Rising from failure

(Baonghean)-Starting in late 1993, after resuming relations with the international financial community, Vietnam was able to open up channels for mobilizing ODA funds with many countries and international financial organizations. However, in the not-too-distant future, Vietnam will no longer receive the abundant ODA resources it once did. Re-evaluating and assessing the failures in utilizing these funds is crucial for drawing necessary lessons – this is the perspective of an "insider" – Dr. Nguyen Thanh Do, former Director of the Department of Debt Management and External Finance (Ministry of Finance).

ODA funds and concessional loans are prioritized for infrastructure development (Illustrative image - source: internet)

Waste of capital

Alongside the achievements in mobilizing and utilizing ODA in Vietnam, it is clear that there are also dark sides that cannot be ignored. We have had ODA programs and projects that have either completely failed or have not been as effective as desired. First, there was the rice bran oil extraction project in Ben Tre, and the jute bag weaving production line project in Ho Chi Minh City, both funded by Indian ODA. Due to outdated technology, lack of raw materials, and no market for the products, they were completely inoperable after handover.

Secondly, there's the Ha Long frozen seafood processing plant project, funded by Italian ODA loans, which is inactive due to a lack of raw materials. Even the silkworm and mulberry development program in Lam Dong, also funded by Italian ODA loans, failed because the products were uncompetitive in the market. Not to mention the clean water supply projects in Kon Tum and Yen Bai, funded by French ODA loans, which were ineffective as they only utilized one-third of their designed capacity, or the cotton and Arabica coffee planting programs, also funded by French ODA loans, which failed due to inadequate planning, poor implementation, and management.

It can be seen that the aforementioned failed projects are all ODA projects implemented under a loan-for-lending mechanism. Under this mechanism, when a project fails to repay its debt, it is clearly recognized and acknowledged as a failure. However, among ODA projects, up to 70% are projects implemented under a budget allocation mechanism. For these projects, there has been virtually no assessment of failures, except for a few projects where some errors or negative aspects have been discovered.

Weakness in demonstrating leadership.

In reality, ODA projects have also experienced certain failures, the biggest being the waste of capital: waste due to delays, waste due to high investment costs, waste due to projects failing to achieve their intended effectiveness, and waste due to scattered investments. For example, the rural development program, funded by the World Bank (WB), has failed to achieve its intended effectiveness because the vast majority of roads built deteriorate and become severely damaged after only a few years of use; or many provincial hospitals receive large investments but lack equipment and medical staff; investment costs in ODA projects are often higher than similar projects funded by other sources.

Experience shows that ODA funding is not always effective for every country (Illustrative image - internet)

Experience with ODA worldwide shows that it is not always effective for every country or every sector. In Vietnam, some ODA beneficiary agencies at both the central and local levels still cling to the mindset of "ODA from the subsidy era," viewing "non-refundable ODA as government grants, and ODA loans as government debt repayment." The consequence of this misconception is a desperate attempt to secure ODA funding without considering economic efficiency, project sustainability, and debt repayment capacity.

The second mistake is that the state management policy mechanisms for ODA are not synchronized, project approval procedures are cumbersome, the administrative apparatus is large and inefficient, and the responsibilities of project implementing levels are unclear, leading to waste, bottlenecks, reduced flexibility in the implementation process, and a lack of clear delineation of responsibilities among implementing units in case of project inefficiency. The preparation of programs and projects for capital application is often superficial and not thorough, focusing only on getting included in the funding request list. In some cases, project preparation (project documents, feasibility studies, surveys, design, tender documents, management, and supervision) is left entirely to foreign consultants, thus encountering many obstacles during implementation, requiring adjustments and additions to project documents, leading to project delays, reduced grace periods, and negative impacts on investment efficiency.

Furthermore, the bidding process for selecting contractors is complex, lengthy, and of low quality, especially for construction and equipment procurement items, which often take 2-3 years. In many cases, the cost of purchased equipment is higher than international market prices, is not standardized, and the technology quality is low. The capacity and qualifications of investment management staff are still limited, most evident in the project appraisal phase, particularly regarding the technical and financial aspects of the project.

The aforementioned weaknesses stem primarily from our failure to fully leverage our role in utilizing ODA in a manner consistent with the specific characteristics of this resource, due to limitations in capacity, qualifications, foreign language skills, management experience, and the ability to analyze and negotiate contracts. Furthermore, donors, when considering ODA provision, often impose conditions requiring the use of consultants, contractors, and equipment suppliers for programs and projects (through restricted bidding or direct contracting), making it difficult for project owners to control the process. High consulting costs and high equipment procurement prices negatively impact investment efficiency. Therefore, overcoming these shortcomings is fundamental to improving the effectiveness of ODA utilization.

Increase coerciveness

Based on past failures and shortcomings in mobilizing and utilizing ODA funds, as well as international experience, Vietnam needs to draw fundamental lessons. First and foremost, it is crucial to proactively manage and utilize ODA funds, avoiding the tendency to prioritize quantity over quality in investments. Fund utilization must be linked to the ability to generate revenue to repay the debt, and projects deemed ineffective or unsuitable for their intended purpose should be rejected.

In the long term, it is necessary to further improve the level of savings and the proportion of investment using domestic capital, and increase the proportion of counterpart funds in the investment structure of programs and projects using ODA capital. The use of ODA capital must be concentrated on essential sectors. Furthermore, due to the low financial feasibility of ODA programs and projects, and the difficulty in generating direct foreign currency revenue to repay foreign debt, the use of ODA capital must also consider generating foreign currency from export activities to provide the country with a source for debt repayment, thereby strengthening the country's debt repayment capacity.

Secondly, proactiveness in proposing, preparing projects, and utilizing ODA is a prerequisite for ensuring the effective use of capital. International experience shows that where the proactive role of the recipient country is weak, the effectiveness of its use is poor and sometimes even leads to failure. Thirdly, it is necessary to innovate the methods of using ODA, potentially significantly increasing the use of ODA as seed capital for implementing projects under the PPP model; expanding the scope of relending to local governments to enhance local accountability for the effective use of borrowed capital.

Fourth, a transparent and highly enforceable legal environment is necessary. This is one of the conditions that promotes the progress of program and project implementation. Future policy mechanisms should focus on issuing new or amending economic and technical norms to suit the actual situation; guiding the process and procedures for implementing programs and projects… Fifth, it is crucial to resolutely implement urgent measures to prevent and combat waste in ODA-funded projects. Sixth, it is necessary to clearly define the powers and responsibilities of agencies involved in the management and use of funds, coupled with improving the skills and capacity of relevant agencies.

Furthermore, it is necessary to strengthen the inspection and supervision role of the managing Ministry, the ministries with management functions, and the state inspection and auditing agencies regarding the implementation of projects and the management activities of the investor and project management board. In addition, it is necessary to enhance the capacity for collecting, storing, processing, and reporting various types of information on ODA. A database on ODA should be built and completed to provide timely, accurate, and consistent information to serve the policy planning process and reporting requirements for agencies and donors.

Red River