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Page 1: 1 FINANCING FOR DEVELOPEMENT: SITUATION, CHALLENGES AND PERSPECTIVES The case of Viet Nam Le Viet Duc Ministry of Planning and Investment of Viet Nam at.

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FINANCING FOR FINANCING FOR DEVELOPEMENT:DEVELOPEMENT:

SITUATION, CHALLENGES SITUATION, CHALLENGES AND PERSPECTIVESAND PERSPECTIVES

The case of Viet NamThe case of Viet Nam

Le Viet DucLe Viet DucMinistry of Planning and Investment of Viet Ministry of Planning and Investment of Viet

Nam at Informal Experts' Workshop Nam at Informal Experts' Workshop "Development Finance Architecture, Paris 6-"Development Finance Architecture, Paris 6-

7/3/2006 7/3/2006

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I- Development Finance I- Development Finance Architecture of Viet Nam:Architecture of Viet Nam: 1. Structure of Financial markets in Viet Nam: 1. Structure of Financial markets in Viet Nam:

a) The monetary market: a) The monetary market:

+ The inter-bank domestic currency market set up in + The inter-bank domestic currency market set up in 1993.1993.

+ The inter-bank foreign exchange market set up in + The inter-bank foreign exchange market set up in 1994. 1994.

+ Treasury bill bidding market established in 1995.+ Treasury bill bidding market established in 1995.

+ Open market operations set up in July 2000. + Open market operations set up in July 2000.

The functions of the monetary market in Viet Nam are The functions of the monetary market in Viet Nam are to provide short-term funds for enterprises and for the to provide short-term funds for enterprises and for the State Budget; to secure loanable funds for financial State Budget; to secure loanable funds for financial institutions; and to serve as the workplace for the institutions; and to serve as the workplace for the State Bank of Viet Nam to exercise options of the State Bank of Viet Nam to exercise options of the monetary policy. monetary policy.

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b) The long-term capital market b) The long-term capital market : including mainly the : including mainly the bond (government bonds, corporate bonds and bond (government bonds, corporate bonds and project bonds) and share markets:project bonds) and share markets:

+ The bond market was set up and put into operation as + The bond market was set up and put into operation as from 1995.from 1995.

+ The security market of Viet Nam was set up and put + The security market of Viet Nam was set up and put into operation as from July 2000. into operation as from July 2000.

The security market’s operations are conducted at The security market’s operations are conducted at two security trading centers, one in Hanoi and the two security trading centers, one in Hanoi and the other in Ho Chi Minh City. other in Ho Chi Minh City.

Security listing and concentrated transactions are Security listing and concentrated transactions are carried out at these centers. carried out at these centers.

+ an unofficial security market where unlisted securities + an unofficial security market where unlisted securities are traded, comprised of mainly those of small and are traded, comprised of mainly those of small and medium enterprises. medium enterprises.

The volume and value of transactions on this market is The volume and value of transactions on this market is much higher than those on the official market. much higher than those on the official market.

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2. Management of financial 2. Management of financial

institutions in Viet Naminstitutions in Viet Nam::

Financial institutions in Viet Nam can be Financial institutions in Viet Nam can be classified into 3 groups: classified into 3 groups:

- Financial institutions managed by the - Financial institutions managed by the State Bank of Viet Nam, State Bank of Viet Nam,

- Financial institutions managed by the - Financial institutions managed by the State Securities Committee, under the State Securities Committee, under the Ministry of FinanceMinistry of Finance

- Financial institutions managed by the - Financial institutions managed by the Government or the Ministry of Finance, Government or the Ministry of Finance,

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Financial institutions managed by the Financial institutions managed by the State Bank of Viet Nam:State Bank of Viet Nam:

1990 1994 1999 2002 2005 2006

State Owned Commercial Banks

4 4 5 5 5 5

Policy Banks 1 1 1 1

People Credit Funds n.a n.a. n.a. n.a. 905 905

Joint Stock Banks 0 36 48 36 36 37

Joint Venture Banks 0 3 4 5 4 5

Foreign Bank Branches

0 n.a. n.a. 26 28 31

Foreign Bank Rep. Offices

n.a. n.a. n.a. 41 42 44

Finance Companies n.a. n.a. n.a. 7 5 6

Leasing Companies n.a. n.a. n.a. 9 9 9

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Financial institutions managed by the Financial institutions managed by the State Security Committee:State Security Committee:

• 2 Security Trading Centers in Hanoi and HCM 2 Security Trading Centers in Hanoi and HCM City, City,

• 11 Security Companies and Security 11 Security Companies and Security Investment Funds.Investment Funds.

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Financial institutions managed by other Financial institutions managed by other governmental agencies or the Ministry of governmental agencies or the Ministry of Finance:Finance:• The Viet Nam Development Bank,The Viet Nam Development Bank,• 8 Development Investment Funds,8 Development Investment Funds,• Social Insurance Funds,Social Insurance Funds,• Postal Saving Companies, etc. Postal Saving Companies, etc. The Viet Nam Development Bank, carries The Viet Nam Development Bank, carries

policy lending on behalf of the policy lending on behalf of the government, provides credit to SOEs and government, provides credit to SOEs and private enterprises, supports the private enterprises, supports the development of infrastructure and pro-development of infrastructure and pro-export/import activities, and is in charge export/import activities, and is in charge of the on-lending of the Official of the on-lending of the Official Development Assistance (ODA). Development Assistance (ODA).

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3. Vietnamese enterprises can get 3. Vietnamese enterprises can get

funding from the following sources:funding from the following sources:

- Credit from banking credit organizations and - Credit from banking credit organizations and People’s Credit Fund; People’s Credit Fund;

- Commercial loans from leasing companies, financial - Commercial loans from leasing companies, financial companies, investment funds and insurance companies, investment funds and insurance companies; companies;

- Soft loans from the Viet Nam Development Bank. - Soft loans from the Viet Nam Development Bank. - In particular, enterprises with foreign own capital - In particular, enterprises with foreign own capital

can get funding abroad through foreign companies can get funding abroad through foreign companies or their overseas parent companies. or their overseas parent companies.

- Long-term capital sources through security markets. - Long-term capital sources through security markets.

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4. The situation of financial sources 4. The situation of financial sources

for Viet Nam’s Developmentfor Viet Nam’s Development

• The ratio of capital mobilization for The ratio of capital mobilization for investment to GDP increased from 18.1% in investment to GDP increased from 18.1% in 1990 to 31.7% in 1995, 32.9% in 2000 and 1990 to 31.7% in 1995, 32.9% in 2000 and 38.9% in 2005. 38.9% in 2005.

• The investment capital structure has The investment capital structure has changed towards gradual abandonment of changed towards gradual abandonment of the central planning mechanism in the central planning mechanism in investment; investment;

• The domestic capital sources are being The domestic capital sources are being better exploited and account for over 70% of better exploited and account for over 70% of the total investment capital. the total investment capital.

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Investment capital resourcesInvestment capital resourcesin Viet Namin Viet Nam

• Capital from the State BudgetCapital from the State Budget

• Capital from banking systemCapital from banking system

• Capital from capital marketCapital from capital market

• Official Development AssistanceOfficial Development Assistance

• Foreign Direct InvestmentForeign Direct Investment

• Remittances from Vietnamese OverseasRemittances from Vietnamese Overseas

• Other foreign capital (foreign private Other foreign capital (foreign private investment)investment)

• Proper Capital of population and enterprisesProper Capital of population and enterprises

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Capital from the State Budget:Capital from the State Budget: • The total budget revenue in the last five The total budget revenue in the last five

years increased by 19.1% per annum. years increased by 19.1% per annum. • The ratio of mobilization to State budget The ratio of mobilization to State budget

makes up 24.4% of GDPmakes up 24.4% of GDP• Thank to the rapid increase in revenue, Thank to the rapid increase in revenue,

budgetary expenditures have improved. budgetary expenditures have improved. • The proportion of budget expenditure for The proportion of budget expenditure for

development investment out of the total development investment out of the total budgetary expenditure accounting for 28% budgetary expenditure accounting for 28% per annum, higher than the target of 25-per annum, higher than the target of 25-26%.26%.

• Investment from budget occupies 24.5% of Investment from budget occupies 24.5% of total investment in 2001-2005 period.total investment in 2001-2005 period.

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Mobilization of capital from banking Mobilization of capital from banking

systemsystem strengthened thanks to:strengthened thanks to:

- - The national financial situation continues to be improved; The national financial situation continues to be improved; GDP growth rate is high;GDP growth rate is high;

- The monetary activities have been flexibly governed, - The monetary activities have been flexibly governed, putting inflation under control while actively supporting putting inflation under control while actively supporting development and economic structural shifts;development and economic structural shifts;

- The ratio of M2/GDP rose quite rapidly, from 58% in 2000 - The ratio of M2/GDP rose quite rapidly, from 58% in 2000 to 85.2% in 2005;to 85.2% in 2005;

- Annual mobilized capital increases at an average rate of Annual mobilized capital increases at an average rate of 24%;24%;

- Credit balances increased by 27.6% per annum;Credit balances increased by 27.6% per annum;- By the end of 2005, in total loans:By the end of 2005, in total loans:

+ Non-public sectors account for 47% of the total credit+ Non-public sectors account for 47% of the total credit + State-run businesses occupies 39%+ State-run businesses occupies 39% + Enterprises with foreign investment occupies 14%. + Enterprises with foreign investment occupies 14%.

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Mobilization of capital from capital Mobilization of capital from capital marketmarket

The capital market is small: The capital market is small: • The bond issuance stands at 9.6% of GDP The bond issuance stands at 9.6% of GDP

at April of 2006 (USD 4.7 billion). The at April of 2006 (USD 4.7 billion). The corporate bond market still is an early corporate bond market still is an early stage of development. stage of development.

• The market capitalization of both The market capitalization of both securities trading centers combined securities trading centers combined reaches 3.2 billion USD representing 6.2% reaches 3.2 billion USD representing 6.2% of GDP at May of 2006;of GDP at May of 2006;

• The small insurance market has been The small insurance market has been steadily growing and the penetration rate steadily growing and the penetration rate reached 2.03% in 2005. reached 2.03% in 2005.

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Official Development AssistanceOfficial Development Assistance

• The ODA funds committed for Viet Nam are The ODA funds committed for Viet Nam are continuously increasing in 5 years 2001-2005continuously increasing in 5 years 2001-2005

• Total value of the agreed ODA is USD 14.9 Total value of the agreed ODA is USD 14.9 billion of which grants account for 15-20%; billion of which grants account for 15-20%;

• The total amount of ODA capital according to The total amount of ODA capital according to signed treaties reached US$11.2 billion; of signed treaties reached US$11.2 billion; of which, 80% is soft loans;which, 80% is soft loans;

• Total ODA disbursed reached US$7.9 billion;Total ODA disbursed reached US$7.9 billion;

• US$100 million of non-refundable aids from US$100 million of non-refundable aids from nearly 600 non-governmental organizations.nearly 600 non-governmental organizations.

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Foreign Direct Investment 2001-Foreign Direct Investment 2001-20052005

• The total registered capital reached 20.9 The total registered capital reached 20.9 billion USD, 39% higher than the target billion USD, 39% higher than the target (the target is 15 billion USD). (the target is 15 billion USD).

• The total obtained capital is 14.3 billion The total obtained capital is 14.3 billion USD in comparison with the target of 11 USD in comparison with the target of 11 billion USD, 30% higher than the previous billion USD, 30% higher than the previous period (1996-2000).period (1996-2000).

• Foreign direct investment occupied 16.6% Foreign direct investment occupied 16.6% of total investment, a considerable of total investment, a considerable decrease compared with 24% in the decrease compared with 24% in the previous period.previous period.

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Remittances from Remittances from

Vietnamese OverseasVietnamese Overseas • One of the most important sources of One of the most important sources of

income to Viet Nam;income to Viet Nam;• Total capital sourced from overseas Total capital sourced from overseas

remittance is estimated to reach US$18.9 remittance is estimated to reach US$18.9 billion since 1991, equal to 60% of FDI billion since 1991, equal to 60% of FDI capital implemented in Viet Nam during capital implemented in Viet Nam during the same period and is greater than the the same period and is greater than the total disbursed ODA since 1993;total disbursed ODA since 1993;

• the figure neglect unofficial, uncontrolled the figure neglect unofficial, uncontrolled channels. Consequently, the real figure of channels. Consequently, the real figure of oversea remittance would be higher.oversea remittance would be higher.

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Other foreign capital (foreign Other foreign capital (foreign private investment)private investment) • In comparison to the FDI, the FPI to Viet Nam In comparison to the FDI, the FPI to Viet Nam

has been negligible as its financial market is has been negligible as its financial market is still relatively weak and undeveloped. still relatively weak and undeveloped.

• September 2005, Viet Nam launch the first September 2005, Viet Nam launch the first sovereign bond deal with the US$ 750 million sovereign bond deal with the US$ 750 million 10-year issue in the international financial 10-year issue in the international financial markets.markets.

• Nevertheless, Viet Nam will attract more Nevertheless, Viet Nam will attract more foreign direct and portfolio investment in the foreign direct and portfolio investment in the coming years. coming years.

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II- Outlook on financing for Viet II- Outlook on financing for Viet Nam’s development in 2006-2010 Nam’s development in 2006-2010 periodperiod

11. Viet Nam’s general orientation of . Viet Nam’s general orientation of development in the 2006-2010 perioddevelopment in the 2006-2010 period

- GDP growth rate will be 7.5-8% per annum- GDP growth rate will be 7.5-8% per annum- GDP scale in 2010 will be 94-98 billion USD and GDP per - GDP scale in 2010 will be 94-98 billion USD and GDP per

capita about 1,050-1,100 USD.capita about 1,050-1,100 USD.- State budget revenue about 21-22% of GDP;- State budget revenue about 21-22% of GDP;- Total investment needed about 140 billion USD, - Total investment needed about 140 billion USD,

accounting for 40% of GDP.accounting for 40% of GDP.If domestic and international conditions are moro If domestic and international conditions are moro

favorable, try to get GDP growth rate of above 8%. favorable, try to get GDP growth rate of above 8%.

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2. Financing for Viet Nam’s 2. Financing for Viet Nam’s development:development: Forecast the mobilization Forecast the mobilization capacity of investment resources:capacity of investment resources:

• Investment from the State budget is expected Investment from the State budget is expected to reach about 28 billion USD, accounting for to reach about 28 billion USD, accounting for 20.2% of the total investment capital; 20.2% of the total investment capital;

• Investment from the State preferential credit Investment from the State preferential credit sources is expected to reach 13 billion USD, sources is expected to reach 13 billion USD, accounting for 9.3%; accounting for 9.3%;

• Investment from SOEs will possibly reach 21 Investment from SOEs will possibly reach 21 billion USD, accounting for 15.1%; billion USD, accounting for 15.1%;

• Investment from individuals and private Investment from individuals and private sector may reach 48 billion USD, accounting sector may reach 48 billion USD, accounting for 34.4%; for 34.4%;

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Forecast the mobilization capacity of Forecast the mobilization capacity of investment resources:investment resources:• Investment from FDI (including domestic Investment from FDI (including domestic

capital) is expected to reach 24 billion USD capital) is expected to reach 24 billion USD (2005 exchange rate), accounting for 17.1%; (2005 exchange rate), accounting for 17.1%;

• Investment from other sources may reach 5-Investment from other sources may reach 5-6 billion USD, accounting for 3.8%.6 billion USD, accounting for 3.8%.

(ODA is calculated in investment balances of (ODA is calculated in investment balances of Investment from the State budget and Investment from the State budget and Investment from the State preferential Investment from the State preferential credit)credit)

• Of the total investment, domestic sources Of the total investment, domestic sources are expected to reachare expected to reach about 65%, external about 65%, external sources to reach 35%. sources to reach 35%.

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Investment from the State Investment from the State budgetbudget• The total budget revenue in the next five years The total budget revenue in the next five years

of 2006 - 2010 is expected to account for 21 – of 2006 - 2010 is expected to account for 21 – 22% of GDP.22% of GDP.

• The increase in budget revenue may reach The increase in budget revenue may reach 10.8% per annum. 10.8% per annum.

• The State budget spending structure is The State budget spending structure is expected to shift towards more spending for expected to shift towards more spending for debt repayment, assistance and ensuring debt repayment, assistance and ensuring development investment; development investment;

• The development investment expenditure The development investment expenditure accounts for 29-30% of the total budget accounts for 29-30% of the total budget expenditure.expenditure.

• Continue to mobilize investment capital from Continue to mobilize investment capital from government bond sources. government bond sources.

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Investment capital from State-Investment capital from State-owned Enterprises sector.owned Enterprises sector.

• Investment capital for development of Investment capital for development of State-owned Enterprises is derived from State-owned Enterprises is derived from machinery depreciation fund to re-invest, machinery depreciation fund to re-invest, remaining profits and credit loans. remaining profits and credit loans.

• Analyses on investment growth rates from Analyses on investment growth rates from State-owned Enterprises with variables State-owned Enterprises with variables representing enterprises’ business representing enterprises’ business outcomes show that investment capital outcomes show that investment capital from State-owned Enterprises can increase from State-owned Enterprises can increase fairly, ensuring the above demand. fairly, ensuring the above demand.

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Capital from banking systemCapital from banking system • The objectives of monetary policies over the The objectives of monetary policies over the

next five years are to control inflation and to next five years are to control inflation and to promote economic growth. promote economic growth.

• The banking system will concentrate to attract The banking system will concentrate to attract accumulated sources in the population and in accumulated sources in the population and in economic sectors to ensure a sufficient capital economic sectors to ensure a sufficient capital source for credit loans; help promote economic source for credit loans; help promote economic development. development.

• To closely combine monetary policies with fiscal To closely combine monetary policies with fiscal policies for stabilizing the macro-economy.policies for stabilizing the macro-economy.

• Total credit for the economy increases 18-20% Total credit for the economy increases 18-20% per annum.per annum.

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Mobilizing investment capital for Mobilizing investment capital for development from private sector.development from private sector.

• Investment capital from private sector Investment capital from private sector will increase rapidly: 25% per year.will increase rapidly: 25% per year.

• Common Investment Law and Unified Common Investment Law and Unified Enterprise Law are the most positive Enterprise Law are the most positive factors.factors.

• Capital from Vietnamese overseas is Capital from Vietnamese overseas is increasing rapidly, amounting to over 3 increasing rapidly, amounting to over 3 billions USD per year. billions USD per year.

• With the Securities Law, in 2010, total With the Securities Law, in 2010, total capitalization of securities markets capitalization of securities markets represents roughly 10-15% of GDP.represents roughly 10-15% of GDP.

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ODA attractionODA attraction

• ODA is expected to increase quickly thanks ODA is expected to increase quickly thanks to favorable international conditions, the to favorable international conditions, the fast development of the economy.fast development of the economy.

• For the whole five years, it is possible to For the whole five years, it is possible to mobilize 19 billion USD of capital mobilize 19 billion USD of capital committed.committed.

• ODA disbursed in the budget is ODA disbursed in the budget is approximately 11 billion USD; in which, the approximately 11 billion USD; in which, the investment spending accounts for about investment spending accounts for about 85%. 85%.

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FDI and foreign indirect capital flowFDI and foreign indirect capital flow

• Viet Nam has been making every effort in order to be Viet Nam has been making every effort in order to be competitive to rival economies in attracting FDI. competitive to rival economies in attracting FDI.

• Thanks to these efforts, the FDI flows are forecasted Thanks to these efforts, the FDI flows are forecasted to increase significantly. to increase significantly.

• Total FDI newly registered (including newly allocated, Total FDI newly registered (including newly allocated, added capital and indirect investment) may reach 23 added capital and indirect investment) may reach 23 – 25 billion USD, in which the added capital of on-– 25 billion USD, in which the added capital of on-going projects accounts for about 35%. going projects accounts for about 35%.

• Realized FDI is expected to reach 18-19.5 billion USD Realized FDI is expected to reach 18-19.5 billion USD • Foreign indirect investment through bonds and shares Foreign indirect investment through bonds and shares

overseas, through the stock exchange and other loans overseas, through the stock exchange and other loans for medium and long-term investment: 4.3 billion USD for medium and long-term investment: 4.3 billion USD

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Use of investment resources:Use of investment resources:

Of the total investment planned, investment Of the total investment planned, investment into into

• Agriculture, forestry and fisheries accounts Agriculture, forestry and fisheries accounts for 13.5%, for 13.5%,

• Industry and construction 44.5%,Industry and construction 44.5%,

• Transport and post 11.9%. Transport and post 11.9%.

• Education and training accounted 4.2%, Education and training accounted 4.2%,

• Health care and social welfare 2.4%, Health care and social welfare 2.4%,

• Culture and sports 2.3%.Culture and sports 2.3%.

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Priority sectors in investment Priority sectors in investment plan:plan:• Transforming the economic structures in order Transforming the economic structures in order

to reinforcing advantages and effectiveness of to reinforcing advantages and effectiveness of each sector, each region and each product;each sector, each region and each product;

• Improving the infrastructure of socio-economic Improving the infrastructure of socio-economic sectors with emphasis on transportation, sectors with emphasis on transportation, telecommunication, energy resources, telecommunication, energy resources, irrigation systems and rural infrastructure.irrigation systems and rural infrastructure.

• Developing human resources;Developing human resources;

• Implementing effectively the program on Implementing effectively the program on hunger eradication and poverty reduction.hunger eradication and poverty reduction.

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Solutions to fully mobilize and Solutions to fully mobilize and effectively utilize financial effectively utilize financial resourcesresources• Exploit all domestic resources for investments:Exploit all domestic resources for investments:

- Develop a supportive environment to provide - Develop a supportive environment to provide favorable conditions for enterprises to invest;favorable conditions for enterprises to invest;

- Resolve current problems for businesses in - Resolve current problems for businesses in terms of input and output;terms of input and output;

- Increase public participation in service activities - Increase public participation in service activities such as education, medical care, vocational such as education, medical care, vocational training, social insurance, scientific research;training, social insurance, scientific research;

- Effectively utilize land and other natural - Effectively utilize land and other natural resources.resources.

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Solutions to fully mobilize and Solutions to fully mobilize and effectively utilize financial effectively utilize financial resourcesresources• Strongly mobilize external resources:Strongly mobilize external resources: - Fully mobilize FDI thanks to United Enterprises - Fully mobilize FDI thanks to United Enterprises

Law, Common Investment Law and more Law, Common Investment Law and more comparative investment environment than comparative investment environment than other nations in the region and in the world; other nations in the region and in the world; Open the services sector to foreign investorsOpen the services sector to foreign investors

- Develop strategies to attract and utilize - Develop strategies to attract and utilize investments from ODA, with focus on the investments from ODA, with focus on the construction of technical infrastructure to construction of technical infrastructure to provide favorable conditions for investors.provide favorable conditions for investors.

- Encourage overseas Vietnameses to make - Encourage overseas Vietnameses to make financial or intellectual investments in financial or intellectual investments in Vietnam Vietnam

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Solutions to fully mobilize and Solutions to fully mobilize and effectively utilize financial effectively utilize financial resourcesresources• Implementing measures to increase Implementing measures to increase

investment efficiency:investment efficiency: - completing legal documents and guidelines for - completing legal documents and guidelines for

the implementation of Construction Law, the implementation of Construction Law, Investment Law, United Enterprises Law;Investment Law, United Enterprises Law;

- continue to decentralize investment - continue to decentralize investment management responsibilities;management responsibilities;

- tackle the shortcomings and problems in - tackle the shortcomings and problems in investment management to avoid loss and investment management to avoid loss and waste;waste;

- Reinforcing the control of public for - Reinforcing the control of public for investment projects. investment projects.

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Difficulties and challenges posed during Difficulties and challenges posed during the mobilization of financial sources for the mobilization of financial sources for Viet Nam’s development: State’s capital Viet Nam’s development: State’s capital

sources:sources: • The State budget revenue is unstable and limitedThe State budget revenue is unstable and limited• Policies and laws on taxation do not include all Policies and laws on taxation do not include all

sources of taxable revenue;sources of taxable revenue;• There remain too many tax rates and tax There remain too many tax rates and tax

exemption and reduction on a large scale;exemption and reduction on a large scale;• Many subsidy-like budget expenditures exist;Many subsidy-like budget expenditures exist;• The efficiency of budget capital utilization is low;The efficiency of budget capital utilization is low;• The State budget spent on development The State budget spent on development

investment is partly dependent on foreign loans;investment is partly dependent on foreign loans;• The solution of bad debts is still faced with many The solution of bad debts is still faced with many

problems, including the discrepancy between problems, including the discrepancy between banking reform and SOEs reform.banking reform and SOEs reform.

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Difficulties and challenges: Bank’s capitalDifficulties and challenges: Bank’s capital

• Operation of banking system is weak;Operation of banking system is weak;• The minimum rate of capital safety of The minimum rate of capital safety of

public banks is low, only 4.4-6.2%, much public banks is low, only 4.4-6.2%, much less than the target (8% in 2005);less than the target (8% in 2005);

• Banking services have not fully Banking services have not fully developeddeveloped

• The credit quality is still limited; The credit quality is still limited; • The ratio of bad debts has not The ratio of bad debts has not

decreased enough. decreased enough. • The financial situation of enterprises is The financial situation of enterprises is

not sound enough.not sound enough.

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Difficulties and challenges: Difficulties and challenges: ODAODA

• Absence of an overall orientation of the whole Absence of an overall orientation of the whole country to attract and use ODA. country to attract and use ODA.

• The disbursement is slow due to many The disbursement is slow due to many reasons, including complicated procedures and reasons, including complicated procedures and processes in the country as well as required by processes in the country as well as required by donors.donors.

• The capacity of project management teams The capacity of project management teams generally does not meet the requirements.generally does not meet the requirements.

• Legal framework for ODA management is still Legal framework for ODA management is still not comprehensive and clear, legal documents not comprehensive and clear, legal documents are not strictly implemented. are not strictly implemented.

• The mechanism for managing, regulating and The mechanism for managing, regulating and using ODA at various levels is not consistent.using ODA at various levels is not consistent.

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Difficulties and challenges: FDIDifficulties and challenges: FDI

• The proportion of foreign direct investment in the The proportion of foreign direct investment in the total investment is decreasing from 24% in the total investment is decreasing from 24% in the period 1996-2000 to about 16.6% in the period period 1996-2000 to about 16.6% in the period 2001-2005. 2001-2005.

• The attraction of foreign investment in agriculture, The attraction of foreign investment in agriculture, forestry and fisheries is still limited despite certain forestry and fisheries is still limited despite certain preferential policies.preferential policies.

• The system of policies and laws is inconsistent and The system of policies and laws is inconsistent and incomplete.incomplete.

• A “level playing field” for both domestic and foreign A “level playing field” for both domestic and foreign investments has not been created enough.investments has not been created enough.

• In some production fields such as cement, iron, In some production fields such as cement, iron, steel, electricity, measures that limit foreign steel, electricity, measures that limit foreign investments are still applied.investments are still applied.

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III. Recommendations for changes in III. Recommendations for changes in the international financial mechanism, the international financial mechanism, which assists poor countries in which assists poor countries in

financing for developmentfinancing for development • Objective: ultimate objective of the new Objective: ultimate objective of the new

international financial system is to promote international financial system is to promote growth and alleviate poverty, and its reform growth and alleviate poverty, and its reform efforts should be closely linked to this objective. efforts should be closely linked to this objective.

• Regional and international financial cooperation Regional and international financial cooperation can play a key role in attaining this objective. can play a key role in attaining this objective. We hope the OECD member countries would be We hope the OECD member countries would be able to share to developing countries their able to share to developing countries their experiences in the process of reforming national experiences in the process of reforming national and international financial institutionsand international financial institutions

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Recommendations for changes to the Recommendations for changes to the international financial mechanism for international financial mechanism for development:development:

• Firstly, Firstly, developing countries need to mobilize developing countries need to mobilize financial resources both domestically and financial resources both domestically and abroad through improving Government budget abroad through improving Government budget collection, developing internal financial market...collection, developing internal financial market...

It should be confirmed that internal resources It should be confirmed that internal resources mobilization always plays a decisive role, at the mobilization always plays a decisive role, at the same time, important role is of external same time, important role is of external resources.resources.

• Secondly,Secondly, financial markets should be more financial markets should be more favorable so that poor countries are able to favorable so that poor countries are able to access the markets of richer countries.access the markets of richer countries.

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Recommendations for changes to the Recommendations for changes to the international financial mechanism for international financial mechanism for development:development:

• Thirdly, Thirdly, enhancing financial, technological enhancing financial, technological supports and other forms of support for poor supports and other forms of support for poor countries; increasing action coordination countries; increasing action coordination among donors for the goal of helping poor among donors for the goal of helping poor countries. countries.

• Fourthly, Fourthly, building financial regimes that can building financial regimes that can firmly maintain the stability of global and firmly maintain the stability of global and regional economy so as to minimize possible regional economy so as to minimize possible financial crises’ impacts on financial market financial crises’ impacts on financial market and growth of poor countries.and growth of poor countries.

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Recommendations for changes to the Recommendations for changes to the international financial mechanism for international financial mechanism for development:development:

• Fifthly, Fifthly, building an assured mechanism for poor building an assured mechanism for poor countries to raise their voices in international countries to raise their voices in international financial fora so that all countries can take part in financial fora so that all countries can take part in resolving global abd regional issues, and those of resolving global abd regional issues, and those of poor countries themselves… poor countries themselves…

Especially, international community will give Especially, international community will give developing countries bigger and equal role and developing countries bigger and equal role and position in the process of building policy of position in the process of building policy of investment for development, policy for building and investment for development, policy for building and development of international financial-monetary development of international financial-monetary marketsmarkets

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Thank you for your attentionThank you for your attention

andand

wish the Workshop be successful.wish the Workshop be successful.