TÀI CHÍNH QUỐC TẾ

Question 1 (4 points): What is foreign loan? In terms of loan nature, how many types of foreign loan are there? Analyse of advantages and disadvantages of foreign loan? Question 2 (6 points): From your perspective, what are strong and weak points of ODA management in Vietnam? By researching important information and comparing when necessary, analyse some important characteristics of ODA in a specific socialeconomic field of Vietnam. In your opinion, what can be done to improve the quality of ODA management in that economic field?

Khóa/Lớp:(Tín chỉ): CQ56.11.CL2_LT1

(Niên chế): CQ56.11.03.CLC

Ngày thi: 02/10/2021

Ca thi: 8h50

BÀI THI MÔN: TÀI CHÍNH QUỐC TẾ

Hình thức thi: Tiểu luận

Mã đề thi: Test 1 Thời gian thi: 3 ngày

CHỦ ĐỀ:

Question 1 (4 points): What is foreign loan? In terms of loan nature, how many

types of foreign loan are there? Analyse of advantages and disadvantages of foreign loan?

Question 2 (6 points): From your perspective, what are strong and weak points of

ODA management in Vietnam? By researching important information and comparing when necessary, analyse some important characteristics of ODA in a specific social-economic field of Vietnam In your opinion, what can be done to improve the quality of ODA management in that economic field?

BÀI LÀM

Question 1:

• Concept of foreign loan:

Foreign loan refers to a short, medium or long-term loan offered to a government

or an enterprise with legal status (including foreign invested enterprises), or organizations of a foreign government, territory, organization, individual or an international financial organization

• Nature of loan classification:

- Foreign commercial loan: refers to a loan under market conditions which are similar

to conditions of export credit loan or mobilization on the international capital market

- Foreign concessional loan: refers to a foreign loan, in which concessionality is achieved by interest rates, maturities, grace periods, loan guaranties, and other preferences However, to be eligible to receive such soft loans, the debtor must accept some conditions applied by the creditor

• Advantages and disadvantages of foreign loan:

o Advantages:

- To be a critical source of income for a country to ensure the essential spending demand without causing inflation directly

- To facilitate a country to further increase investment funds, strengthen socio-economic development and uphold available potentials in the country

o Disadvantages:

Foreign loan may cause negative impacts as follows:

- The fact that borrowers have to settle interests for foreign creditors which leads to

a reduction in partial national income

- Excessive reliance on foreign loan may impose a debt burden on future generations

- High foreign loan may lead a country to insolvency National insolvency (National bankruptcy) is the failure or refusal of a government to pay back its debt which is calculated in gold or in foreign currencies There will be extremely serious consequences to a nation once it declares insolvency

Question 2:

Ø Definition of ODA (Official Development Assistance)

ODA is flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed 10 percent rate of discount) By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing country (“bilateral ODA”) and to multilateral institutions ODA receipts comprise disbursements by bilateral donors and multilateral institutions, (OECD, Glossary of Statistical Terms)

1 Strong and weak points of ODA management in Vietnam

Ø Strong points:

- Help absorb modern science and technology and develop human resources

• Through ODA projects, Vietnam can improve its science and technology level and human resources level with the activities of donors

• Strengthen opportunities and diversify investment methods, improve the quality of human resources and income of the majority of people

• Through this process of participating in indirect investment, domestic investors and people will have the opportunity to "rub", train and foster knowledge, experience and skills, helping to improve their personal level in particular, the quality of human resources in general

- Promoting growth, improving life, contributing to poverty alleviation

• By its loans or non-refundable investments, the investment countries have contributed to the supplementation of our state budget Creating conditions for investment in economic and social development

• This capital has played an important role in the strategy of growth, poverty reduction, economic restructuring, institutional reform, promoting the socio-economic development of our country ODA has contributed to the success of a number of national programs with far-reaching significance such as population and development programs, expanded immunization, child nutrition…

- Contributing to the adjustment of economic structure

• ODA projects that donors invest in Vietnam mainly in the fields of infrastructure, technical economy, human resource development It creates a balance between industries throughout the country

- Expanding development investment and attracting FDI direct investment

• In order to attract investment from developed countries, it is certain that our country must consider aspects such as its infrastructure The problem is that when foreign investors decide to invest in a country, the first thing they care about is profit The State should develope infrastructure, transportation systems or means of communication…

• When foreign indirect investment capital increases, there will be positive consequences of increasing the chain to the flow of direct investment capital in the country

- Establishing and improving international relations

• Currently, our country receives ODA from many different countries in the world, the investment of these countries has helped the diplomatic relations of our country and the investment country become more intimate and cohesive Since then, expanding international relations

- ODA is an important additional source of capital for investment and

development

• In the cause of industrialization and modernization of the developing country of developing countries in general and Vietnam in particular, it is necessary to require

a huge amount of investment capital, which if only domestic capital mobilization is not enough, so receiving ODA support is extremely necessary

Ø Weak points:

- Increasing the gap between rich and poor, creating the dependence of

borrowers on lenders and especially ODA has exacerbated our country's balance of payments

- ODA has increased the national debt:

• ODA is constantly increasing to improve the economic and social situation but also contributes to increasing the national debt source

- ODA increases inflation:

• Debt ⇒ new debt ⇒ debt increase ⇒ increase in borrowing This spiral will lead debtors to default or inflation spiral: Debt ⇒ increase debt obligations ⇒ budget deficit ⇒ increase inflation At this time, debt will consume all budget expenditures for social development and stability, straining the state of capital thirst, social chaos

• Moreover, the "tighten one’s belt" to pay debts leads to restrictions on imports and increases in exports, including consumer goods that are lacking in domestic

⇒Imbalance of money, price increases, increases inflation

- Economically negative impact:

• ODA recipients must accept the removal of goods protecting fledgling industries and import and export tax tables of the donor countries' goods ODA recipients are also required to gradually open up the protection market for new goods of the donor country

• In addition, the countries receiving ODA also become waste dumps for donor countries such as outdated technology machinery and equipment,

• ODA recipients have the right to use ODA, but usually ODA project portfolios must also have the consent of the aiding countries, although they do not directly run the project, but they can participate indirectly in the form of contractors or support experts

• The impact of the exchange rate can also cause the amount of ODA to be repaid increased

• Loss and waste in the use of ODA in unreasonable fields, management level and incompegence in handling and operating projects will cause loss of ODA, leading to ODA receiving countries may be in debt

2 Analyse important characteristics of ODA in Energy sector of Vietnam

Since Innovation in 1986, Vietnam's economy has grown dramatically from one

of the underdeveloped countries to a low-middle-income country in 2009, with the corresponding gross domestic product per capita rising from 130 USD/person to 1,100 USD/person

During this period, the majority of ODA was spent on infrastructure development

to restructure the economy through the application of modern production methods Specifically, From 2010 to 2017, the proportion of ODA for the group Economic Infrastructure accounts for the highest proportion with a value of nearly 15.77 billion USD (accounting for 47.6% total ODA capital of the whole period), included sectors: Transportation, Communication, Energy, Banking service and finance, Business services and other services

Chart 1: ODA Disbursement in the field of Economic Infrastructure in Vietnam

in period 2010 - 2017 (millions dollars)

Energy is an important sector that plays an important role in promoting economic development Therefore, this is also an area that receives a lot of ODA in the Economic Infrastructure group (only after the field of transport)

In the period from 2010 to 2017, the total amount of ODA disbursed to the energy sector was 4676 million USD, accounting for 29.65% of the total ODA invested in Vietnam's infrastructure In particular, ODA for coal-fired power plant construction projects is the largest with more than 1.6 billion USD (equivalent to 34.31% of ODA value in the energy sector); this was followed by power distribution and transmission projects with nearly 1.43 billion USD (30.58%) Manufacture non-renewable energy and orther source projects with ODA disbursed in the whole period of 2010-2017 were 718 million USD, equivalent to 15.37% One point to note

is that the proportion of ODA for projects related to energy policy and administrative management is relatively high compared to other sectors, reaching 6.33% of the total

ODA for the energy sector, equivalent to 295.95 million USD Projects related to hydropower plants have ODA disbursements for the whole period of 210.81 million USD (4.51%) In addition, ODA for the energy sector has also supported solar, wind, gas distribution, bio-fuel-burning power plants, but the value is still very low

Chart 2: ODA disbursement in the field of Energy in the period of 2010 – 2017

(millions dollars)

ODA for the energy sector comes mainly from Japan (accounting for 52.95%

of total ODA for the whole sector), from the World Bank through IDA (29.26%), from Germany (7.8%), ADB (3.6%) and France (3%) However, due to different funding priorities, the ODA form of these donors also has a very different structure For example, IDA is mainly ODA loans for power distribution and transmission projects, developing energy management policies ODA loans from Japan for distribution and transmission, energy production, non-renewable sources; In

energy production projects and renewable sources; France has ODA for hydropower plant projects

A point to note is the coal-fired power plant projects, power distribution and transmission ; non-renewable energy and other source projects have more than 98%

of ODA loans are used Meanwhile, projects related to energy conservation, education and training, research in the fields of energy, wind power, natural gas power plants, nuclear power plants using 100% ODA aid Solar-related projects have

an ODA aid rate of 25% In the future, Vietnam needs to note this point to have a more reasonable ODA strategy to ensure long-term energy supply without affecting the environment and reducing greenhouse gas emissions

Some projects with large capital disbursement in the period of 2010 - 2017 are the construction project of Thai Binh Thermal Power Plant and power transmission lines with a total investment of about 26,584 billion VND Japan has supported the first ODA loan package of 20.737 billion Yen (loan agreement signed

in November 2009), a second loan package worth 36.392 billion Yen (loan agreement signed in January 2015), a third loan package worth 9.873 billion Yen (loan agreement signed in July 2015) and a fourth loan package worth 54,982 billion Yen After more than 4 years of construction, construction and installation of equipment, both units of the plant have been in commercial operation since April

2018 and February 14, 2019, EVN held the inauguration ceremony of Thai Binh Thermal Power Plant project This is a project that is evaluated to ensure quality and comply well with environmental regulations When put into operation, the plant contributes to strengthening the power supply capacity for socio-economic development in the Red River Delta region, thereby improving the level of safety, stability and economy for the operation of the power system It is expected that the plants will emit to the national grid the power output from 3.6 to 3.9 billion kWh per year

Another significant Japanese project is Nghi Son I Thermal Power Plant This

is a project started in July 2010, with a total investment of nearly 22,260 billion VND, including 85% of ODA loans from the Japanese Government through the Japan International Cooperation Agency (JICA) and 15% of the reciprocal capital of Vietnam Electricity Group (JICA) (JICA) and 15% of the reciprocal capital of Vietnam Electricity Group (JICA) EVN) After more than 3 years of actively implementing the construction and installation of equipment, the plant officially joined the national grid on October 7, 2013 with an annual electricity production output of 3.6 billion KWh With this level of output, the plant ensures the supply of electricity for production activities in Nghi Son Economic area, generally meeting the socio-economic development needs of Thanh Hoa province in particular and the North Central region

In addition, the World Bank (through IDA) also cooperated with EVN to implement the Distribution Effective Project (DEP) in the period of 2013 - 2016 This is the largest total funding grid project of EVN with a total initial investment of about 724.8 million USD, in which ODA is 488.9 million USD and reciprocal capital

is 238.1 million USD Then the project received funding from the International Development Association (IDA) of the World Bank (WB), The Clean Technology Fund (CTF) and the Australian Government's Agency for International Development (AusAid) funded a total investment of approximately 665 million USD This project

is implemented in 5 power corporations: North, Central, South, Hanoi and Ho Chi Minh City to invest to improve the efficiency, supply capacity and reliability of the power distribution system through the upgrading, expansion and modernization of the 110kV distribution power grid system, middle-voltage and meter system

Thanks to the support of ODA, by the end of March 2018, the national power transmission system operated by EVNNPT has a total of 24,365 km of lines