Strategy to use official development assistance ( ODA) in near future in vietnam

Abbreviation sADB Asia D evelopm ent Bank CG Consultative Group on donors for Vietnam ConterenceFDI Foreign Direct Investment GDP Gross Domestic Product M&E Monitoring and Evaluation ODA

Hanoi, lanuary - 2015

I also thank my colleges and friends in Ministry of Planning and Investment, State Bank o f Vietnam and other govemmental agencies who provided precious documents and iníbrmation during my redaction.

Pỉnally, I specially thank my family who alvvays supported me in this hard master program

Title: Strategy to use Official Development Assistance ( O DA ) in near future in Vietnam

Level: Final assignm ent for M aster Program in Public Managem ent

Author: Ho Anh Tai

Supervisors: Dr Sven-Erik Svărd and Dr Nguyen Manh H ung

Date w hen the thesis is presented: 2014 - 12

Aim:

The aim o f this thesis is to study the strategy to use Offĩcial Development Assistance (O D A ) in near tuture in Vietnam, especially in attraction, management and utilization o f O D A and concessional loans ot' donors in Vietnam T he thesis starts by an overview on ODA and concessional loans’ attraction, m anagem ent and utilization in Vietnam Then thesis continues by describing a State o f art o f O D A m anagem ent in different countries in the vvorld, in order to draw a large scale o f experiences not only successful but also un-successful (yet), in order to fínd out some lessons for Vietnam In the next section, after analyzing O D A attraction, management and utili/ation model and its actual situation in Vietnam, the thesis tries to make a comparison o f aid effectiveness between Vietnam and other countries The last section o f the thesis draws the recent strategy and orientation in ODA attraction, managcment and utilization o f the Vietnamese governm ent and then, based on the theory acquired đuring the M aster program , the author tries to propose some recommendations for change in Vietnani in terms o f ODA attraction, management and utilization in the tuture

following some speciílc hypothesis The data is collecteil trom <official sources

in different countries In Vietnam, the data is collected IVom the Government otTiee, Ministry o f Planning and ínvestment, State Bank o f Vietnam and other agencies Expected G D P growth o f Vietnam in near tuture is chosen in two scenarios: 5% and 9% grovvth, based on studies o f Development partners such

as The World Bank For recom m endations for change, man> proposals are already available but some are found out by the author, following personal experiences and observations R ecom m endations proposed in the thesis are based on theoretical knovvleđge from the Master program and the mind-map method, according to the tìve steps o f O DA management model in Vietnam

Result & Conclusions:

The relevant results o f the thesis are: systemization o f ODA management model and actual situation in Vietnam; description and comparison o f ODA managem ent effectiveness betvveen Vietnam and other countries; proposition o f speciíìc recom m endations in parallels with govem m ent's orientation in terms

o f ODA attraction, m anagem ent and utilization in the future

The thesis concludes that in the past tvventy years, ODA attraction, managem ent and utilization have been practiced in good way and helped Vietnam achieve many successes in its development way However, with new challenges when Vietnam has becom e a lovv middle income country, its strategy has to adapt to new requirements and management standards Based on that, some recom m endations in terms of: orientation; creating prọịect documents; administrative procedures; m anaging and implementing prọịects;

m o n ito rin g and e v a lu a tin g prọịect will need to be applied in order to improve ODA m anagem ent effectiveness in Vietnam

Suggestions for future research:

In the restricted context o f this thesis, beyond achieved results, other purposes have not been protbundly studied First, international experiences and model have not been closely analyzed, some conclusions are still generalist Then, effectiveness comparison was basic and didn’t allow comparing effectiveness between different managem ent models In other sides, recommendations vvere proposed to improve each step in actual management model, not to change the model itself in Vietnam

So, the thesis can be subject for lìiture researches toy analyzing international ODA management models and compare to Vietnannese model in order to tìnd out or draw an effective ODA management model Tlnen, based on this optimal model, the research wi 11 propose recommendations to change ODA management model in Vietnam.

Contribution of the thesis:

Contributions o f the thesis: Systematizing ODA attraction, management and utilization model in Vietnam; reviexving widely intemational experiences

in ODA attraction, management and utilization; proposing a comparison o f ODA management eíTectiveness using GDP grovvth pertormance; proposing recommendations for change in order to improve ODA attraction, management and utilization, in parallel with the governm ent's orientation

Key words: Vietnam, ODA, management, concessional loans,effectiveness, recommendations for change

A cknowledgem ents

A bstract

Table o f contents

A bhreviations

Tables and íìgures

Chapter I: Theoretical basics on the subject

1.1 Overvievv on the th e s is

1.1.1 Necessity to study the s u b je c t

1.1.2 Research question

1.1.3 Research m e th o d

1.2 Overvievv o f ODA and concessional lo a n s

1.2.1 Deíìnition o f ODA and concessional ioans

1.2.2 Forms o f O D A

1.2.3 Characteristics o f O D A

1.3 Attraction, management and utilization o f O D A

1.3.1 Obịectives and req u irem cn ts

1.3.2 Management o t '( ) í ) A

Chapter II: International experiences in ODA management

2.1 Philippines

2.2 M alaysia

2.3 C h in a

2.4 Experiences from other countries

2.5 Lessons for V ietnam

Chapter III: Current status o f ODA management in Vietnam 3.1 Overvievv o f ODA management in V ietnam

3.1.1 Process o f ODA managem ent in V ie tn a m

3.1.2 R e s u lto fO D A m a n a g e m e n t

3.2 State o f ODA management at p re s e n t

3.2.1 Procedures o fO D A m a n ag em en t

1

2 .5

7

8

9

9

9

10

1 1 12

12

13 13 14 14 15 18 18

20

11

23 25 26 26 26 27 28 28

3.2.2 Achievements on ODA m anagem ent 30

3.2.3 Shortcomings and existing limitations 30

3.2.4 Changes in co-operation and development relationship 34

Chapter IV: Comparison o f aid effectiveness 36

4.1 Comparison method 36

4.2 GDP growth stages to industrialization 37

4.3 Comparison o f GDP grovvth at the tìrst development period 38

4.4 Comparison o f GDP groxvth at the next deveỉopment period 39

Chapter V: Recommendations for change in V ietnam 42

5.1 Vietnam’s orientation in ODA m anagem ent 42

5.1.1 Orientations for íund-based u s e 42

5.1.2 Orientations for donor-based u s e 42

5.1.3 Orientations for ODA use in priority a re a s 43

5.1.4 Solutions to improve etììciency o f ODA management 43

5.2 Recommendations for changes 45

5.2.1 Changes in ODA management o rie n ta tio n 45

5.2.2 Changes in creating project docum ents 45

5.2.3 Changes in administrative p ro c e d u re s 46

5.2.4 Changes in implementing pro jects 46

5.2.5 Changes in monitoring and evaluating p ro je c t 47

Conclussions 48

Reterences 49

Abbreviation s

ADB Asia D evelopm ent Bank

CG Consultative Group on donors for Vietnam ConterenceFDI Foreign Direct Investment

GDP Gross Domestic Product

M&E Monitoring and Evaluation

ODA Offícial Development Assistance

VDPF Vietnam D evelopm ent Partnership Forum

WTO World Trade Organization

Tables and íigures

Tables

Table 1: O D A loans and grants to the Philippines on yearly hasis 19

Table 2: Poreign debt o f M alaysia as a share o f G D P 20

Figures Figure 1: O D A com m itm ent, conclusion and disbursement, 1993 — 2 0 1 2 27

Pigure 2: Process o f m anagem ent and use o f O D A in Vietnam 29

Figure 3: Stages to Industrialization 38

Figure 4: G D P per capita in 25 lìrst years o f development period 39

Pigure 5: C3DP per capita in next 25 years o f development period 40

Chapter I: Theoretical hasics on thc subject

1.1 O vcrview on the thesis

1.1.1 Necessity to study the subject

Since the start o f Doi Moi (Renovation) process in 1986, Vietnam has experienced rapid socio-economic development The country is no longer

am ong the underdeveloped countries o f the world and has moved onto the ranks o f middle-income countries Recent economic growth has continuously enhanced better living standards and quality o f life for Vietnamese people along with political and diplomatic relations, intemational trade and investment In this remarkable transition, Official Development Assistance (O DA ) Capital and other preíerential loans from donors have played a very

signiíìcant role

From 1993 through 2013, Vietnam has received pledges o f more than us$

78 billion o f ODA Capital and other preferential loans from international

d onors1 These toreign funds to Vietnam have become and continue to be as one o f the most vital resources in order to prom ote the socio-economic development and welfare o f Vietnam, especially in the field o f poverty reduction, agriculture and rural development, po\ver energy, infrastructure improvement

Over the twenty years, there has been a rapid evolution and diversiíìcation

o f ODA modalities Furlhermore, Vietnam now a middle income country2, hence, it is natural that partnerships and íìnancing sources are changing As the international practice, a developing country reaching the middle income level is not tìirther provided vvith high concessional ODA Furthermore, besides achieved results, ODA íunding mobilization, managem ent and utilization still witnessed some constraints and drawbacks such as: shortage o f harmonization and consistency betvveen ODA and domestic investment plans; un-qualified project doeum ent without specific targets; unclear project management procedures and instructions; delays o f compensation and resettlement and lack

o f counterpart funds; poor monitoring and evaluation methods

1 Sources from The W orld Bank.

2 GDP per capita of Vietnam in 2011 was 1.260 us$.

It’s time for Vietnam to take active approaches, initiatives and make maximum use o f all tìnaneing resources available.

This paper wi 11 provide a thorough overvievv on mobilization and usage o f ODA Capital and other preíerential loans in Vietnam by (i) analyzing the outstanding impacts o f ODA implementation; (ii) identiíying existing issues and situations; (iii) proposing a range o f concrete solutions to the effectiveness

o f ODA utilization

1.1.2 Research questỉon

From the above discussion, it can be seen that the research objectives vvill

be encapsulated into two core research problems as follows:

a What achievements have been accomplished and experiences have been Iearnt in Vietnam utilizing and managiniỉ ODA in the past t\venty years?

b What are intemational practices and recommendations for changes in Vietnam to attracting, utilizing and managing ODA Capital and other concessional loans from intemational donors most efficiently?

Then, the research question o f this thesis is fonnalized as follows:

“Strategy to use Official Development Assistance (ODA) in ncar future in Vietnam”.

In order to respond to above research question, this paper vvill concentrate 1'urther on following issues:

- Reviewing current institutional and legal environment vvhich the Vietnamese Government alvvays attaches importance to and makes every effort

to effectively use the official development assistance;

- Studying and applying best practices from international experience and expertise on ODA utilization in the achievement o f social and economic results;

- Evaluating the effectiveness o f using ODA in Vietnam at macro and micro levels;

- Improving policies, mechanisms and modals for the m anagem ent and execution o f ODA projects in Vietnam;

- Analyzing actual strategy to use ODA in Vietnam and developing recommendations to improve ODA management in Vietnam in the Corning years.

- Correlation/Regression Analysis: this method will analyze and evaluate the content o f published studies, researches and the delivery o f ODA prọịects

so as to implement the theoretical framework o f this research Purthermore, correlation analysis wi 11 incorporate the social and economic achievements o f Vietnam through the utilization o f ODA resources, and identify problems in the

O DA management at the macro- and micro-levels in Vietnam From this, the research tenđs to deploy mechanisms, guiding prineiples and recommendations aiming to improve utilization elììciency and prevent negative in ODA prọịects and preíerential loans from donors

- Comparison method: Based on above data analysis, the report tends to place the Vietnamese govemment's mobilization and use o f ODA Capital and foreign preíerential loans in line with other international realities and practices Successtul international practices will be explored to reílect the fact tliat contribution o f ODA to GDP growth tends to increase gradually over the years and generally Hence, this method also links the ịoint impact betvveen effectiveness o f ODA utilization to GDP grovvth By a good compare and contrast, these practice guidelines can enhance the government in their ongoing efforts to strengthen the capacity o f local systems and improve aid management

in the short and medium term This is the core method used in this thesis

- Mind-map method: is used to classiíy information in the thesis This method is one o f the most important methods used in the thesis which allows clariíying ideas and \villing to clearly structuralize iníbrmation and recommendations in the thesis

1.2 Overview o f ODA and concessional loans

1.2.1 Defmition o f ODA and concessional loans

OíTicial Development Assistance (ODA) is a \vide range o f development

Corporation activities betvveen Vietnam and íbreign governments, and international organizations (belovv collectively reíerred to as donors) ODA is provided under the forms o f non-refunđable ODA (or grants) and ODA loans under concessionary conditions on interest rates, grace periods and repayment durations

According to World Bank Policy Research W orking Paper [WB1999] published in June 1999, ODA is deíìned a part o f offìcial development

/ìnance, o f which, eỉement o f granted aids and concessional loans must account for 25 percent o f the total a id ”.

Hovvever, the current aid development status in Vietnam indicates that many o f them have in fact not yet satisíìed all mentioned-above conditions Hence, in addition to the adoption o f formal ODA definition, Vietnam

G overnm ent also uses another concept specitìed as “concessional loans”, which are given under more concessional conditions on interest rates, grace periods, and repayment durations, and these have basically not yet reached the standards

o f ODA loan but are more generous than market loans Such conditions set out

hy different donors shall differ from each other For example at present Wor!d Bank offers Vietnam with loans on such concessional terms as 25 year repayment duration, including a tìve year grace period, and a total o f interest rate, and commitment and managemcnt cost, at most, o f 2.5% per year

As defined in Article 1 o fD e c re e No 38/2013/ND-CP o f the Government issued on 23 April, 2013 on Management and Use o f Offícial Development Assistance and concessional loans froin Donors [CP2013Ị, ODA and concessional loans are grants and non-reíundable aids provided by Foreign governinents, intemational organizations, inter-state or inter-govemmental organizations to State or Government o f the Socialist Republic o f Vietnam

In short, ODA and concessional loans (hereby reterred to as ODA) can be perceived, in the most general sense, as more concessional loans in comparison with commercial loans or non-refundable aids (grants) provided by donors to Vietnam

1.2.2 Forms ()f ODA

- Categories by donors: Bilateral assistance’ (given directly from toreign govem m ents) and multilateral assistance (provided by intemational financial institutions, Funds, international and inter-governmental organizations)

- Categories by ODA provision íbrms: Non-refundable (not refundable to the donor), ODA loans (concessional conditions on interest rates, grace periods and repayment durations vvith the non-refundable element) and Concessional loans (more concessional conditions in comparison vvith commercial loan

- Categories by provision modes: Direct budget (directly transíerred to the State budget), Program support, Project support, Non-project aid

1.2.3 Charactcristics o f ODA

- Concessionality: Long maturities (from 10 to 40 years) and long grace periods (from 3 to 10 years); More preferential interest rates than commercial credits or no interest rate; Comprising o f non-refundable element; Provided to only developing and least developed countries with promotion o f đevelopment

as the main objective

- Binding feature: ODA should be followed by certain requirements for expenditures and receipt conditions or politico - economic conditions

- Approach to foreign investment: ODA is oỉten used for improving the inírastructure and socio-economic grovvth such as traffic infrastructure construction, energy developm ent and so on, in a vvay that helps create a tầvorable environment for toreign direct investment (FDI)

- ODA possibly results in accumulating debt: un-effective use o f ODA should accumulate íòreign debt

3 Bilateral assistance íorm 30 íoreign countries: Ireland, The UK, Austria, Poland, Belgium, Canada, Kuwait, Denmark, Germany, Spain, Netherlands, South Korea, Hungary, Italy, Luxembourg, Malaysia, USA, Norway, Japan, New-Zealand/ Austraỉia# Finland, France, Czech Republic, Thailand, Sweden, Switzerland, China, Singapore, India.

4 Multilateral assistance for 31 international organizations: The World Bank Group (WB), International Monetary Fund (IMF), Asian Development Bank (ADB), The Kuwait Fund, OPEC Fund for International Deveỉopment (OFID), The Arab Investment Fund, The Nordic Development Fund (NDF), The Nordic Investment Bank (NIB), European Union (EU), International Labor Organization (ILO), World Health Organization (W H O ), The International Organization for Migration (IOM), The International Fund of Agricultural Development (IFAD), The Global Environment Fund (GEF), The Global Fund to Fight AIDS, Tuberculosis and Malaria, International Trade Centre (ITC), The 15 Organizations of The United Nations (UN).

1.3 Attraction, managcment and utilization o f ODA

1.3.1 Objcctives and requirements

Under the context where Vietnam has become a low middle income country, strong retbrms o f public administration practices should be considered

an urgent necessity in order to avoid falling into the so called “middle incoine trap” where many nations had caught in the past In response to the signiíĩcant growth rate and deeper international integration, public administration no\v requires íundamental changes towards more tlexible and competitive practices

in orientation o f íầst and continuous changing circumstances, driven by market and integration demands, and more mutual dependent environment With this in mind, it requires to shift the traditional public administration structures accompanying with complex and cumbersome procedures into a highly ílexible system [NL2012]

Accordingly, following driving factors are detìned as íundamentals to vvhich a new public administration system should be built on [AD1999]:

- Define responsibilities and accountability in the State sector clearly

- Set out standards and dimensions to measure result-based períòrmance and outputs

- Stress more on results-based management

- DiíTerentiate functions and tasks betw een m ulti-sector o f the State sector

- Promote competitiveness in the State sector

- Highlight management practices in the private sector

- Focus on disciplinary and dctail oriented management o f human resources

Moreover, the adoption ot' such fundamentals in attraction, management and utilization o f ODA (hereby reíerred to as “management o f O DA ” ) for optimal result needs achieving tvvo following objectives:

(i) Ensure effective management o f national toreign debt as vvell as public expenditures;

(ii) Ensure the effectiveness and etììciency o f management and implementation o f project in line with applicable socio-economic plans and strategies

Besides, monitoring and evaluation (M & F) o f ODA prọịects have to follow high standards methodology o f international practice M&E tools, methods and approaches usually practiced include [WB0402]:

- A comprehensible pertbrmance indicators: measurable inputs, processes, outputs, outcomes, and impacts for development projects, programs, or strategies

- A logical tramevvork approach: clcar objectives o f any project, program,

- Participatory methods: active involvement in decision-making for those with a stake in a project, program, or strategy and sense o f ownership in the

M & tì results and recommendations

- Public expenditure tracking surveys

- Cost-benefit and cost-effectiveness analysis: clarify if the costs o f an activity can be justifìed by the outcomes and impacts

f Build up strategies to mobilize, manage and use ODA

+ Develop a regulatory framework

+ Guarantee the quality o f preparation, formation and implementation o f proịects

+ Ensure the efficiencies o f prọịect monitoring and evaluation

1.3.2.1 Build up strategies to mobilize, manage and use ODA

This is the most important part to the management and use o f ODA and concessional loans In the process vvhere the current íìnancial sources to Vietnam in the form o f ODA has remained strong over recent years (ODA accounts for 4 - 5% o f the country’s GDP each year), designing proper strategies to mobilize, manage and use ODA and concessional loans is seen as a critical issue

The strategy for mobilizing, managiníỉ and using ODA and concessional loans should ensure the tvvo important goals: eíTective support to national socio-economic development; and repayment ability o f the Government to avoid increasingly debt burden for Vietnam

1.3.2.2 Develop a regulatory framework

Studies o f World Bank pointed out that a good regulatory environment and well-reformed policies play the key roles in promoting the effectiveness o f ODA and concessional loans To maximize the effectiveness and effíciency o f management and use o f ODA and concessional loans, a part from designing a proper mobilization strategy in line with the targets íor a certain socio- economic development period, it is necessary to develop a comprehensive, clear, transparent and consistent regulatory framework and policies in conformity \vith the international practices

In addition to that, under the remarkable progress o f public administration reforms, it is crucial to simplify and harmonize the administrative procedures

so as to minimize the time consumption for preparation, project approval, and negotiation, commitment o f loans and tunds vvith donors

1.3.2.3 Guarantee the quality o f preparation, tormation and

implementation o f projects

In response to the strategies for mobilization, management and use o f ODA and concessional loans, relevant agencies shall prepare, design and implement projects under the conditions and terms required by the donors as well as in line with the development orientation o f relevant sectors and íìelds

To do this smoothly, the Government has to set up a comprehensive cooperation mechanism betvveen relevant agencies at all level from fund raising, íòrmation, and approval o f new projects to implementation

D isbursement o f O D A and concessional loans is also an important step o f the prọịect implem entation process As reported hy ADB, it is estimated that the extra cost items occurring in the case vvhere a project is delayed for one year, including direct and indirect costs, and opportunity cost present

ro u g h ly l8 % o f the total project budget that is needed to carry out the project activities [AD2014Ị As a matter o f íầct, the most common problem to be addressed concerning the m anagem ent and use o f ODA and concessional loans

is delays o f im plem entation and fund disbursement Often, projects funđed by

O D A and concessional loans are delayed for one to two years on the planned implementation or some may be for five to six years leading to sharp decrease

in investment effectiveness

For these, speeding up the implem entation and disbursement o f ODA funds and concessional loans should be seriously taken into account, among many hurdles, special attention should be paid to decisive factors such as making domestic contribution Capital properly, ensuring clearance on schedule, reforming administrative procedures harm onized with donors’ practices and the

G o v e rn m e n t^ regulations and so on

i 3.2.4 Ensure the eíTiciency o f project monitoring and evaluation

Under the trend o f comprehensive public administration retorm tovvard a modernized and results-based public administration system in every aspect and

at all level o f the econom y, the process o f ODA and concessional loan managem ent and use is undoubtedly not out o f this trend The core principles for eiTective results-based public administration are identified: results-based monitoring and evaluation o f every step including preparation, íbrmation and implementation o f a project

At conception and design step, it requires to clearly stating the background and rationale upon w hich the prọịect is based, fígure out problems to be addressed and prioritize areas in which funds should be invest

More importantly, the vvhole project cycle should be tracked by relevant agencies based on a monitoring and evaluation plan vvhere measurable indicators are íbrmulated and selected

ĐAI HỌC QUỐC GIA HÀ NỘi TRUNG TẦM THỎNS TIN THƯ V!

C hapter II: International experienccs in OI)A managcmcnt

2.1 Philippines

The OíTicial Development Assistance to Phi 1 ippines commenced in the 1950s, mostly from Japan and USA, together, they accounted for more than 80 percent o f the total national development assistance flows from bilateral sources during the period 1950 - 1990 In the 2000s, hovvever, U.S ODA to the Philippines has been changing vvith the focus more on the form o f technical support whilst Japan has remained the largest donor, presenting for 45 percent share o f the countrv’s total development assistance flows, followed by the World Bank and Asian Development Bank, each institution accounts for some

13 - 14% [HK2010]

i3espite massive inílovvs o f aid to Philippines, this country has experienced the typical íầilure in the use and management o f loans, including toreign aids Dramatic increase in new loans and other inflows o f Capital such

as ODA and concessional loans has resulted in arising in-datedness burden for the Philippines Beirm knovvn as a country bearing a few o f debts duringl950s, the Phi 1 ippines began the 1970s with huge arrears in external debt and consequently suffered from the severe debt crisis in 1985 [HD2006] Increasing loans and inetTiciencies in investment and tìnancial system operation are major contributors to the debt crisis in the Philippines

Not until 1996, ditl the Philippines Conuress pass the Official Development Assistance Act after a long time lack o f a clear and transparent mechanism in management and use ot' ODA and concessional loans contributing to the debt crisis in 1985, with the attempt to create an enabling environment and regulatory framework tor management and use o f ODA and concessional loans in accordance with dcvelopment objectives o f the Phi 1 ippines As inandated in the ODA Act, the National Economic and Development Authority (NEDA) takes the lead role as govem m ent agency in ODA-funded project coordination and management; the Department o f Finance

is chieíly responsible íor the conduct o f loan negotiations and management, and the Department o f Budget and Management shall secure the budget balance and repayment ability [JF2001]

ODA is used for a vvide range o f purposes such as reform o f sectors (heath, education, regulatory framework, and court), development programs

(poverty reduction, HIV/AIDS prevention and public administration) and specitìc-purpose projects Also ODA is seen as a Capital source to fi 11 the gap

o f State budget and coinpensate the budget deficits regarding social services Aid tlows to the Philippines had been generally declining over a long period, but recent years donors have continucd their provision o f ODA and concessional loans to the Philippines, the on-going ODA to this country remains substantial and is equivalent to 1.5 to 2% o f GDP, the value ot' loans per year in the period 2003 - 2008 is shovvn in belovv table [HK2010]:

rable 1: ODA loans and grants to the Philippines on yearly basis

ưnit: million u s doìlar; Source: MEDA, Phiỉippines

Despite o f significant amounts o f ODA coming back to the Philippines over the recent years, management and use o f such íoreign aids remain many challenges for the Government o f this country to cope with, especially in terms

o f four following pillars [HK2010]:

- Macro-economic management issues resulted from huge íoreign loans are seen as major barriers to the PhiIippines, in particular, this country has to spend a share up to 8 - 10% o f its GDP in services dcrived from íoreign loans

- Policy issues such as a bunch o f relevant agencies involved in mobilization, management and use o f ODA leading cumbersome administrative procedures and management cost In addition to that, liigh corruption also remains a serious obstacle that the Philippines has been coping with

- Syndrome “ Divided hy N” : when the government runs a budget deílcit at high level, one o f its consequences is higher investment costs due to many reasons, o f which political íầctor is the most notable Politicians tend to invest

in sectors and localities where political benelìts are often produced instead o f where the investment should be made

- Management and technical shortcomings olten refer to poor performance and lack o f technical knowledge from investors

Based on the practices and experience from the Philippines, some lessons can he learnt from as below:

- There is a strong need to tìgure out a proper strategy for íbreign debt management

- M anagement and use o f ODA loans and grants should be carried out under a simple, consistent and transparent mechanism.

- Ít is important to promote the alignment o f long-term investment plan with the socio-economic development plan as a vvhole; to minimize political intervention, and persistently to tìght against corruption

- Ít is necessary to build capacity and develop Science and technology

2.2 Malaysia

Malaysia is a country that has experienced very íầst economic grovvth over the past 30 years Its income per capita grevv up from USD 5,000 in 2005 to USD 6,700 in 2009 and it is expected to reach at USD 15,000 in 2020 In terms

o f íbreign loans, in particular in ODA inflows, an explicit and stringent foreign debt government strategy is a prerequisite for success and eíTectiveness o f

O DA use in this country As an outcome o f Prudential regulations, íbreign borro\ving o f Malaysia is alvvays at a relatively healthy share The belovv table shows share the results

Table 2: Foreign debt o f Malaysia as a share o f GDP

Percent per GDP 46,9 36,9

Sonrce: Malaysian Ministry ofFỉnance

The Malaysian government issued a La\v to provide regulations on foreign

an d d o m e s ti c b o r r o w i n g and Capital Controls Under this Lavv, the Mala ysi an

government is entitled to get domestic and íòreign borrowings The Malaysian Congress imposes clear legal restrictions on foreign borrowings that limit the exposure ot' Malaysian government to massive íbreign debt To do this, its íoreign debt strategy is set out in respect to the two ultimate purposes: balancing the demand íor and amount o f grants and loans; and guaranteeing the repayment ability Foreign debt control is the mandate o f foreign inílovvs management Committee which also plays the role o f leading the coordination

o f Govemmental agencies [HD2006]

Also Malaysia adopts ílexible loans policies and measures to ease the in- debtless burden as well as to cope vvith risk o f debt crisis As a result, the Malaysian economy remains healthy and tends to be less vulnerable to shocks and crises Being a country undergoing the ílnancial crisis in Asia during

1990s, Malaysia did not turn to the IMP for loans and responded to the crisis on its own, and its economy could recover remarkably three years later.

In terms o f ODA management, the Malaysian government manages the aid under centralized and selective method in vvhich the Economic Planning Office is the only unit responsible for planning, approving and making decision

on budget distribution for development goals ODA Capital is largely limited to the areas o f hunger elimỉnation and poverty reduction, and capacity building [ V 12006]

In its đevelopment process, the Malaysian government had mobilized aid actively throughout the years o f 1970 - 2000, and the total ODA inf!ows presented for 17% o f the country’s budget for investment and development With an eíTective ODA utilization and proper foreign debt control mechanism, Malaysia experienced strong contribution o f ODA aid to its most drastic developm ent period, and thus Malaysia has moved from an ODA receipt country to a development partner, in particular, transferring experience, technology advance and knowledge ỊMA2008]

The Malaysian government creates the most íầvorable enabling environment whcre prọịect management unit can implement their prọịect on schedule and adopt a clear and tầst approval process in order to promote the progress and reduce transaction costs Additionally, the government also applies modern technologies in tìnancial monitoring and management to enhance the transparency and minimize corruption More importantly, strong decentralization also enables local-level agencies to be more ílexible in addressing project bottlenecks [NT2013]

Keeping in mind the importance o f effective monitoring instruments, the Malaysian governm ent pays great attention to monitoring and evaluating evcry step in the \vhole cycle o f ODA tìnanced projects The evaluation is primarily based on the joint coordination between donors and the Government, o f which the key teature is to harmonize the evaluation procedures o f the two parties with the stress on making the govem m ent’s evaluation system exactly fít with the intemational standards o f evaluation set out by the donors Evaluation indicators mainly focus on the effectiveness and effíciency o f the prọịect with respect to the overall national strategies and policies, as vvell as expected speciílc objectives

In sum, \ve can learn some following lessons from thc good practices o f

M alaysia in ODA mobilization and use:

- The architecture and mechanism for foreign aid and debt management should be prudent, consistent and centralized

- The selection, approval and nionitoring should be thoroughly carried out and in consistence vvith the common development goals

It is crucial to make use o f experience o f donors in design, íòrmation, implementation, monitoring and evaluation o f projects

- The government has to ensure proper, sulTicient and timely provision

o f required resources and Capital contribution

2.3 China

Different from Malaysia, intemational debts o f China are strictly managed To keep control is an essential component o f Chinese policy, its governm ent does not encourage increasing íoreign loans, including ODA to invest in its development, and it takes more íocus on domestic resource mobilization from FD1 and bond issuance instead As a result the ODA inflows

to C hina seem to be very modest, for instance in 2003, the total amount o f ODA grants and loans just reached at USD 1.3 billion, vvhich was translated to only 0.1 percent o f this country’s GDP [HM2005] One hand, the Chinese governm ent still speaks out their acknovvledgement o f the positive impacts o f ODA on its retbrms and development, in reality China agrees to receive ODA grants and loans in order to pursue its ultimate underlying purpose o f strengthening the bilateral relation \vith international donors rather than to support the socio-economic development

C hina therefore gives prominence to the importance o f management and use o f O D A aids From 2000 it has been made clear that the basic structure for receiving and managing aid is consistent, and Ministry o f Finance and State Development and Reform Commission act as leading bodies The Ministry o f Finance is responsible for raising all loan aid and also supervising the use o f aids and the Commission has a function o f controlling the total amount o f annual investment including tbreign funds, and identiiication o f areas where should be given the priority for investment These bodies will be entitled to approve all the domestic investment projects prior to the implementation Other Ministries, Central and local agencies will be responsible for implementing such

projects in coordination with the Ministry o f Finance to kecp monitoring every stage o f the project cycle IV12006].

Receiving and repaying O D A loans in China are undertaken in contbrmity with the consistent rule vvhere the aid beneíiciary or end-user will have the obligation o f m aking repayment For this rule, it requires the beneíìciary to design proíitable projects and to demonstrate their repayment ability

From the experience in O D A m anagem ent in China, we can conclude some lessons learnt as below:

- Set a clear and good partnership strategy with donors, and vvell- prepared and dem and-driven action plans

- Have a consistent cooperation mechanism, and coherent monitoring and evaluation plan

- Build a clear and consistent repayment rule that underlines the repayment obligation o f the project owner

2.4 Experiences from other countries

In Africa, W orld Bank has been the largest ODA donor o f many countries such as Zambia, Congo, and Tamania since 1960s In the period ot' 1960 -

1990, World Bank had provided several billions u s dollar to support their socio-econoinic developm ent and it was thought that these aids seemcd to contribute to the econom ic growth and improvement o f living standards In íầct how ever concrete im provem ents and measurable eíTectiveness o f such aids have not been ílgured out There has been existence o f poor-invested proịects that have resulted in poor social vvorks \vithout sustainable maintenance [XD2006]

In Indonesia, this country had consistently mobilized and used ODA grants and loans for several years but had not achieved any remarkable effectiveness To improve this, the Indonesian government made changes in the process o f mobilization, m anagem ent and use o f ODA grants and loans [NT2013]:

+ Tighten the regulations on developing proposals and investment items which the ODA and concessional loans should be used for

+ Have extem al consultants involved in the process o f preparing project documents, negotiation and aid use together with the Government

+ Adopt the rule in vvhich next loans will be undertaken once the on-going projects end; the schedule is ensured and safe and elTectiveness are taken into consideration.

-I- Kocus on the role o f Ministry o f Justice in legal consultation to avoid any overlapping cooperation actions

In Thailand, the governm ent also commenced to receive ODA in I960s but the amount was relatively low, som e dollars per head yearly From the mid- 1970s through the 2000s, Thailand increased the ODA amount (to USD 5 per head yearly) and now it is em erging as a donor for other countries In short, Thailand used O D A for 40 years and the highest reached USD 15 per head each year Still, in Thailand, aid was an important source o f iinancing development expenditures; the fígures in 1960 indicated this importance GDP o f Thailand was a half o f Philippines but in the ]980s, the GDP o f two countries were relatively equal, and in 2000 G D P o f Thailand \vas double that o f Philippines

In Poland, O D A and concessional loans have been mainly used in human resources investment and institutional capacity building Management and use

o f ODA in Poland is rather strict and complicated The role o f donor is predominantly given the priority and thus they can require the government to

m ake changes in laws and institutional structures for more effectiveness o f ODA In addition to that, Poland also pays great coneern to auditing and accounting, especially the great focus is given to external auditing o f managerial systems for anti-corruption The Polish government suggests that continuous auditing and inonitoring will Help track the proịect properly and prom ote the implem entation progress

Finally in Korea, the governm ent received ODA since the 1960s In the tìrst ten years the O D A to this country was at USD 10 per head each year but this grew down in fo!lowing years and stopped ODA aids in the 1980s Since

1993, the Korean governm ent has become the ODA donor In sum, the ODA to Korea tor the duration o f 20 years vvas used for development goals [TT2014]

As a matter o f fact so íầr, Korea has seen one o f the countries with the miraculous economic grovvth and social development, including extremely eíTective use o f O DA grants and loans