrast, in the case ofpoor countries in East Asia including Vietnam, debt forgiveness is not intended. For them, PRSP is
primarily motivated by the country’s desire to access IDA and PRGF financing (which is less acutethan the need for debt forgiveness). PRSPs in such countries are produced with less urgency and moreconcern for national ownership than in the case of the former group.

z

Aid dependency and donor composition: Vietnam’s aid dependency is lower than the average of Sub
Saharan African or Latin American countries (see Figure 2). Naturally, a higher aid dependency is
associated with a stronger pressure from the donor group2. Moreover, the development strategy can

1Ishikawa stresses the need to balance the two sets of expenditures for poverty reduction, namely, (i) “pro-poor
targeted” and (ii) “broad-based growth.” Here, broad-based growth expenditures contribute to GNP growth first andthen to poverty reduction by way of increased savings, which are channeled through fiscal resources or banks toparticular uses targeted at poverty reduction.
2
The degree of aid dependency varies even among Asian countries. For example, Mongolia (per capita ODA$79; ODA/GDP ratio 20.6%), Lao PDR ($57, 23%) and Cambodia ($29, 11.9%) are more aid dependent than
Vietnam ($15, 4.3%) and Indonesia ($6, 1.5%). Such differences could also affect how these countries approach4also be affected by the views of the largest donor(s). In Sub Saharan Africa, prominent donors are theWorld Bank (IDA) and Europeans, while in Latin America and the Caribbean, the World Bank (IDA)
and the Inter-American Development Bank (IDB) are of primary importance. In East Asia, principal
donors are Japan, the World Bank, and the Asian Development Bank (ADB).
z

The relationship between donor composition and aid modality: Donor composition also affects the
proportions of loans and grants, which in turn have a bearing on aid modality discussion. Vietnam
receives about two-thirds of ODA in the form of concessional loans while 70 percent of ODA to Sub
Saharan Africa is in the form of grants. The corresponding ratios for Latin America and the Caribbean
are somewhere between the above two groups (see Figure 3). These differences must be taken into
account in determining the desirability of harmonization of aid modality.

Figure 1. Countries in PRSP Process by Region and HIPC Status *No. of Countries
5

AfricaEast Asia 1 1South Asia

17

7

2

3

4

4

HIPC Completion Points reached
HIPC Decision Points reached10

Europe and Central Asia

HIPC Decision Points not yet reached
Middle East and North
1 1
AfricaLatin America and1
Caribbean

HIPC Sustainable Cases
Non-HIPC

3

Note: The selected 60 countries in PRSP process and the HIPC status are figured based on the data at March 2002 and July 2002
respectively. These statuses are subject to constant revision as each country makes progresses.
Source: World Bank, “Country Timelines for I-PRSPs, PRSPs, CASs, PRGF, and HIPC Decision and Completion Points,” April
2002 [at http://www.worldbank.org/poverty/strategies/index.htm ];World Bank, “HIPC Initiative: Status of Country cases considered Under the Initiative,” July 2002
[at http://www.worldbank.org/hipc/progres-to-date/status_table_july02.pdf ].

PRSP.
5

Figure 2. Aid Dependency(US$ per capita and % of GDP, 1998)

ODA/GDP%30

Mozambique

Nicaragua25
Laos■AfricaMongolia

20

Mauritania△ LAC

Burkina Faso

15

◯Asia

Tanzania
CambodiaZambia

10

Ghana
Nepal
Uganda5

Bolivia
Honduras

VietnamBangladesh

Kenya
Sri Lanka

Indonesia
Pakistan

0
0

20

40

60

80

100

ODA/capita
140
US$

120

Source: World Bank, World Development Report 2000/2001, pp.314-315.

Figure 3. Composition of ODA: Grants vs. Loans*(1998-2000 Average)

VietnamBolivia
GrantsLoans
UgandaTanzania

0%

20%

40%

60%

80%

100%

Note: * Loan amount is gross base.
Source: OECD, Geographic Distribution of Financial Flows to Aid Recipients 1996-2000, 2002, pp.238-254.

6

The presence of a national development strategy and its quality

Does a developing country have its own development plan? If so, to what extent does it effectively govern
budget allocation and investment programs? This greatly affects how PRSP, imported from without, istreated domestically. This issue is closely related to the strength of country ownership as well as “the extent
to which the PRSP is integrated within existing decision-making processes” as mentioned in the PRSP
review of the World Bank and the IMF. Although the relationship between the existing development plans
and PRSP is complex and highly specific to each country, we present the following two prototypes for
simplicity of argument (see Figure 4).
z

PRSP as a supplementary document

In Vietnam, the core planning documents defining the national vision are the “Strategy for Socio-Economic
Development in the Period 2001-2010” (the so-called Ten-Year Strategy) and the “Seventh Five-Year Planfor Socio-Economic Development 2001-2005” (the so-called Five-Year Plan). These were reviewed by theCommunist Party and concerned ministries and approved by the Party Congress. They tower above
numerous other official documents in terms of legitimacy and accountability. All sector plans, public
investment plans, and annual budget allocation are guided by them. Under this framework, the role of PRSP
is at best supplementary as one of the “other” documents. From the Vietnamese viewpoint, PRSP is neverintended to dictate overall budget allocation. Certainly, PRSP can reinforce the existing development plans
with special attention to poverty reduction in a cross-cutting manner and the participatory process.
However, it is not expected to become an overarching document by replacing the existing core documents.
z

PRSP as a primary document

This is the case where PRSP co-exists with the national development strategy, but where the
newly-introduced PRSP exerts a stronger influence than the existing plans over the budgetary and legal
framework. Tanzania has its own long-term development vision (“Vision 2025”) and poverty eradication
strategy (“National Poverty Eradication Strategy 2010 (NPES)”). In reality, however, these documents are
merely symbolic and have little impact on the actual budget and policies. Uganda also has its own vision
document (“Vision 2025”) and poverty reduction strategy (“Poverty Eradication Action Plan (PEAP)”).
The Ugandan PEAP has evolved into PRSP, unlike the Tanzanian NPES which did not. Regardless of thisdifference, in both countries, PRSP plays a decisive role as a planning and aid coordination document
dictating sector plans. PRSP is also linked to the Medium-Term Expenditure Framework (MTEF)3 which is3

MTEF sets out the medium-term expenditure priorities and hard budget constraints against which sector plans can be
developed and refined. It also contains outcome criteria for the purpose of performance monitoring. MTEF together
with the annual Budget Framework Paper provides the basis for annual budget planning. Throughout the 1990s,
Uganda and Tanzania have developed MTEF and sector plans starting from health and education sectors, on which7a rolling three-year expenditure plan that guides all public expenditures (including investment and recurrent
budgets, as well as aid money). Moreover, Uganda’s PRSP refers to the desirability of certain aid modality,
including budget support, sector-wide approach, and the use of Poverty Action Fund (PAF) to mobilize
donor funds for pro-poor support. Tanzania’s PRSP has no reference to aid modality, but this matter is dealt
with separately in the Tanzania Assistance Strategy (TAS). For highly aid-dependent countries, aid modality
and procedures critically affect how development projects are actually delivered.
It is conceivable that the latter type (“PRSP as a primary document”) may further evolve into the third
variation, which can be called “PRSP as an exclusive document.” This is the case where PRSP is formerly
installed as the national development strategy itself or, for some reasons, the national strategy has ceased toexist and PRSP is treated effectively as the core planning document. Here, PRSP has exclusive authority to
govern overall policy, sector plans and budgetary allocation. Such a case may emerge, particularly if thenext planning cycles of PRSP and national development strategy coincide.

Figure 4. Two Types of PRSP【PRSP as a supplementary document】【PRSP as a primary document】

Existing dev. plansymbolic

Existing dev. plan

PRSP
governPRSP

governSector plans

Sector plans,
supplement

budget, MTEF,
aid procedures

Budgetbasis the newly-introduced PRSP now provides the overall policy framework for poverty reduction. Ideally, PRSP as thecore planning document is expected to guide the overall expenditure, sector policies (and aid modality) through its
linkage to MTEF and sector plans. Where the introduction of MTEF is relatively recent, however, the linkage between
MTEF and PRSP is not necessarily strong.
8The Bolivian PRSP offers an interesting case because, on paper, it belongs to the third variation but, in
reality, it should rather be classified as the second variation (even a weak one at that). The Bolivian PRSP,
together with the “National Dialogue Law 2000” (which is a legal framework for defining the basic
principles and operational procedures of PRSP), guides the budget allocation and implementation
mechanism of pro-poor measures administered by local governments (i.e., municipalities), but the stronglink between PRSP and the overall budget system is yet to be established4.

In the first type, the role of PRSP is confined to complementing and reinforcing the existing national
development strategy and sector plans, by offering in-depth poverty analyses, a cross-cutting approach topoverty reduction and broadening the participatory process. In this case, the most desirable and practicalinvolvement for donors would be to respect and support the existing policy configuration rather than
denying or replacing it. Areas of assistance do not have to be constrained by PRSP; donors should be
encouraged to support high priority areas in the country’s overall development regardless of PRSP.

By contrast, in the latter types, the operational procedures of the budget, sector plans and receiving aid are
all governed by PRSP. In this case, donors should fully utilize PRSP and related systems, and build local
capacity in strategic planning and budget management around PRSP. In Uganda, such capacity building
efforts seem to be already bearing fruits with a strengthened linkage between MTEF and PRSP (which
evolved from the national document PEAP).

An international comparison of PRSP is shown in Table 1.

Causes of poverty

Although the goal of poverty reduction is shared globally, aspects of poverty differ from country to country.
The common goal must be achieved by various means that fit the reality of each country. Poverty situations
vary even within a country, depending on age, gender, family, occupation, region, social strata, and so on.
As noted above [Ishikawa 2002], deep insight into the country-specific causes of poverty is crucial if we areto succeed in reducing poverty.

4

In Bolivia, the five-year development plan (National Action Plan 1997-2002) was formulated in 1997 through theparticipatory process (i.e., the first National Dialogue). Later, the formulation of PRSP replaced the existing National
Action Plan. The Bolivian government completed a Full-PRSP in June 2001 and issued a supplementary document
called the “National Dialogue Law 2000,” which specified the procedures for the implementation of decentralized,
pro-poor targeted measures. The Bolivian PRSP also expects that the public investment plan almost exclusively finances
the priority projects designated by PRSP. However, unlike the above African cases, MTEF is yet to be established in
Bolivia; and PRSP has not fully developed into a document to dictate the overall budgetary allocation.
9

Consider the following possible causes of poverty:z

Low productivity of the economy which limits income opportunities and the national budgetz

Insufficient concern for social equity and income gaps at the level of policy designzInefficiency and corruption in the administration of social service deliveryzAbsence or disappearance of a mutual assistance and risk-sharing mechanism against illness,disasters and other contingencies at the community levelz

Uneven economic opportunities due to social discrimination (e.g., gender, racial and ethnic
discrimination)z

Economic stagnation resulting from policy failure (e.g., economic planning, big-bang
liberalization)z

New poverty arising from economic crisis, both internal and external, or inappropriate policy
response to it (e.g., excessive macroeconomic tightening, untimely “structural adjustment”)zWar, civil conflict, racial dispute, political oppression, and others

Some of these are related to the nature of the base society, while others are caused by policy andadministrative failures. These causes are often mutually related and overlapping. One can easily imagine
that more than one cause are contributing to the impoverishment of any particular country.

Different causes call for different responses. Without correct matching between diagnosis and prescriptionin each country’s specific context, even a big increase in aid money is unlikely to yield results.
Understanding these causes and attacking them properly is the core task in poverty reduction. However, thisis precisely the knowledge that is lacking in the PRSP process so far.

If poverty is caused by insufficient delivery of social services, major efforts should be directed to its
improvement. If poverty results mainly from the pro-rich bias in the fiscal system or a deep-rooted ethnic
discrimination, political initiative is required to address these problems. If economic crises or uncontrolled
globalization is producing new poverty, relevant policies should be reconsidered. But if the primary causeof poverty is low productivity and an underdeveloped market economy, resources must be mobilized tobuild infrastructure, upgrade technology and create industries.

In this connection, the recent UNCTAD report stresses the importance of a broad approach to poverty reduction.
In particular, to cope with generalized poverty associated with underdevelopment, the report recommends
measures to enhance productive capacities, including (i) promoting rapid and sustained economic growth; (ii)establishing dynamic investment-export nexus; (iii) elaborating development policy options; and (iv) assuringthat no social groups or regions are left behind as growth takes place [UNCTAD 2002].

10

Growth promotion versus pro-poor targeting

Many official documents declare that poverty reduction and economic growth are positively related.
However, in the current drive to cut poverty, details of this relationship have rarely been spelled out in the
country-specific context. This question is an important subset of the investigation into the causes of poverty
in each poor country.

Suppose a poor country already basically equipped with policies to promote social equity and a network forsocial service delivery. For such a country, there is no need to introduce a new poverty reduction framework
such as PRSP from outside. What is lacking is the purchasing power of the population, not the mechanism
to channel it into poverty fighting measures. General improvement in living standards (including poverty
reduction) is possible through a rise in private income—and with that, an increase in the government
revenue. In this case, the right way to reduce poverty is to have a good growth strategy.

On the other hand, as observed in some countries, growth alone may not solve entrenched poverty or lift
marginalized groups to share the fruits of growth. For such a country, the most pressing task is to establish aworkable poverty reduction mechanism, including political consensus for the pursuit of social justice andsystemic improvement in social service delivery. If domestic capability for this is lacking, it may be a goodidea to embrace totally or partially (with necessary amendments) the policy framework provided by theinternational organizations, such as PRSP. In this case, in addition to a growth strategy, efficient formulationand implementation of pro-poor measures will be the key to socio-economic development.

Admittedly, the above examples are oversimplified for the purpose of illustration. The reality facing eachdeveloping country is undoubtedly far more complex.

Where Vietnam stands

In light of the three criteria presented above, Vietnam’s experience with PRSP (renamed to theComprehensive Poverty Reduction and Growth Strategy, or CPRGS) is noteworthy in the following senses:(i) the country’s relatively low aid dependency; (ii) the existence of a national development strategy
embodied in the two core documents; and (iii) strong concern for social equity and the possession of policy
tools to offset social problems arising from economic growth (although their efficiency must be improved,
as many donors point out). These features in turn strongly influence the contents of Vietnam’s CPRGS. It
was compiled under the strong ownership of the Vietnamese government as a document subordinate to thecore documents which embraced a growth-oriented development vision.

11

Table 1. PRSP: An International Comparison

Aid dependency
Low
Vietnam・Per capita ODA: $15

・

ODA to GNP ratio: 4.3%

・

HIPC: sustainable case, debt
forgiveness not requested

Relatively highUganda・Per capita ODA: $23

・

ODA to GNP ratio: 7.0%

・ HIPC: debt forgiveness

Relationship with existingdevelopment plan
Supplementary document
・・Per capita ODA: $31

・

ODA to GNP ratio: 12.5%

Equitable growth・・

promoting growth with social

development plans.

equity.

CPRGS and sector plans also

・

Budget, MTEF and sector

Growth and equity
・and pro-poor measures areboth specified in PRSP.

PRSP is the revised version offor poverty eradication.

Primary document
・

Budget, MTEF and sector

Social equity
・

recognizing the importance ofgrowth promotion.

Primary document
・

PRSP guides pro-poor

・Per capita ODA: $79

programs administered by local

・

ODA to GNP ratio: 7.5%

governments.

・ HIPC: debt forgiveness
requested

Main focus is on pro-poor
measures, while alsoplans are guided by PRSP.

requested

Bolivia

Growth promotion measures

PEAP, the national action plan

・ HIPC: debt forgiveness

Relatively high

PRSP specifies social policies
and pro-poor measures.

plans are guided by PRSP.
・

The overall framework is

general guidance of national

Primary document

Relatively high・

Budget is formulated under the

supplement.

requested

Tanzania

Strategic focus

・Social equity
・Main focus is on pro-poor
measures.

Operational procedures arelegally specified in the National
Dialogue 2000.

However, donors are divided over the role of CPRGS in policy planning and resource mobilization. Several
donors (e.g., the World Bank, UK, Denmark) hold the view that CPRGS should be treated as the core
document, suggesting that the public investment plan and donor support be aligned to CPRGS. CPRGS has
been finalized without resolving this matter (see Table 2). Ishikawa also reports a critical remark by ahigh-ranking Vietnamese official, expressing strong reservation about making poverty reduction an
exclusive national goal [Ishikawa 2002].

It is true that not all poor countries are like Vietnam. But at the same time, Vietnam is not the only poor
country which aspires to growth-based poverty reduction. The majority of the poor countries in East Asia
do not intend to avail themselves of debt relief, and they do have development plans to guide their budgets.
In Sub Saharan Africa, too, many countries have national development plans. Vietnam’s CPRGS should bestudied as one of the possible models for other countries or regions.
12

We may even ask a more fundamental question. Is it really necessary to require all poor countries―
including those equipped with planning capacities above a certain minimum level―to formulate PRSPs as
standard documents? For these countries, it is important to: (i) assess the capacity and institutionalarrangements of the existing system; (ii) ask if some elements of a potential PRSP can enhance the existing
system; and (iii) decide whether a formal PRSP is useful or the same effects can be realized through partial
modification of the existing system and without a PRSP.

Table 2. Major Donors’ Views on Vietnam’s CPRGS

Japan, France, Germany
The role of CPRGS(i.e., relationship withexisting development plan)・A useful tool to reinforce the core

World Bank, UK, Nordic・The only planning document,planning documents (i.e., 10-Yearaccountable for donors and subject toStrategy and Five-Year Plan), dealing

external monitoring.

with poverty reduction in a cross-cuttingmanner.

・

One of many (sector) plans; notexpected to become an overarching
document by replacing the existing core
documents.

Relationship with budget
process and donors’
assistance strategies

・

Inappropriate to align all the resources・(budget, aid) to CPRGS.

・

Prepared to support the other highDesirable to align all the resources(budget, aid) to CPRGS.

・

Plan to align respective country

priorities in overall development

assistance strategies to CPRGS

strategies (e.g., network infrastructure,priorities.

higher education and technology
transfer, private sector development),
while respecting CPRGS priorities.

Growth vs. poverty
reduction

・

Appreciate a balanced approach tobroad-based growth and pro-poor

・

Appreciate proper attention to pro-poor
support measures.

measures.

Note: Prepared by the author, based on the findings of two missions in March and May 2002.

13

4. Vietnam’s PRSP Experience—Strong Ownership and Growth-Orientation
East Asia’s development driven by trade and investment

The world has seen the polarization of developing countries in the last half-century: one group which
succeeded in poverty reduction through sustained growth, and another group which did not. The majority of
East Asian countries belong to the first group. Viewed from a long perspective and as a regional
phenomenon, there is no denying that East Asia has made impressive strides in income levels, economic
equity and social indicators despite frequent wars, crises and stagnation.

The outstanding feature of East Asian development is the staggered participation in the dynamic production
network created by private firms via trade and investment. One by one, countries in different stages ofdevelopment joined this regional network by each becoming a link in the international division of laborwith clear order and structure. For East Asia’s latecomers, economic development is a process of constantupgrading of industrial capability from low-tech to high-tech under competitive pressure from as well ascomplementary relations with its neighbors. Through this complex relationship of rivalry and cooperation,
structural shifts have occurred which continuously passed industries from one country to another. No otherdeveloping region has formed such dynamic interdependence as in East Asia.5
The World Bank’s East Asian Miracle report attributed the region’s success to the combination of prudent
macroeconomic management, human resource development, export promotion and effective public-private
coordination, even admitting the positive role played by selective intervention in a few countries [WorldBank 1993]. The World Bank’s more recent diagnosis of the region in the aftermath of the Asian financial
crisis called for redoubled efforts to improve policies and institutions in order to restore growth [WorldBank 2000a]. However, evaluation of policies pursued by individual countries is hardly enough tounderstand the sources of dynamism in this region. East Asia as a region provides a powerful model and an
enabling environment in which latecomers are constantly challenged to catch up with the region’s moreadvanced economies. East Asia’s future prosperity also depends very much on the maintenance of thisregional dynamism, which in turn hinges on the vitality of transnational private activities as well as theregional cooperation to support it, both of which are beyond the scope of individual countries alone.

For the Japanese economy, East Asia is the most important developing region. For East Asia, too, Japan has

5

For more details, see Kenichi Ohno, “Development with Alternative Strategic Options: A Japanese View on the
Poverty Reduction Drive and Beyond” GRIPS Development Forum Policy Note No.1, May 2002; and the forthcoming
information module “East Asian Experience in Economic Development and Cooperation,” GRIPS Development
Forum (at http://www.grips.ac.jp/forum-e/).
14

been a particularly important country as the largest donor, the principal partner in trade and investment, andthe chief architect of the East Asian production network. East Asian dynamism has also been supported bytrade and investment relationship with the EU and the US, as well as the extensive business network of
Taiwan, Hong Kong, and overseas Chinese.

As the dominant ODA provider in East Asia, Japan has mobilized its extensive tools for economic
cooperation mainly to spur and complement the market-based economic linkage. The majority of Japan’s
ODA projects placed high priority on assisting the self-help efforts of the East Asian developing countries
to attain a suitable status in the region’s production network and, through it, catch up with the forerunners
and improve living standards. Japan’s ODA in infrastructure, human resource development and industrial
cooperation has greatly contributed to reinforcing East Asia’s dynamism by removing bottlenecks andcreating new private trade and investment. In fact, Japanese ODA projects have often been initiated in
response to the needs of the private sectors in Japan or the East Asian developing countries. The resulting
economic prosperity and social stability in East Asia have in turn brought significant benefits to Japan.

Vietnam's aspiration to catch up

In its policy aspiration and growth mechanism, Vietnam is a typical East Asian developing country. With aper capita GDP of US$390 in 2000 (World Bank data), it ranks as one of the poorest countries in the world.
Despite its location at the heart of East Asia, years of wars and central planning had left Vietnam far behind
its ASEAN neighbors in economic performance. Domestic enterprises desperately lack competitiveness,and its market economy is severely underdeveloped.

Vietnam’s political system and public administration have been relatively stable. While there remain a large
number of unsolved problems including inefficiency, corruption and institutional rigidity, the government
machinery certainly exists to assume the responsibility for economic policy making and implementation.
In 1986, Vietnam launched a domestic economic reform called “Doi Moi.” Around 1992, it initiated avigorous process of international integration vis-à-vis the Western countries and international organizations.
The country restored diplomatic relation with the US and joined ASEAN in 1995, joined APEC in 1998 andsigned a US bilateral trade agreement in 2001. Negotiations for WTO accession are continuing. Within arelatively short period of ten years, the Vietnamese economy has come to be deeply integrated into theglobal economy through trade, investment and aid. The synergy of domestic liberalization and external
opening provided the engine for high economic growth, which has averaged at 7 to 8 percent per year. The
country also underwent a process of dramatic social transformation. By the end of the 1990s, Vietnam had

15

already achieved the principal goal of MDGs, namely halving the ratio of people in extreme poverty
between 1990 and 2015.

As mentioned earlier, the core official documents embodying the medium- and long-term visions of theVietnamese government are the Ten-Year Strategy and the Five-Year Plan. These documents articulate theareas where policy efforts must be exerted over the next decade in order to attain the national goal ofIndustrialization and Modernization by the year 2020 (see Box 1). These documents attest to Vietnam’s
aspiration to catch up, promote foreign direct investment (FDI) and industrial development, and participate
in East Asia’s production network.

During 1991-2000, the average inflow of FDI into Vietnam amounted to 5.4 percent of GNP (see Figure 5).
This level far exceeds the average of lower-middle income countries (0.9 percent of GNP), and it is evenhigher than those in some high-performing middle-income countries such as Chile (3.5 percent) and
Malaysia (3.2 percent) [World Bank/ADB/UNDP 2000]. While many transition countries make strenuous
efforts to attract FDI, very few succeed in activating FDI as an engine of growth shortly after the initiationof international integration. In this regard, Vietnam is a rare exception. Although improving, Vietnam’s
investment climate remains deficient in comparison with those in the neighboring countries. Therefore, therelatively large inflow of FDI so far can be attributed mainly to the favorable opinions of foreign investors
on the future prospects of Vietnam, as a country starting to participate in East Asia’s dynamic production
network.

Box 1. Vietnam’s Strategy for 2001-2010
Vietnam’s 10 Year Socio-Economic Development Strategy expresses a strong commitment to rapid growth,
employment creation, poverty reduction and achievement of social equity. The strategy articulates Vietnam’s
development vision for the coming decade, namely, developing the country from an agriculture-based economy
to an “industrialized economy by 2020.”
z
z
z
z
z
z

A doubling of GDP by 2010 to be attained through 7.5% annual economic growth (2001-05);
Investment to be increased to 30% of GDP from an average of 25% in the 1990s;
Exports to grow at more than twice the rate of GDP growth;
The share of agriculture in GDP to decline from 25% to 16-17%; the share of industry to increase from
35% to 40-41% and the share of services to increase from 40% to 42-43%;
The share of agricultural employment to decline from two-thirds to half; andThe share of urban population to increase from a quarter to a third.

16

Figure 5. Vietnam’s FDI attraction has been exceptionally successful
Gross Foreign Direct Investment (% of GDP, average 1991-1999)
Low & middle income countries

0.9High income countries

3.2

Chile

3.5

Malaysia

3.2

Argentina

1.6

Mexico

1.2

China

1.1

Brazil

1

Korea, Rep.

0.8

Vietnam (1991-00)

5.4
0

1

2

3

4

5

6

(%)

Source: Government of Vietnam and World Bank, SIMA database, (cited from Vietnam 2010 Entering the 21st Century, Joint Report of World
Bank, Asian Development Bank and United Nations Development Program (UNDP), November 2000).

Vietnam’s industrialization over the past ten years has followed more or less the same pattern as theexperiences of East Asia’s more advanced economies. Its industrial structure has shifted rapidly fromprimary commodities (e.g., crude oil, rice and marine products) to manufacturing of labor-intensive
products (e.g., garments, footwear and electronic parts). In the years to come, the principal objective ofVietnam’s policy makers will be to continue to “import” the regional dynamism to accelerate growth, while
simultaneously avoiding the potential risks associated with such international integration.

Strong concern for social equity

Vietnam has long accorded high priority to social equity. Although the problem of quality and efficiency
remains, the country has a vast network of social service delivery down to the village level. When
compared with other countries at the similar level of income, Vietnam’s social achievements are far superior,as seen by the adult literacy rate of 93 percent and the infant and child (under five) mortality rate of 42 per
1,000 live births [1998 data, World Bank 2000b]. The data also suggest that public social expenditures are
more equally distributed than household expenditures, playing an important re-distributive role (forexample, the poorest quintile receives 26 percent of primary education expenditures [World Bank et al.
2000]). Moreover, the Vietnamese government has the tradition of implementing poverty reduction
programs targeted at ethnic minority groups in the mountainous areas and poor families in remote areas.
17

To cut poverty further, it is necessary to improve the existing policy and institutions. But additionally andmore importantly, the best way to reduce poverty under Vietnam’s circumstances is to enhance theproductivity and competitiveness of the entire economy and provide job and income opportunities to the
population. In Vietnam, the positive association between economic growth and poverty reduction is clearlyfelt and understood by the people as well as the policy makers. The reduction of absolute poverty by halfduring the 1990s was largely due to the growth impetus ignited by economic liberalization and opening.

PRSP in the Vietnamese context

While the UN agencies and Sweden have a long history of assisting Vietnam, other donors including Japan,
the World Bank, the ADB, Germany, France, Denmark, Australia and UK resumed full aid programs toVietnam by the mid-1990s. Since 1999, the Vietnamese government has been engaged in aid partnership
activities including the Comprehensive Development Framework (CDF) and the Poverty Reduction
Strategy Paper (PRSP) which later was renamed to the Comprehensive Poverty Reduction and Growth
Strategy (CPRGS).

Vietnam became the first CDF pilot country in East Asia in 1999. This led to the establishment of more thantwenty partnership groups, including the Poverty Working Group/Poverty Task Force (PWG/PTF), charged
with cross-cutting poverty agenda, as well as other sector-specific thematic groups covering wide-ranging
issues. The PWG/PTF assisted the government with analytical studies and process building such as poverty
assessment, the development of monitoring indicators (particularly localizing the International
Development Targets (IDTs) to create the “Vietnam Development Targets (VDTs)”), and the organizationof a series of regional workshops.

Vietnam completed a Full-PRSP ahead of other East Asian countries. The Ministry of Planning andInvestment (MPI), in coordination with other ministries, played a central role in the preparation of CPRGS.
The process went pretty much on schedule, from the preparation of Interim-PRSP (I-PRSP) in March 2000
to the presentation of the draft CPRGS at the Consultative Group (CG) Meeting in December 2001, theorganization of four regional consultation workshops (plus NGO-organized six commune consultations) to
discuss the draft CPRGS in February/March 2002, and the Prime Minister’s approval of CPRGS in May
2002. The final CPRGS was presented to the donors at the informal CG Meeting in May 2002. The
Vietnamese government renamed PRSP to CPRGS after the completion of I-PRSP, adding the terms“comprehensive” and “growth.”

The Vietnamese government regards CPRGS as an action plan that translates the Ten-Year Strategy, theFive-Year Plan and sector policies into concrete measures (see Box 2). The economic goals and budget
18

allocation are simply copied from the Ten-Year Strategy and the Five-Year Plan. However, to complement
these plan and strategy with a strong accent on growth, CPRGS emphasizes the “quality” of growth andproposes ways to minimize income and regional disparities, cut poverty and achieve social equity in theprocess of rapid growth. The ownership and the participatory approach assumed by the Vietnamese
Government were very highly noted by the international community. Vietnam’s CDF and PRSP experiencehas thus become “good practice.”Box 2. Comprehensive Poverty Reduction and Growth Strategy (CPRGS)
The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) Paper is an action plan that translates
the Government’s Ten-Year Socio-economic Development Strategy, Five-Year Socio-economic Development
Plan as well as other sectoral development plans into concrete measures with well-defined road maps for
implementation. This is an action plan for realizing economic growth and poverty reduction objectives..… The
CPRGS paper sees a harmony between economic growth and measures to solve social problems. The tasks andobjectives contained in the poverty reduction and growth strategy not only calls for targeted measures tosupport specific poverty groups, but also sees important linkages within the matrix of policies that include
macroeconomic policies, policies on structural adjustment, sectoral development policies and measures, tosocial safety net policies of all sectors and levels that must work in tandem to ensure sustainable development.
z
z
z
z
z
z

Part I: Socio-Economic Setting, Current Poverty Situation, Achievements and Challenges
Part II: Objectives and Tasks of Socio-Economic Development and Poverty Reduction for the Period
up to 2005 and 2010
Part III: Create Environment for Rapid, and Sustainable Growth, and for Poverty Reduction
Part IV: Major Policies and Measures for the Development of Sectors and Industries to Ensure
Sustainable Growth and for Poverty Reduction
Part V: Mobilization of Resources for Growth and Poverty Reduction
Part VI: Organizational Arrangements for and Monitoring and Evaluation of the Poverty Reduction
and Growth Strategy

Source: The Socialist Republic of Vietnam, Comprehensive Poverty Reduction and Growth Strategy (CPRGS) “Introduction,”
pp.2-9, May 2002.

19

5. Japanese Development Cooperation in Vietnam6
Infrastructure and policy advice
The general characteristics of Japan’s development approach can be summarized as a keen interest in the
dynamic structure of the real economy. This perspective strongly influences the way Japan extends its
support to Vietnam, which is as follows: recognizing the three strategic tasks facing Vietnam, namely, (i)long-term development as a latecomer country; (ii) systemic transition to a market economy; and (iii)
active and meaningful participation in East Asia’s dynamic production network, and respecting the will anddetermination of the People and the Government of Vietnam, Japan wishes to support Vietnam’s balanced
development process consisting of the realization of high economic growth and coping with emerging social
problems which such growth tends to bring.

In ODA volume, Japan has been the top donor in Vietnam since 1995 (accounting for 45 percent of the total
ODA during 1998-2000, net disbursement base). Simultaneously, Vietnam is considered one of the moststrategically important recipients of Japan’s economic cooperation. Vietnam ranked fourth (after Indonesia,
China, and Thailand) in 1999 and second (after Indonesia) in 2000 among the recipients of Japan’s ODA(net disbursement base) [MOFA 2001, OECD 2002].

The Japanese government’s “Country Assistance Program for Vietnam” in June 2000 specifies thefollowing five areas as key [MOFA 2000]:z Human resource and institutional development, in particular the support for the transition to a market
economyz Infrastructure development with special attention to transportation and powerz Agriculture and rural developmentz Education and healthz Environmental conservation

Among these areas, support for the transition to a market economy and infrastructure development are theoutstanding features of Japan’s development cooperation in Vietnam when compared with other donors.
Japan has been the largest donor in the transport and power sectors, exceeding the aid extended by theWorld Bank and the ADB combined. Furthermore, in addition to a large number of technical cooperation
projects such as expert dispatch and development studies, Japan has conducted a series of large-scale,6

For more details, see Japan’s Development Cooperation in Vietnam―Supporting Broad-based Growth with Poverty
Reduction, GRIPS Development Forum, May 2002.
20

policy-oriented programs including:z “Study on the Economic Development Policy in the Transition toward a Market-Oriented Economy
in the Socialist Republic of Vietnam” (the so-called “Ishikawa Project”), supported by the Japan
International Cooperation Agency (JICA)7z “Judicial System Support” by JICAz “Economic Reform Support Loan” (the so-called “New Miyazawa Initiative”), financed by the Japan
Bank for International Cooperation (JBIC)8This aid menu is unique even for Japan. Nowhere else in the world does Japan provide equally concentrated
intellectual assistance to a single country.

Concretizing Vietnam’s development vision

Japan has made important intellectual contributions to the establishment of Vietnam’s development vision.
These include: (i) advice on the recent two Five-Year Plans (sixth and seventh) and the current Ten-Year
Strategy in their formulation and implementation stages; (ii) active participation in the Poverty Working
Group/Poverty Task Force (PWG/PTF) in the process of CPRGS preparation; and (iii) leadership role insuch partnership efforts as the Transport Sector Working Group, SME Promotion and Private Sector
Development Partnership, and Ho Chi Minh City ODA Partnership.

Vietnam’s preparation for industrialization under international integration still remains weak. In the near
future, great effort will have to be exerted to translate Vietnam’s development vision into a set of realistic
and concrete action plans for raising productivity and competitiveness. Industrial promotion strategies bylatecomer developing countries must be adjusted to the age of globalization. It is hoped that the Vietnamese
government will deepen its balanced growth strategy, taking into account the country’s specific position in
East Asian dynamism and building on the two-tiered approach that combines broad-based growth withpoverty reduction. The Japanese government is determined to provide continued support to such efforts by
the Vietnamese government through an appropriate mix of schemes including grants, technical cooperation

7

The project was officially agreed to by the two governments when former Communist Party General Secretary Do
Muoi visited Tokyo in April 1995. Shigeru Ishikawa, professor emeritus of Hitotsubashi University was appointed as
the leader on the Japanese side. The “Ishikawa Project” was implemented jointly by the Vietnamese and Japanese teams
over six years (1995-2001) and covered areas including agriculture and rural development, trade and industry, fiscal andmonetary issues, state-owned enterprises (SOE) reform and small and medium enterprises development as well as
macroeconomic balance and responses to the Asian financial crisis.
8
The “New Miyazawa Initiative” supported a reform program covering private sector development, SOE reform, andthe conversion of all non-tariff barriers into tariffs. This is Japan’s first, free-standing structural adjustment loan, whose
conditionality was designed based on bilateral policy discussions between Japan and Vietnam (Exchange of Note andLoan Agreement signed in 1999, loan amount 20 billion yen).
21

and financial cooperation.

Japan is willing to make a meaningful contribution to the design and implementation of a concrete andpragmatic growth strategy—not only through infrastructure development but also through intellectual aid.
Japan can provide intellectual aid so that the real-sector concern, reflecting East Asia’s development
experience and Japan’s own aid experience, will be firmly incorporated into Vietnam’s growth strategy
while respecting its specific circumstances. Moreover, such concern for growth should be addressed not
only in the bilateral context but also under the multilateral framework, including CPRGS. It is necessary to
conduct in-depth research on broad-based growth strategy and then align international support based on its
results. Areas for study can include specific industries which are important for Vietnam, trade, marketing,
FDI attraction, agriculture and rural development, promotion of small- and medium-enterprises as well as
supporting industries, private sector development, and human resource and infrastructure development insupport of industrialization.

The current global development trend regards poverty reduction as the supreme goal as well as the mosteffective means of development. Nobody doubts that poverty reduction is a noble goal. However, there
should be multiple paths to achieve that goal. From the menu of alternative strategic options, the mostappropriate path should be chosen by each developing country with strong ownership. East Asiandevelopment has been driven by a national fervor for “catching up” and serious concern for industrial
competitiveness, which cannot be captured by the framework of “poverty reduction” alone. Vietnam’ssocio-economic development, if it is to succeed, must also be built on a concrete growth strategy
incorporating the perspective of such Asian dynamism.

22

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