Fostering True Ownership in Vietnam:
From Donor Management to Policy Autonomy and Content

Izumi Ohno
GRIPS Development Forumi-ohno@grips.ac.jp

November 2004

Fostering True Ownership in Vietnam:
From Donor Management to Policy Autonomy and Content

Table of Contents

1.

Introduction……………………………………………………

1

2.

The Context of Vietnam’s Aid and Development……………..

1

3.

Donor Management—Selectivity and Diversity in
Dealing with Donors……………………………………………

4

Policy Design and Implementation—Need forGreater Coherency in Policy and Institutions…………………..

11

Future Challenges and Implications for the Role ofDonors in Vietnam……………………………………………...

15

References……………………………………………………………..

18

4.

5.

Acknowledgements
The author is grateful to all who kindly assisted in the drafting of this paper bygiving their time for interview and providing comments. These include: the officialsof the Vietnamese government, researchers and aid professionals actively involvedin partnership with Vietnam. This paper also benefited from discussions at aninternational workshop, “Forging Partnership?: A comparative study of institutional
responses to Nordic and Japanese Aid in Asia,” held in Hanoi during March 19-21,
2004 (funded by SIDA, FINNIDA, NORAD, JBIC and JICA). However, the author
bears sole responsibility for the views expressed in the paper and any errors.

1. Introduction
This paper analyzes the type of ownership demonstrated by the Vietnamese government.
Although ownership is a multi-dimensional concept, we focus on just two of its aspects: (i)donor management; and (ii) policy autonomy and content. It is shown that the Vietnamese
government excels in the first aspect while there is much to be desired in the second aspect.
The lack of effective internal mechanisms to design and implement development policies is aserious problem in realizing sustainable growth and poverty reduction in Vietnam. Now that
Vietnam counts on diverse sources of funding for development—such as budget, export
earnings and FDI—in addition to aid, there are many actors involved in the process ofdevelopment-related activities. Vietnam needs to improve the content of development policies,
not limited to donor management, and to strengthen the capacity for coordinating policies andprocedures among different levels of the government, private firms, and civil society.
Donor management refers to the capability of owning the relationship with the donor
community. This requires the leadership in policy dialogue, coordination of diverse requests,
selective adoption of donor advice, handling friction with diplomatic grace, and maintaining
national pride. This capability is required and exercised mainly by a relatively small segmentof the government, namely the administrative body in charge of aid receipt (the Ministry ofPlanning and Investment (MPI) in the case of Vietnam).
By contrast, policy autonomy and content are concerned with owning development policies.
This requires the capacity for identifying national development goals, rallying human andnonhuman resources toward these goals, setting coherent and realistic action plans andtimetables, executing them without delay, responding to unforeseen situations, coping withincome gaps and other problems generated by growth, management of globalization andassociated risks, and so on. As such, it is a much broader task than donor management. It calls
for the execution of development itself, of which the mobilization of ODA is only a part. It
must be supported by the concerted actions of all administrative bodies both horizontally andvertically. In fact, intra-governmental coordination is the prerequisite for owning policy
autonomy and content.
In the following, we will first explain the context of Vietnam’s aid and development in the
recent years, and then analyze the type of its ownership in light of the two aspects mentioned
above. In doing so, we will pay attention to four cases: (i) the formulation of growth-oriented
Poverty Reduction Strategy Paper (PRSP); (ii) the management of aid harmonization process;(iii) the need to concretize the content of growth strategies; and (iv) challenges of internal
harmonization and public administration reform. We will conclude by suggesting implications
for future challenges and the role of donors in Vietnam.

2. The Context of Vietnam’s Aid and Development
Growth, Globalization and Poverty Reduction
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 andinternational 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.
1

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.
The growth is broad-based, and Vietnam has made remarkable achievements in poverty
reduction over the past decade. Between 1993 and 2002, the proportion of the population
living below poverty line declined from 58 percent to 29 percent.
Nevertheless, Vietnam still faces many challenges. The latest VHLSS 2002 shows that therate of poverty reduction has slowed and that disparities between rural and urban tend toincrease. While the rates of its economic growth are fairly good, they are not commensuratewith the growth of investment or with the country’s potential and requirement. The
investment, production and business environments are still facing many difficulties andbottlenecks which lead to high investment and production costs.
Aid Partnership
Throughout the 1990s, the nature of Vietnam’s aid relationships has significantly transformed.
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 to Vietnam by the mid-1990s1. The overall level of aid jumped
rapidly from 1993 to 1994.
As a low-income country with per capita income of US$430 [WB data on 2002], Vietnam
cannot isolate itself from the influence of global aid debates if it wishes to attract sufficient
aid flows. For this reason, particularly since 1999, the Vietnamese government has been
actively engaged in aid partnership activities, following the principles of the Comprehensive
Development Framework (CDF) introduced by the World Bank. These include theformulation of the Vietnamese version of the Poverty Reduction Strategy Paper (PRSP)—i.e.,“Comprehensive Poverty Reduction and Strategy Paper” (CPRGS)—and the participation inaid harmonization discussions.
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. Vietnam completed a
Full-PRSP ahead of other East Asian countries in May 2002.
Currently, there are 25 bilateral donors (including 21 making aid pledges on an annual basis)and 16 multilateral agencies. With good track records of growth and poverty reduction,
Vietnam enjoys high aid flows. Since 1995, donor pledges at the Consultative Group (CG)have exceeded US$2 billion (annual figures), reaching a record-high of US$2.8 billion in
2003.2
1 After unification (in 1975) until the late 1980s, Vietnam heavily depended on aid from the ex-Soviet Union.
During the period prior to unification (1955-1975), the US provided massive aid to South Vietnam, the largest of
any other aid provided by the U.S. to a single country or territory during 30 years after the World War II. South
Vietnam alone accounted for one-sixth of the total US aid (both economic and military aid) to foreign countries
during this period (economic and military). [Dinh, 2000]
2
Vietnam is now the largest IDA-only borrower from the World Bank. In FY2002, it is the third largest recipient2

Figure 1 : Selected Sources of Foreign Exchange Inflows(average of 1999-2001)
Unit: $mn
14,000.0
Exports

12,000.0

FDI Inflows

10,000.0

Private Transfer

8,000.0

ODA Inflows

6,000.0
4,000.0
2,000.0
0.0
VietnamBangladesh

Tanzania

Source: IMF Statistical Appendix (2003), OECD/DAC.

Low Aid dependency
Although Vietnam receives high levels of aid for a country of its size, it is not heavily aid
dependent—if measured by the macroeconomic effects of aid. Compared to the average of
low-income countries in Sub-Saharan Africa or Latin America, the ratio of aid tomacroeconomic aggregates is not particularly high. In 2001, aid accounted for around 3.1
percent of GDP and one tenth of imports. Aid’s share in the government budget is relatively
small, at 12 percent of government revenues and at about 15 percent of investment. Aid is justone of several sources of foreign exchanges. [IMF and OECD/DAC data] In financial terms
the role of aid has been modest, while export revenues are the most important source. Also,
FDI, private remittances, tourism receipt are as important as aid receipt.
It is notable that such favorable situation has emerged only recently. Until the 1980s Vietnam
was a typical aid dependent economy, with aid paying for over half of imports, nearly
three-quarters of investment and over two-thirds of government expenditure. It was thegrowth turnaround and stabilization, resulting from Doi Moi that had brought about
remarkable changes on the fiscal side and reduced Vietnam’s aid dependency. Major changes

Table 1 : Aid as a percent of Macroeconomic Aggregates (2001)

VietnamBangladesh
Tanzania

GDP

Imports

4.6
3.3
14.3

9.4
18.2
89.2

Forex.
Revenue
7.0
14.1
41.8

Investment

Unit: (%)
Gov’t Exp.

14.8
13.1
83.8

17.9
22.8
75.0

Source: IMF Statistical Appendix (2003), IFS (2003), OECD/DAC.
Note: The aid data (gross disbursement) are based on donor report to OECD/DAC, which may not coincidewith those reported by the government.

of Japan’s ODA (following Indonesia and India). In addition, some 500 INGOs provide over US$80 million ofannual grant aid commitment.
3

included: (i) a large increase in revenue and the corresponding rise in public expenditure; (ii)a switch from non-tax to tax revenue; (iii) substantially reduced net transfers to state-owned
enterprises (SOEs); and (iv) a large increase in the expenditure share of the social sectors. The
order of magnitude of all these changes is such as to accord a relatively small role to aid.
[Donge et al. 1999]

3. Donor Management—Selectivity and Diversity in Dealing with Donors.
Vietnam is often praised by donors as one of the model countries with strong ownership[Donge et al. 1999, Jerve et al. 2003, Pincus & Thang 2004]. So far, the government has
skillfully managed its relationship with donors. It has kept a restrained relationship withdonors and made clear its wish to retain selectivity and diversity in obtaining donor advices.
Although partnership groups are active, their role has been primarily to facilitate information
sharing and coordination of assistance among donors. This is quite different from thepractices in many low-income countries, where more open, extensive relationship prevails or
is implicitly assumed. Particularly in highly aid-dependent countries in Sub-Saharan Africa,
partnership groups discuss intensively the policy framework and conditionality (overall andsectoral), budgetary allocation, and performance monitoring—because aid finances
substantial parts of the government’s core functions. And donors are united behind thisprocess.
Despite such a restrained attitude toward donors, Vietnam has maintained its status as apopular aid recipient. Not so many low-income countries have successfully managed theirrelationship with donors and attracted considerable amount of aid—like Vietnam does.
Factors Affecting Vietnam’s Donor Management
At least three factors have contributed to shaping Vietnam’s unique style of donor
management. First, as noted before, Vietnam’s growth and poverty reduction record over the
past decade, combined with the country’s manageable external debt and healthy export
growth, afforded the government an unusual degree of bargaining power vis-à-vis donors.
[Pincus and Thang 2004]
Second, historically, national sovereignty has been a cornerstone in Vietnam’s external
relationships. A strict separation between external advice and domestic decision-making
process exemplifies Vietnam’s nationalistic bent to donor-government relations. The World
Bank-funded CDF case study for Vietnam confirms that the government regards ownership as
the most important of the four CDF principles. [Morten et al. 2003] The government issensitive to any form of aid conditionality and shows a strong resistance when donors push onpolicy reform3. The existing literature frequently cites tensions between for instance, thegovernment and the IMF on the audit of the State Bank of Vietnam under the Poverty
Reduction Growth Facility (PRGF) conditionality, and the World Bank on health sector
policy and state-enterprise reform. [Pincus and Thang 2004, Donge et al. 1999, Morten et al.
2003]
3

It is well known that foreign advisers assigned to the Ministry of Planning and Investment (MPI) are notallowed to have offices within MPI. They are normally located in donor agencies’ local offices and visit MPI
when necessary. The only exception is the recent acceptance of a Japanese adviser (in August 2004), who is incharge of coordinating a JICA-supported capacity development project in MPI.
4

Third, Vietnam has unified institutional setting for aid management. The Ministry of Planningand Investment (MPI) is a powerful ministry, which holds centralized functions fordevelopment planning, FDI absorption and aid coordination. MPI is responsible for policy
formulation (“Strategy for Socio-Economic Development in the Period 2001-2010” or theso-called Ten-Year Strategy, the “Seventh Five-Year Plan for Socio-Economic Development
2001-2005” or the so-called Five-Year Plan, CPRGS, and so on), prioritizing and channelingof internal and external resources for socio-economic development (capital expenditures
based on the Public Investment Program), as well as foreign investment promotion. Within
MPI, the Foreign Economic Relations Department coordinates all types of aid (grants andloans) with multilateral and bilateral donors, and serves as the link to line ministries andagencies and provincial governments.4 The Ministry of Finance (MOF) is another importantorgan charged with the allocation of recurrent budget and the negotiations with legal
agreements with donors; but its role is largely confined to the treasury.
The following two cases illustrate how Vietnam has dealt with donors while maintaining
autonomy, through: (i) the formulation of the growth-oriented PRSP (CPRGS); and (ii) the
management of aid harmonization process. Both are very popular and highly debated agenda
in global aid partnership. Generally global debates tend to dominate these undertakings, but
the two cases show how Vietnam has successfully incorporated country-specific factors into
the PRSP and harmonization process. Moreover, through these cases, Vietnam has effectively
appealed to donors for the importance of adapting to diversity.

Case 1: CPRGS Formulation and Expansion
There are two aspects that make Vietnam’s PRSP very unique, compared to early PRSPs: its
strong growth-orientation including comprehensive reference to the role of large-scale
infrastructure in pro-poor growth; and its status as supplementary to the existing strategic
documents such as the Five-Year Plan and Ten-Year Strategy.
Making PRSP Growth-Oriented
The Vietnamese government formulated a growth-oriented PRSP in May 2002, called the“Comprehensive Poverty Reduction and Growth Strategy” (CPRGS). This was the first PRSPin Asia which sharply differed from early PRSPs, typically those in Sub-Sahara Africancountries, that had focused on social policies and direct-poverty targeting programs. MPI, in
coordination with other ministries, played a central role in the preparation of CPRGS. CPRGS
was produced on the government’s own schedule, written by Vietnamese in the Vietnamese
language, and only later translated into English for donor input. Moreover, the Vietnamese
government renamed PRSP to CPRGS, adding the terms “comprehensive” and “growth.”
More recently, the government has expanded CPRGS by adding a new chapter on the role oflarge-scale infrastructure in growth and poverty reduction. CPRGS expansion was proposedby the Japanese government at the 2002 CG meeting, and agreed by the Vietnamese
government and other donors. The revised CPRGS, including the new chapter on large-scale
4

MPI was established in 1996 through the merger of the State Planning Committee (SPC) and the State
Committee for Cooperation and Investment (SCCI). MPI is a lead agency in preparing a national list of priority
project/program priority and mobilizing donor resources. In addition, MPI is a focal point of high-level donor
coordination, such as the Consultative Group meetings (biannual) and international forums of ODA.
5

infrastructure, was approved by the Prime Minister in November 2003 and presented at the2003 CG meeting.5 The new chapter recognizes the interaction between growth and poverty
reduction, especially the important role of large-scale infrastructure in achieving pro-poor
growth—directly and indirectly—through economic activities such as labor movement
between regions, sectors, etc. and also contributing to enhanced social equity through income
redistribution by tax, finance and investment policies to help the poor. 6 With explicit
reference to large-scale infrastructure as one of the growth promotion measures, CPRGS has
become further comprehensive and consistent with the government’s Public Investment
Program (PIP).
PRSP as Supplementary Document
CPRGS also differs from early PRSPs in its relationship with the existing planning
framework. Vietnam has the existing policy configuration, where all sector plans, public
investment plans, and annual budget allocation are guided by the two core documents—i.e.,
the Ten-Year Strategy and the Five-Year Plan. These were reviewed by the Communist Party
and concerned ministries and approved by the Party Congress. They tower above numerous
other official documents in terms of legitimacy and accountability. Here, CPRGS is a
supplementary document to the two planning documents and is never intended to dictate

Figure 2 : Two Protoypes 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

Budget5

GRIPS Development Forum assisted the Vietnamese government in this process, by providing an analyticalframework for the role of large-scale infrastructure in growth and poverty reduction. See GRIPS Development
Forum (2003).
6
The Comprehensive Poverty Reduction and Growth Strategy (CPRGS), revised, November 2003. The Socialist
Republic of Vietnam.
6

overall budget allocation7. Certainly, PRSP can reinforce the existing development plans withspecial 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 existingcore documents.This is different from the case in which PRSP serves as a primary document,
and the operational procedures of the budget, sector plans and receiving aid are all governedby PRSP.
For example, in Tanzania (as a front runner of PRSP in Sub-Saharan Africa), thenewly-introduced PRSP exerts a stronger influence than the existing plans over the budgetaryand legal framework.
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.
In fact, the recent studies suggest that CPRGS is not a well-known document withingovernment circles. [Norlund et al. 2003, Pincus and Thang 2004, Comway 2004].
Responsibility for its production was assigned to one department within MPI. Even withincentral government agencies knowledge of CPRGS is not widely-spread. Within the line
ministries, awareness of the document is limited to those individuals directly involved in theprocess. Unlike the Ten-Year Strategy, it was not disseminated widely or publicized throughthe mass media. Familiarity with the document is even more limited at the provincial level.
Also, there exists confusion at the central and provincial levels regarding the relationshipbetween the Ten-Year Strategy and CPRGS, and the steps that must be taken to implement
the latter. [Pincus and Thang 2004]
In sum, the growth-orientation of CPRGS is built on the existing development visions (suchas the Ten-Year Strategy and the Five-Year Plan) which clearly spell out East Asia’s
aspiration for economic catch up.

Case 2: Aid Harmonization
Harmonization is an important means to help achieve greater aid effectiveness, by reducing
the transaction costs of aid delivery. In recent years, various initiatives have been launched tosimplify and harmonize donor practices, with substantial involvement of recipient countries.
Vietnam has succeeded in adding diversity to harmonization and modality debates andmanaging procedural harmonization—by donor group.

7

This view coincides with the findings of DFID-funded study on Vietnam’s PRSP. The study states thatreflecting its status as an action plan of the Five-Year Plan rather than a new policy statement, the CPRGS itself
was not submitted to the assembly for approval but instead was signed by the prime minister. It also points outthat one of the major motivations for drafting the CPRGS was the government’s desire to access concessional
financing from the World Bank and IMF. [Pincus and Thang 2004]7

Adding Diversity to Harmonization and Modality Debates
Vietnam is one of the 13 pilot countries selected for OECD/DAC Harmonization Task Forceand has been actively participating in the Task Force discussions, e.g., the Rome High-Level
Forum on Harmonization (February 2003) and the hosting of the Asian regional workshops
on aid effectiveness (January and October 2003). Through these occasions, Vietnam has
emerged as a model distinct from those widely practiced in Sub-Saharan Africa, adding
diversity to the harmonization discussions.
In Sub-Saharan Africa, the harmonization issue is linked to a shift to new aid modalities, suchas budget support and pooling funds under the Sector-wide Approach (SWAp) 8 . The
underlying assumption is that donors unify aid procedures (and modality in an extreme case)and provide support through the government’s systems. This is understandable because
harmonization and modality discussions have emerged, primarily to respond to the problems
associated with stand-alone projects—e.g., high transaction costs of aid delivery,
donor-driven projects leading to inefficient public spending, and parallel off-budget systems
and proliferation of Project Management Units (PMUs) undermining the effectiveness ofgovernment systems and accountability. Donor-imposed, policy conditionality under the
Structural Adjustment Program has also proven its limitations. Under such circumstances, ahigh priority is placed to build the core functions of the government. Budget support is
expected to help building the government’s systems, through enhanced ownership. Donors areencouraged to act jointly to support these efforts, by adopting new aid modalities andharmonizing their procedures consistent with the government’s systems.
By contrast, harmonization and modality issues are more loosely linked in Vietnam. The
government strongly argues for the diversity of aid modalities and treats the issue on new aid
modalities part of the broad harmonization agenda. Of course, Vietnam is not free fromproblems with the transaction costs of aid delivery and those faced by Sub-Sahara Africancountries.9 But, with the government’s core functions being in place (although not perfect)
and with low aid dependency, the nature of Vietnam’s development priority is different fromthat of Sub-Saharan Africa. Moreover, the government is cautious about the full-scale
introduction of budget support because it is normally accompanied by policy conditionality.
For this reason, project aid continues to be dominant in Vietnam. Major donors—Japan, theWorld Bank, and the ADB—provide project aid in various sectors. Budget support is yet to be
introduced, except for the World Bank-supported Poverty Reduction Support Credits(PRSCs)10. As of mid-2004, SWAp has not yet started (planned in primary education). The
government also interprets SWAp as a sector policy framework, under which projects andnon-projects coexist in an integral manner. The government’s plan is to first build awarenessof new aid modalities, and then pilot these on a small, manageable scale in terms of sector or
geographical areas before replication. [MPI 2003b]
8

The defining characteristics of a SWAp are that all significant public funding for the sector supports a single
sector policy and expenditure program, under Government leadership, adopting common approaches across thesector, and progressing towards relying on Government procedures to disburse and account for all public
expenditure, however, funded. [Brown, Foster Norton and Naschold 2001]9
For example, see OECD(2002) and JICA/CIEM (2003).
10
PRSCs-I & II were co-financed by UK, Denmark, Netherlands, and Sweden through the trust funds
established in the World Bank. So, the form of participation of these bilateral donors is not strictly “generalbudget support” as practiced in Sub-Saharan Africa. More recently, UK is exploring a possibility of extending
sector budget support to poverty-targeted programs.
8

Managing Aid Harmonization by Donor GroupIn Vietnam, Decree 17-CP, promulgated in May 2001, lays the foundation for all theharmonization efforts. The decree established the common framework for ODA-related
procedures and regulations by: (i) regulating the management and utilization of all types of
ODA resources including both grants and loans and covering balance of payments support,
program aid, project aid, technical assistance; (ii) changing the procedures and regulations
governing all stages from project identification to monitoring and evaluation; and (iii)
clarifying the responsibilities of various Vietnamese agencies involved in the ODA process.
More recently, the government elaborated an Action Plan on Simplification andHarmonization of ODA Procedures, and presented it at the December 2003 CG Meeting,
together with a proposal for comprehensive capacity building program for ODA management.
This action plan is guided by the principles of: (i) country-owned; (ii) country-led; and (iii)diverse modes of ODA delivery within a common framework.11
Based on the above principles, the government is encouraging the donor community, bydonor group, to simplify and harmonize respective procedures. Its approach is to treat donors
separately group by group, rather than jointly, and to create room for diverse voices.
More specifically, four different donor groups are working to simplify and harmonize
respective procedures, especially in terms of timing and documentation formats used in the
different stages of the project cycle. The groups include: (i) 5 Development Banks (the World
Bank, ADB, JBIC, KfW, and AFD); (ii) Like-minded Donor Group (LMDG consisting of
Canada, Denmark, Finland, Germany, Netherlands, Norway, Sweden, Switzerland and UK);(iii) UN system (UNDP, UNICEF, and UNFPA); and (iv) EU (Member States and theEuropean Commission).[Box 1] Since loan aid accounts for nearly 80% of aid commitment in
Vietnam (two-thirds on a disbursement basis)12, procedural harmonization among 5 Banks
should significantly improve the efficiency of aid delivery. [Figure 3 ] LMDG and EU pay

Figure 3 : Foreign Aid: Grants versus Loans(average of 1999-2001)
Vietnam
GrantsBangladesh

Loans

Tanzania
0%

20%

40%

60%

80%

100%

Source: OECD, Geographical Dsitrbution of Financial Flows to Aid Recipients
1997-2001, 2003. Gross disbursement base.
11

Similarly, at the Asian Regional Harmonization Workshop in January 2003 (held in Hanoi, prior to the Rome
High-Level Forum in February 2003), the MPI stressed the four principles of harmonization including: (i)country leadership based on a clear, transparent and implementable regulatory framework, (ii) respect for partner
diversity, (iii) practical selection of harmonization areas, and (iv) cost-benefit analysis of harmonization exercise.
[the statement by Mr. Duong Duc Ung, Director General of Foreign Economic Relations Dept., MPI]
12
Cumulative figure during 1993—end of 3rd quarter of 2003. MPI data presented at the 2003 CG Meeting.
9Box 1 : Aid Harmonization by Donor Group
Currently, four groups of donors (with similar aid schemes) and some individual donors areworking to simplify and harmonize respective procedures, guided by a common and coordinatedframework established by the Vietnamese government. The progress as of June 2004 includes:
・ 5 Banks: In May 2002, the World Bank, the ADB, and JBIC (Japan) agreed a joint statement
to harmonize the areas of procurement, financial management, environmental and resettlement
issues. This was joined by KfW (Germany) and AFD (France) in 2003. The coverage ofharmonization efforts by the 5 Bank Group centers around the five agreed priorities: (i) project
preparation practices and procedures; (ii) procurement process; (iii) financial management; (iv)environmental and social safeguard policies and practices; and (v) portfolio management.
・ LMDG: In 2001, the LMDG undertook a study to compare six donor practices and examined
options for harmonization*1. On the basis of this study, the group is working on thestandardization of documents and procedures, also applicable to the government. Their work
includes the initial analysis of project reporting formats and current public procurement
institutional framework, as well as stock-taking of project management training. The LMDG
also promotes capacity-building support, common development vocabulary, and wider use ofmulti-donor financing mechanisms.
・ EU: The Hanoi-based representatives of the twelve Member States involved in cooperation
with Vietnam and the EC Delegation agreed on an Action Plan for Harmonization and
Coordination in May 2003. The plan is based on the preceding efforts (e.g., the EU local costnorms) and takes a practical approach, focusing on the coordination of efforts at different
phases of the project cycle in certain sectors (i.e., health, education, trade, private sector
development, and governance) and one geographical area (i.e., the Central Highlands).
・ UN Group: As part of the UN global initiative for simplification and harmonization among themember of the UN Development Group (UNDG), the UN Country Team in Vietnam ispreparing its Common Country Assessment and UN Development Framework for 2006-2010
in consultation with the Vietnamese government (to be ready by end-2004). Subsequently,
UNDP, UNICEF, and UNFPA will develop the Country Program Documents (high-levelagreement between agencies and government) and Country Program Action Plans (moredetailed programming documents) under common formats.
・ Japan’s grant aid and technical assistance: As a follow-up to the JICA/CIEM study (March
2003), bilateral effort is underway between the Japanese government and MPI to address theselected issues identified by this study (”Sit down and Talk” initiative). Through a series of
discussions, a Joint Action Plan has been finalized by June 2004, which focuses on: (i)strengthiening of diagloue; (ii) information sharing on procedures; (iii) improving
transparency; and (iv) participation and capacity building.
*1

Grant Thorton (2001).
Source: elaborated by the author, based on MPI [2003b] and MPI [2004].

special attention to the introduction of SWAp and budget support (such as PRSC) because
they consider such aid tools an effective way to reduce transaction costs in aid delivery andcollectively support the implementation of key elements of CPRGS.
In addition, bilateral effort is underway between the Japanese government and MPI, focusing
on Japan’s grant aid and technical assistance, to address the selected issues identified by the
JICA-commissioned study on transaction costs of aid delivery13.
13

The JICA/CIEM study collected the voices of recipients on 80 projects (i.e., rural development, health,education and training, and transport). The study finds that the burdens of transaction costs differ, at each stage
10

At the same time, the government is making efforts to improve the ODA management system
and internal procedures (including the revision of Decree 17-CP) in order to reinforce thecommon framework. But, the progress in this respect has been slow, as will be explained inCase 4.

4. Policy Design and Implementation—Need for Greater Coherency in Policy andInstitutions
The above achievements are laudable for a low-income country. Nevertheless, this does notmean that Vietnam satisfies the requirements for the other level of ownership—i.e., thecapacity for effective policy design and implementation. The strength of Vietnam’s ownership,especially its skillful donor management, is largely confined to the overall aid coordinationand negotiation by MPI and exercised by relatively a small segment of the government.
Features of Vietnam’s Internal Administration
Vietnam’s public administrative system is highly fragmented, and decision making requires
consultations among many fractious constituencies. 14 The existing literature cites suchproblems as lack of overall strategic vision, lengthy consultation, and conflicting outcomes.
[Donge et al.1999, McCarthy 2001, Pincus and Thang 2004, Comway 2004].
The experiences of East Asia’s advanced economies suggest the vital role of economic
technocrats in formulating and implementing rational economic policies [WB1993]. In
contrast, Vietnam’s decision making takes place in a complicated web of vertical andhorizontal authorities. Responsibility is diffused and the process is not transparent. Policies
lack clarity and consistency, and response is slow when speed is needed. Thus, there exist
dual systems of accountability—one for dealing with donors, and the other for country’s
internal affairs. Seemingly a strong state of Vietnam may not necessarily hold domestically.
The following two cases illustrate how Vietnam’s internal system of accountability
constraints the government in exercising effective policy and institutional responses. We
focus on the challenges of: (i) concretizing the content of growth strategies; and (ii)integrating ODA management in the internal administrative system. The former can becontrasted with Vietnam’s strong growth orientation in the CPRGS (Case 1 above), while thelatter can be compared with aid harmonization (Case 2 above).

Case 3: The Content of Growth Strategies
To become an industrial country by 2020 is the national goal for Vietnam. As shown in Case
1, the official documents—typically the Ten-Year Strategy, the Five-Year Plan, and the
CPRGS—give numerical growth targets up to 2010. Beyond these, however, details are notspelled out. After eighteen years since the Doi Moi reform, and after roughly a decade ofof projects, with most transaction costs being felt at the stages of project design, appraisal and implementation.
14
McCarty calls such Vietnamese style of decision-making “consensus governance.” Consensus governanceinvolves a conscious choice not to delineate lines of authority and responsibility. Power is to be shared as widely
as possible. Extensive consultations are required, involving protracted delays to accommodate the various
concerns of stakeholders. [McCarthy 2001]
11

serious international integration, Vietnam is still not prepared to take full advantage of tradeand investment liberalization for economic development. The fact that international
integration comes with both challenges and opportunities is generally well understood, but
concrete action to raise international competitiveness is slow to emerge.

Lack of Realistic Industrial Vision
The reform process in Vietnam sharply differs from the experience of the East Asian tigers. It
was not a matter of an all-powerful leader at the top enacting the recommendations of
insulated technocrats. [Fforde and de Vylder 1996, Riedel and Turley 1999, Wattez 2001]
There was no articulate overall and long-term strategic framework or roadmap to guide the
Doi Moi reform process. The decision making on reform has been characterized by a gradual,
step-by-step, and trial and error approach.
Such decision-making style did work in the 1980s—when Vietnam needed to manage thetransition to a market economy and external opening while maintaining political stability.
However, it is an open question whether or not Vietnam’s policymakers and institutions havethe qualities needed to execute effective development policies in the age of globalization.
[Riedel and Turley 1999, Ohno 2004] Current economic decision making is too decentralized,
and various elements of industrial policy are not united. The challenge now is no longer tomaintain the delicate social balance under international isolation, but to raise productivity,
encourage investment, and compete with formidable regional rivals under increasingly free
trade. It is essential that the government provide a clear industrial vision—in terms of both thedirection of overall industrialization and specific strategies for individual key industries—aswell as a stable policy environment in which domestic and foreign businesses can operate.
At present, industrial strategy (Ministry of Industry: MOI), FDI and ODA (MPI), tradenegotiations (Ministry of Trade: MOT), tariff structure (MOF) and technical standards(Ministry of Science and Technology and Environment: MOSTE) are dealt with by different
ministries with little coordination in substance. Various measures such as industrial promotion,enterprise reform, FDI absorption, and trade and investment policy are not integrated. The
lack of transparency and certainty in policy environment remains the most serious obstacle forboth domestic and foreign firms. Under these circumstances, it is very difficult to introduce
policies for individual industries in an economically meaningful manner.15
While aid donors praise Vietnam, the foreign business community bitterly criticizes
Vietnam’s economic policy as one of the worst in East Asia. The poor business environment,
especially the lack of predictability, is cited as the main reason why Vietnam loses so many
investment projects that might have come had the policy been more conducive.16 Policy
inconsistencies are routinely reported in the newspapers. For example, domestic garment
exporters complain that the allocation of export quotas to EU is nontransparent, inefficientand unfair. The admission of as many as fourteen foreign automobile manufacturers in
Vietnam’s tiny market, coupled with unstable tax policy, is driving these producers to despair.
15

For the more detailed explanation of the problems in industrial policy, see Kenichi Ohno[2004].
The recent research by Vietnam Chamber of Commerce and Industry (VCCI) shows that nearly one third ofenterprises do not satisfy with the public reform progress and most of them agree that business licenseprocedures is still complicate, costly and time consuming. [World Bank 2004].
16

12

In 2002, local and foreign assemblers of TV sets were alarmed that the announced tariffs for2003 and beyond had a reverse structure which favored importing finished products to local
production. This inadvertent distortion was corrected in the tariff revision of July 2003, but asimilar problem remains for home appliances.
In September 2002, the Vietnamese government suddenly announced new quotas forimporting motorbike parts, which were immediately allocated to individual motorbike
assemblers based on their business plans submitted to MPI years ago at the time of investment
approval. Such a regulation is unheard of anywhere in the world. A few Japanese factories
were forced to stop operation as they had already used up the number of parts allocated tothem for 2002. Among Japanese investors, this incident became the symbol of Vietnam’s
irrational industrial policy. It was reported widely in the Japanese press. This and otherproblems prompted the Japanese government to launch the Japan-Vietnam Joint Initiative andrevise its aid policy in 2003, making the general quantitative direction of Japanese ODA to
Vietnam conditional on the policy efforts of the Vietnamese government, including the speedof improvement in the business condition.
The above examples suggest that Vietnam urgently strengthen its policymaking process andcreate a coherent and united economic team. There is a need to establish a small group of
highly capable professionals, with full authority for economic policy making and supervisionof all economic ministries and organizations. Such top-down decision-making has been
adopted by many East Asian countries for a few decades in order to sustain an economic
catching up. Under severely limited human and non-human resources, agility and flexibility inpolicy making can be realized by concentrating authority in this small group17.

Case 4: Challenges of Internal Harmonization
As explained in Case 2, the government has skillfully handled the discussions on aid
harmonization, by treating donors group by group. But, this does not necessarily mean that its
ODA management capability is satisfactory. Donors constantly complain about the problems
with slow ODA disbursements and implementation at the line ministries and provincial levels.
Complex arrangements for decision making related to ODA, a lack of donor understanding of
the Vietnamese system, and a lack of government capacity and understanding of donor
requirements resulted in major delays in project approvals and implementation.
In the recent years, there have been steady improvements in disbursement ratio. Nevertheless,much work remains to better integrate ODA in regular development administration andharmonize national procedures with international standards. For example, the World Bank’s
Country Portfolio Performance Review (CPPR), completed in October 2003, shows thatbetween FY2000 and FY2003, disbursements on investment credits almost doubled (from$160 million to $298 million), with the disbursement rate increasing from 12.1 percent to 14.3
percent. But, it also notes that the number of projects facing implementation issues has
increased over the past few years.18

17

Needless to say, concentration of economic policy authority is a different matter from the question of how to
distribute political authority.
18
World Bank (2004)
13

Incompatibility between ODA Management and Internal Administrative Systems
The introduction of Decree 17-CP in 2001 was a major attempt to rectify these problems.
However, compared to the management of harmonization of donor practices, the progress in
improving the government’s ODA management system and internal procedures has been slow.
More lately, the government is beginning its effort to revise the current Decree 17-CP, by
assigning MPI to submit a proposed draft by end-2004.
Luan and Loi [2004] argue that harmonization in the Vietnamese context is more difficult
than harmonization of aid procedures by donor groups. Two issues deserve attention.
First, there are many inconsistencies of policies and regulations within the Vietnamese
administrative system. There is ambiguity over responsibilities in implementing regulations.
Specific problems include: (i) inconsistencies between policies/guidelines made at the centrallevel and practices at the provincial level; (ii) multiple-doors accountability system, where
technical departments at provincial level have to report to both higher level in the ministry
and to the provincial People Committee; and (iii) poor coordination among related
ministries/agencies and between central-provincial levels, and so on.19 There is a need toadvance harmonization internally among Vietnamese agencies involved in projects/programs
funded by the donors. [Luan and Loi 2004]
The JICA/CIEM study [2003] reveals that not negligible transaction costs are attributable tothe Vietnamese system. It cites a concrete example of complicated internal procedures for
project appraisal and approval as follows:...a number of problems occurred in getting approval from the Vietnamese sidewhich created a number of burdens for the recipient agency and its sectoral
ministry. Although the government has developed clear procedures andtimetables for issuing ODA project approval, these procedures were not strictly
followed. Submission of the project documents to MPI and other line ministries
was asked for twice after a series of delays and problems with the sectoral
ministry in charge. As a result it took 20 months to get approval for theoperation of the project. In addition, a range of unclear rules also added to thecosts that the project had to bear, such as the importation of a car for the
project. ...[JICA/CIEM, p.23]
Second, there are many incompatible procedures and requirements concerning budget
allocation and use between the donors’ side and the Vietnamese side. This is because
Vietnam’s political and administrative systems significantly differ from respective systems indonor countries. Harmonization, then, would require Vietnamese government to speed up
Public Administration Reform (PAR), taking into account the requirement of the relationships
with donors. The government’s Action Plan on Simplification and Harmonization also

19This is not peculiar to ODA management. Le Thuc Duc et. al. [2003] gives an example of the implementationof the Foreign Investment Law (revised in 2000), as follows: “Provinces and respective ministries have to issue
the detailed guidelines for implementation of the Law. However, this process has been delayed and the Law had
been interpreted inconsistently at different levels of administration. Problems have arisen as contradicteddirectives encounter each other in practice. The middle rank authorities often do not know how to solve these
problems and wait for guidelines from the relevant ministries, branches or other competent bodies.”
14

recognizes the need to further streamline and simplify the internal ODA management
procedures in parallel with the PAR process. [MPI 2003]
Since 1986, there have been a series of efforts to implement administrative reforms across thestate sector in order to match the role and functions of the state more closely with the changes
being wrought in the economic system. One of the major initiatives was the adoption of the
Resolution on Public Administration Reform at the eighth Plenum of the seventh Party
Congress in January 1995. PAR is recognized as critical for further economic reform and thetransition process. Also, there has been a growing involvement of donor agencies in thereform program, with UNDP playing a lead role in providing and coordinating the technicalassistance.
Yet, it is widely viewed that progress of the PAR program is slow in comparison with therequirements of the transition. [Painter 2003] A general framework for PAR (Comprehensive
Administration Reform Program 2001-2010) was developed, and four key areas for reform
have been identified, i.e., institutional, administration, human resources, and public finance.
But, as the former representative of UNDP/Vietnam emphasizes, the lack of a strategy to
guide the process, well anchored in the higher economic and social goals of the country has
contributed to slowing down PAR. This is partly because the PAR process is closely tied toreforms in legislative and judicial branches, as well as renovation of the political system.
[Wattez 2001]
In sum, true harmonization in the Vietnamese context can be achieved—only if refinedprocedures and mechanisms are integrated into regular administrative system of theVietnamese government.

5. Future Challenges and Implications for the Role of Donors in Vietnam
As our analysis suggests, the Vietnamese government has demonstrated high capacity for
donor management—namely, through the CPRGS formulation and aid harmonization
processes. Nevertheless, Vietnam has not yet developed the effective economic policy
decision structure like the ones advanced East Asian economies had established during theperiod of economic take-off. Vietnam’s seemingly strong capacity for dealing with donors
should not be confused with the capacity for policy and institutional response for improved
global performance. Further efforts are required to concretize growth strategies and reform thedomestic administrative system and procedures, in order to sustain poverty-reducing growthand catch up with the East Asian tigers.
The four cases above also suggest that promoting policy and institutional reform requires arethinking of “doing aid” in Vietnam. Donors should be sensitive to the nature of Vietnam’s
ownership and recognize that there are limits to the extent of donor influence. The
government welcomes better coordination of aid at an operational level, but not at the expenseof diversity in bilateral relations. [Jerve et. al. 2003] The government listens to donor advice,
but never accepts it blindly. It picks up new ideas and selectively adopts them.
In this connection, the new Enterprise Law offers a good practice of how donors might
engage the Vietnamese authorities in deepening policy and institutional reforms. As part ofthe institutional reform component of PAR, this experience shows that much scope exists for15

Box 2 : The new Enterprise Law
The Enterprise Law was adopted in May 1999 by the National Assembly and took effect in early
2000. As part of the institutional reform component of PAR, UNDP provided support to the drafting
process. The Law is regarded, by all parties (national and international), as both a model in drafting
process and a critical step towards private sector development. Beyond substantially streamlining
business registration procedures, the Law has led to the abolition of 180 types of permits since its
enactment. [SRV 2003a] The duration for business registration has been shortened from 15-20 days
to 10 days by the end of 2001 and 2003, respectively. New registrations rose from 12,000 in 2000,
to 18,000 in 2001, and to 20,000 in 2002. [Le Thuc Duc 2003 et. al] As of September 2003, 72,601
private companies had registered under the new law. In contrast, approximately 45,000 companies
registered from 1999 through 1999 under Vietnam’s original private company legislation. [MPI
2003a]
In-depth assessment of needs (including what external agencies and experts could deliver), strong
engagement of the Vietnamese counterpart, recognition of the benefits from earlier assistance,
wide-ranging consultations, analyses of constraints and impacts of proposals and so on, areconsidered some of the key for its successful drafting work and subsequent comprehensive
implementation.
Source: Adapted from McCarty 2001. MPI [2003a]

carefully targeted and responsive assistance to the Vietnamese administrative reform process.
It also shows that donor support, if integrated in the government’s own agenda, has betterchances of bringing results. [See Box 2]
In conclusion, emerging lessons for “doing aid” in Vietnam are to: (i) work with the existing
institutions, based on an incremental approach (instead of imposing another, new institutionalframework); (ii) make donor assistance relevant to and integrated into the national agenda;
and (iii) identify entry points carefully and sharpen targeting of their assistance (to be realistic
and practical). To this end, donors must accumulate deep knowledge of Vietnam. [Wattez
2001, McCarty 2001].
The new planning cycle has just begun in Vietnam, and the government recently initiated the
preparation for the Eighth Five-Year Plan (2006-2010). Sector ministries and provincial
authorities are requested to formulate their proposals (typically, draft master plans) to MPI by
the end of 2004, to be considered for inputs to the next Five-Year Plan. This timing coincides
with the preparation of the next round of the CPRGS, which should cover three-year period
starting from mid-2005.
It is interesting to see how government-donor discussions would evolve regarding thetreatment of the future Five-Year Plan and CPRGS. By now, donors have well understoodthat CPRGS will never attain the political salience of the Five-Year Plan and the Ten-Year
Strategy and that the CPRGS roll-out (at the provincial level) has met limited success. There
are also views that continued reference to CPRGS may prove counterproductive in thiscontext, with a risk that CPRGS is seen as either a ‘donor’s document’ or document imposedon local government and line agencies by central planners such as MPI. [Pincus and Thang
2004]

16

It is desirable that the involvement of donors in the next round of CPRGS process should bethrough the support to the formulation of the Five-Year Plan. By working with the existing
policy and institutional framework, there will be greater chances to engage the Vietnamesepolicymakers in the substance of policy debates and required institutional reforms, such as thecontent of growth strategy and specific aspects of public administration reform. 20
Another, potentially effective and justifiable role of donors would be to increase the quantityand quality of policy debates and stimulate domestic policy research and training. These
activities require long-term investments, but should produce outputs in the form of the second
generation of policy makers and officials. [McCarthy 2001] Such assistance should contributeto fostering true ownership in Vietnam and help the Vietnamese to help themselves.

20

It is important to note that at the mid-year CG meeting in 2004 (held in Vinh), the MPI authorities hinted theirpreference that the CPRGS would be integrated into the next Five-Year Plan. [see Press Release
http://www.worldbank.org.vn/news/press52_01.htm]

17

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