Diversifying PRSPThe Vietnamese Model for Growth-Oriented Poverty Reduction

Izumi Ohno

National Graduate Institute for Policy Studies (GRIPS)
i-ohno@grips.ac.jp
October 2002
(revised)*This is the updated version of 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. The paper also
incorporates the comments received at the WSSD workshops. The GRIPS Development Forum has createdan information module (a website dedicated to one topic with many related links) in which this paper serves
as the main page. For fuller information, please visit http://www. grips.ac.jp/forum-e/.

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 areexerting great influence on the development strategies of poor countries. Since poor countries
are highly diverse in socio-economic structure as well as causes of poverty, policy measuresand 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 theimplementation stage, we need to urgently strengthen intellectual inputs in this area toeffectively translate 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 absenceof 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 terms of 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 inspiredby the country’s unique geographical and historical position, especially the surrounding Asian
dynamism as an enabling environment for economic catch-up. However, even without such a
regional advantage, trade- and investment-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 theareas of infrastructure development, human resource development, technology transfer andindustrial studies are particularly effective.

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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-year roadmap 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 asking 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, all recipients ofconcessional 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 andCountry Assistance Strategy (CAS), linking poverty reduction efforts with the access to IDA
funding. Moreover, the Bank is also 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 maystrongly 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 (financial and/or non-financial). As of September 2002, more than sixty
countries are engaged in the PRSP process, including those in the initial stage of formulation.
Among them, eighteen countries (of which twelve are from Africa and four from Latin
America and the Caribbean) have completed Full-PRSPs and subsequent joint staff
assessment by the IMF and the World Bank [World Bank 2002c]. Forty-five countries have
prepared Interim-PRSPs, with African countries accounting for more than half. Vietnam
became the first East Asian country to complete a Full-PRSP in May 2002. The Boards of 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 a comprehensive review in early 2002. The final review report was presented to
the WB/IMF Joint Development Committee in April 2002. The report stresses the validity of-2-the PRSP approach and the important role that the World Bank and the IMF will play in its
full-scale implementation. At the same time, the report recognizes that “the PRSP approachrequires flexibility so that both the process and the content of poverty reduction strategies canvary 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 theinternational 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 anddeveloped countries to promote 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 theprocedural 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 uniformityof approach, shortage of strategic 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 the generation of
economic growth is desperately lacking.
Shigeru Ishikawa, Professor Emeritus at Hitotsubashi University and leading figure in
Japanese development economics, regards PRSP as “the World Bank’s new aid policy which
essentially shifts the goal from ‘growth promotion’ to ‘poverty reduction’.” He further notesthat it is “a highly deficient proposal when viewed as a system of action plans to be properly-3-

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 in each 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 reduction [Ishikawa 2002].
In fact, the latest progress report jointly prepared by the IMF and the World Bank (for the
WB/IMF Joint Development Committee, September 2002) recognizes that “early PRSPs
often contained optimistic macroeconomic assumptions that were not supported by analysisof the likely sources of growth and the policies required to achieve such growth”[IDA/IMF
2002c].

3.

Types of Poor Countries and Appropriate Responses

Poor countries are highly diverse in their social, economic and political conditions. In orderto localize PRSP, the following three criteria are especially important: (i) relationship with thedonors; (ii) presence or absence 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. Thisaffects the degree 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 theprecondition for obtaining debt relief under the Enhanced HIPC Initiative. Equally for
donors, it is an important tool for aid resource management and evaluation ofdevelopment impact. By contrast, in the case of poor countries in East Asia including
Vietnam, debt forgiveness is not intended. For them, PRSP is primarily motivated by thecountry’s desire to access IDA and PRGF financing (which is less acute than 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-4-average of Sub Saharan African or Latin American countries. Naturally, a higher aid
dependency is associated with a stronger pressure from the donor group1. Moreover, thedevelopment strategy can also be affected by the views of the largest donor(s). In Sub
Saharan Africa, prominent donors are the World 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 theabove two groups. These differences must be taken into account in determining thedesirability of harmonization of aid modality.

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, is treated domestically. This issue is closely related to thestrength 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 andthe IMF. Although the relationship between the existing development plans and PRSP iscomplex and highly specific to each country, we present the following two prototypes for
simplicity of argument. [Figure: Two Types of PRSP]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 Plan for Socio-Economic Development 2001-2005” (the so-called
Five-Year Plan). These were reviewed by the Communist Party and concerned ministries andapproved by the Party Congress. They tower above numerous other official documents interms 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
1
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 approach PRSP.

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supplementary as one of the “other” documents. From the Vietnamese viewpoint, PRSP isnever intended to dictate overall budget allocation. Certainly, PRSP can reinforce the existingdevelopment plans with special attention to poverty reduction in a cross-cutting manner andthe participatory process. However, it is not expected to become an overarching document byreplacing 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 budgetaryand 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 this difference,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)2 which is 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 andsector-wide approach. Tanzania’s PRSP has no reference to aid modality, but this matter isdealt with separately in the Tanzania Assistance Strategy (TAS).
Figure : Two Types of PRSP【PRSP as a supplementary document】【PRSP as a primary document】

Existing dev.
plan

Existing dev.
plan

symbolic

governPRSP

Sectorplans

PRSP

governSector plans,budget, MTEF,
aid procedures

supplement

Budget2

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. Throughout the 1990s,
Uganda and Tanzania have developed MTEF and sector plans starting from health and education sectors, on which basis the
newly-introduced PRSP now provides the overall policy framework for poverty reduction. Ideally, PRSP as the coreplanning 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.

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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 casewhere PRSP is formerly installed as the national development strategy itself or, for somereasons, the national strategy has ceased to exist and PRSP is treated effectively as the coreplanning document. Here, PRSP has exclusive authority to govern overall policy, sector plans
and budgetary allocation. Such a case may emerge, particularly if the next planning cycles of
PRSP and national development strategy coincide. The Bolivian PRSP offers an interestingcase because, on paper, it belongs to the third variation but, in reality, it should rather beclassified as the second variation (even a weak one at that)3.
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, across-cutting approach to poverty reduction and broadening the participatory process. In thiscase, the most desirable and practical involvement 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 andreceiving 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.
Causes of poverty
Although the goal of poverty reduction is shared globally, aspects of poverty differ fromcountry to country. The common goal must be achieved by various means that fit the realityof 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 are to succeed in reducing
poverty.
If poverty is caused by insufficient delivery of social services, major efforts should bedirected to its improvement. If poverty results mainly from the pro-rich bias in the fiscal

3

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, but the strong link between PRSP and the overall budget system is yet to beestablished.

-7-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 cause of poverty is low productivity andan underdeveloped market economy, resources must be mobilized to build infrastructure,
upgrade technology and create industries. In this connection, to cope with generalized
poverty associated with underdevelopment, the recent UNCTAD report recommends
measures to enhance productive capacities, such as the promotion of rapid and sustained
economic growth and the establishment of dynamic investment-export nexus [UNCTAD
2002].
Table : PRSP--An International Comparison—

Vietnam

UgandaAid dependency

Relationship withexisting development
plan

Strategic focus

Low

Supplementary
document

Equitable growth

Budget is formulated under
the general guidance ofnational development
plans. CPRGS and sectorplans also supplement.

The overall framework is
promoting growth withsocial equity. PRSP
specifies social policies
and pro-poor measures.

Primary document

Growth and equity

Per capita ODA: $15
ODA to GNP ratio: 4.3%
HIPC: sustainable case,debt forgiveness not
requested
Relatively highPer capita ODA: $23
ODA to GNP ratio: 7.0%
HIPC: debt forgiveness
requested
Relatively highTanzania

Per capita ODA: $31
ODA to GNP ratio: 12.5%
HIPC: debt forgiveness
requested
Relatively highBolivia

Per capita ODA: $79
ODA to GNP ratio: 7.5%
HIPC: debt forgiveness
requested

Budget, MTEF and sectorplans are guided by PRSP.
PRSP is the revised
version of PEAP, thenational action plan forpoverty eradication.
Primary document

Growth promotion
measures and pro-poor
measures are both
specified in PRSP.

Budget, MTEF and sectorplans are guided by PRSP.

Main focus is on pro-poor
measures, while also
recognizing the importanceof growth promotion.

Primary document

Social equity

Social equity

PRSP guides pro-poor
Main focus is on pro-poor
programs administered by measures.
local governments.
Operational procedures arelegally specified in the
National Dialogue 2000.

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Different causes call for different responses. Without correct matching between diagnosis andprescription in each country’s specific context, even a big increase in aid money is unlikely toyield results. Furthermore, although many official documents declare that poverty reductionand economic growth are positively related, details of this relationship have rarely beenspelled out in the country-specific context. This is precisely the knowledge that is lacking in
the PRSP process so far.
Where Vietnam stands
In light of the three criteria presented above, Vietnam’s experience with PRSP (renamed to
the Comprehensive Poverty Reduction and Growth Strategy, or CPRGS) is noteworthy in thefollowing senses: (i) the country’s relatively low aid dependency; (ii) the existence of anational 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.
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 planand donor support be aligned to CPRGS. CPRGS has been finalized without resolving thismatter. Ishikawa also reports a critical remark by a high-ranking Vietnamese official,
expressing strong reservations 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 havedevelopment plans to guide their budgets. In Sub Saharan Africa, too, many countries havenational development plans. Vietnam’s CPRGS should be studied as one of the possiblemodels for other countries or regions4.

4

For example, in Tanzania (as a front runner of PRSP in Africa), there are signs that the growth agenda will be an importantpillar of the next PRSP. During our recent visit to Dar es Salaam (September 3-7, 2002), many Tanzanian officials expressed
their keen interest in Vietnam’s CPRGS. In fact, the Planning Commission of the President’s Office is preparing the“Medium-Term Plan for Growth and Poverty Alleviation: 2002-2005,” although the nature of this document is yet to be
known.

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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 institutional arrangements of the existing system; (ii) ask if someelements of a potential PRSP can enhance the existing system; and (iii) decide whether aformal PRSP is useful or the same effects can be realized through partial modification of theexisting system and without a PRSP5.

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 groupwhich did not. The majority of East Asian countries belong to the first group. Viewed from along perspective and as a regional phenomenon, there is no denying that East Asia has madeimpressive strides in income levels, economic equity and social indicators despite frequentwars, crises and stagnation.
East Asian development was realized by the staggered participation in the dynamic
production network created by private firms via trade and investment. One by one, countries
in different stages of development joined this regional network by each becoming a link in
the international division of labor with clear order and structure. For East Asia’s latecomers,
economic development is a process of constant upgrading of industrial capability from
low-tech to high-tech under competitive pressure from as well as complementary relations
with its neighbors. Through this complex relationship of rivalry and cooperation, structuralshifts have occurred which continuously passed industries from one country to another. No
other developing region has formed such dynamic interdependence as in East Asia6.

5

In this connection, the ADB Country Director for Vietnam states as follows in his written comments (prepared for the
WSSD workshop): “A challenge for Vietnam, as indeed its development partners, is how to further evolve and strengthen
Vietnam’s ‘Ten-Year Strategy’ and ‘Five-Year Plan’ formulation processes, moving away from the ‘central planning’tradition to a more market oriented strategic planning framework. In this context also, it may not even be necessary todevelop a separate poverty reduction strategy if poverty reduction is given adequate attention in the analyses, policy
development, and budget allocations within the national development strategies and plans. Therefore, burdening the country
with parallel processes should perhaps be avoided. In such a case the CPRGS could become a section, albeit an integral andcriticallyimportant
one,
of
the
next
Ten-Year
Strategy
andFive-Year
Plan.”[http://www.grips.ac.jp/forum/pdf02/comments_wssd.pdf]
6
For more details, see Kenichi Ohno, “East Asian Experience in Economic Development and Cooperation,” GRIPS
Development Forum Policy Note No.3, forthcoming; and also see the forthcoming information module at
http://www.grips.ac.jp /forum-e/.

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East Asia as a region provides a powerful model and an enabling environment in whichlatecomers are constantly challenged to catch up with the region’s more advanced economies.
This broader context of regional dynamism has rarely been analyzed in the World Bank’s
existing studies [World Bank 1993, 2000a]. Evaluation of policies pursued by individual
countries is hardly enough to understand the sources of sustained growth in this region.
For the Japanese economy, East Asia is the most important developing region. For East Asia,
too, Japan has been a particularly important country as the largest donor, the principal partnerin trade and investment, and the chief architect of the East Asian production network. East
Asian dynamism has also been supported by trade 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 ofthe 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 and creating new
private trade and investment.
Vietnam's aspiration to catch up
In its policy aspiration and growth mechanism, Vietnam is a typical East Asian developing
country. With a per capita GDP of US$390 in 2000 (World Bank data), it ranks as one of thepoorest countries in the world. Despite its location at the heart of East Asia, years of wars andcentral 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 andinstitutional 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 a vigorous process of international integration vis-à-vis the Western countries and- 11 -

international organizations. The country restored diplomatic relation with the US and joined
ASEAN in 1995, joined APEC in 1998 and signed a US bilateral trade agreement in 2001.
Negotiations for WTO accession are continuing. Within a relatively short period of ten years,
the Vietnamese economy has come to be deeply integrated into the global economy throughtrade, 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.
During 1991-2000, the average inflow of foreign direct investment (FDI) into Vietnam
amounted to 5.4 percent of GNP. This level far exceeds the average of lower-middle income
countries (0.9 percent of GNP), and it is even higher 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 initiation ofinternational integration. In this regard, Vietnam is a rare exception. The country also
underwent a process of dramatic social transformation. By the end of the 1990s, Vietnam had
already achieved the principal goal of MDGs, namely halving the ratio of people in extreme
poverty between 1990 and 2015.
The Ten-Year Strategy and the Five-Year Plan embrace the goal of Industrialization andModernization by the year 2020. These documents attest to Vietnam’s aspiration to catch up,
promote FDI and industrial development, and participate in East Asia’s production network.
Strong concern for social equity
Vietnam has long accorded high priority to social equity. Although the problem of quality andefficiency remains, the country has a vast network of social service delivery down to thevillage level. When compared with other countries at the similar level of income, Vietnam’ssocial achievements are far superior, as seen by the adult literacy rate of 93 percent and theinfant 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 (for example, thepoorest 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 poorfamilies in remote areas.
To cut poverty further, it is necessary to improve the existing policy and institutions. But
additionally and more importantly, the best way to reduce poverty under Vietnam’s- 12 -

circumstances is to enhance the productivity and competitiveness of the entire economy andprovide job and income opportunities to the population.
PRSP in the Vietnamese context
Vietnam became the first CDF pilot country in East Asia in 1999. This led to theestablishment of more than twenty partnership groups, including the Poverty Working
Group/Poverty Task Force (PWG/PTF), charged with cross-cutting poverty agenda, as well asother sector-specific thematic groups covering wide-ranging issues. The PWG/PTF assisted
the government with analytical studies and process building such as poverty assessment, thedevelopment of monitoring indicators (particularly localizing the International Development
Targets (IDTs) to create the “Vietnam Development Targets (VDTs)”), and the organization ofa series of regional workshops (including NGO-organized consultations).
Vietnam completed a Full-PRSP ahead of other East Asian countries. The Ministry ofPlanning and Investment (MPI), in coordination with other ministries, played a central role in
the preparation of PRSP. Efforts were also made to broaden the participatory process. Afterthe completion of Interim-PRSP (March 2000), the Vietnamese government renamed PRSP to
the Comprehensive Poverty Reduction and Growth Strategy (CPRGS), adding the terms“comprehensive” and “growth.” The final CPRGS was approved by the Prime Minister in
May 2002.
The Vietnamese government regards CPRGS as an action plan that translates the Ten-Year
Strategy, the Five-Year Plan and sector policies into concrete measures. The economic goals
and budget 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 and proposes ways to minimize income and regional
disparities, cut poverty and achieve social equity in the process 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 experience has thus
become “good practice.”- 13 -

5.

Japanese Development Cooperation in Vietnam7

Japan’s development approach is characterized by a keen interest in the dynamic structure of
the real economy. This perspective strongly influences the way Japan extends its support toVietnam. Since the full-scale resumption of its aid to Vietnam in 1992, Japan has supported
the Vietnamese government’s development strategy that combines broad-based growth withsocial equity. To this end, the Japanese government’s “Country Assistance Program for
Vietnam” (June 2000) has established the following five areas as key:1.

Human resource and institutional development, in particular the support for thetransition to a market economy

2.
3.

Infrastructure development with special attention to transportation and power
Agriculture and rural development

4.

Education and health5.

Environmental conservation

Among these, the first two are especially noteworthy in distinguishing Japan from other
donors. Japan has been the dominant aid provider in the transport and power sectors ofVietnam, exceeding the amounts extended by the World Bank and the ADB combined.
Equally, Japan has offered concentrated intellectual assistance to Vietnam through a series oflarge-scale, policy-oriented programs such as: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) 8
z “Judicial System Support” by JICAz “Economic Reform Support Loan” (the so-called “New Miyazawa Initiative”), financedby the Japan Bank for International Cooperation (JBIC)97

For more details, see Japan’s Development Cooperation in Vietnam―Supporting Broad-based Growth with Poverty
Reduction, GRIPS Development Forum, May 2002.
8
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 and monetary issues,state-owned enterprises (SOE) reform and small and medium enterprises development as well as macroeconomic balance
and responses to the Asian financial crisis.
9
The “New Miyazawa Initiative” supported a reform program covering private sector development, SOE reform, and theconversion 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 and Loan
Agreement signed in 1999, loan amount 20 billion yen).

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Through these programs, as well as active participation in CPRGS preparation and the otherpartnership efforts, Japan has made important contributions to the establishment of Vietnam’s
development vision, especially advising on the formulation and implementation of theFive-Year Plans (sixth and seventh) and the current Ten-Year Strategy.
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 andcompetitiveness. Industrial promotion strategies by latecomer developing countries must be
adjusted to the age of globalization. Japan is willing to work with Vietnam to meet thesechallenges with long-term perspective and strong interest in real-sector issues, including
supporting strategies for key industries. Japan will do so through an appropriate mix ofschemes including grants, technical cooperation and financial cooperation. Moreover, suchconcern for growth should be addressed not only in the bilateral context but also under themultilateral framework, including CPRGS.

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