Document of The World Bank Report No: 24621-VN MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION AND THE INTERNATIONAL FINANCE CORPORATION TO THE EXECUTIVE DIRECTORS ONA COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE SOCIALIST REPUBLIC OF VIETNAM September 16, 2002 Vietnam Country Management Unit East Asia and the Pacific Region Currency Equivalents Currency Unit = Dong (D) US$1.00 = D15,260 (July 2, 2002) Fiscal Year January I - December 31 CAS Discussions Full CAS (IDA/R98-135[IFC/R98-199] discussed on September 22, 1998) CAS Progress Report (IDA/R2000-66[IFC/R2000-76] discussed on May 30, 2000) CAS Progress Report (IDA/R2001-0160 discussed on October 25, 2001) ACRONYMS AND ABBREVIATIONS ADB Asian Development Bank ASEAN Association of South East Asian Nations CAE Country Assistance Evaluation CDF Comprehensive Development Framework CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPIA Country Policy and Institutional Assessment CPRGS Comprehensive Poverty Reduction and Growth Strategy EFA Education for All GMS Greater Mekong Sub-region GSO Government Statistics Office HCMC Ho Chi Minh City HIPC Highly-Indebted Poor Country JBIC Japan Bank for International Cooperation JGDGF Joint-Government Donor Gender Framework LNA Legal Needs Assessment NCFAW National Commission for the Advancement of Women MARD Ministry of Agriculture and Rural Development MDGs Millennium Development Goals MOLISA Ministry of Labor, Invalids and Social Affairs MPDF Mekong Project Development Facility MPI Ministry of Planning and Investment MTEF Medium-term Expenditure Framework M&E Monitoring and Evaluation ODA Official Development Assistance OED Operations Evaluation Department PAR Public Administration Reform PER Public Expenditure Review PHRD Policy and Human Resource Development PPA Participatory Poverty Assessment PRGF Poverty Reduction and Growth Facility PRSC Poverty Reduction Support Credit PRSTF Poverty Reduction Strategies Trust Fund QAG Quality Assurance Group SEDS Socio-Economic Development Strategy SOE State Owned Enterprise SME Small and Medium Enterprise SWAp Sector Wide Approach VDIC Vietnam Development Information Center VLSS Vietnam Living Standards Surveys WBI World Bank Institute IDA - Tl(c -_ Vice President: Jemal-ud-din Kassum Ass Ad 3aa Country Director: Andrew Steer Javed ua; Task Team Leader: Nisha Agrawal DceXas K alj VIETNAM: COUNTRY ASSISTANCE STRATEGY TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................i I. SOCIAL, ECONONIC AND POLITICAL CONTEXT ............................ 1 A. Social and Economic Developments . ................................................................ 1 B. Political Developments ................................................................. 4 C. Medium-term Economic Outlook ....................................... ........................... 5 D. External Debt Sustainability ...................... ........................................... 5 II. VIETNAM'S COMPREHENSIVE POVERTY REDUCTION AND GROWTH STRATEGY ................................................................. 6 III. IMPLEMENTATION OF THE LAST CAS .............................................................. 9 A. What Worked Well ................................................................. 9 B. What Worked Less Well ................................................................ 10 C. OED and QAG Reviews ................................................................. 10 D. OEG's IFC Country Impact Review .....................................................1........... 1 IV. WORLD BANK GROUP PROGRAM ................................................................ 12 A. Partnerships and Donor Coordination ................................................................ 12 B. Bank Group Activities ................................................................ 14 C. Thematic Presentation of the Program ................................................................ 17 1. Supporting the Transition Towards a Market-oriented Economy ........... ............. 17 2. Enhancing Equitable, Socially Inclusive and Sustainable Development ......... ..... 20 3. Promoting Good Governance ......................................................................... 25 D. Sectoral Issues in the Program ................................................................ 26 E. Role of IFC and MIGA ................................................................. 26 F. Portfolio Management and Fiduciary Issues .............................................................. 29 G. Core Monitoring and Evaluation .............................. ................................... 31 H. Lending Scenarios and Triggers .............................. ................................... 32 V. MANAGING RISKS ................................................................ 35 TEXT FIGURES Figure 1 Macroeconomic Indicators ........................... ...................................... 2 Figure 2 Vietnam's Policy and Institutional Indicators .................................. ................... 3 TEXT TABLES Table 1 Vietnam Development Goals in the CPRGS .8 Table 2 Core Diagnostic Economic and Sector Work .15 Table 3 IDA Lending Program (FYE03-FY06). 16 Table 4 Bank Portfolio Indicators .30 Table 5 Core CAS Monitoring Benchmarks .32 Table 6 Size of Overall Bank Program and Lending Scenarios .33 Table 7 Triggers for High case Lending .34 TEXT BOXES Box 1 Strengths of the CPRGS and Challenges Facing its Implementation ................. 7 Box 2 Core Labor Standards in Vietnam ................................................................ 20 Box 3 Vietnam's Country Gender Assessment and World Bank Interventions ............ 23 Box 4 Key Sectoral Issues for the CAS ................................................................ . 27 Annex A - Economic Data and Policies Annex Al: Vietnam at a glance Annex A2: Vietnam: Key Economic Indicators - Change from the last CAS Annex A3: Vietnam: Key Economic Indicators, 1997-2005 Annex A4: Vietnam: Key Exposure Indicators, 1997-2005 Annex A5: Vietnam: Social Indicators Annex A6: A Chronology of Structural Reform, 1998-2002 Annex B - World Bank Group - Current Portfolio Annex BI: IDA Credits in the Operations Portfolio Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3: Statement of IFC's Held and Disbursed Portfolio Annex B4: Vietnam - IFC and MIGA Program, FY 1999-2002 Annex C - AAA and Partnerships Annex C1: Vietnam: Summary of Non-Lending Services Annex C2: The CDF Matrix for Vietnam Annex C3: Vietnam: Trust Funds, GEF and Co-financing operations Annex D - Putting it Together Annex Dl: The Program Matrix Annex D2: CAS Summary of Development Priorities VIETNAM COUNTRY ASSISTANCE STRATEGY Executive Summary i. Social, Economic and Political Context. Vietnam's economy doubled in size during the 1 990s, and the rate of poverty was halved from around 70 percent to 35 percent. Across a broad front there were widespread and visible improvements in the lives of Vietnamese citizens. The East Asian crisis threatened this progress towards the end of the decade, and exposed a number of serious structural weaknesses in the economy. The Authorities responded by carefully managing the macro- economy, and beginning a lengthy and deliberate process to design and build political consensus for a major structural reform program. While the impacts of the accelerated reform momentum are only beginning, signs are encouraging, especially in the private sector, where the number and employment of registered domestic enterprises has doubled since early 2000. ii. The period of the last CAS (FY99-02) has therefore been challenging but productive. Growth has been maintained at reasonable levels (among the highest in the region), and poverty has continued to decline, albeit at more modest rates, even during the crisis period. While implementation of the reform program is now well underway, it will take at least another three-to- five years of implementation before Vietnam's policy and institutional environment catches up with that of the highest-performing IDA countries. iii. The Ninth Party Congress, held in March 2001, endorsed a ten-year Socio-Economic Development Strategy for 2001-2010. This lays out a path of transition towards a "market economy with socialist orientation". It commits Vietnam to full openness to the global economy over the coming decade, and the creation of a level playing field between state and private sectors. It emphasizes that the transition should be "pro-poor", and notes that this will require heavier investment in rural and lagging regions, and a more gradual reform implementation than is often recommended by international advisors. It gives strong emphasis to poverty reduction and social equity, and to a more modem system of governance. iv. Vietnam's CPRGS -- and World Bank Group Support. The Government's Comprehensive Poverty Reduction and Growth Strategy (CPRGS, as the PRSP in Vietnam is called), translates the vision laid out in Vietnam's Ten-Year Strategy into concrete public actions. It uses localized Millennium Development Goals to develop a system of indicators to monitor and evaluate progress in attaining its goals and targets. The CPRGS sets out three broad objectives, which in turn are the organizing principles of the CAS: (i) High growth through a transition to a market economy; (ii) An equitable, socially inclusive, and sustainable pattern of growth; and (iii) Adoption of a modem public administration, legal and governance system. v. The Bank Group will bring to bear all of its instruments of assistance to support these themes, including analytical and advisory activities, IDA project support, IFC, Mekong Project Development Facility (MPDF) and MIGA activities, a series of annual Poverty Reduction Support Credits (PRSCs), and partnerships and ODA coordination. In each of the areas in which the Bank Group plans support, agreements have been reached with Government and other donors to ensure that duplication is avoided, synergy maximized and selectivity maintained. It is expected that annual CPRGS monitoring reports would help guide discussions at Consultative Group meetings, and would also provide an essential input to CAS Progress reports to the Bank's Executive Board. vi. Support for Theme 1: Vietnam's transition to a market-economy. Support for this theme will continue to be a central focus of the Bank Group's activities, with a shift in focus from "design" to "implementation" of the policy reform agenda. The planned work will focus on financial sector development; state enterprise reform; support for the emerging domestic private sector; corporate governance; and private participation in infrastructure. IFC, MPDF and MIGA will expand their work to improve the climate for f6reign and domestic investment. Virtually all IDA credits will support policy, institutional and infrastructure support for Vietnam's ongoing transition, with annual PRSCs playing an especially important role. vii. Support for Theme 2: Enhancing Equitable, Inclusive and Sustainable Development. The CPRGS lays out a six-fold agenda to address future challenges, and this will be supported by the Bank Group. Priorities are: (i) narrowing the development gap of disadvantaged and lagging areas; (ii) raising the living standards of ethnic minorities; (iii) realizing gender equality and the advancement of women; (iv) making basic social services accessible and affordable for the poor; (v) mitigating the impact of natural disasters and other shocks; and (vi) enhancing environmental sustainability. These concerns will be thrust throughout the Bank Group portfolio. In addition, some targeted activities - such as a major Natural Disaster Management project - will be initiated. viii. Support for Theme 3: Promoting Good Governance. Within this broad field, the Bank Group will give focus its support to improving public financial management, information and transparency, and to legal development. Major technical assistance will be provided in each of these areas, and IDA projects will be provided in Public Financial Management, e-Governance, and, if requested, Legal Development. Partnerships are key to making progress in the area of governance. For example, in public administration and civil service reform, the Bank would expect to support the coordinated effort of ADB, UNDP, and a number of bilateral donors, while in public financial management the Bank would play the leading role among donors. The Bank Group will continue to expand its efforts to help address corruption in Vietnam, directly within the Bank Group's own portfolio, and through support to the Government for addressing the issue systematically. ix. Partnerships and a New Way of Doing Business. Since Vietnam began the Comprehensive Development Framework (CDF) pilot program in 1999, the Bank Group has sought to model a new way of doing business. A number of independent assessments are finding highly positive results, although of course there have also been start-up costs, and the real gains are only beginning. There is now a systematic dialog underway between the government, donors, and (increasingly) NGOs in many sectors, as well as the "umbrella" framework provided by the CPRGS. This enables more coherence of programs, better use of resources, and mutual assistance in supporting Vietnam's goals. The Consultative Group, which the Bank co-chairs with the Government, plays an important role in this regard, and efforts will be maintained to ensure that it iii remains relevant and useful. The Bank is also currently working with other major lending institutions (ADB and JBIC) and the Govermment to harmonize procedures. x. The Scale of Bank Group Activities in Vietnam. The overall lending program is presented below. The scale of the program is differentiated according to the pace of progress on the Government's policy and institutional agenda, and on progress in project preparation and implementation. The IDA program ranges from less than $300 million in the Low case to about $760 million in the High case, with a Base case of $580 million per year. The IFC and MIGA programs are also expected to grow significantly in the coming years in support of, and in response to, the improving investment climate. Size of Overall Bank Program and Lending Scenarios Proposed Annual IDA Lending Average Lending Scenarios (Sm) Lending ________ ________($m ) FY03 FY04 FY05 FY06 FY03-06 Low case: Limited implementation of the 270 370 250 280 293 CPRGS; no progress on portfolio management. Base case: Steady (rather than rapid) 625 570 550 580 581 implementation of the CPRGS; modest progress on project preparation and implementation High case: Firm implementation of the 775 740 750 780 761 CPRGS; good progress on project preparation and implementation. xi. In FY01 and 02, lending levels to Vietnam, at $620 million and $593 million, respectively, were only slightly above the Base case levels, despite the fact that the policy environment had improved to the High case. This is because the Government and the Bank agreed that high standards should be demanded of each project, and there was inadequate progress (on both sides) in preparing high quality projects according to a tight schedule. xii. The Bank Portfolio. IDA lending resumed in FY94, and today Vietnam has become the largest IDA-only borrower. Portfolio performance has been highly satisfactory on outcomes, but less so on elapsed time and disbursement. Portfolio management over the next few years will focus on improving the pace of implementation while retaining sound portfolio quality. The recently completed Public Expenditure Review (PER), Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Review (CPAR), have led to important initiatives for change. xiii. Managing Risks. Inadequate progress on governance issues, and inadequate fiduciary controls - especially for decentralized projects -- are key risks which the Bank will monitor and address. iv xiv. Suggested Items for Board Discussion. (i) Does the CAS adequately support the Government's CPRGS? (ii) Is the planned series of annual PRSCs appropriate? (iii) Is the Bank's planned engagement in governance issues appropriate? Memorandum of the President of the International Development Association and The International Finance Corporation To the Executive Directors On a Country Assistance Strategy For the Socialist Republic of Vietnam 1. Vietnam's last full Country Assistance Strategy, covering FY99-02, was discussed at the Board in September 1998. Progress reports were discussed by the Board in May 2000 and October 2001. A full CAS was planned for Board discussion in the last quarter of CY2001, but held back to await the completion of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS, as the PRSP is called in Vietnam), in order to enable alignment of the Bank Group program to Vietnam's poverty reduction strategy. The CPRGS was discussed at the Board on July 2, 2002 (Report Number 24271), and this CAS document incorporates guidance provided by the Board on that occasion. I. SOCIAL, ECONOMIC AND POLITICAL CONTEXT A. Social and Economic Developments 2. Vietnam's successes in the 1990s are well known. The real economy doubled in size during the decade, while the rate of poverty was halved from 70 percent to around 35 percent. Savings rates rose six-fold to around 25 percent of GDP, exports rose by an average of 25 percent per year, and Vietnam moved from a food deficit nation to become the second largest exporter of rice. Social indicators improved markedly and across a broad front there were widespread and visible improvements in the lives of Vietnamese citizens. 3. The period of the last CAS has been difficult but productive. While not enjoying the spectacular success of the previous years, Vietnam managed its economy prudently, achieved solid growth and poverty reduction even during the worst impacts of the East Asian recession, and began to take crucial steps to address structural impediments to long term high quality growth. 4. Vietnam was highly vulnerable to the crisis in East Asia, since more than two-thirds of foreign investment inflows and export earnings come from the region. Foreign direct investment fell from its (unsustainably) high levels of over $2 billion each year (equivalent to 10 percent of GDP) in 1995-1997 to $800 million each year in 1998-2000. Export growth fell from 25 percent per year in 1990-1997 to 2 percent in 1998, (before rebounding to 23% and 25% in 1999 and 2000 respectively). Government reacted to this challenge by adopting a highly cautious macroeconomic policy to avoid the possibility of a crisis. As this risk diminished, a more expansionary stance in 1999 and 2000 helped restore demand, especially in rural areas. Figure 1 shows the evolution of key macroeconomic indicators during this period. 2 Figure 1: Macroeconomic Indicators % GDP Growth Rate (%) Disbursed FDI & ODA 10.0 and Inflation (annual average %) l 6.0 . / $; i4 5 -5.5# . t ,4js ; 2,000 8.0~~~~~~~~~~~~~~~~~~~~~~~~8 60 0 4.0 ,.3 1,500 2.0 .~1,000 0.0 - - 500- - . - . : -2.0 ' 0 - a. ss se M7 195 1999 2000 2001 2002 -4.0 (e.1) (p.1.). 1997 1998 1999 2000/r 2001/e | _ GDP growth rate% -+-Inflation (annual avg. %)J uDisbursed ODA Disbursed FDI % Investment and National Savings ° is cal Deficit (% of GOP) /°% of gm 35 .4.0 - . , *~~~~~~~2 ii i 1. 2,3"X>P 30~~~~~1 26~~2 20~~~~~~~~~~~~~~~~~~~ ,1~~~~~~~~~ 1~~~~.0 -- 15 . 10 0.0 1997 1998 1999 20001r 20011e 1997 1998 1999 2000/r 2001 /a * investment E3 National savings l Fiscal Deficit before grants 0 Fiscal Deficit after grants 5. The slowdown revealed weaknesses, and prompted policy reform. As the crisis shed light on deep-seated distortions and inefficiencies in the economy, the Authorities began a lengthy and deliberate process to design and build political consensus for a major structural reform program. The period 1999-2001 witnessed an energetic (albeit, behind-the-scenes) process of analytical work, detailed design and broad consultation of reform programs covering banking and state enterprise reform, trade liberalization, public expenditure management, and policies for private sector development. This in turn has led to a series of new policy announcements over the past 18 months, supported by the Bank and the IMF, through a PRSC and a PRGF respectively. While this agreement took longer to reach than had been hoped, the extra time taken enabled a degree of ownership and consensus that would not have been possible had it been prepared more rapidly. Annex A6 provides a detailed chronology of policy changes in each of the major areas of structural reform over the past four years. 6. The policy and institutional environment has begun to improve significantly... Figure 2, based upon Country Policy and Institutional Assessment (CPIA) ratings, shows in 3 Figure 2: Vietnam's Policy and Institutional Indicators A. Improvements in Policy Stance, 1998-2002 1. Macro Balances X 20. Transparency & Accountabllty 2. Fiscal A' IO. Public AdministraUon 3. External Debt 18. Revenue Mobilization 4. Development Program 17. Budget Management 5. Trade & FX 16. Property Rights & Govemance 6. Financial Stability 15. Poverty Analysis 7. Banking Efficiency 14. SocialProtection 8. Private Sector Environment 1 13. Building HR Markets 12. Equity of Resource Us ronment \~~~~~~~~~~ ~ ~ 11. Gender |-Vietnam 2001 -Vietnam 1998 Maximum | B. Comparison with Average IDA Countries 1. Macro Balances 4 20. Transparency & Accountability 2 Fiscal el 19. Public Administration 3. Extemal Debt 18. Revenue Mobilization 4, Development Program 17. Budget Management 5.Trade&FX 16. Property Rights & Govemance 8. 'i - ----- 6- Financial Stability 15. PovertyAnalysis - 7. Banking Efficiency 14. Social Protection 8. Private Sector Environment 13. Building HR9. Markets t ., 12. Equity of Resource use 10 Environment N%o, 11. Gender. q - _ -Vietnam 2001 -Average IDA Maximum 4 stylized form policy progress over the 1998-2002 period, as well as a comparison with the average for IDA countries. The figures show strong macro management throughout the period. Structural policies have improved, but because most reforms are only now beginning to be implemented, Vietnam still scores only average, and has a very large unfinished implementation agenda. Policies for social inclusion are relatively strong, but the capacity to implement these good policies remains variable. Finally, governance indicators remain rather weak, and have only recently received a priority position on the Government's agenda. 7. ... Prompting a surge in domestic private sector activity. While the impacts of the accelerated reform momentum are only beginning, there are already some encouraging signs, especially in the response of the private sector. Since the new Enterprise Law came into effect in January 2000, the number of domestic enterprises has more than doubled - from less than 30,000 to more than 60,000. Employment in formal-sector SMEs also appears to have doubled, domestic private investment has risen by 3 percent of GDP, and the share of formal credit going to the non-state sector has risen to an all-time high of over 60 percent. The response of the foreign private sector has been slower, but inflows in 2002 are expected to be well over $1 billion, and may exceed ODA inflows for the first time since 1997 (Figure 1 above). 8. Improvements in living standards continued - even during the recession. New data - derived from the participatory consultations with poor communities associated with the CPRGS preparation - show a continuation of the improvements in living standards during the 1998-2002 period, contrary to earlier expectations. This is encouraging since it implies that even the much lower growth rates of 4 to 5 percent are reaching the poor. An exception was found in some inner city areas, where unregistered migrants reported greater difficulties than in 1998. A new nationwide household survey is being conducted in 2002 which will provide quantitative estimates of the gains in poverty reduction of the last three years. B. Political Developments 9. A New Vision for 2010. The Ninth Party Congress, held in March 2001, endorsed a ten- year Socio-Economic Development Strategy covering the 2001-2010 period. This lays out a path of transition towards a "market economy with socialist orientation". It commits Vietnam to full openness to the global economy over the coming decade, and the creation of a level playing field between state and private sectors. It emphasizes that the transition should be "pro-poor", and notes that this will require heavier investment in rural and lagging regions, and a more gradual reform implementation than is often recommended by the international community. It gives strong emphasis to poverty reduction and social equity, and a more modern system of governance. 10. New Political Leadership. The Congress also elected new leadership. An indication of the thinking of the new leadership was given at a special meeting of the Central Committee of the Party in March 2002 on the future role of the private sector. The communique endorsed the private sector more fully than ever before, noting that attitudes towards private enterprise and profit need to be changed, SMEs need to be proactively given access to credit, land, information and other services, and noting the role of the Government in promoting a more pro-private sector environment. In Vietnam's political cycle, National Assembly elections occur a year after the 5 Congress and these were held on May 19, 2002. A number of important changes in the cabinet are being made in the summer of 2002, and the new leadership continues to be committed to reform across a broad front in the coming years. C. Medium-term Economic Outlook 11. The economic outlook for Vietnam continues to improve. The adoption and implementation of a phased program of specific reform measures in early 2001 --comprising trade liberalization, private sector development, banking and enterprise reform, and public expenditure management, together with the Government's announcement of a master-plan on Public Administration Reform for 2001-2005 and a comprehensive Legal Needs Assessment-- has improved business sentiment and put Vietnam on a healthier medium-term growth trajectory. 12. The recent slowdown in key trading partners has posed short term difficulties. Exports grew by only 4 percent in 2001 and have not yet recovered in 2002. While agricultural export volumes rose by 18 percent in 2001, agricultural export prices fell by 23 percent. The challenge is to continue implementing the ambitious reform agenda expeditiously to sustain investor confidence and promote faster growth and poverty reduction. From 2003 onwards, Vietnam is expected to reap the full benefits of the reforms that are being implemented, with annual growth expected to reach or exceed 7 percent, supported by annual export growth rates of 10-15 percent. 13. Fiscal policy is expected to remain prudent, with a modest fiscal deficit of around 2.5 percent before on-lending. This will permit a modest increase budgetary spending to enable firm progress on the structural reform agenda, and a good supply response. Under the IMF supported program, monetary policy is expected to remain sound to keep inflation in check. The current account is expected to move from a small surplus to a slight deficit, as imports of capital goods increase, reflecting stronger investment growth. This deficit will be largely financed by inflows of FDI and concessional funds. This scenario is, of course, contingent on continued firm implementation of the three-year reform agenda laid out in the CPRGS. D. External Debt Sustainability 14. Debt management continues to improve. In 1998, a Brady-style debt reduction agreement with its commercial bank creditors was completed, and in 2000, Vietnam completed a rescheduling of its debt to the Russian Federation within the framework of the Paris Club -- the last in a series of agreements designed to make the external debt sustainable. Accordingly, Vietnam is no longer a HIPC country. It is current in all its debt service obligations, and the projected debt service burden is sustainable. In 2001, debt service was equal to around 11 percent of exports of goods and services, and 7 percent of GDP, and could fall in the medium- term depending on developments in commercial borrowing. Sensitivity analysis suggests that even a significant drop in the projected export growth rate will not create major debt servicing difficulties. Vietnam's stock of outstanding external debt totaled US$ 14.4 billion in 2001, equivalent to 45 percent of GDP and 94 percent of export earnings. About four-fifths of this debt is on concessional terms. Most of the remaining debt consists of those loans that accompany foreign investment flows into the country. 6 15. Vietnam's sovereign risk ratings continue to improve. Assessments provided by sources such as International Country Risk Guide, Euromoney, Moody's Investor Services, and the Country Risk Classification of the OECD have shown systematic improvement over the past three years. In the past few months new ratings have been assigned by Moody's, Standard & Poors, and Fitch. Vietnam now stands in the same category as countries such as Brazil, Bulgaria, Peru, and Russia. The ratings of Vietnam by various foreign rating agencies confirm an improved perception of the investment climate. IN. VItETNAM'S COMPREHENSIVE POVERTY REDUCTW[¢N AND- GROWTH STRATEGY 16. The Comprehensive Poverty Reduction and Growth Strategy (CPRGS) seeks to translate the vision laid out in Vietnam's ten-year Socio-Economic Development Strategy (SEDS) into concrete measures and programs. The preparation of the CPRGS began in June 2001, with the Ministry of Planning and Investment taking the lead in coordinating the inputs from a 56 member team from 18 different line ministries. It has been prepared in a highly participatory way, based on consultations with poor people, with local government officials from all 61 provinces, mass organizations, NGOs, and the donor community. 17. The starting point of the C]PRGS is the recognition that, despite the gains of the last decade, poverty remains widespread and deep. Almost thirty million people (around a third of the population) still live in poverty, and Vietnam's per capita income (estimated at $410 in 2001) remains very low. Currently, around 25 million people, accounting for 60 percent of the labor force, are underemployed in rural areas. And each year in the coming decade over a million people will be added to the workforce. Further, many of the gains of the last decade remain fragile, with millions still vulnerable to falling back into poverty. Sickness, death of a family member, and natural calamities (flooding, loss of crop or livestock) remain ever present threats. Ethnic minorities, women and unregistered migrants to urban areas remain especially disadvantaged. Poverty continued to be largely a rural phenomenon, and the concern is that the driving forces of the gains to date-increases in agricultural productivity and the growth of the small services sector-cannot be expected to continue to deliver such impressive gains in the future. Rapid growth of off-farm employment in rural and urban areas is essential. 18. Th1ree themes underpin the CPRGS and CAS. The CPRGS sets out three broad objectives to drive the poverty strategy. And these in turn are the themes that will guide the CAS. 1. High growth throughn a transition to a manrket economy. This requires the firm implementation of the structural reform agenda laid out by the Government. 2.. An equitable, socially inclusive, and sustainable pattern of growth. This requires implementing appropriate sectoral and social policies and programs. 3. Adoption a modern public administration, Regal and governmance system. This in turn will facilitate the design and implementation of the policies and programs necessary for attaining the first two goals. 7 19. Assessment of the CPRGS. The CPRGS was the centerpiece of the mid-year Consultative Group Meeting in May 2002. Donors, the private sector and NGOs all warmly welcomed the Strategy as a major step forward, praising both its content and the process involved in its preparation. Many donors stated their intention to align their own programs to the CPRGS. The CPRGS was discussed at the Board of the World Bank on July 2, 2002 together with the Joint Bank-Fund Staff Assessment (JSA). Box 1 lays out both the impressive strengths of the CPRGS, and the constraints that Vietnam will need to overcome in its implementation. The program laid out in the CAS, especially the advisory and technical assistance components, are designed to assist in addressing these constraints. Many others donors have also indicated a strong willingness to invest in capacity building to facilitate implementation. As an example, a multi-donor Poverty Reduction Trust Fund will be used for building the capacity of the CPRGS team and NGO involvement in implementation and monitoring and evaluation. And Denmark will support the inter-ministerial working unit and the CPRGS secretariat. Box 1: Strengths of the CPRGS and Challenges Facing its Implementation The CPRGS has several strengths, both in substance and in the process guiding its preparation. Irportant strengths include: (i) the active participation by-a wide range of stakeholders in te drafting process; (ii) a ro6bust and comprehensive analysis of poverty which makes balanced use of quantitative and qualitative evidence; (iii) the articulation of a growth-based strategy for poverty redu'ction with policies covering macroeconomic, structural, and. sectoral areas; (iv) the attention given to improving governance; (v) the identification of outcome targets addressing the national challenges and the government's international commitments to the Millennium Development Goals (MDG); and (vi) an attempt to prioritize public actions and to assess their resource implications. The implementation of the CPRGS presents several challenges. First, the proposed establishment of the inter-ministerial working unit and CPRGS secretariat is urgently needed to provide a strong coordination function. Second, attention must be given-to involving all stakeholders in' the implementation, monitoring, and evaluation of the strategy, including greater public access to data. Third, there is a need to develop.concrete action plans detailing.the timing and costs of activities; this is: particularly pressing for some of the proposed measures to improve governance. Fourth, sectoral programs need to'be more sharply prioritized and set withiiresource constraints and a'w'el'ldefined. medium-tern expenditure framework. Fifth, aligning resource allocation decisions at the national and provincial levels-to the desired outcomes will be important to place the proposed:i-ntetrventions in the budget framework. Sixth, more work is needed to fully assess the. poverty.and social impact of the reform strategy and the adequacy of safety nets. Source: Joint Staff AssessmentVof the CPRGS (page 3). 20. Localized Millennium Development Goals (MDGs). An important feature of the CPRGS has been the use of localized MDGs to develop a system of indicators to monitor and evaluate progress in implementation of the Strategy (Table 1). The Bank Group will work in partnership with the Government and with donors and NGOs to help Vietnam attain these goals and targets. 8 Table 1: Vietnam Develo ment Goals in the CPRGS Goal 1: 'Reduce the percentageof poornd ungy h,ou,seholds ''''-,.-'.: Target 1: Reduce by 40% the proportion of people living below the international poverty line between 2001 and 2010 Target 2: Reduce by 75% the number of people living under the international food poverty line by 2010 Goal 2:'-Universalize educitio'n and improve education qual -= Target 1: Increase the net enrolment in primary school to 97% in 2005 and to 99% in 2010 Target 2: Increase net enrolment rate in junior secondary school to 80% in 2005 and 90% by 2010 Target 3: Eliminate the gender gap in primary and secondary education by 2005, and the gap with ethnic minorities in 2010 Target 4: Increase literacy to 95% of under-40-year-old women by 2005 and 100% by 2010 Target 5: By 2010 have improved the quality of education and increase full-day schooling at primary level (exact target depends on funding). 'Goa 3: Ensure gender equality-and women empowerment Target 1: Increase the number of women in elective bodies at all levels Target 2: Increase the participation of women in agencies and sectors [includes ministries, central agencies and enterprises] at all levels by 3-5% in the next 10 years Target 3: Ensure that the names of both husband and wife appears on the land-use right certificates by 2005 Target 4: Reduce the vulnerability of women to domestic violence GoMa : Reduce child mortality, child maPnturitrMon and reduce the birth rate Target 1: Reduce the infant mortality rate to 30 per 1000 live births by 2005 and 25 by 2010 and at a more rapid rate in disadvantaged regions (see below) Target 2: Reduce the under-5 mortality rate to 36 per 1000 live births by 2005 and 32 by 2010 Target 3: Reduce under five malnutrition to 25% by 2005 and 20% by 2010 GoaD 5: Improve maternal health Target 1: Reduce the maternal mortality rate to 80 per 100,000 live births by 2005 and 70 by 2010 with particular attention to disadvantaged areas Goal 6: Reduce HIM/AIDS Infection and eradlicate other major diseases Target 1: Slow the increase in the spread of HIV/AIDs by 2005 and halve the rate of increase by 2010 Goal 7: Ensure environmrenal sustainabiIi.,, Target 1: Extend forest cover to 43% by 2010 (from 33% in 1999) Target 2: Ensure that 60% of urban population has access to clean and safe water by 2005 and 85% in 2010. This should be the case for 80% of urban people in 2005 Target 3: Ensure there are no slums and temporary houses in all towns and cities by 2010 Target 4: Ensure that all waste-water in towns and cities is treated by 2010 Target 5: Ensure that all solid waste is collected and disposed of safely in all towns and cities by 2010 Target 6: Air and water pollution must attain national standards by 2005 Goal 8: Reducing vulnerability Target 1: Increase the average income of the lowest expenditure quintile to 140% of that in 2000 and 190% of that in 2010 Target 2: Reduce by half the rate of poor people falling back into poverty due to natural disasters and other risks by 2010 Goal 9: ImprovIng governance foo poverVy readcmion Target 1: Effectively implement the Grass-roots Democracy Decree Target 2: Ensure budget transparency Target 3: Implement legal reform agenda GoaD 10: Reducing ethnic inequal,.y Target 1: Preserve and develop the reading and writing ability of ethnic languages Target 2: Ensure entitlement of individual and collective land-use rights in ethnic minority and mountainous areas Target 3: Increase the proportion of ethnic minority people in authority bodies at various levels Goal d : Ensuring pvo=pqoo ini fastcouctlure deveolpment n Target 1: Provide basic infrastructure to 80% of poor communes by 2005 and 100% by 2010 Target 2: Expand the national transmission grid to 900 poor commune centres by 2005 Source: Govt of Vietnam (2002). Comprehensive Poverty Reduction & Growth Strategy 9 III. IMPLEMENTATION OF THE LAST CAS 21. Broadly satisfactory implementation of the last CAS. The last CAS, prepared when the East Asian crisis was seriously threatening Vietnam, was built around the two themes of restoring growth, and improving its quality. Good progress has been achieved on both counts, although the pace of reform might have been quicker. Vietnam was decisive in restoring macroeconomic stability during the crisis, and deliberate, rather than decisive, in addressing the structural problems in the economy. The CAS also laid out a number of new directions for the Bank, including a greater emphasis on poverty reduction and rural development. These have been successfull-y achieved with, for example, the share of Bank resourccs allocated to rural development rising from 27% in FY94-FY98 to 45% in FY99-FY02. A. What Worked Well * The Comprehensive Development Framework (CDP). The CDF pilot has significantly changed the way the Bank Group is doing business in Vietnam. Most other donors and the Government have been part of this move, and a number of independent assessments are finding positive results. For example, 97% of respondents in a recent OED survey said there had been significant improvement in the effectiveness of development partner relationships. The participatory preparation of the CPRGS has marked an important culmination of the first phase of the CDF pilot. * Broad Commitment to the Reform Agenda. Vietnam has followed a reform strategy different from some other countries during the Asian crisis. Rather than move quickly to the announcement of a package of measures, it adopted a more gradual strategy of inclusion of many stakeholders in the diagnosis and design of new policies. This approach, while delaying the start of implementation, had the advantage of building a broad and strong constituency for the task ahead. There is already evidence that this is paying off in the implementation phase. The Bank and the IMF, which have enjoyed very productive "enhanced collaboration" during this period, provided analytical and advisory support to this process. * Deeper focus on Poverty and Social Issues. The understanding of poverty in Vietnam has improved remarkably over the past four years, and has changed from a targeted approach to one where growth and structural reforms lie at the heart of the solution. Diagnostic work has been undertaken drawing on quantitative information from the Vietnam Living Standards Surveys (VLSS) and qualitative data from participatory poverty assessments (PPAs) undertaken in partnership with several international and local NGOs. This diagnostic work formed the basis for Vietnam's I-PRSP and its CPRGS. * Introduction of Community-driven Development. Two new community-based projects (Northern Mountains Poverty Reduction (FY02) and Community Based Rural Infrastructure (FY01)) have been initiated that are using participatory techniques to decide on the use of funds and are introducing transparency and accountability at local levels to support initiatives, such as the Grassroots Democracy Decree, that aim to improve local governance. A review of this approach will be undertaken in FY03, and this move towards 10 decentralization will be continued through several projects currently under preparation -- including Urban Upgrading (FY04), Rural Energy II (FY04), Rural Water and Sanitation (FY05), and Poor Communes Infrastructure and Livelihoods (FY06). This will be complemented by work to improve financial management and address fiduciary risks at the local level. B. What Worked Less Wefl o Pace of Policy Reforms. While the slow and deliberate consensus approach to decision- making in Vietnam has the advantage of creating a home-grown, fully-owned agenda for reforms, it has implied delay in the pace of reforms. The Bank Group underestimated how long it would take the Government to build consensus around a medium-term program of reforms. As a result, for the first two years of the last CAS (FY99-00), the Bank provided below Base-case lending (with new commitments of around $300 million each year), and the IFC conducted relatively little new business. It was only in the last two years of the CAS (FYO1-02) that the policy environment improved enough to justify policy-based lending. o Pace of Governance Reforms. The Government has also been slow to prepare and adopt a program of reforms for good governance. Here again, as in structural policy reforms, there is a tradeoff between pace and ownership. The Govemment has now prepared a comprehensive Legal Needs Assessment (LNA) and has adopted a Master Program for Public Administration Reform (PAR) for 2001-2010. In some areas, such as improved transparency and management of public finances, real progress has already been made, but in other areas - such as civil service reform and anti-corruption - plans still need to be acted upon. O Affordability of Basic Social Services. Despite very good progress in poverty reduction and social development, the poor still have inadequate access to key social services, due to high cost recovery. During the consultations of the CPRGS with poor communities, the cost of primary education and of curative health care were found to be particularly burdensome for the poor. The Government has now made a strong commitment in the CPRGS to address this issue and to find alternative ways of financing these services, including through better targeting of exemptions to the poor, that will reduce the burden on the poor. This is a priority for the Bank in the coming CAS period. o Preparation and Implementation of Projects. The capacity to prepare and implement projects in Vietnam was overestimated in the last CAS. As a result, even though the improved policy environment now warrants "High case" support, it has proved difficult to prepare adequate high quality credits on a tight time-schedule, so lending has remained between the Base and High cases. A joint World Bank/ADB/JBIC review of the reasons for the delays has been completed and an action plan is now under implementation. C. OED and QAG Reviews 22. Satisfactory Project OJ)utcomes. The Operations Evaluation Department (OED) has evaluated the outcome of five of the eight projects that have closed since the Bank resumed lending to Vietnam in FY94. The development outcomes for all these projects have been rated 11 satisfactory, and the recipient's and the Bank's performance have all been rated satisfactory or above. In addition, the Quality Assurance Group (QAG) has reviewed the quality of 17 of the Bank's products in Vietnam and has rated all of them as satisfactory or above. 23. A Country Assistance Evaluation (CAE) by OED assessed IDA's assistance to Vietnam from FY88 to FY01 and concluded that the Bank's overall assistance had been very beneficial.' It noted in particular the strong emphasis on poverty reduction and on partnerships: "In many respects, the Bank's program in Vietnam follows corporate objectives closely. In particular, the assistance strateV has from the outset focused consistently on poverty alleviation. The early sector work analyzing poverty fed into the selection ofprojects as well as their design. In this sense, the assistance program has unusually strong synergies between lending and non-lending. In addition, partnerships and wide collaboration have been strong elements of the Bank's assistance, particularly in non-lending services." (Box 4.1, page 23) 24. Successes have been most prominent in addressing infrastructure and poverty issues, the last being partly due to the high quality of Analytic and Advisory Activities. OED also found that joint Bank and IFC effort has helped improve the dialogue among the local and foreign business communities, the Government and donors, including through the IFC-facilitated Business Forum in the Consultative Group (CG) process. The CAE also recommended that more attention be paid to the following: * Reaching agreement with the Government on criteria to be used for targeting the poor in infrastructure and rural projects; * focusing more on strengthening maintenance capacity of investments in transport infrastructure; * being more selective and focused in investments in rural development; and * continuing the recent progress being made on institutional and structural reforms. 25. The Bank agrees with these recommendations and has adopted them in the design of this CAS. For example, considerable AAA work is planned that will help build capacity in the Government to improve their targeting mechanisms using data from the VLSS and the Household Census. The Bank believes that the subject of operations and maintenance of roads is critical and this will be addressed in the Road Network Improvement Project (FY03) which, inter alia, will help set up a national road maintenance fund. On the rural sector, the Bank will focus its rural support as strategically as possible, but this may not necessarily mean that the number of sub-sectors will shrink. Rural development is still a high priority issue and the active portfolio addresses urgent challenges in the fields of water resources, rural infrastructure, rural finance, and forest management. D. OEG's IFC Country Impact Review 26. In parallel with the CAE, the Operations Evaluation Group (OEG) of the IFC undertook a Country Impact Review of the IFC's program and made a range of lSee, Vietnam Country Assistance Evaluation, November, 2001, Report Number 23288. 12 recommendations.2 In particular, regarding IFC's role in poor business environments, the Review suggested that a balance be struck between reducing IFC's potential losses and the need to retain an active country presence to facilitate re-entry when the climate improves. The Review identified the importance of incorporating the impact of financial sector distortions resulting, inter alia, from the dominance of state-owned banks into project design and structuring. With respect to advisory/TA work, it argued for ensuring strong client demand/political will for advisory efforts. In terms of lessons for investment operations, the study recommended avoiding SOE involvement and investments in heavily distorted sectors. 27. The IIFC team agrees with these recommendations, and the proposed program and strategic priorities reflect the lessons of experience outlined in the Review. In particular, IFC is maintaining a level of presence that is allowing a quick response to changes in Vietnam's private sector development needs. Financial sector development, including reducing the dominance of state-owned financial institutions, by supporting private financial sector entities has become an important priority for IFC. In the area of advisory services, the test of Government commitment at all levels is being applied rigorously: IFC has closed its privatization projects in Haiphong and Dak Lak provinces as Government commitment was not fully forthcoming. IV. WOIRLD BANK GROUP PROGRAM 28. Bank Group I[nstruments. In preparing the CAS, the Bank Group is seeking to exploit maximum synergies from the different instruments at its disposal. These include: o Partnerships and Donor Coordination (Section A below; details in Annex C2); o Analytical and Advisory Activities (AAA) (details in Annex Cl); o IDA Credits for Investment Projects; o A series of four annual Poverty Reduction Support Credits (PRSCs); o Sector Wide Approaches (SWAps) in two sectors; o Management of Trust Funds (see Annex C3); o IFC, MPDF and MIGA Program (see Section E below); A. Partnerships and Donor Coordination 29. A New Way of Doing Business. Over the past four years the Government and international community have sought to model a new way of doing business in Vietnam (see above para 21). While we already regard this as successful, most of the benefits still lie ahead. The CPRGS provides an important framework for operating together, and the 20 Government- Donor-NGO working groups will continue to support the design and implementation of the Government's plans in each sector. The emphasis on partnerships has implications for the Bank Group's work program. While the benefits of the new approach greatly outweigh the costs, the new approach needs to be managed thoughtfully, so that this continues to be the case: o JointAnalytical and Advisory Work. Most of the Bank's Analytical and Advisory Activities (AAA) is now done in partnership with Government; other donors and NGOs. This had led to impressive "ownership" and impact. Examples include: 'Attacking 2 See, Vietnam - IFC Country Impact Review, October 5, 2001, CODE 2001/0089. 13 Poverty' (Poverty Working Group,1999); the 200 1Vietnam Development Report (World Bank, ADB and UNDP, 2001); and 'Growing Healthy: A Report on the Health Sector' (World Bank, Sweden, Australia, Netherlands and Ministry of Health, 2001). The Bank will continue to do most major reports in partnership with others. Trust Funds. Bilateral donors are increasingly seeking to place trust funds under the Bank Group's management, and to second staff. This has deeply enriched effectiveness in work on poverty reduction, public expenditure management, state enterprise reform, banking reform, and other areas. The Bank Group will continue to work in partnership in this manner, while at the same time ensuring that focus and selectivity are maintained. (For details, see the Trust Funds Table in Annex C3). * Selective Engagement. Under the CDF approach, partners seek to allocate tasks based upon a commonly agreed framework, and comparative advantage. This is allowing increased impact and focus within each sector. As examples: in education, the Bank focuses on primary and tertiary education, while ADB takes the lead in secondary education and vocational training; in the financial sector, the Bank focuses on banking reform, while ADB takes the lead on the non-bank financial sector; on governance issues, the Bank focuses on public financial management and (in partnership with UNDP) legal reform, while in public administration reform the Bank looks to UNDP and ADB to play a coordinating role. * In-Country Consultative Group Meetings. Over the past four years, the Bank, as co- chair with the Government, has sought to improve the effectiveness of the Consultative Group process. Changes have included moving the location to Vietnam, introduction of informal "mid-year" stocktaking meetings outside of Hanoi, establishment of associated events, such as the Vietnam Business Forum, expanding participation of private sector and civil society, more dialogue, fewer prepared statements etc. The new approach has been generally very positively assessed by both Government and donors. It is important that the effectiveness of the CG process be continually assessed so that it continues to provide real value added in a rapidly changing environment. 30. Harmonization. The Bank is currently piloting a new initiative to harmonize procedures with Government and donors. In May 2002, the World Bank agreed with the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC) to identify harmonization opportunities in procurement, financial management, environmental and social safeguards, and portfolio management. The three institutions will report on progress at the next CG meeting. The harmonization work is being undertaken with the strong support of the Government, and in close cooperation with a group of bilateral donors who are working towards harmonization of procedures and terminologies among grant providers. The Bank will continue to ensure that cross-learning takes place and that the two harmonization strands are woven together to constitute a comprehensive program of action that is most appropriate for the needs of Vietnam. 14 B. Bank Group Activities 31. Analytical and Advisoiry Activities (AAA) and Knowledge Sharing. The recent CAE by OED concluded that in Vietnam, the Bank Group's program of AAA and knowledge sharing had particularly high returns. For the coming CAS, an expanded programn is planned, in partnerships with others on several cross-sectoral and sectoral themes, as described in Section C below. This will provide the analytical underpinning for the Bank's policy advisory services and lending program. 32. The Vietnam Development Information Centeir (VIIJIC). Established in 2000, and co- financed by Australia, Canada, Dernmark, Japan, UTNDP, and the World Bank , the VDIC provides a one-stop shop for current development informnation on Vietnam. Since the opening of the VDIC, 3500 people have participated in distance learning events-many of them offered in partnership with the World Bank Institute (WBI)--on topics as diverse as SME Capacity Building (in partnership with JBIC), Insurance Supervision (WBI), and Prevention of Mother-Child Transmission of HIV(in partnership with INAIDS). The Bank will also continue to invest in translating all Vietnamn reports, and a good number of Regional and global Bank publications into Vietnamese. Reports that have been translated and disseminated widely in Vietnamese include all World Development Reports since 1998; Engendering Development, Greening Industry, Curbing Corruption, Confronting AIDS, and many others. 33. Capacity Building and the Woirld Bank Institute Progiram. During this CAS period, the Bank's AAA activities will involve working closely with WBI to build capacity and share knowledge in key areas of emphasis. For example, under the "Attacking Poverty" Program of the WBI, several distance learning events--jointly with the Global Distance Learning Network (GDLN)--as well as face-to-face training programs are being planned to facilitate a sharing of knowledge on the design, implementation, and monitoring and evaluation of PRSPs within the East Asian Countries. WBI would also support capacity building and curricula development at the Ho Chi Minh Political Academy, which provides training to senior officials and policymakers from the Government and the Party. 34. Coire Diagnostic Analyses. The Bank has recently completed the set of core diagnostic economic and sector work, and will complete another cycle during this CAS (Table 2). A Household Survey is being undertaken in FY03, which is likely to produce high quality data, and a new Poverty Assessment is planned for FY04 based on this data. Annual Vietnam Development Reports are planned on topics such as pro-poor growth, regional growth strategies, and employment and labor policies (FY03, FY05 and FY06); and a Public Financial Management and Fiduciary Review (FY04) will be undertaken that will combine elements of a PER, CFAA, and CPAR. In addition, a Financial Sector Assessment and a Private Sector Assessment are planned for FY03. 15 Table 2: Core Diagnostic Economic and Sector Work Type Most Recent Next Planned Completion Date Completion Date Poverty Assessment (PA) FY00 FY04 Country Economic Memorandum (CEM) FY02 FY03 Public Expenditure Review (PER) FY01 FY04 Country Procurement Assessment Report (CPAR) FY02 FY04 Country Financial Accountability Assessment (CFAA) FY02 FY04 35. Lending Program. Vietnam's Base case IDA allocation is SDR 1.37 billion for the FY03-05 period, the second largest in the world, after India's SDR 2.0 billion. (Third is Ethiopia with SDR 1.22 billion, and fourth is Bangladesh with SDR 1.19 billion). The proposed High case is around 30 percent above the Base case. This translates into annual lending of $575 million in the Base case, and would make Vietnam eligible to receive up to $760 million in the High case. 36. The planned lending program (Table 3) supports the priorities laid out in the CPRGS. It has been designed after extensive consultations with the Government, donors and NGOs. A three-day retreat to design the CAS was held in April 2002 to which key partners from the Government, donors (including ADB, UNDP, Japan and several other bilateral donors) and NGOs were invited. In addition, sector-by-sector consultations were held, led by the Government, to clarify the roles and responsibilities of the Bank and the ADB. In addition to the traditional investment projects, the CAS envisages non-project support in the form of annual PRSCs and, in the outer years, in the form of SWAps for rural transport and education (see below). 37. Poverty Reduction Support Credits. Annual PRSC lending is planned throughout the CAS period. This would enable the Bank to formally support the implementation of Vietnam's agenda of policy and institutional reforms laid out in the CPRGS. The series would build upon the experience of the first PRSC -- a two-tranche $250 million credit that supports implementation of reforms in trade, banking, state-enterprises, private sector and public expenditure management. The first tranche of $100 million was disbursed in October 2001 and the second tranche is expected to be disbursed in the last quarter of CY2002; This PRSC was co- financed by the UK, Netherlands, Denmark and Sweden, and is complemented by the IMF's PRGF and ADB's Enterprise Reform loan. Future PRSCs would be single-tranche operations of around $100-200 million a year, with the size of the credit linked to the pace of implementation of the program agreed upon in advance. It is expected that under Base case performance, the size would be around $ 100 million, and $200 million under High case performance. Under the High case, therefore, PRSCs would account for around 25% of IDA commitments. The content of the PRSCs would be guided by the CPRGS. The second PRSC is expected to support further progress in the structural issues covered by PRSC I, while also supporting reform in public administration and the legal system, and in improved targeting of social programs for the poor. Future PRSCs would also support policy reforms associated with human development, land policy, agricultural policy, and energy. 16 Table 3: IDA Lending Program (FY03-FY06)* Fiscal Year Project Amount (US$ million) FY03 Primary Education for Disadvantaged Children Project 150 FY03 Water Resources Assistance Project 120 Sub-Total (Low case scenario) 270 FY03 Road Network Improvement Project 180 FY03 Phu My II Power Project (IDA Partial Risk Guarantee) 75 FY03 PRSC 11 100 Sub-Total (Base case scenario) 625 FY03 Public Finance Management Project 50 FY03 PRSC 11 (total of $200m) 100 Total (High case scenario) excl. Guarantee 700 incl. Guarantee 775 FY04 Urban Upgrading Project 150 FY04 Rural Energy 1I Project 220 Sub-Total (Low case scenario) 370 FY04 Urban Water Supply Development Project 100 FY04 PRSC III 100 Sub-Total (Base case scenario) 570 FY04 Forest Sector Development Project 70 FY04 PRSC III (total of $200m) 100 Total (High case scenario) 740 FY05 Rural Water and Sanitation Infrastructure and Health Improvement Project (FY04 Standby) 100 FY05 Natural Disaster Mitigation Project (FY04 Standby) 150 Sub-Total (Low case scenario) 250 FY05 Higher Education II - Teaching and Research Innovation Project 100 FY05 Curative Care for the Poor Project 100 FY05 PRSC IV 100 Sub-Total (Base case scenario) 550 FY05 Rural Transport III Project (SWAp) 100 FY05 PRSC IV (total of $200m) 100 Total (High case scenario) 750 FY06 Poor Communes Infrastructure and Livelihoods Project (FY05 Standby) 200 FY06 E-Government Systems Development and Capacity Building Project (FY05 Standby) 80 Sub-Total (Low case scenario) 280 FY06 Mekong Region Infrastructure Development Project 200 FY06 PRSC V 100 Sub-Total (Base case scenario) 580 FY06 "Education for All" Project (SWAp) 100 FY06 PRSC V (total of $200m) 100 Total (High case scenario) 780 * The FY06 IDA program is indicative only, and may alternatively include support for Early Childhood Development, and a Rural Finance III project. 17 38. Toward Sector-Wide Approaches (SWAps). The CAS proposes that two projects - Rural Roads III (FY05), and Education for All (FY06) - take the form of sectoral budget support. This will require significant progress in the preparation of Medium Term Expenditure programs in those sectors. It will also require improved transparency and financial management. The work program to move in this direction is currently under discussion with the Government. C. Thematic Presentation of the Program 39. The Bank Group plans to support the three themes of the CPRGS as described in Section I. While some activities would support the three themes directly--such as the Bank's TA support for banking, SOE and legal reform, and the series of PRSCs --others would support the three themes through sectoral AAA, projects, and other instruments. In addition, the Bank Group program would also aim to address the key sectoral issues laid out in Section D below. Theme 1: Supporting the Transition Towards a Market-oriented Economy 40. From Design to Implementation. During this CAS period, the Bank Group will continue to support Vietnam's transition to a market-economy, with a shift in focus from "design" to "implementation" of the reform agenda. There are five strands to the planned work: * Financial sector development; * State enterprise reform; * Support for the domestic private sector; * Corporate governance and corporate social responsibility; • Promoting open trade. 41. Financial Sector Development. The establishment of a sound market-based financial intermediation system in Vietnam remains perhaps the most difficult technical challenge facing Vietnam's policymakers, and an important part of the Bank Group's activities. These include: * Banking reform would continue to be a high priority. Trust Funds for technical assistance (ASEM, PHRD, Danish, Dutch) amounting to $3.5 million are currently being managed by IDA, and another $4 million is expected in the near future. These would cover auditing and restructuring of the state-owned commercial and joint stock banks, as well as the introduction of modern regulatory and supervisory systems. An international advisor on banking reform is expected to be seconded to the Hanoi office. * Capacity-building for lending to the emerging private sector will be provided by the Mekong Project Development Facility's (MPDF's) Bank Training Center, which will be working in close partnership with the recent $200 million Rural Finance II Project (FY02) financed by the Bank. * IFC's medium-term priorities in support of Vietnam's financial sector development will be: (i) diversification of the financial system, through introduction of new types of institutions and instruments; and (ii) transformation of existing financial institutions, to better meet the challenges of a more open and competitive financial system. IFC's 18 activities will support the existing private banking sector through direct financing of one or two non-state banks and provision of technical assistance in conjunction with MPDF's training to local banks and securities companies. * IFC also plans to support the leasing and insurance sector. A recently approved investment in a merchant bank and associated fund - Dragon Capital/VEIL - will provide essential corporate finance services and invest equity in growth companies. To respond to the growing needs in local currency financing, IFC is exploring the opportunities of providing credit enhancement to local corporates to facilitate their access to such funds. * Bank support to the financial sector will be coordinated closely with ADB. A Financial Sector Assessment will be completed jointly with ADB in FY03. ADB is supporting the non-bank financial sector, and the Bank will thus focus on banking. On micro-finance, ADB is currently assisting the State Bank of Vietnam on a legal framework for viable micro-finance institutions. The Bank will wait until this work is completed before examining whether further support is needed. 42. State Enterprise Reform. The Bank will provide support for both systemic policy and regulatory issues affecting all SOEs, and more specific assistance to certain sectors. A full-time SOE specialist (financed by DFID) is based in the Hanoi office for the next three years. Planned activities include: * The Bank will continue the technical support, associated with the current PRSC, for accelerating equitization, liquidation and outright sale of SOEs, amending the legal framework to improve effectiveness and transparency of equitizations, making reliable information on SOE performance available annually, carrying out diagnostic audits, and expanding social safety nets for SOE workers displaced by reform. * For a selected number of large SOEs, including the "General Corporations", the Bank will provide more hands-on support for restructuring (financed by trust funds). * For public utilities (especially power and water), the Bank will provide support to those companies willing and able to move towards modem market-based approaches. As an example, the planmed Urban Water Supply project (FY04) would establish competitive funds for high-performing water companies and for those willing to contract out management to the private sector. In power, the Bank will be supporting equitization, and the formation of local-level joint stock companies. * In key sectors, where the lack of reform has incurred high development costs, the Bank will engage selectively. As an example, under the High case scenario, Vietnam would be eligible to receive support through the Forest Sector Development Project (FY04) for the reform of State Forest Enterprises, covering 6 million hectares. The Bank may also offer some technical assistance (financed by Trust Funds) to the Railway sector and the Coal industry but only if prospects for reform improve. 19 IFC remains willing to support, through finance and advice, SOEs undergoing privatization. 43. Support for the Dcmestic Private Sector. In Vietnam, the domestic formal private sector is essentially the Small and Medium Enterprise (SME) sector. Its performance over the coming decade--during which time employment in these enterprises will need to rise from 1 million to over 5 million--will be the critical success factor for Vietnam. With recent improvements in the policy environment, rapid growth in SMEs can be expected. The Bank Group will seek to help its healthy growth, and seek to improve the overall business environment. * The Mekong Project Development Facility (MPDF) leads the Bank Group's work in SME development. Through its direct TA support to individual companies, and its growing support for the enabling environment (through its business education, bank training center, work with business associations etc), it is the most significant source of direct support from any ODA source. Operational links between MPDF and IFC are being strengthened, especially in the financial sector. * Loan and Equity Funds for SMEs will be provided through venture capital funds and other financial institutions supported through IFC and MPDF, and through IDA's Rural Finance project (FY02). IFC established Vietnam's first leasing company in 1997, which has since provided over $35 million of financing to about 250 SMEs. Indirect financial support to SMEs is continuing through intermediaries such as Dragon Capital/VEIL and through investments in private banks. IFC could explore opportunities to support microfinance institutions, but this would depend on an improved regulatory framework. * Procurement under Bank credits will play an important role in fostering SME development. Examples include power, rural roads, community-based infrastructure and water, where the size of contracts is being designed so as to enable smaller companies to bid, and the award of contracts is being monitored. In the water and construction sectors, the Bank plans to have a formal partnership with MPDF, whereby the latter will provide specific capacity-building programs to assist eligible bidders. * Analytical support and dialog on private sector issues will be a major ongoing part of the Bank Group's activities. A Private Sector Assessment, being undertaken jointly by the Bank, IFC and MPDF, will be completed in FY03, and ongoing support to the Vietnam Business Forum, and its associated working groups, will be continued. 44. Corporate Governance. Vietnam's transition calls for more modem forms of corporate governance. To date, this has not received a coherent program of support from the international community, but this is expected to change in the coming months. Building upon the findings of the recently completed Country Financial Accountability Assessment (CFAA) and other work, planned Bank Group activities include support for accounting and auditing standards (through IDF and other sources), and capacity building to business associations through MPDF. A joint Bank Group work program in corporate governance is planned to begin in FY04, when a major "Fiduciary Review" will be completed. In addition, IFC is planning to provide TA in the areas 20 of corporate governance practices of securities companies and institutional investors, regulatory capacity to supervise institutional investors, and training for company directors. This work will complement and build on work done by the ADB. 45. Corporate Social Responsibility. The Bank Group is initiating work in this area that will aim to improve companies' economic, social and environmental practices in ways that are good for both business and society. The work will initially focus on the issue of labor standards before broadening to other areas of corporate responsibility. It will involve pilot demonstration projects; a symposium on corporate responsibility with businesses, government, and donors; and the documentation of best practices in Vietnam. On labor standards, the project would provide assistance to and highlight companies that have adopted sound labor policies, consistent with Vietnam's labor law and core labor standards (Box 2), and as a result are able to raise market access and profitability. Box 2: Core Labor Standards in Vietnam The Government of Vietnam has ratified three of the eight core ILO conventions: C 100 on equal pay for men and women; CI I on non discrimination in employment; and C 182 prohibiting the worst forms of child labor. Ratification of C138 establishing minimum age for employment is expected imminently. The ILO is cuirrently working with the Government on the forced labor conventions as well. The Government of Vietnam has ratified an additional 12 ILO Conventions covering issues such as labor inspection, occupational safety and health, and a number of industry specific labor provisions. There is also interest in Conventions on tripartite dialogue; maternity protection; occupational safety and health in agriculture; and labor administration. The legal infrastructure for the core labor standards is quite strong in Vietnam. Due to the constraints in terms of training, organization, and funding, however, enforcement%of the Labor Law is still limited. The Trade Union movement should be further strengthened in order to give better protection to workers' rights. Several donors, including USAID, are now working with the'Governiment to provide TA in this area. 46. Promoting Open Trade. Vietnam's recent decisions to integrate with the world economy and to join the WTO in the coming five years have been supported by a good deal of TA work from the Bank. Other donors--notably the EU, the US and Switzerland--have now provided generous programs to address the detailed legal and regulatory next steps. The Bank, therefore, expects to focus its work more on issues such as the social and economic impacts of alternative globalization paths. Theme 2: Enhancing Equitable, Socially Inclusive and Sustainable Development 47. Implementing Good Policies. Vietnam already has a policy framework that is more favorable to social inclusion and equity than most countries. But implementation remains a problem, and there are serious challenges ahead. Over the past years, there has been an impressive change in the willingness of the Authorities to discuss and confront issues that were 21 considered sensitive. This is reflected in the CPRGS which lays out a six-fold agenda that will be supported by the Bank Group: 48. (i) Narrowing the development gap of disadvantaged and lagging areas. Around 85 percent of the poor live in rural areas, where per capita consumption is half that in urban areas, and the rural-urban gap is widening. This has been of concern to the Government, and led to a significant redirection of IDA resources under the last CAS. The planned program will reinforce this shift in direction, with the bulk of Bank Group resources being targeted to rural and disadvantaged areas. * Understanding the Nature and Causes of Poverty. The AAA program will seek to deepen understanding poverty in different regions of Vietnam. This will include support for poverty strategies in the seven geographic regions of Vietnam, a major new Poverty Assessment in FY04, and an update in FY06. These activities, together with the ongoing support for the implementation of the first CPRGS, and preparation of the second would be undertaken in partnership with the Poverty Task Force, a coalition of Government- donors-NGOs working together to find solutions to poverty in Vietnam. * Services for Lagging Regions. The Bank will continue to invest heavily to improve access to markets and social services for lagging areas, focusing on three regions: the Northern Mountains (the poorest region), the Mekong Delta (the least successful region over the past decade), and the North Central Coast. The Road Network Improvement Project (FY03) will improve the national road system in the northern region, while the Mekong Region Infrastructure Project (FY06) would provide multi-modal transport infrastructure in the southern-most region, and would be prepared in partnership with JBIC and AUSAID. Expanding access to energy in rural areas underpins the Rural Energy II Project (FY04). This operation will create new, decentralized institutional models to rehabilitate about 900-1000 rural commune distribution systems. In addition, under the High case Scenario, the Rural Transport III Project would adopt a Sector Wide Approach (SWAp) (FY05) to support the Government's program of increasing access of the rural communities in underprivileged provinces. * Community Based Infrastructure and Livelihood Projects. The two new community- based projects (Northern Mountains Poverty Reduction (FY02) and Community Based Rural Infrastructure (FY01)) are introducing a new approach in Vietnam, and will be supervised intensively. A follow-up Poor Communes Infrastructure and Livelihoods Project (FY06) will continue to provide targeted assistance to the poorest communes. A study will be undertaken in FY03 to review the experience of such decentralized, participatory community-based projects in Vietnam. During FY03, TA will be provided, financed by New Zealand and DFID-UK, to the Ministry of Planning and Investrnent (MPI), the Ministry of Agriculture and Rural Development (MARD) and the Ministry of Labor, Invalids and Social Affairs (MOLISA) on how to improve the targeting mechanisms used to identify poor communes in Vietnam. * Addressing the Needs of the Urban Poor. While the most dramatic inequities are between urban and rural areas, within cities there are also pockets of deep poverty, 22 especially associated with migrants and unregistered residents. The Urban Upgrading project (FY04) will introduce, for the first time at a significant scale, a community driven approach to urban slum areas, in four important cities (HCMC, Haiphong, Can Tho, and Nam Dinh). Basic services will be provided to all poor people, including unregistered migrants. AAA will focus on labor polices, and in particular at labor migration and household registration polices, to ensure that poor people have labor mobility and are able to move to better-paying jobs. 49. (ii) Raising the living standards of ethnic minorities. Poverty among ethnic minorities remains very high, and is falling less rapidly than among the majority Kinh population. The Bank will provide assistance in the effort to address this issue through projects and advisory services. Two community-based projects that seek to help address the imbalance in two of the poorest regions will be implemented during this CAS period. And several other projects will also have significant impacts on the lives of ethnic minorities. The Primary Education for Disadvantaged Children Project (FY03) will provide assistance to more than one million ethnic minority children in disadvantaged areas, while the Education for All Project (FY06) could provide support for pre-primary education for ethnic minorities to improve their learning attainment. Also, in the High case, the Forest Sector Development Project (FY04) will improve re-forestation and land management in upland areas which are inhabited largely by ethnic minorities and will help improve their livelihoods. 50. (iii) Realizing gender equality and the advancement of women. Vietnam's Prime Minister has recently approved the 10 Year Strategy for the Advancement of Women for the period 2001-2010, and the National Commission for the Advancement of Women (NCFAW) has prepared a Five Year Plan of Action for 2001-2005 (Box 3). These exercises have been supported by the Bank and other donors, and will form the basis of the Bank's "Country Gender Assessment" (FY03) in line with the new strategy for strategic mainstreaming of gender issues in a country program. A follow up CGA will be prepared in FY05 when Vietnam prepares its next five year plan for the advancement of women. 51. On the lending side, the Bank will identify priority projects that are likely to have a high impact on gender equality to receive both special attention and special support through a "Gender Mainstreaming Fund" (FY03-06) through which funds will be provided annually. For example, in the proposed pipeline for FY03-04, three projects--Primary Education for Disadvantaged Children, Urban Upgrading, and PRSC II--are considered to be projects deserving special focus and resources for mainstreaming gender issues. 52. (iv) Making basic social services accessible and affordable for the poor. Vietnam's policy of "socialization" in which all citizens pay in part for services received, has unintentionally severely restricted access of the poor. The CPRGS recognizes this as a problem, and a series of Bank activities will seek to help the Government in its poverty targeting. 53. Education. The Bank has so far supported primary education and tertiary education, while ADB has provided assistance for secondary education and vocational training and this division of labor is expected to continue. The Primary Education for Disadvantaged Children Project (FY03) will reduce the number of educationally disadvantaged children by providing 23 assistance to disabled children, ethnic minority children, poor and street children, and other vulnerable children such as drop-outs and non-attendees. Vietnam is committed to putting every child in school and is one of 18 countries that is eligible for financial support from the Education for All (EFA) Fast Track Initiative, which stems from the Dakar Conference on EFA. Under the High case, Vietnam would be eligible for support through an Education for All Project (SWAp) (FY06), which would provide broad programmatic lending in support of the Government's EFA goals, with specific focus on disadvantaged children. This support could be used to fund several different programs, including a move to full day schooling and other measures to improve the quality of education; pre-school readiness, especially for ethnic minority children; and scholarships and other targeted measures to reduce the burden of primary education on the poor. In education, IFC has recently approved an investment in RMIT International University Vietnam in Ho Chi Minh City, with ADB as a co-financier. IFC will continue to explore opportunities to promote the development of private education in Vietnam. Box 3: Vietnam's Country Gender Assessment aind World Bank interventions Vietnam has strong institutions-including the National Committee for the Advancement of Women (NCFAW) and the Women's Union-to promote gender equality. It also has a significant body of recent work on the gender profile of the country, the institutional and policy context, and suggested policy and institutional interventions. These are contained within four documents, all of which are entirely country owned: * The Situation Analysis and Policy Recommendations to promote the Advancement of Women and Gender Equality in Vietnam; * The National Strategy for the Advancemrent of Women in Vietnam by the Year 2010; * The second National Plan of Action for the Advancement of Women 2001-2005 (POA2); * The Comprehensive Poverty Reduction and Growth Strategy (CPRGS - the PRSP); In addition, the Joint-Government Donor Gender Framnework (JGDGF) is the product of a partnership between Government and donors and provides the framework for how donors' programs can help towards the attainment of the goals and targets for gender equality laid out in Government documents. Rather.than duplicate.workthat isalready existing and which has a high degree of country ownership, these documents form the core of the Country Gender Assessment. Gender will continue to be an inportant focus of the Bank in Vietnam. Recent and planned interventions include: * Jointly with other donors, assistance to NCFAW in conducting the situation analysis and preparing the 10 Year Strategy and the 5 Year POA2; * Jointly with other donors, assistance to NCFAW in drafting the JGDGF;' . Assistance to NCFAW to establish a task force for providing inputs to the CPRGS; . - Organized conference to bring together the gender machinery of 6. PRSP couritries of East Asia 'to ' strategize on mainstreaming gender into the PRSP; Research on gender-based violence.(1999) and on Equality of Op'portunity under Vietnamese law and `''ifsimplementation(2001/02); *,' Pilot-on changing land-use rights certificates to show names of both husband and wife (2002); * Detailed gender assessment of rural portfolio (2001); ' T.raining of provincial authorities on mainstreaming gender in the CPRGS at local levels (FY03); FBund td mainstream:gender-in-to.the:Bank s.program (FY03); . :Tackling gender issues in future,PRSCs (FY03-05). . . x . . . c . wA , . . ' | ' " ;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-~ 24 54. Health. Several cross-sectoral initiatives are planned to help Vietnam attain its healthcare goals. The Curative Care for the Poor Project (FY05) would finance the significant expansion of public expenditure for health services provided at the provincial level to enable these provinces to provide better curative health care services to the poor. A study examining options for improving health care for the poor (FY03) would provide input into the design of the project. In addition, the Urban Water Supply Project (FY04) and the Rural Water and Health Improvement Project (FY05) would improve the health status, productivity, and quality of life of poor communities in under-served urban and rural areas. This project is being prepared with a view to scaling up in the future. An Early Childhood Development (ECD) study is planned in FY04, which could be followed by a project in the future, to better understand the nature, causes and solutions to the problem of malnutrition highlighted in the CPRGS. While Vietnam is a positive outlier on most social indicators, on malnutrition rates it performs worse than comparator countries. In this area, the Bank will work closely with Save the Children Fund (SCF) Alliance that has piloted many interesting approaches to ECD, especially in the area of malnutrition, in Vietnam. In the area of HIV/AIDS, the Bank will continue to work in partnership with other donors and NGOs to help the Government find an appropriate solution for dealing with the growing AIDS problem in Vietnam. IFC has recently approved its first health sector project in Vietnam--a modem 199 bed tertiary hospital in Ho Chi Minh City. This facility will be an important model for the development of private hospitals in Vietnam, as there are very few private (local and foreign-owned) hospitals in the country at present. ADB is a co-financier in this project. 55. (v) Mitigating the impacts of natural disasters and other shocks. Vietnam is systematically and severely impacted by natural disasters (mainly in the form of typhoons and flooding), and these are a major cause of families falling back into poverty. A project for Natural Disaster Mitigation (FY05) would help Vietnam put in place an effective capacity to deal with natural disasters-with their prevention and mitigation-and to build a response mechanism that would provide financial support for rehabilitation and restoration of livelihoods of disaster victims. Health shocks and the high cost of curative health care for the poor are another factor that push people into poverty or make escape from poverty difficult. The Curative Care for the Poor Project (FY05) would address the issue of the affordability of curative health care for the poor. Finally, given the high and growing rates of traffic accidents and the consequent high disability and fatality rates in Vietnam, the Bank is planning to undertake a major piece of ESW on road safety issues (FY03), and to include a major component to promote road safety in the Road Network Improvement Project (FY03). 56. (vi) Enhancing environmental sustainability. The Bank's support for the environment will include a broad range of initiatives, usually in partnership with other donors and NGOs. First, it will support improvements in natural resource management through the Water Resources Assistance Project (FY03) and through a series of GEF grants. Under the High case, Vietnam would also be eligible for support through the Forest Sector Development Project (FY04). Second, the Bank will aim to help the Government attain the Vietnam Development Goals laid out in Table 1 for improved Urban Water Supply (FY04) and Rural Water and Sanitation (FY05) and for better services to poor urban areas through the Urban Upgrading Project (FY04). Third, the Bank will work with the Government to increase environmental information and awareness (which is part of a broader theme of "transparency"). Specifically, the Vietnam Environment 25 Monitor Series launched in 2002 will be continued annually, jointly with the Government. Fourth, the Bank will provide financial support through an IDF for capacity building for environment management. Theme 3: Promoting Good Governance 57. As discussed earlier, Vietnam is still catching up in the area of modem governance (Figure 2). In the coming CAS period, the Bank will make a concerted effort to support the Government's agenda for good governance, as laid out in the CPRGS, in five broad areas: 58. Improving information, transparency, and public financial management. This remains a very high priority for the Government and the Bank Group. The recent completion of the PER (FY01), CFAA (FY02), and CPAR (FY02) are feeding into the preparation of a Public Finance Management Project (FY03). A new Public Financial Management and Fiduciary Review (FY04) will be undertaken jointly with the Government and other donors. Analytical and technical assistance work for public financial management is also being funded by a multi- donor Trust Fund, supported by DFID (UK), Sweden, Netherlands, Norway and Denmark. A Medium-term Expenditure Framework (MTEF) will also be prepared in the education and health sectors in FY03 and in the agricultural and transport sectors in FY04. These exercises will be valuable inputs in the preparation of sector-wide assistance, and in the preparation of the next CPRGS (FY05/06). 59. Legal System Development. In view of the growing recognition that Vietnam's legal system does not meet the needs of a modernizing economy, the Government has just completed a comprehensive. Legal Needs Assessment (LNA), with strong support from the international community. The Bank will continue providing assistance to the Government--jointly with UNDP and other donors-in the legal area during this CAS period. Initial support for the systemic reform of the legal system will take the form of providing advice and funding (including through an IDF) in connection with the implementation of the LNA, including management and donor coordination. In addition to substantial non-lending services, the Bank has informed the Government that it would be willing to provide a Legal Development project should there be interest in borrowing for this purpose. In addition, as in the past, the Bank will continue to be active in providing technical assistance and advice in the design of key laws required to move Vietnam towards a more efficient and market-driven economy. Recently, for example, the Bank has provided TA and advice on the Electricity Law, the Gas Law, the Mining Law, the Land Law, the Water Law, the Statistical Law, and the NGO Law. 60. Public Administration Reform. In September 2001, the Prime Minister approved a new Public Administration Reform (PAR) Master Program for 2001-2010. The Program is built around: (i) organizational restructuring; (ii) human resources reform, including personnel management and salary reform; (iii) institutional development, including modernization of the public administration system; and (iv) public financial management reform. The Bank will continue to focus on the fourth pillar, while being actively engaged with the other donors (ADB, UNDP and several bilaterals) who are more heavily engaged in the other three. A PAR specialist has been recruited to the Hanoi Office, and an active program of mainstreaming administration reform throughout the Bank portfolio. Most of the projects in the proposed program--in 26 education, health, transport, energy--would support PAR in the sectors in which they operate. In addition, a special focus will be given to building capacity for decentralized project design and implementation in both rural and urban areas. 61. ICT and e-Government. The Government has requested the Bank to provide analytical and advisory support for its Information, Communication and Technology (ICT) strategy, and a report will be completed shortly. This is expected to be followed by an "e-Government" project in FY05 or FY06. This would help to modernize the regulatory environment for e-commerce and e-procurement and would lead to improved transparency and accountability in the functioning of governmcnt systems. In the meantime, analytical work will also be undertaken on e-education to feed into the Higher Education II Project (FY05). IFC will complement Bank activities in this area with support to private projects in ICT-related services. IFC has recently approved an investment in a Vietnam-based software firm, primarily focused on providing outsourcing services to the global semi-conductor industry. 62. Fighting Corruption. Vietnam rates poorly on international surveys of perceived corrupt practices. Progress in each of the governance areas discussed above will help create a less corrupt environment, as will the recent reduction in the number of licenses required for private activity. However, because of the lack of a clear strategy for tackling corruption more specifically, donor assistance for a more targeted approach has been limited. The Government recognizes the need for a more explicit strategy and, with the support of Sweden, is now planning to undertake diagnostic work on the nature and causes of corruption in Vietnam, using the WBI methodology. This will lay the groundwork for further support for designing and implementing an anti-corruption strategy. The problem of corruption is now discussed regularly at Consultative Group meetings by both donors and Government, and the Bank Group is seeking to engage the Vietnam Business Forum in efforts to find solutions. In the meantime, the Bank will continue to take active measures to improve the financial management of its own portfolio (see Section F below). D. Sectoral Issues in the Program 63. While organized around the three cross sectoral themes described above, the Bank Group program will continue to operate at the sectoral level, and will continue to promote rural and urban development, and investment in human resources and physical infrastructure. Box 4 describes the key issues to be addressed in each of these areas. E. Role of IFC and MIGA 64. IFC. Since 1992, IFC has approved 30 investments, totaling $605 million in direct and syndicated financing, which in turn have supported projects worth $1.6 billion in private investment. IFC has undertaken 26 formal advisory projects totaling $3.2 million in technical assistance funding, and established the Mekong Project Development Facility (MPDF), a $25 million donor-funded initiative supporting SMEs, managed by IFC. 27 Box 4: Key Sectoral Issues for the CAS Rural Development: This CAS will continue the shift started by the Bank towards putting more investments into rural areas and continuing the transformation of Vietnam's rural economy. Currently, 85% of the poor live in rural areas and about 80% of the poor work in agriculture. Vietnam made huge progress in rural poverty reduction in the 1990s as a result of de-collectivization of land, market liberalization and an initial round of SOE reform, but how to continue progress in rural poverty reduction? The Bank is supporting the Government's five pillar strategy for the continuing transformation of the rural economy: (i) intensifying agricultural production; (ii) diversifying agricultural production; (iii) expanding off-farm employment in rural and urban areas; (iv) ensuring that the benefits of rural growth are shared equitably; and (v) improving the sustainable management of natural resources. Urban Development: The urban population is projected to increase from about a quarter to a third of the population by 2010 (i.e. from 19 million to 30 million). This growth stems not just from the increase in the existing urban population but from the rural-urban migration that is likely to happen as people move to better-paying jobs in urban areas. The Government's urban development policy seeks to address this phenomenon. The urban development strategy, however, has a serious deficiency in that it does not articulate a clear human settlements policy to indicate how it would prefer to accommodate the additional 11 million urban inhabitants expected to arrive within a decade. Proposals range from relocating people in new economic zones, small cities, new cities, or satellite towns to'holding them in rural towns thiough aggressive rural industrialization. Meanwhile, in the absence of any agreed policy, the big cities continue to grow. The program laid out in the CAS will aim to assist the Government to deal with the deficiencies in basic service provision that already exist. At;the same time, for the longer term, the Bank will also aimn to help the Government plan for the coming urban expansion. Infrastructure: Investmnent in infrastructure still has a very high return in Vietnam, as inadequate service levels and bottlenecks remain a serious constraint on development and competitiveness. Despite abundant natural -resources mi gas, hydro and coal, per capita commercial energy consumption (144 kgoe) remains one of the lowest in ;the world. The transport system-despite substantial improvements in the last five years-is overstretched, adding to costs and preventing many upland and rural areas: from sharing in the benefits of Vietnam's growth. And water supply and sanitation facilities will require huge investments to keep up with the accelerating urban population growth and industrial demand. As in the last CAS, the Bank Group's involvement in support for infrastructure will be guided by three concerns. First, there will be;additional emphasis on improving access to services among poor comrmunities and in rural and remote areas. Second, in view ofthe hu'ge inve'stment-needs, high priority will be given to mobilizing private sector involve'ment. Third, strong emphasis will be given to ensuring improved management and maintenance of investments. There is considerable potential for an increased scope of' IFC's activities in' all of the infrastructure sectors, based on the country's large infrastructure needs, the still limited private sector participation, and IFC's considerable global experience with private participation in infrastructure (PPI) projects. However, for.this to happen, the regulatory, environment for PPI will have'to improve. Human Developmeint: In the past, Vietnam has made significant progress towards attaining the MDGs in health and'educationldue to generally favorable conditionsin the socio-economic,'institutional,' demographic, public finance and political governance context. The future, however, is expected to face the following cross.cutting challenges in health and education: (i) rapid decentralization in public provision of health and education, leading to greater inequ,alities in service delivery. across p,r6oy,inces; (ii) low levels of public financing for health and education, leading to greater burdens being pla,ced on poor people for the fina,ncin,g-of basic social services; and (iii) inicreased pressure on .health'an,deducation-- provider nevworks to moderni,ze due to globalization and-a market-oriented economy, and ,agreater role for tie private sect6r.: .The Bank Group aims.to use the various instruments at its disposal to- help Vietnam' face these challenges. . ..' ' 28 65. Progress in addressing constraints to private investment was slow during the early period of the last CAS, and as a result IFC was unable to approve any investments during FY99, and approved only $8 million in FY00 and $7.5 million in FY01. In lieu of investments, IFC focused more on advisory activities--on development of the private sector through the former Private Sector Forum (now the Vietnam Business Forum), and through MPDF. MPDF has financed 72 SME projects raising about $50 million in financing and has undertaken 15 technical assistance projects. MPDF has also been active in diagnostic work on the business environment for private enterprises in Vietnam and in the areas of training for local banks and managers, and building local consulting capacity. 66. In addition to trends in the business environment, the following factors have influenced the choice of IFC's strategic priorities: (i) Synergies with the Bank--IFC's strategic priorities will support the Bank Group CAS objectives by leveraging on IFC's transaction expertise and experience; (ii) IFC's comparative advantages vis a vis donor agencies and private financiers. In the current improving--but still largely untested--business environment in Vietnam, IFC is uniquely positioned to mitigate regulatory risks in sectors that are being opened to private investment, where the regulatory framework is still evolving, and where public ownership is likely to remain significant for some time in the future. Investment sponsors and partners value IFC for the value-added of its appraisals, its honest broker role and its problem solving abilities in this still difficult, complex and high-risk business environment. IFC-led private sector initiatives, such as the MPDF and the Business Forum, have enhanced IFC's credibility regarding private sector development in Vietnam and have provided a framework for coordinating donors' efforts in this area. IFC will continue to actively pursue opportunities to work together with donor agencies and private partners to leverage its resources and build on their respective strengths and expertise in Vietnam; and (iii) Lessons of experience--IFC's strategic priorities reflect the lessons of experience as outlined in OEG's IFC Country Impact Review. 67. As discussed above, IFC's priorities in this CAS are aimed at assisting the transition to a more market based economy, and include: (i) improvements in the environment for private businesses, primarily through the Vietnam Business Forum; (ii) growth of SMEs, through MPDF, support to financial intermediaries focusing on SMEs, and some direct interventions; (iii) development of the financial sector, including diversification of the financial system, through introduction of new types of institutions and instruments, and transformation of existing financial institutions; and (iv) improved productivity in sectors where Vietnam has a comparative advantage, through provision of support to private projects in sectors such as labor-intensive manufacturing, agribusiness, and ICT-related services. In addition, there is the potential for an increased scope of IFC's activities in all of the infrastructure sectors, based on the country's large infrastructure needs, the still limited private sector participation, and IFC's considerable global experience with private participation in infrastructure (PPI) projects. Effective demand for IFC's services in this area, however, remains limited as regulatory, market, and ownership reforms to support private participation in infrastructure have been slow. Certain sectors are closed to private activities, such as railways and telecoms, while others are dominated by state monopolies. In the absence of immediate investment opportunities, there would be a role for IFC to continue to advise on improving the regulatory environment in key social and physical infrastructure. IFC's strategy will be executed through a mix of investment and advisory 29 products; the speed of implementation will be aligned to progress on the structural and public management/institutional reform agenda as well as the supply response from the domestic and foreign private sector. 68. MIGA has provided support on issues related to the involvement and potential role of the private sector in the power and transmission sectors, and on the development of investment promotion capacity. MIGA has also delivered an overview of best practices in FDI promotion to the Government, and designed and carried out a TA program for Vietnam's investment promotion. MIGA is presently exploring collaboration with ASEAN to support tailored investment promotion capacity building programs for the newest ASEAN4 countries (including Vietnam) to help narrow the development gap between them and the other ASEAN members. 69. As of February 28, 2002, MIGA's gross exposure for Vietnam was $20 million (see Annex B4). This is for two projects -- one guaranteed in FY01 (a telecoms project), and another guaranteed in FY99 (in the power sector). MIGA also expects to underwrite a power project (up to US$100 million) in FY03. F. Portfolio Management and Fiduciary Issues 70. The Growing IDA Portfolio. IDA resumed lending to Vietnam in FY94, and today Vietnam has become the largest IDA-only borrower. As of end FY02, a total of 35 credits, amounting to US$3.8 billion have been approved.3 The active portfolio comprises 27 credits amounting to US$ 2.8 billion, with an undisbursed balance of US$ 2.1 billion (Table 4). The portfolio is still in its growth phase with the active portfolio expected to stabilize around 32 projects by FY04-05. 71. Satisfactory Outcomes, but Slow. Portfolio performance has been satisfactory on outcomes, but less so on elapsed time and disbursement. All of the eight projects2 closed so far were rated satisfactory at exit, all projects reviewed by the Operations Evaluation Department have also been rated fully satisfactory, and QAG ratings have generally been sound. However, the pace at which projects are prepared, and the pace of implementation has been below expectations. An important effort to address these problems is now underway -- with some early positive signs emerging -- and lessons from past implementation experience are being incorporated in the new generation of projects. 72. Improving Portfolio Performance. Portfolio management over the next few years will focus on improving the pace of implementation while retaining sound portfolio quality. An analysis of the on-going portfolio shows that a slow start (i.e., effectiveness delay) is one of the principal causes for a late finish. In addition, poor monitoring, weak project management and prolonged procurement processes add to the delays. A program to address many of these concerns is now underway. Based upon earlier diagnostic work (especially the first IDA/ADB/JBIC joint portfolio review in FY00), the Government has recently revised ODA 3 This does not include an Irrigation project for $60 million approved in 1979. 30 procedures4, and strengthened Project Management Units' (PMUs) management guidelines, and is introducing an M&E system. Table 4: Bank Portfolio Indicators (Amounts are in US$ Million) _ FY98 FY99 FY00 FY01 FY02 Active Portfolio _ No of Projects 18 21 22 25 27 Net Commitments 1,836 2,110 2,119 2,583 2,814 Undisbursed Balance' 1,197 1,306 1,416 .1,776 2,130 Portfolio Riskiness _ No of Projects at risk 5 1 - 2 3 % of total projects (by number) 28% 5% - 8% 11% Commitments at risk 694 49 - 140 96 % of total Commitments 38% 2% - 5% 3% Development Impact No. of closed projects 1 1 2 - 3 No. with satisfactory outcome 1 1 2 n.a. 3 % with satisfactory outcome 100% 100% 100% - 100% Disbursement Performance Total Disbursed (million US$) 238 207 156 160 331 Of which Adjustment lending 35 - 101 Disbursement rate (Investment 19% 17% 12% 12% 15% lending) Disbursement rate, incl. 22% 17% 12% 12% 19% adjustment lending I 73. Portfolio Action Plan. Specific to the Bank portfolio, there is an agreed action plan that would focus on fixing the current stock of 27 projects. This would entail: (i) restructuring stalled older projects; (ii) reviewing and rescheduling 2-3 year old projects with excessively slow start- up periods; and (iii) monitoring progress closely in on-going remedial action plans. The Bank is also seeking to reach agreement with the Government on harmonizing steps in Bank processing with the Government's steps under the new Decree 17. In addition to the project specific issues, concerted actions which benefit the entire portfolio are also beginning to yield results. Measures include intensified portfolio monitoring and reporting, and increased realism which could provide early warning so corrective measures can be taken quickly. Sustaining these gains and moving to a higher level of performance will require some structural issues relating to SOE reform, construction industry development, and Public Administration Reform to be addressed. 4 Some examples include: Decree 17 (Management and Use of ODA funds), Decree 52 (Public Investment Procedures), Decree 88 (Public Procurement Procedures), Decree 22 (Resettlement). 5 Includes adjustment lending. 31 74. Fiduciary Issues. The recently-completed PER, CFAA and CPAR, have each led to important initiatives for change (including the upcoming FY03 Public Financial Management project, the IDF for accounting and auditing development, and an action plan for public procurement development). But while Vietnam has come a long way in a brief time, the journey towards international standards has only begun, and the Bank Group is making dialog and capacity building in these areas an important part of its work. Corruption is a significant and growing problem in Vietnam, and poses risks for the Bank and for Vietnam's development. Coupled with the move away from the traditional large infrastructure projects to projects in social sectors operating in decentralized environments, this could significantly increase fiduciary risks. The Bank proposes to address these issues by analyzing the associated risks in the existing portfolio, new projects, and in the overall environment for implementation of ODA projects. 75. On-going Portfolio. The trend away from procurement of large ICB transactions to several small transactions that are not subject to prior review has increased the Bank's reliance on ex-post reviews. The Bank has recently completed a procurement ex-post review of selected projects, and will conduct this exercise annually. An Independent Procurement Review will also be conducted in FY03, as will a "Quality Review" of the private sector audit firms in Vietnam (to assess and certify their ability to conduct audits of Bank-financed projects). 76. New Projects. Based on the findings of the CPPR completed in November 2001, the Bank has developed a "readiness filter", which also includes an increased focus on the implementation arrangements and the fiduciary functions. Thus, all new projects are now subject to strengthened criteria which not only help improve the quality at entry but also help reduce some of the elements of fiduciary risk. From now on, projects are expected to have accounting and reporting systems (and PMU staff) in place prior to Board approval. The Bank will also be paying close attention to the fiduciary arrangements for the future SWAps that are planned in this CAS. 77. The Overall Imp.'ementation Environment. The implementation of the recommendations of the recent CPAR and the CFAA is expected to improve the overall environment over the next few years. However, limited capacity, which is further strained by the decentralized implementation environment, is a major issue. The Government has recently initiated a systematic dialog with donors, PMUs, and other stakeholders to discuss training needs, delivery mechanisms and financing arrangements. Linked to this is the initiative on harnonization, which, as discussed above, will aim to harmonize the policies and procedures of the ADB, JBIC and the Bank. G. Core Monitoring and Evaluation 78. Measuring Development Effectiveness. The work program in this CAS has been designed to help Vietnam attain the localized MDGs against which progress will be measured in the CPRGS (Table 1). The success of the Government's poverty strategy as well as the effectiveness of the Bank Group support for that strategy can thus be judged ultimately by Vietnam's progress towards achieving the localized MDGs. Progress in attaining the goals, targets, and annual indicators laid out in the CPRGS will be monitored carefully by the Government, with the assistance of donors and NGOs, and reported in annual CPRGS Progress 32 Reports that will become the main framework for discussion between the Government and donors. 79. Measuring the Impact of the CAS. Bank Group instruments have been aligned to the CPRGS and reflect comparative advantage and agreement with Government and other donors (see Program matrix in Annex DI). Out of the 11 Vietnam Development Goals (VDGs) and 32 Targets laid out in Table 1, the Bank's instruments are aligned most closely to the 5 VDGs and the 10 Targets presented in Table 5, and these will therefore be monitored most closely. The Bank's contribution to the attainment of these goals and targets will be measured through the successful implementation of its own instruments and through its successful engagement in partnerships with other donors to help attain these goals and targets. Table 5: Core CAS Monitoring Benchmarks CPRGS/CAS Goal CPRGS Target/CAS Progress Benchmark 1. Reduce the percentage of * Proportion of people living below the international poverty line poor and hungry households . Proportion of people living below the food poverty line 2. Universalize education and * Net primary school enrollment rate improve education quality . Gender gap and ethnicity gap in net primary enrollment rates * Proportion of children in full-day schooling at primary level 3. Ensure environmental * Proportion of rural and urban population with access to clean water sustainabilityv and sanitation 4. Improving governance for * Increased budget transparency at all levels poverty reduction * Implementation of the legal reform agenda 5. Ensuring pro-poor . Proportion of communes with basic infrastructure infrastructure development * Number of communes connected to the national electricity transmission grid 80. Monitoring and Evaluation (M&E) of the CPRGS. The Bank is actively supporting the design of a M&E system for measuring progress. As part of this effort, the Government has just initiated a biannual Vietnam Household Living Standards Survey (VHLSS), starting in 2002, so that disaggregated statistics on poverty and social indicators can be collected and disseminated on a regular basis. The Bank, jointly with UNDP, DFID-UK, and Sweden, has been providing technical and financial assistance to the Government Statistics Office (GSO) for almost a decade now on how to collect quality household survey data. It is expected that the VHLSS will produce timely and high quality statistics that will enable the Government to monitor progress in poverty reduction and on a number of the indicators presented in Table 1 and Table 5. This will be supplemented with participatory and other research to monitor non- quantifiable dimensions of poverty and welfare, such as issues of voice and empowerment, and improved governance. H. Lending Scenarios and Triggers. 81. Size of the Lending Program. The overall Bank program is presented in Table 6. The scale of the program is differentiated according to the pace of progress on the policy and institutional agenda, and on project preparation and implementation. The program ranges from less than $290 million in the Low case to about $760 million in the High case, with a Base case 33 of $580 million per year, consistent with the present IDA allocation. Higher levels of resources are appropriate in the presence of improvements in policies and institutional development for two reasons. First, some of the Government's planned reforms - banking and enterprise restructuring, trade opening, public administration reform, legal development etc - will have costs associated with them. Second, some of the proposed investments - including those supporting investment in water, energy, rural and urban development -- will be truly effective only in the presence of the policy and institutional changes proposed by the Government. More generally, there is strong evidence that the value and effectiveness of ODA rises sharply as the kinds of policy and institutional changes proposed in the CPRGS are implemented. Table 6: Size of Overall Bank Program and Lending Scenarios Lending Scenarios Proposed Annual IDA Lending Average ($m) Lending ($m) FY03 FY04 FY05 FY06 FY03-06 Low Case: Limited implementation of 270 370 250 280 293 the CPRGS; no progress on portfolio management. Base case: Steady (rather than rapid) 625 570 550 580 581 implementation of the CPRGS; modest progress on project preparation and implementation High case: Firm implementation of the 775 740 750 780 761 CPRGS; good progress on project preparation and implementation. 82. High levels of support will also require practical improvements in project preparation. In FY01 and FY02, lending levels to Vietnam, at $620 million and $593 million, respectively, were only slightly above the Base case levels, despite the fact that the policy environment had improved to the High case. This is because the Government and the Bank agreed that high standards should be demanded of each project, and there was inadequate progress (on both sides) in preparing high quality projects according to a tight schedule. 83. Support under the Base and Low Cases. Vietnam remains eligible for Base case lending levels if it continues its satisfactory macroeconomic performance, as evidenced, for example, by an IMF PRGF Program, and implements the policy and institutional reform agenda laid out in the CPRGS at a steady (rather than rapid) pace. The pace of progress would be monitored in each of the areas laid out in Table 7 below. Base case lending also requires some progress on project preparation and implementation. It is expected that Low case lending would likely be caused less by policy reversal, which the Bank Group regards as unlikely, but more by administrative constraints in preparing and implementing high quality projects. Under current Vietnamese patterns of decision-making, projects still take longer than average to prepare and are less certain to be delivered on time than in other countries in the Region. Thus the Base and High cases include projects that because of policy or institutional requirements may take longer to bring to the Board than is currently expected. 34 Table 7: "Triggers" for High Case Lending Policy and Institutional Progress |Monitoring Mechanisms and Indicators Transition to a Market Economy * Improved investment climate through firm --Monitoring of pace of implementation of reform implementation of the 3 year program program through annual JSA of CPRGS Progress (2002-2004) of structural reform (in the Report and annual CAS Progress Report five areas of trade liberalization, private sector development, banking reform, state enterprise reform, and public expenditure management) laid out in the Letter of Development Policy (attached to PRSC I); Equitable, Socially Inclusive and Sustainable Development * Design and implement programs to --Specific benchmarks to be developed in the increase access of urban residents, context of annual PRSCs which will be presented including unregistered migrants, to public to the Board for approval services; * Design and implement changes to reduce burden on the poor of out-of-pocket expenses for primary education and health care Good Governance * Greater alignment of public expenditures --Preparation and adoption of annual budgets (recurrent and investment) and budgetary aligned to CPRGS and Medium-term Expenditure processes to the priorities laid out in the Frameworks (MTEFs) for the overall budget as CPRGS well as for individual sectors * Increased transparency of the budget and --Preparation of a sound Public Investment "off-budget" accounts; and increased Program (PIP) public access to audit reports --Public access to audit reports by State Audit of Vietnam Portfolio Management * Continued strong indicators of project --Commitments at risk quality to ensure they meet development objectives . Reduced project preparation time and --Time elapsed between appraisal and Board increased pace of implementation of --Disbursements projects 84. Support under the High Case. In the preparation of the CAS, detailed discussions have been held with the Authorities as to the policy and portfolio indicators that would warrant High case support. These are presented in Table 7. Indicators have been chosen so as to be monitorable, and indicative of the measures that will be required to help Vietnam reach its development targets laid out in Table 5. Vietnam would therefore remain at Base case lending levels until the triggers laid out in Table 7 have been met. 85. For some of the triggers in Table 7, a timed action plan has already been agreed with the Government, as laid out, for example, in the Letter of Development Policy for PRSC1, which 35 presents a matrix of agreed actions through 2004. This covers structural reforms in banking and SOE reform, private sector development, trade policy, and public expenditure management. In other areas, the Government has laid out the principles and the direction of reform in the CPRGS, but has not yet specified the timing. The triggers reflect the desired direction of reform and it is proposed that specific, time-bound, benchmarks in these areas will be developed through on-going policy dialogue and AAA in the context of annual PRSCs, which would support a medium-term program of reform in these (and other) areas. The size of the annual PRSC support ($100-200 million) would provide an indication of the pace of progress in these areas. Progress in most of the areas listed in Table 7 can be measured through trends in annual budgetary allocations and bi-annual households surveys, and would be reported in annual CPRGS Progress Reports as well as CAS Progress Reports. V. MANAGING RISKS 86. There are four sets of risks that the Bank Group needs to monitor and seek to manage: Reform Slippage: The first risk is that the emerging success of the domestic private sector may lead to income disparities over the coming years that in turn cause a rethinking of the development path, and a halt to the implementation of the reform program. While there are real possibilities of a slowdown in implementation, the Bank regards the prospects of a halt or reversal to be small. Vietnam now has obligations to open its economy according to a strict timetable, which locks itself into full integration into the world economy in the coming six years. The proposed Bank Group program is calibrated so that any slowdown in reform would be associated with a smaller Base or Low case program. * Failure to Address Governance Issues: More serious in the Bank's judgment is the risk that the required reforms in public administration, legal development and corporate governance would not take place. Thus, as the private sector grows in the coming years, uncompetitive and corrupt entanglement between private enterprises and Government officials could develop. This "Indonesia-style" risk, whereby a decade from now unhealthy patterns of behavior could have become entrenched, and future development threatened, is the most serious risk facing Vietnam. The Bank has placed this risk frontally on the agenda in Consultative Group meetings, and in its own dialog with the Government and the Party. Together with other key multilateral agencies - the UNDP and ADB - the Bank is also helping to catalyze international support for governance issues. * Decentralized Project Implementation and Inadequate Fiduciary Controls: A growing share of Bank lending is being implemented by local levels of government and by communities. The average size of contracts is declining as the Bank seeks to promote opportunities for domestic private firms to win contracts. This runs the risk of inadequate financial oversight and the possibility of malfeasance. The Bank is building up its financial and procurement management capacity in the Hanoi office, and seeking to draw from best practice experiences from other countries that have supported decentralized and 36 community-based projects. Next year, the Bank will be conducting a major review of decentralized projects in Vietnam, with a special focus on financial controls. Ethnic Minority Issues: Disputes in the Central Highlands and elsewhere are causing concern that not enough is being done to protect the rights of some ethnic minorities. The Bank will ensure that all social guidelines are applied in IDA-funded projects, and will assist the Government in strengthening its own safeguards. As co-Chair of the Consultative Group process, the Bank also regularly reminds the Government that such issues could undermine Vietnam's highly positive reputation for poverty reduction, and could potentially impact development assistance flows. James D. Wolfensohn President By: Shengman Zhang Peter Woicke Washington, DC September 16, 2002 CAS- Annex AI Page I of 2 Vietnam at a glance 10/3102 East POVERTY and SOCIAL Asia & Low- Vietnam Pacific Income Development diamond- 2001 Populafton, mid-year (millions) 79.5 1,853 2,459 Life expectancy GNI per capita (AHas method, US$) 410 1.060 420 GNI (Atlas method, US$ billions) 32.6 1,964 1,030 Average annual growth, 1 99-01 Population (%) 1.4 1.1 1.9 GNI Labor force (%) 1.7 1.4 24 GNI Gross per I primary Most recent estimate (latest year available, 1995-01) capita enrollment Poverty (% of population below national poverty line) 37 Urban population (% of total population) 23 35 32 Ufe expectancy at birth (years) 69 69 59 Intant mortality (per 1,000 live births) 25 35 77 Child malnutrition (% of children under 5) 34 13 . Access to improved water source Access to an improved water source (% of population) 36 75 76 Illiteracy (% of populaton age 15+) 7 14 38 Gross primary enrollment (% of school-age population) 114 119 96 vietnam Male 116 121 102 Low-income group Female 110 121 86 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1981 1991 2000 2001 Economic ratios' GDP (US$ bililons) .. 9.6 31.3 E c Gross domestic investmentUGDP 15.0 24.7 26.1 Trade Exports of goods and serviceslGDP 32.6 50.3 52.3 Gross domestic savings/GDP 16.5 23.1 24.0 Gross natonal savings/GDP 16.9 26.2 27.6 Current account balance/GDP -2.0 1.5 1.5 DoUmesc Interest payments/GDP 0.3 0.9 0.9 savings c- Investment Total debVGDP 243.4 48.4 50.0 svn Total debt service/exports 6.4 6.2 6.9 Present value of debVGDP Present value of debUexports Indebtedness 1981-91 1991-01 2000 2001 2001-05 (average annual growth) GDP 4.9 7.6 5.5 4.8 6.2 v 7etnam GDPpercapfta 2.5 5.9 8.2 1.1 3.5 Low-income group Exports of goods and services 22.8 14.8 13.8 11.5 STRUCTURE of the ECONOMY 1981 1991 2000 2001 Growth of Investment and GDP (%) (% of GDP) so Agriculture 39.5 24.3 24.0 20 Industry 23.8 36.6 36.7 10 Manufacturing 19.8 .. .. Services 36.7 39.1 39.3 . 10 Be S 7 ew9 oo o0 Private consumpbon 77.1 68.5 .. 20l General govemment consumption 6.3 6.4 - GDI e- GW Imports of goods and services 31.1 49.0 50.5 (average annual growth) 1981-91 1991-01 2000 2001 Growth of exports and Imports (%) Agriculture 4.3 4.8 4.0 3.5 50 Industry 12.1 10.1 8.4 40 Manufacturing .. .. A Services 7.6 2.9 3.5 2 Private consumption 11.9 . General govemment consumption 13.2 go 9.r 7 sBe og oo 0 Gross domestic nvestment 19.0 4.1 2.8 Exports - iports Imports of goods and services 30.8 26.9 8.3 Note: 2001 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. CAS- Annex Al Page 2 of 2 Vietnam PRICES and GOVERNMENT FINANCE 1981 1991 2000 2001 Inftion I(%) (% change) 25 Consumer pdces .. 82.7 -1.7 -0.8 20 Implicit GDP deflator .. 72.5 5.3 15 Govewrnment finance s (% of GDP, includes current grants) 0 I I Current revenue . 13.5 21.1 21.7 -s 96 97 se 99 Current budget balance .. 0.0 4.8 4.3 - GDP deflator 0 CPI Overall surplus/deficit . .. -2.8 -3.5 TRADE (US$ millions) 1981 1991 2000 2001 Export and Import levels (US$ mill.) Total exports (fob) 2,042 14,448 15,000 tsoro Rice 225 667 14000. Fuel 581 3,548 12,000 Manufactures 10,00D Total imports (c.) 2,377 14,259 14,500 s,10i Food 82 .4.0 Fuel and energy 485 2000 Capital goods 714 0 Export price index (1995=100) .. 97 go so oo o1 Import price index (1995-100) .. .. .. * Expons *l rrVorts Terms of trade (1995-100) . ._._. BALANCE of PAYMENTS (US$ millions) 1981 1991 2000 2001 Current account balance to GOP(%) Exports of goods and services 2,491 17.098 17,682 a Imports of goods and services 2,377 17 418 17,863 4 Resource balance *720 114 -237 -180 2 Net income -72 -339 -597 -764 -2 -9 1 Net current transfers 1 7 35 1341 1368 -4 Current account balance -775 -190 573 563 5 Financing items (net) 534 472 -478 325 o -. Changes in net reserves 241 -282 -95 -888 -12 Memo: Reserves Including gold (US$ millions) .. Conversion rate (DEC, loca4lUS$) 0.6 7,979.2 14,170.0 14,793.0 EXTERNAL DEBT and RESOURCE FLOWS 1981 1991 2000 2001 (US$ rnillicns) ComposItlon of 2000 debt (USS mill.) Total debt outstanding and disbursed 26 23,395 13,900 14,400 IBRD 0 0 0 0 IDA 19 58 1,113 1,762 G:925 : 316 Total debt servioe 0 161 1,784 1,989 IBRD 0 0 0 0 IDA 0 1 9 9 D ,4 Composiion of net resource flows F: 4,595 Official grants 126 120 120 Offcial creditors 19 -44 973 Private creditors 0 50 -717 Foreign direct Investment 800 1,000 Portfolio equity .. 10 .. .. E: 5,104 World Bank program Commitments 0 0 260 649 A - IsRD E - EIlatera Disbursements 17 0 174 230 B - IDA D - Other multilateral F - Private Princpal repayments 0 1 2 . 2 C - IMF G - Short-term Netflows 17 -1 173 228 Interest payments 0 0 8 9 Nettransfers 17 -1 165 219 Development Economics/EASPR 10/302 CAS - Annex A2 Page I of I Vietnam Key Economic & Program Indicators - Change from Last CAS Forecast in Last CAS Act. Est. Current CAS Forecast Economy (CY) 1998 1999 2000 2001 1998 1999 2000 2001 2002 2003 2004 2005 Growth rates (real %) GDP 4.5 4.0 4.0 5.0 4.0 4.5 5.5 4.8 5.2 7.0 7.0 7.0 Exports 7.0 5.8 5.5 6.1 2.4 23.2 25.2 4.0 5.0 10.0 15.0 15.0 Imports 4.8 4.6 4.4 5.2 -1.1 1.1 34.7 3.2 8.0 15.0 20.0 20.0 Inflation (annual averaae rate-- %) 8.0 6.0 6.0 5.0 7.8 4.3 -1.6 -0.4 4.0 4.0 4.0 4.0 National accounts (% GDP) Current account balance * -6.6 -6.6 -6.1 -6.3 -4.9 4.1 1.5 1.5 -1.5 -3.1 -3.6 -3.7 Gross investment 23.6 22.0 22.0 23.0 25.8 23.0 24.7 26.1 26.6 28.4 28.7 29.3 Public finance (% GDP) Fiscal balance -0.6 -1.5 -1.9 -1.5 -0.5 -2.6 -2.8 -2.9 -3.2 -2.5 -2.5 -2.3 Intemational reserves 10.5 10.5 9.8 9.5 6.8 9.1 9.1 11.0 11.2 11.3 11.4 11.4 (as weeks of imports) Program (Bank's FY) ** FY1999 FY2000 FY2001 FY2002 FY1998 FY1999 FY2000 FY2001 FY2002 FY2003 FY2004 FY2005 Lending ($ million) 403 650 630 640 395 308 286 629 594 625 570 550 Gross disbursements ($ million) 215 195 215 245 238 207 156 160 331 371 412 457 Note: * excluding grants. ** Figures refer to the base case. Source: Vietnam authorities and World Bank Staff estimates. CAS - Annex A3 Page I of 2 VIETNAM: KEY ECONOMIC DICATORS, 1997-2005 Act. Rev. Est. Projected 1997 1998 1999 2000 2001 2002 2003 2004 2005 Growth Rates (%) Real GDP 8.2 4.0 4.5 5.5 4.8 5.2 7.0 7.0 7.0 Real GDY 9.8 6.3 2.1 10.3 0.8 3.8 6.2 7.7 6.7 RealGDPpercapita 7.8 4.3 0.2 8.2 1.1 1.9 4.3 5.7 4.7 Consumer price index (annual avg.) 3.2 7.3 4.1 -1.7 -0.8 4.0 4.0 4.0 4.0 Consumer price index (Dec. to Dec.) 3.6 9.2 0.1 -1.0 0.5 .. Debt Service Debt service (US$ million) 1341 1647 1936 1784 1989 1946 1858 1920 2087 Debt service/XGS(%) 11.5 13.8 13.8 10.4 11.2 10.5 9.1 8.1 7.4 Debt service/GDP(%) 5.4 6.4 7.1 6.2 6.9 6.3 5.5 5.2 5.2 Ratios to GDP (current prices) (%) Investment 29.8 25.8 23.0 24.7 26.1 26.6 28.4 28.7 29.3 National savings 22.6 21.0 27.1 26.4 27.4 25.1 25.3 25.1 25.7 Domestic savings 21.5 13.8 21.9 23.1 24.0 23.2 23.3 22.6 23.2 Public investment 6.2 5.7 6.7 7.6 8.2 7.7 7.0 7.0 7.0 Private investment 23.6 20.1 16.3 17.1 17.9 18.9 21.4 21.7 22.3 Ratio of public/private investment 0.26 0.58 0.36 0.37 0.34 0.38 0.34 0.34 0.34 Govemment revenues (inc. grants) (% 20.8 20.2 19.8 21.1 21.7 20.8 21.0 21.0 21.2 Govemment expenditures (inc. int.) 22.2 20.7 22.4 23.9 24.6 24.0 23.5 23.5 23.5 Overall deficit (cash basis) (%) -1.4 -0.5 -2.6 -2.8 -2.9 -3.2 -2.5 -2.5 -2.3 Other Items Export growth rates (nominal) (%) 24.8 2.4 23.2 25.2 4.0 5.0 10.0 15.0 15.0 Exports/GDP (%) 36.7 36.2 42.2 50.3 52.3 51.3 51.7 54.6 57.8 Export growth rates (real) (%) 13.3 4.3 22.6 14.8 13.8 4.1 9.1 14.4 16.0 Import growth rates (nominal) (%) 4.1 -0.9 1.1 34.7 3.1 8.0 15.0 20.0 20.0 Imports/GDP (%) 41.9 40.0 38.3 49.0 50.5 50.9 53.8 59.3 65.3 Importgrowthrates(real)(%) 5.3 5.3 1.0 26.9 8.3 6.8 11.2 16.1 15.1 Current account balance (US$ million) - before official transfers -1,798 -1,255 1,153 432 423 -458 -1,043 -1,315 -1,493 percentofGDP(%) -7.2 -4.6 4.1 1.5 1.5 -1.5 -3.1 -3.6 -3.7 -afterofficial transfers -1,623 -1,057 1,283 572 563 -318 -898 -1,170 -1,348 * percent of GDP (%) -6.5 -4.1 4.7 2.0 2.0 -1.0 -2.7 -3.2. -3.4 Gross reserves in weeks of - imports 7.9 6.8 9.1 9.1 11.0 11.2 11.3 11.4 11.4 Note: Figures are rounded. Source: Actual data: Vietnamese authorities and Bank and Fund staff estimates. Estimates and projections: World Bank. CAS - Annex A3 Page 2 of 2 VIETNAM: BALANCE OF PAYMENTS, 1997-2005 (US$ Billion) Act. Rev PreL. Est Projected 1997 1998 1999 2000 2001 2002 2003 2004 2005 Exports (fob) 9.1 9.4 11.5 14.4 15.0 15.8 17.4 20.0 23.0 Imports (fob) 10.4 10.3 10.5 14.1 14.5 15.7 18.1 21.7 26.0 Trade Balance -1.3 -1.0 1.1 0.4 0.5 0.1 -0.7 -1.7 -3.0 Non-Factor Services -0.6 -0.5 -0.5 -0.7 -0.7 -1.0 -0.9 -0.3 0.7 Services (Net) -0.6 -0.7 -0.4 -0.6 -0.8 -0.9 -0.9 -0.7 -0.7 of which: - Interest 0.5 0.6 0.5 0.5 0.6 0.6 0.6 0.6 0.6 Transfers (Net) 0.9 1.1 1.2 1.5 1.5 1.5 1.6 1.6 1.7 of which: - Official Transfers 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 - Private Transfers (net) 0.7 1.0 1.1 1.3 1.4 1.4 1.4 1.5 1.5 Current Account Balance (exc. Grants) -1.8 -1.3 1.2 0.4 0.4 -0.5 -1.0 -1.3 -1.5 Capital Account 1.7 0.6 -0.3 -0.7 0.3 1.1 1.6 1.8 2.0 Medium and Long-Term 0.2 0.1 -0.4 0.2 0.2 0.3 0.5 0.5 0.4 - Disbursements 1.0 1.1 0.9 1.4 1.5 1.6 1.8 1.8 1.8 of which: * IDA 0.2 0.3 0.2 0.2 0.2 0.4 0.3 0.3 0.3 * Existing and New ODA 0.4 0.5 0.8 1.2 1.2 1.2 1.3 1.3 1.3 - Amortizations/Principals 0.8 1.1 1.4 1.2 1.3 1.3 1.3 1.3 1.4 Short-Term -0.5 -0.3 -0.6 -1.7 -0.9 -0.8 -0.5 -0.2 0.0 Direct Investment 2.0 0.8 0.7 0.8 1.0 1.7 1.5 1.5 1.7 ErroTs and Omissions -0.1 0.0 -0.2 0.3 0.0 0.0 0.0 0.0 0.0 Overall Balance 0.0 -0.5 0.8 0.1 0.8 0.8 0.7 0.6 0.7 Financing 0.0 0.5 -0.8 -0.1 -0.8 -0.8 -0.7 -0.6 -0.7 Change in Foreign Reserves -0.3 0.1 -1.3 -0.1 -0.9 -0.9 -0.7 -0.6 -0.7 IMF (Net) -0.1 -0.1 0.0 0.0 0.1 0.0 0.0 0.0 0.0 Arrears 0.3 0.1 0.5 -9.7 0.0 0.0 0.0 0.0 0.0 Rescheduling 0.0 0.4 0.0 9.7 0.0 0.0 0.0 0.0 0.0 Note: Figures are rounded. Source: Actual data: Vietnamese authorities and Bank and Fund staffestimates. Estimates and projections: World Bank. CAS - Annex A4 Page 1 of I VIETNAM: KEY EXPOSURE INDICATORS, 1997-2005 (US$ Billion) a! Act. Prel. Est. Projected c/ 1997 1998 1999 2000 2001 2002 2003 2004 2005 b/ b/ b/ Total debt outstandlng 10.1 10.8 11.1 13.9 14.4 14.9 16.1 16.9 18.8 and disbursed (TDOD) (US$ billion) Public 6.6 7.3 7.8 10.8 11.5 12.2 13.5 14.3 16.1 Multilateral 1.3 2.0 2.3 2.6 2.9 3.3 3.7 4.1 4.6 Bilateral 5.3 5.3 5.5 8.2 8.6 9.0 9.8 10.2 11.5 Concessional c/ 3.3 3.7 4.0 6.7 7.5 8.2 9.2 9.8 11.2 Non-concessional dl 1.9 1.7 1.5 1.5 1.1 0.7 0.6 0.4 0.3 Foreign direct investment 3.5 3.5 3.4 3.1 2.9 2.7 2.6 2.6 2.7 Key Debt Service Indicators (%) Debtservice/XGNFS 11.5 13.8 13.8 10.4 11.2 10.5 9.1 8.1 7.4 Debt service/GDP 5.4 6.4 7.0 6.2 6.9 6.3 5.5 5.2 5.2 Note: Figures are rounded.. a. Includes future disbursements. b. Convertible debt only. c. For 2000 onwards, includes the rescheduled of non-convertible Russian debt. d. Suppliers credit, financial institutions, export credits, and other private creditors. Source: World Bank staff estimates, based on informnation provided by the Govemment. CAS- Annex A5 Page l of 2 Vietnam Social Indicators Latest single year Same regionlincome group East Asia & Low- 1970-75 1980-85 1994-00 Pacific income POPULATION Total population, mid-year (millions) 48.0 58.9 78.5 1,855.2 2,459.8 Growth rate (% annual average for period) 2.3 1.8 1.5 1.1 2.0 Urban population (% of population) 18.8 19.6 24.0 35.2 31.9 Total fertility rate (births per woman) 5.7 4.2 2.2 2.1 3.6 POVERTY (% of population) Nabonal headcount index Urban headcount index Rural headcount index INCOME GNI per capita (US$) .. .. 390 1,060 410 Consumer price index (1995=100) .. .. 120 135 140 Food price index (1995=100) INCOMEICONSUMPTION DISTRIBUTION Gini Index .. .. 36.1 Lowest quintile (% of income or consumption) .. .. 8.0 Highest quintile (% of income or consumption) .. .. 44.5 SOCIAL INDICATORS Public expenditure Health (% of GDP) .. .. 0.8 2.0 1.2 Education (% of GDP) .. .. 2:8 2.9 3.4 Social security and welfare (% of GDP) .. Net primary school enrollment rate (% of age group) Total 95 97 91 Male 100 91 Female 95 91 Access to an Improved water source (% of population) Total 56 75 76 Urban 81 93 88 Rural 50 66 70 Immunization rate (% under 12 months) Measles .. 19 93 85 57 DPT 42 93 85 57 Child malnutrition (% under 5 years) .. 52 37 10 CAS- Annex A5 Page 2 of 2 Life expectancy at birth (years) Total 56 63 69 69 59 Male 54 61 67 67 58 Female 58 65 72 71 60 Mortality Infant (per 1,000 live births) 73 49 27 35 76 Under 5 (per 1,000 live births) 157 105 34 45 115 Adult (15-59) Male (per 1,000 population) 320 262 206 183 294 Female (per 1,000 population) 256 204 141 132 261 Matemal (per 100,000 live births) .. .. 95 Births attended by skilled health staff (%) .. 100 77 .. Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment ratios exceeding 100 indicate discrepancies between the estimates of school-age populaton and reported enrollment data. 2002 World Development Indicators CD-ROM, World Bank CAS - Annex A6 Page I of 5 A Chronology of Structural Reform, 1998-2002 Box 1: Integrating into the World Economy, 1998 - June 2002 1998 * Lowered the maximum import tariff to 50 percent (exceptions remain for six groups) and reducing the number of tariff-rates to 15; * Liberalized trading rights of domestic firms by allowing therm to export and import goods directly, without a license, though residual restrictions.remain for importers; * Allowed private firms to import fertilizer; 1999 * Allocated rice export quotas to non-state firms for the first time (by listing 5 private firms and 4 joint-ventures among the 47 authorized primary rice exporters) and allowed foreign firms to buy rice directly from farmers for export purposes; * Auctioned 20 percent of garment export quotas; * Encouraged trading activities by reducing the foreign exchange surrender requirement from 80 percent to 50 percent of foreign exchange earnings; 2000 * Removed quantitative import restrictions on 8 out of remaining 19.groups of products i.e. including fertilizer, liquid soda, ceramic goods, plastic packaging, DOP plasticizer, ceramic sanitary ware, electricfans, and bicycle; * Signed a bilateral trade agreement with the US in July paving the way for MFN access of Vietnanese exports to the US market, gradual opening up of Vietnam's economy, for goods and services as well as investments; * Approved a roadmap for AFTA tariff reduction during 2001-2006 wherein most tariff lines will have their tariff reduced to 20% by early 2003 and to 5% by early 2006; 2001 * Enhanced the scope for long-term planning among traders by drawing up export and import plans for the period 2001-2005, instead of the hitherto one year schemes; * Removed QRs multilaterally on all tariff lines of the following groups of products: liquor, clinker, paper, floor tiles, construction glass, some types of steel, and vegetable oil; * Reduced the foreign exchange surrender requirement from 50 to 40 percent; * Abolished the quota allocation for rice exports and fertilizer imports; * Moved 713 tariff lines from the Temporary Exclusion List (TEL) to the Inclusion List (IL); * Permitted all legal entities (companies and individuals) to export most goods without having to acquire a special license by revising the implementing decree of the Trade law; * Established an export support credit sourced from the State Development Assistance Fund,.to. promote exports; * Reduced the number of items that FlEs have to export from 24 to 14, including such items as tiles, ceramics, footwear, electric fans, plastic products, and common paints; * Permitted FIEs to engage in exports of coffee, minerals, certain wood products, and certain textiles and garments; 2002 • Detailed a list of goods and tax rates for implementing the Agreement on: the Common Effect Preferential Tariffs (CEPT) Scheme of ASEAN countries for the year 2002. Based on the schedule, 481 items were moved in to Inclusion list with tariff lower than 20%. To date there are 5558 lines in the Inclusion List, 770 in the Temporary Exclusion List, 53 in the Senisitive Agricultural List and 139 in General Exclusion List; * A Govemment negotiation team has started working sessions on WTO accession in Geneva (April 2002) CAS - Annex A6 Page 2 of 5 Box 2: Improving the Climate for Enterprise, 1998 - June 2002 1998 * Issued a new Decree on foreign investment providing additional incentives to foreign investors; * Initiated the private sector donor dialogue under the auspices of the Consultative Group of donors in order to better understand the constraints faced by the private sector, especially foreign investors; * Amfended the Law on Promotion of Domestic Investment, allowing domestic and foreign organizations, and individuals, to buy shares and contribute capital to domestic enterprises,- including equitized SOEs, and provided additional incentives for new domestic investment; 1999 * Approved the Enterprise Law and issued decrees to implement it, eliminating a number of discretionary restrictions on the establishment of private business; * Provided regulations on secured transactions, enabling mortgages of land-use rights and houses, and collateralized lending on the back of assets ranging from materials, machines, and production equipment to bonds, shares, and property rights, * Revised the Land Law to convert, transfer, lease, provide as collateral and capital contribution of land use-rights to banks or to joint-ventures; 2000 * Implemented the Enterprise Law and revoked unnecessary business licensing restrictions in 145 industries, trades and services to ease private entry; * Revised the Foreign Investment Law to create more favorable conditions for foreign investors: Improving access to foreign exchange, allowing mortgaging of land by foreign bank branches in Vietnam, permitting automatic registration for export-oriented foreign investment, and making provisions for the Government to issue guarantees for large infrastructure projects; • Amended the 1993 Law on Petroleum, making the investment and:regulatory environment for foreign investment in the oil and gas sector more attractive; * Established the first stock exchange center in Ho Chi Minh City, which is dealing in treasury bonds and shares of listed companies; 2001 * Increased openness and information by establishing an Enterprise Information Center under MPI on enterprises registered under the Enterprise Law; * Approved two BOT projects in the energy sector: Phu My 2.2 power plant with an EdF led consortium of TEPCO and GEC (US$ 400 million) and Phu My 3 combined cycle power project with BP (US$450 million), thereby creating precedents for more BOTs in infrastructure; * Provided detailed guidelines and listed all necessary documentations for foreign invested enterprises to mortgage land-use rights and assets attached thereto to Vietnamese credit institutions and joint-venture banks; * Allowed overseas Vietnamese to hold land-use rights, and decentralized control and monitoring of land-use rights to enhance the functioning of the real estate market; * Phased out the dual pricing policy for overseas Vietnamese in aviation fares, electricity, and visa fees; * Unified train fares for foreigners, overseas Vietnamese, and Vietnamese nationals as of January 2002; * Amended Decree 17 dated March 24, 1999 to improve transparency and legalize the real estate market, by providing official regulations for sale, lease, mortgage and transfer'of land-use-rights; • Given overseas Vietnamese the right to own and dispose of property in Vietnam, provided they have invested in, or otherwise contributed to the economy, or have been invited by the Government to take up residence and work in Vietnam; * Recognized the importance of SMEs by updating the decree to support the development and continued growth of these enterprises by specifying regulations and support mechanisms; 2002 * Amended the constitution of Vietnam to provide the private sector status equal to that of the state sector; * Introduced a website (www.business.gov.vn) - the first ever e-government site in Vietnam - on business registration, providing information on procedures for registration and providing downloadable application forms; * Proposed to eliminate 16 business licenses in the- following sectors: transport, trade, healthcare, telecommunications, industry,' environment, and culture; and modify 13 current licenses into conditions to be fulfilled in the following sectors: internet provision, advertisement, culture, healthcare and mnedicine (the decision is pending prime ministerial approval); * Set up the website: "Investment Information and Opportunities in Vietnam" (www.khoahoc.vnn.vn/mpi website) under MPI in partnership with MIGA, to provide timely and clear information to domestic and foreign investors. The site also includes an online investment application facility; * Allowed foreign portfolio investors to remit dividends from investments in the domestic securities markets. CAS - Annex A6 Page 3 of 5 Box 3: Reforming State-Owned Enterprises, 1998 - June 2002 1998 * Issued Decree 44 to simplify the process of equitization and allow limited foreign shareholding in equitized SOEs; * Issued Directive 20 to adopt a wider menu of reform options for SOEs, e.g. outright sale, transfer to employees competitive bidding, for purchasing SOEs on SOE shares, leases, management contract etc.; * Announced annual targets for equitizations for 1998 - 2000; * Equitized 52 SOEs; 1999 * Completed classification of SOEs into three groups: profitable, temporary loss-makers and permanent loss- makers; * Issued decrees and regulations for outright sale, transfer to employees, and lease of small SOEs, without requiring conversion of SOEs into joint-stock companies as required for equitization; * Selected 100 large troubled SOEs for independent diagnostic audits (i.e. operational reviews); * Equitized 151 SOEs; 2000 * Selected three general corporations (Seaprodex, Vinatex, and Vinacafe) for developing specific action restructuring plans; * Expanded authority of provinces to decide on divestiture of SOEs with capital of up to five billion VND instead of I billion permitted before; * Established an Assistance Fund for Restructuring and Equitizing SOEs to finance severance payments, early pension payments and retraining for redundant workers, to minimize the negative social impact of SOE reforms on workers; * Adopted a comprehensive five-year SOE-reform plan with annual target for the first three years. * Equitized 185 SOEs; 2001 Established a quarterly monitoring system for 200 large highly-indebted SOEs, revised a decision to clarify reporting requirements and introduced sanctions against late reporting; * Issued government's instruction for a moratorium on establishing new SOEs by local People Committees and line ministries until further notice (Official Dispatch 574/CP of June 25, 2001); * Established the Financial Investment Company under the Enterprise Law, to represent the interests of the State as owner and co-owner of SOEs and issued decree 63 on transforming SOEs into one-member limited liability companies -- steps towards disentangling the complex ties between Government and SOEs; * Equitized a total of 194 SOEs; 2002 * Planning to allow managers of equitized enterpnses to purchase shares in excess of the number of shares subscribed by employees, requiring 30 days public notice prior to announcement-of eqqitization, and clarifying potential conflicts between the SOE Law and the Enterprise Law (Decree expected to be issued by end-June 2002); * Equitized a total of 87 enterprises as of end-May; CAS - Annex A6 Page 4 of 5 Box 4: Strengthening the Banking System, 1998 - June 2002 1998 Established a Bank Restructuring Committee and initiated restructuring of non-state Joint-Stock Banks (JSBs) in HCM City; Issued regulations for intervening in troubled banks including conditions for "Special Control Regime" of the central bank; 1999 * SBV completed financial assessment of all JSBs * Closed and merged 4 JSBs in HCM City; * Issued prudential regulations for banking operations, financial ratios for safe operation of credit institutions; authority of banking inspectors; deposit insurance and collateral; 2000 * Issued new regulations for operations of banks in respect of calculating provisions against their non-performing loans.on a quarterly basis; Assigned full responsibility and accountability for all aspects of the credit cycle to banks; requiring loan officers in commercial banks to check not only the capacity of the borrower to repay a loan but also to check the feasibility and viability of the project that is to be financed; Allowed lending on an unsecured basis to SOEs and foreign invested enterprises; Replaced fully administered interest rates on dollar and dong loans by a more flexible interest-rate system under which the dollar rate is anchored in SIBOR, while the dong rate is allowed to vary around a SBV base rate subject to a ceiling rate; Issued regulations for the organization of SBV's supervision of the banking sector -- the State Bank Inspectorate; Supplemented the existing legislation for foreign banks with detailed provisions concerning the organization and operations of SOCBs and JSBs, broadening the range of non-core activities; Clarified provisions for registering secured transactions; 2001 Provided guidelines for the realization, either through sale or seizure of secured property, for recovery of debts by credit institutions; Simplified procedures goveming deferred L/Cs, by cutting the number of requirements from six to two - effective June 10, 2001; Adopted a detailed restructuring plan for the four large SOCBs including annual milestones (i.e. actions and targets) that need to be achieved to obtain phased re-capitalization funds from Govermment; Broadened the scope for financial leasing and improved regulations to create a more attractive operating environment for domestic and foreign leasing companies; Freed interest rates on foreign currency lending by banks in Vietnam and off-shore banks; Issued guidelines for the implementation of the Ordinance on Commercial Paper. from 1999, including on the form and language of, and conditions for guaranteeing and pledging commercial paper, and the respective obligations of the different parties to such commercial transactions; Increased autonomy of commercial banks by allowing them to set up intemal systems for clearing payment transactions without State Bank involvement, but with State Bank permission; Provided a framework for cross-border payment transactions, recognizing, for the first time, that international practices can be used to govern cross-border transactions if Vietnamese law does not require otherwise; Allowed all joint-venture and foreign banks operating in Vietnam to take collateral in: the form of land from local clients, i.e. in the form of land use rights and land certificates; Allowed joint-venture banks to receive hard-currency deposits from Vietnamese clients; 2002 * Established a National Register Agency for Secured Transaction under the Ministry of Justice to facilitate transactions by credit institutions and entitling third parties to access information related to secured transactions. The registry opened for business March, 12 2002; * Enhanced the process for resolution of bad loans by allowing domestic commercial banks and credit organizations to sell collateral backing loans directly in the market at market determined prices instead of going through state-owned agencies; * Brought banking regulations closer to intemational accounting normns, by stating that should customers fail to repay an installment the entire loan can be accelerated and classified as overdue, and giving banks more discretion in setting interest rates on overdue debt; * Perrmiitted banks to make decisions on the terms of any given loan, including domestic banks' lending to foreign borrowers in Vietnam, such as maturity and interest rate, and generally devise new forms of lending provided they are not forbidden by. law, including, for the first time, the possibility of overdraft lending; Revoked the license of one JSB that had previously been under special supervision by SBV; Removed the interest rate ceilings on VND, giving banks the freedom to quote appropriate rates that reflect the credit risk of their lending. CAS - Annex A6 Page 5 of 5 Box 5: Managing Public Resources Better, 1998 - June 2002 1998 • Published 1997 final accounts and the 1999 budget plan in the form of a freely available booklet, • Provided fiscal information to international organizations and donors in a GFS-consistent format as well as to all relevant Government agencies; 1999 • Improved fiscal management by requiring improved accounting of foreign grants and clarification of roles in management of external debt and in debt monitoring; * Clarified processes for managing fees, charges and revenues raised and spent by spending agencies; 2000 * Published the Public Expenditure Review - Managing Public Resources Better; * Issued a regulation on commune budget management and a simplified budget classification to provide a framework for improved accounting, reporting and management of budgets and other financial activities at comnmune level; * Initiated a pilot of block grant budgeting for administrative agencies in Ho Chi Minh City to permit more autonomy and encourage efficient use of resources and appropriate re-allocation where needed; 2001 * Developed a detailed public expenditure management improvement action plan with a timetable for the next three years; * Established an inter-agency working group to coordinate inplementation of PER-2000 recommendations; Completed provincial PERs for Ho Chi Minh City and Quang Binh; * Issued revised regulations on fiscal transparency to allow more budgetary inforination to be made public and to enforce implementation by lower level of government; * Initiated a pilot development of the medium term expenditure framework for education sector; - Adopted a decision to expand Ho Chi Minh City's block grant budgeting pilot to other provinces and central agencies; * Passed an amendmrent to the Constitiftion to provide a full autonomy to Provincial People's Council to approve and allocate its budget; 2002 • Posted, for the first time, budgetary informnation on MOF's website; * Issued a Decree on the new financial management mechanism for public service delivery agencies to provide more autonomy, flexibility and certainty to these agencies in managing their financial resources. WB18776 M:\VIETNAM\CAS Full FY03\Annexes\Annex A6 - A Chronology of Structural Reforms.doc July 25, 2002 5:04 PM CAS - Annex B I Page I of I Status of Bank Group Operations in Vietnam IDA Credits in the Operations Portfolio (as of June 30, 2002) Difference between Last ARPP Original Amount actual and supervision ratings b/ in US$ million expected Credit Fiscal Cancel- Undis- disburse- Development Implementation No. Year Borrower Purpose IBRD IDA lations bursed ments (%) W objectives progress Nine credits closed 84500 1979 Govt Irrigation 0.00 60.00 0.30 0.00 25610 1994 Govt Agriculture Rehabilitation 0.00 96.00 1.80 0.00 26570 1994 Govt Structural Adjustment Credit 0.00 150.00 0.00 0.00 28200 1996 EVN Power Development 0.00 180.00 1.40 0.00 30300 1998 Govt Debt Reduction 0.00 35.00 0.00 0.00 27240 1996 EVN Power Sector Rehabilitation 0.00 165.00 10.50 0.00 25490 1994 Govt HighwayRehabilitation 0.00 158.50 0.00 11.70 10.00 S S 28550 1996 Govt Rural Finance 0.00 122.00 0.00 0.00 0.00 S S 29290 1997 Govt Rural Transport 0.00 55.00 0.00 0.00 0.00 S S Sub-Total 1021.50 14.00 11.70 Current Projects 25480 1994 Govt Primary Education 0.00 70.00 0.00 3.30 9.72 S S 27110 1995 Govt Irrigation Rehabilitation 0.00 100.00 0.00 19.40 1.65 S S 27850 1996 Govt Banking Modemization 0.00 49.00 0.00 30.90 77.36 S S 28070 1996 Govt Family Health and Population 0.00 50.00 0.00 13.50 29.06 S S 28080 1996 Govt National Health 0.00 101.20 0.00 49.70 58.99 S S CN0130 1997 Govt Highway Rehabilitation 11 0.00 195.60 0.00 50.80 34.71 S S CN0260 1997 Govt WaterSupply 0.00 98.61 26.80 30.50 11.59 S S 29960 1998 Govt ForestProtection 0.00 21.51 0.00 18.00 3.83 S S 30000 t998 Govt Inland Waterways 0.00 73.00 0.00 58.80 -1.62 S S 30340 1998 EVN Power Transmission and Distribution 0.00 199.00 0.00 165.80 69.94 S S 30990 1998 Govt Agricultural Diversification 0.00 66.85 0.00 39.50 -5.97 S S 31250 1999 Govt Urban Transport 0.00 42.74 0.00 33.50 -17.60 S U 31260 1999 Govt Higher Education 0.00 83.30 0.00 68.30 8.58 S S 31980 1999 Govt MekongDeltaWater 0.00 101.80 0.00 90.30 57.87 S S 32110 1999 Govt 3 Cities Sanitation 0.00 80.50 0.00 73.20 22.27 S S 32920 2000 Govt Coastal WetlandsfProtection 0.00 31.80 0.00 28.80 41.59 S U 33060 2000 Govt Rural Transport 11 0.00 103.90 0.00 74.40 28.24 S S 3358 2000 EVN Rural Energy 0.00 150.00 0.00 117.80 58.87 S S 3448 2001 Govt Mekong Transport 0.00 110.00 0.00 110.00 28.34 S S 34750 2001 Govt HCMC Environmental Sanitation 0.00 166.30 0.00 165.10 1.02 S S 3511 2001 Govt Poverty Reduction Support Credit 0.00 250.00 0.00 156.80 -0.26 - - 3532 2001 Govt Community Based Rural Infrastructure 0.00 102.80 0.00 105.40 0.34 S S 3572 2002 Govt Northem Mountains Pov. Reduction 0.00 110.20 0.00 116.50 0.00 S S 3594 2002 Govt Primary Teachers Training 0.00 19.84 0.00 20.70 0.00 3631 2002 Govt Regional Blood Transfusion 0.00 38.20 0.00 40.80 0.00 3648 2002 Govt Rural Finance 11 0.00 200.00 0.00 212.30 0.00 3680 2002 EVN Energy Efficiency and Equitization 0.00 225.00 0.00 235.80 0.00 Total - Current Projects 2841.15 26.80 2129.90 Grand Total - All Projects 3862.65 (Closed and Current) Active Loans Closed Loans Total Total disbursed 644.90 954.18 1599.08 of which repaid 0.00 12.24 12.24 Total undisbursed 2129.90 11.70 2141.60 Nore: IDI disb-- w dI= pjwd io SAP wio- .c.I ibwe o o dam b. Fo.owicg tbe FY94 AwARo Peview ofFonf.ho Pertfrte (ARPP),. Itebasod sylte. w iedoee (HS-b5iy satisfetoy, Ssefcti.ty, Ueaifeoy, HU-bighty tesifaclty). c Di3bene-e t ir estt2e to cdGtie beyed otesing dter Soeecc: wo.rd H-k. CAS- Annex H2 Page I of I Selected Indicators* of Bank Portfolio Performance and Management As Of End FY02 Indicator 1999 2000 2001 2002 Portfolio Assessment Number-of Projects Under Implementation a 20 21 25 27 Average Implementation Period (years) b 2.6 3.0 3.4 3.5 Percent of Problem Projects by Number a, c 5.0 0.0 8.0 7.4 Percent of Problem Projects by Amount a' c 2.4 0.0 5.5 2.6 Percent of Projects at Risk by Number d 5.0 0.0 .8.0 11.1 Percent of Projects at Risk by Amount a d 2.4 0.0 5.5 3.4 Disbursement Ratio (%) e 17.3 12.0 11.9 14.5 Portfolio Management CPPR during the year (yes/no) yes yes yes yes Supervision Resources (US$ million) 1.243 1.489 1.36 2.046 Number of Projects Under Supervision during FY 22 24 25 28 Average Supervision (US$/project) 56500 62042 54400 73071 Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 6 4 Proj Eval by OED by Amt (US$ millions) 650.5 440.5 % of OED Projects Rated U or HU by Number 0.0 0.0 % of OED Projects Rated U or HU by Amt 0.0 0.0 a. At the end of the fiscal year. b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes ail active projects as well as projects which exited during the fiscal year. CAS - Annex B3 Page I of I Vietnam Statement of IFC's Held and Disbursed Portfolio As of June 2002 (In US Dollars Millions) Held | Disbursed FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1995/97 Nghi Son Cement 19.2 0 0 15.24 19.2 0 0 15.24 1996 Morn.Star Cement 22.6 0 0 44.94 22.6 0 0 44.94 1996 SMH Glass Co. 7.22 0 0 1.69 7.22 0 0 1.69 1996 VILC 0 0.75 0 0 0 0.75 0 0 1996 Vimaflour 3.08 0 0 0.54 3.08 0 0 0.54 1997 NATL 16.8 0 0 16.8 16.8 0 0 16.8 1998 MFL Vinh Phat 0.3 0 0 0 0.14 0 0 0 2002 F-V Hospital 8 0 0 0 0 0 0 0 2002 VEIL 0 0 12 0 0 0 0 0 Total Portfolio: 77.2 0.75 12 79.21 68.97 0.75 0 79.21 Approvals Pending Commitment Loan Equity Quasi Partic 2000 Interflour 8 0 0 5 2001 RMIT Vietnam 7.5 0 0 0 2002 Dragon Capital 0 0 2 0 2002 F-V Hospital 1.5 0 0.5 0 2002 Global Cybersoft 0 1.25 0 0 Total Pending Commitment: 17 1.25 2.5 5 CAS - Annex B4 Page 1 of I Vietnam - IFC and MIGA Program, FY 1999-2002 1999 2000 2001 2002 Est IFC approvals (US$m) 0.00 8.00 7.50 31.25 B3 Collective Inv Vehicle 38 Education Services 100 Finance and Insurance 11 Food and Beverages 0 100 Health Care 32 Information Technology 9 Textiles, Apparel & Le 0 10 Total 0 100 100 100 Investment instrument(%) Loans 0 100 100 30 Equity 14 Quasi-Equity 56 Other Total 0 100 100 100 MIGA guarantees (US$m) 36.00 36.00 20.00 20.00 CAS - Annex C1 Page I of I Vietnam--Summary of Non-Lending Services Product FY02 FY03 (US$000) (US$000) Theme 1: Transition to a Market Economy (1) Cross Sectoral Work on Economic Growth 275 260 and Poverty Reduction (2) Financial and Corporate Development 380 350 (3) Rural Developmnent 135 75 (4) Urban Development 15 80 Theme 2: Social Inclusion, Equitable and Sustainable Development (5) Poverty and Vulnerability 205 205 (6) Access to Services 240 170 (7) Environmental Sustainability 60 50 Theme 3: Promoting Good Governance (8) Public Financial Management 150 (9) Decentralization and Participation 100 (10) Legal Reform 120 115 (11) Public Administration Reform 100 (12) ICT 150 60 Other (13) Partnerships and Aid Coordination 105 150 (14) Fiduciary Reviews (CFAA, CPAR) 60 100 (15) Country Assistance Strategy 230 40 Total 1975 2005 CAS - Annex C2 Pagel of I The CDF Matrix for Vietnam - - - . . -:- . - . ; -. .- *.The Pillars of Development in Vietnam * - - - BulIdinri Mldelrf . ,. Creating.a Supporive Climate fr - , Enhancing Human Capacity ,Pmviding Efftclent Infiastructure Services Improving Transformingtthe Rural .Governance - ' Enterprlse- -. - - Environ. , - Economy . , . . . ,. .,, , ,, - - :. . . - . . ~~~~~~~~ ~~~~~~~~~~~~~~~~Quallty - . Public Legal Financial Social Private Education Health and Cultural Water and Power Transport Urban Environment Agriculture/ Forestry Administration Sector System Safety Net Sector Population Issues Sanitation & Devt Rural Dev't | . Reform Reform and Social Dev/t Communication . (except Programs forstry) ADB ADB ADS UNDP EC ADB ADB UNESCO ADB ADB ADS ADS ADB ADS AD8 r- MultiP EC UNDP EC WB UNDP EC EC UNICEF WB WB UNDP EC EC EC lateral UNDP WB IMF UNIDO UNESCO UNFPA WB WB UNDP FAO FAO WB UNDP WB (IFC) UNICEF UNICEF UNEP IFAD UNOP WB WB WB WS UNCDF WB WHO UNOP WB Australia Australia Australia France Austraia Australia Ausb-Aia Finland Australia Japan Australia Australia Canada Australia Finland Bliateral Canada Canada Canada Japan Ausiria Belgium Austria France Denmark Sweden Canada Belgium Denmark Auslria Germany Denmark Denmark Denmark Netherlands Canada Canada Belgium Netherlands Finland Norwy Denmark Denmark Germany Belgium Japan Finland . France France UK Derunark Czech RP Canada Sweden France Belgium France Finland Netherlands Canada Netherlands Germany Sweden Germany Germany Denmark Czech Rep. Italy France Japan France Norway Denmark Sweden Netherlands Japan Japan Japam France France Japan Ineland Spain Japan Sweden Fnland Switzerland Norway Nethedands New Zeal. Gem any Gemiany Netherlands Korea UK Swlitzerland Switzedand France Sweden Norway Sweden Japan llaly UK US Germany Switzedand Sweden Switerand Korea Japan Italy UK Swtzedand UK New Korea Japan UK Zealand Luxembourg Nethedands . e USA Norway Nethedands New Zealand Spain New Zealand Norway Sweden Spain Spain X . Switzedand Sweden Sweden UK UK Switzedand USA Thailand UK Asia Found. Asia ActionAid ActionAid Asia Found CARE Ford AconAid ENDA Birdlife Int. ActionAid Fronaier NGOs Ford Foundalion Found. Oufam a Oxfam GB CECI CDSE CIDSE SC-UK CODSE CECA Helvetas KAS FES SC-UK CRS Danish Red FHI Vilies en ENDA CIDSE IUCN Oxfam GB KAS EED Cross IDE Transiion FFI CRS Oxlam GB Oxfam HK EFD DKT Oxfam 8 Ford GRET WWF Ford IFRC Plan Fronfier Oxram B Oxfam GB MCNV WV] Helvetas Oxfam GB Oxfam HK Oxfan-HK IUCN Oamrn HK SC UK Path C Oxfam GB SC-I VSO Pathflnder Ofarn HK -SNV Plan OulamnO WVI Pop Council VSO SC-UK WWF SC-us WPF CAS - Annex C3 Page I of 3 Cofinancing Operations in Vietnam (as of June 2002) Original Amount In USS miUlon Fiscal Year Purpose IDA Co-finandng Co-finandCers* 1996 Family Health and Populadon 50.00 61.00 ADB (41) and Germany (20) 1996 Natonal Health 101.20 9.00 Sweden (4.7) and Netherlands (4.3) 1997 Water Supply 98.61 17.98 Finland (3.89), Denmark (12.76) and Australia (1.33) 1998 Forest Protection 21.51 5.16 Netherlands 1998 Power Transmission and Distribution 199.00 17.40 Sweden (16.6) and ADB (0.8) 1998 Agricultural DiversIfication 66.85 15.57 France 1999 3 Cities Sanitadon 80.50 18.70 Australia (1.2), Denmark (11.7) and Finland (5.8) 2000 Coastal Wetiands/Protection 31.80 11.30 Denmark 2000 Rural Transport II 103.90 26.20 UK 2001 Poverty Reduction Support Credit 250.00 44.10 UK (19.3), Holland (13A), Denmark (9.5) and SIDA (1.9) 2002 Northern Mountains Poverty Reduction 110.00 10.5 UK 2002 Primary Teacher Development Project 19.80 10.3 UK Totals 1133.17 247.21 *co-floancing amount for each donor In USS millIon In parentheses VIETNAM - TRUST FUNDS for PROJECT PREPARATION PHRD & BILATERALS SORT BY UNIT, BY BOARD FY, BY DONOR RESP PROJECT BOARD FY DONOR TF # GRANT AMT US$ EASRD Mekong Delta Water Resources FY99 PHRD TF026488 $582,100 EASRD Community Based Poverty Reduction (CBRIP) FY01 Denmark TF023547 $367,500 EASRD CBRIP FY01 UK TF050001 $307,000 EASRD CBRIP - Employment Generaton and Social Safety Net FY01 ASEM I TF022366 $496,665 EASRD Northem Mountains Poverty Reduction FY02 Denmark TF021338 $474,009 EASRD Northem Mountains Poverty Reduction FY02 PHRD TF026247 $405,000 EASPR Northem Mountains Poverty Reduction FY02 JSDF TF026559 $1,395,000 EASPR Public Finance Management Reform FY03 PHRD TF051127 $742,880 EASEG Energy Efficiency & Equitization FY02 PHRD TF026108 $771,000 EASHD Primary Education for Disadvantaged Children FY03 PHRD TF026248 $637,000 EASRD Water Resources Assistance FY03 PHRD TF026252 $950,000 EASTR Road Network Improvement Project FY03 PHRD TF026348 $448,000 EASRD Forest Sector Development FY04 PHRD TF026182 $495,650 EASEG Rural Energy II FY04 PHRD TF026489 $810,000 EASUR Urban Upgrading FY04 PHRD TF026249 $841,900 EASUR Urban Water Supply FY04 PHRD TF026835 $964,350 EASRD Natural Disasters Mitigaton Project FY05 PHRD TF026834 $750,400 EASHD Provincial Health Systems Program FY05 PHRD TF025781 $336,000 _ _ __ TOTAL GRANTS _ > _ ,484 CAS - Annex C3 Page 2 of 3 VIETNAM - TRUST FUNDS for BANK-EXECUTED TECHN ICAL ASSITANCE SORT BY UNIT, BY BOARD FY, BY DONOR RESP PROJECT Board FY DONOR TF # GRANT AMT US$ A. PROJECT SPECIFIC EASHD Primary Teachers Development FY02 DFID TF023244 $703,355 EASHD Improving Education for Disadvantaged Children FY03 Australian TF038158 $154,635 EASRD Preparation of Water Resources Assistance FY03 France TF038737 $128,000 EASRD Forest Sector Development Project FY04 France TF041000 $27,720 EASRD Forest Sector Development Project FY04 Australian TF040796 $46,000 EASRD Forest Sector Development Project FY04 Canada TF040888 $31.640 EASRD Forest Sector Development Project FY04 Canada TF038204 $32,250 EASRD Forest Sector Development Project FY04 Ireland TF041050 $20,000 EASUR Urban Upgrading FY05 Switzerland TF026595 $210,000 EASUR Urban Water Supply FY04 Australian TF040977 $48,000 = = - TO _ LC3R_OJSPEC$1,40 1,600 'Donors in nold are consulrant TFs B. GENERAL COCPD Sector Work - Mining NA Germany TF038803 $100,000 EASES National Sectors Strategy for Clean Development Mect NA Australian TF040219 $200.000 EASES Poverty Environment Nexus Study ESW NA Korea TF040193 $20,000 EASES DUTCH PARTNERSHIP - Lead Phaseout Initiative NA Netherland TF023269 $100,000 EASES Vietnam Community Based Forest Ecosystem Manage NA Norway TF024747 $60,000 EASES Metropolitan Environment Improvement Project NA Netherlands TF050470 $250,000 EASHD Quality Education for All NA CIDA TF029823 $990,000 EASPR Trade and Poverty (AAA for Reform) NA Australian TF040849 $175,000 EASPR Export Study NA Australian TF040987 $135,000 EASPR Equity and Budgeting NA UK TF023474 $200,000 EASPR Poverty Analysis & Policy Advice Suppport Program NA UK TF022028 $2,834,975 EASPR Reform of State-Owned Enterprises NA UK TF050154 GBP322,400 EASRD BARREN HILLS Afforestaton Projrect NA Fln!and TF040649 $48,339 EASTR Transport and Trade Facilitation NA Japan TF038967 $154,640 EWDEN ESMAP-Electricity Law & Regulations II NA UK TF023712 $330,000 EWDES ESMAP: Policy Dialogue Seminar and New Mining Cod NA Germany TF050084 $70,000 EWDES ESMAP - Policy Dialogue Seminar and New Mining Coi NA UK TF028925 $80,000 -_~~ _ __CTAiGEk_ A _5,747.954 Donors in bold are consuiltant TFs -- -r ~G' - - QTr_~A r s -_ .a -nfefi rV ~.~-- -s - _ _ CAS - Annex C3 Page3 of 3 VIETNAM - TRUST FUNDS for GOVERNMENT-EXECUTED TECHNICAL ASSITANCE SORT BY SOURCE OF FUNDS RESP PROJECT Board FY DONOR TF z GRANT AMT USS EASEG Capacity Building for Power and Gas Sector Regulation NA IDF TF027564 S478,000 EASPS Capacity BuildUng for Privately Financed Projects NA IDF TF027563 $487,000 EACVF Procurement Ordinance NA IDF TF027283 S430,000 EACVF Development of Decentralized Implementaton Capacity NA IDF TF027289 S499,250 EASES Environmental lnformabon Management NA IDF TF027361 $300.000 EASES Stengthening Environmental and Sodal Services NA IDF TF051032 $235,000 EASES Metropolitan Environment Improvement Pnoject NA Netherlands TF050471 $250,000 EAPCO Improvement of Financial Accountability NA IDF TF027408 $290,600 EASFS Banking Reform, Regulation and Supervision NA PHRD TF025709 $1,282,400 EASPS Vietnam Diagnostic Audits of State-Owned Enterprises (under the Miyazawa Initiative) NA PHRD TF026343 S4,000,000 EASFS Banking Reform and Development In Vietnam NA ASEM I TF020583 $991,250 EASFS Vietnam Banking Sector Restructurng NA ASEM I TF022399 $1,518,125 EASPR State Owned Commercial Bank Restructuring in Vietnam NA ASEM I TF027944 $4688000 EASTR Accelerating Equitization and Commercializaton of SOEs in the Transport Sector NA ASEM I TF022098 S439,000 EASPS Vietnam State-Owned Enterprse Reform NA ASEM I TF022398 $1,870,000 EASPR Operation and Monitorng of the Social Safety Net for Redundant Workers NA ASEM II TF050280 $342,000 EASPR Banking Reform Program NA ASEM II TF050454 $694,000 EASPR Building Capacity for Decentralized Financing NA ASEM II TF050193 $1,000,000 EASRD Evaluation of CBRIP NA ASEM II TF050255 S419,000 EASPS Reform of State-Owned Enterprses NA Denmark TF021418 S474.009 EASPS Reform of State-Owned Enterprises: Phase 2 NA Denmark TF023493 $348,431 EASPS Pilot Restructuring of Three General Corporatons NA UK TF050047 $6,858,000 TOTrAL _= _ = _ _- _ _- 5 - -$23,6i2,064 VIETNAM - GLOBAL ENViRONMENT FACILITY SORT BY BOARD FY GRANT RESP PROJECT Board FY TYPE DONOR TF # AMT US$ EASRD HON MUN Manne Protected Area Pilot Project FY01 Denmark TF023886 $731,840 EASRD HON MUN Marine Protected Area Pilot Project FY01 GEF TF023877 $974,785 EASES Conservation of Pu Luong CuC Phuong Limestone Landscape FY01 GEF TF028987 $749,885 EASEG Renewable Energy - Preparation of SEIER FY02 Full GEF TF028286 $350,000 EASEG Energy Efficiency & Equitization FY02 Full GEF TF051229 $4,500,000 EASES Chu Yang Sin Nature Reserve FY02 Medium $600,000 EASRD Bach Ma-Hai Van Green Corridor FY02 Medium $900,000 EASEG Demand Side Management FY03 Full GEF TF050064 $216,000 EASEG Demand Side Management FY03 Canada TF040793 $65,500 EASRD Forest Sector Development Poject FY04 Full GEF TF050719 $200,000 TOTAL PROJECT SPECIF'CS " - =- -- - - CAS - Annex Dl Page I of 19 VIETNAM: POLICY MATRIX FOR THE CPRGS AND WORLD BANK PROGRAM OF SUPPORT' (FY03-FY05) A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Polices, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 . . Other Donors AAA Lending L. Create legal environment for fair and competitive business 1. Create a fair business Remove impediments for registration and start-up of businesses and Private Sector PRSCII (FY03) Mekong Project enviromnent for different create a level playing field for different forms of enterprises through Assessment, jointly Development Facility forms of enterprises and implementation of the Law on Enterprises, continue to revoke or with IFC (FY03) PRSC m (FY04) (MPDF) provides increase the transparency of modify busmess licenses in the remaining sub-sectors where restrictive Policy notes on Urban Water technical assistance regulations and policies licensing exists. framework for Supply (FY04) and capacity building Pronmlgate regulations to implement the Revised Land Law (2002) Private Sector PRSC IV S for small- and and issue land-use right certificates to all land users (2005). Development (FY05) medium sized private Create equal conditions for all types of enterprises to access capital, (FY04-06) PRSC V (FY06) enterprises. credit, land, technology, profession, information, and current Land-use Rights E-Government preferential systems of the State. Study (FY03-FY04) Systems and Develop and improve a legal framework to ensure a stable and Pilots for private Capacity building predictable investmnent environment and to promote openness, and sector participation (FY06) transparency of measures and policies to encourage greater in the water sector investment. (FY03) Create more favourable conditions for attractmng foreign investmnent E.g. gradually remove the dual pricing system inposed by the State on Technical state-supplied services for business activities of domestic and foreign- enactment of invested enterprises. Electricity Law Promote direct foreign investment in export production and in social (PPIAF) (FY03) sectors. Unify step by step the legal framework, policy and conditions for 1 Columns I and 2 of this Annex are reproducedfrom the CPRGS and lay out the Government's objectives and their detailed program ofpolicies and measures to attain these objectives over the period 2003-2005. Columns 3 and 4 show how the World Bank Group and other donors, respectively, aim to support the Government in implementing its program. CAS - Annex Dl Page 2 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Lendng Other Donors domestic and foreign-invested enterprises. Construct and approve the Electricity Law. Issue implementing regulations of Decree No. 90/CP on promoting development of small and medium size enterprises (2002-2003). Promote the activities of the farm economy by implementing Decree No. 03/CP (2002-2003). Prepare conditions to unify the Law to Encourage Domestic Investment and the Foreign Investment Law (2003). Promulgate the Bankruptcy Law (revised) applied to all types of enterprises (2003). Revise and amend some articles of the Labour Law (2002). Promulgate State Law on Price (2002). Promulgate State Law on Trade Arbitration (2002-2003). Implement the Decree No. 132/CP on the development of rural professions. Revise and amend selected articles of the Co-operative Law (2003). Promulgate the Best Company Management Rules and require all companies listed on the Stock Market and Joint stock banks to implement them within 18 months; encourage Joint stock companies to implement these Rules also. Construct the legal framework to allow for establishing business associations. 2. Reform state-owned Implement a medium term five - year SOE reform program during ASEM grants PRSCs Restructuring of three enterprises (SOEs) to the 2001-2005 period, with annual targets to improve efficiency and providing technical large SOEs strengthen their efficiency and to curtail losses in this sector. Complete the equitization, transfer to assistance to Forestry Sector (VINATEX, competitiveness. employees, sale, contracting out, leases, mergers, divestitures and Government Development VINACAFE and liquidation of around 2,800 SOEs. Of which, comnplete equitization, agencies in Project (FY04) SEAPRODEX) sale and liquidation of, in 2002: 400 SOEs, in 2003: 500 SOEs. implementing their (FY03-FY05) funded Promulgate criteria for the classification of SOEs and State SOE reform plans by DFID Corporations into business- oriented SOEs and public-service SOEs (FY02) Diagnostic audits of (2002). SOE reforms in SOEs fnanced by CAS - Annex Dl Page 3 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending Issue guidance for transforming SOEs into single owner limited agriculture (FY04) Australia, Denmark, liability companies (2002). Reform road map and Japan Promulgate a new decree to replace Decree No. 44/1998/ND-CP on for the power sector ADB is providing TA SOE equitization. (jointly with ADB) for SOE reform Promulgate the Decree on Social Welfare Fund to extend to workers (FY04) Denmark supports of SOEs (2002). Developing a SOE restructuring Promulgate Decree on the Treatment of Redundant Workers (2002). program for the plans in the fisheries equitization of the sector Develop an incentive mechanism to encourage redundant works to electricity resign voluntarily during the process of implementing the SOE distribution sector Germany povies reform po m.support to restructure reform program. SOE reforms in the SOEs in the Develop a pilot plan to restructure several selected Corporations transport sector agricultural sector (about 3). Then, complete the plan to restructure 3 corporations (shipping, ports and (2002) and start the action plan (2003). potentially railways) (FY03- Promulgate the Decree on SOE Debt Clearance. FY06) Develop a set of criteria to supervise and evaluate the business performance and effectiveness of SOEs. Complete the system of debt control of 200 large SOEs in order to have suitable reform policies. Develop the system of debt control to all SOEs in order to have policies to limit risks, clear bad debts, re-arrange or liquidate ineffective SOEs. Carry out performance assessment/diagnostic audits of several large SOEs. Complete the performance assessment/ diagnostic audits of 30 SOEs (2002) and another 30 SOEs (2003) if there is enough financial support. Revise and amend Decree No. 103/CP on the sale, transfer, contracting out, and leasing of SOEs (2002). Issue regulations requiring all private, limited liability and joint stock companies to improve their accounting and financial reports (2002). Promulgate a new decree on labour, salary and income management CAS - Annex Dl Page 4 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending in SOEs (2003), including proper incentive mechanisms. 1I. Create a stable macroeconomic environment 1. Fiscal policy & public expenditure management Implement appropriate fiscal Strengthen tax system, increase tax base along the lines of developing Puiblic Financial PRSCs IMF is providing policies to safeguard medium- the sources of tax revenue and increasing the efficiency of the tax Managernent and technical advice on term sustainability payment system but still remain pro-poor tax policies and system Fiduciary Review, the tax system. When Amend somne articles of the Revised State Budget Law (2002). joint PER, CFAA reform plans are Gradualy implemnent the recormendations that are agreed upon in the and CPAR (FY04) developed the World Public Expenditure Review. Increase expenditures for basic social Medium-term with finances for services and rural inastucture and bias public expenditure in favor of expenditure add-ito TA and poor provinces. fiamework (MTEF) adware for health and hrwr education (FY03- Pilot self-assessment 04) is proposed to be MTEF for ~~~~~~funded by agcutue for Multidonor Trust agriculture and fundedb transport (FY04) Fund Increase budget transparency Inmprove budgetary revenue and the expenditure monitoring system Public Financial Multidonor to improve the information at all levels. Management (Netherlands, UK, base for decision-making and Continue to make public infor-mtion on annual budgetary revenues Project (FY03) Denmark, Sweden target stigCotnetrnk ulcmomtoonanabugtrrenesand Norway) Trust target setting. and expenditures at various levels in a more scientific and proper Fund to provide mnanner. technical assistance in the area of Public Financial Management 2. Monetary policy Implement prudent Introduce monetary and credit controls with an aim to CAS - Annex Dl Page 5 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Lending Other Donors monetary policy to control improving the effectiveness of monitoring monetary policy and meeting inflation the targeted objectives. Continue to implement a basic interest rate policy with an aim to move towards liberalizing interest rates. Reform banking sector and Develop and implement the plans for restructuning four state-owned Financial Sector PRSCs Germany, financial organizations to commercial banks (SOCBs) in accordance with the overall Assessments and Switzerland, mobilize domestic capital framework for banking sector reform (2002-2004). follow-up (FY03- Denrnark, resources. Complete the international accounting standard (IAS)-based FY06) Netherlands and financial audits for four large SOCBs by independent auditing ASEM Grants to Luxembourg provide companies (2003); resolve all inadequate issues of auditing (2004). provide TA for TA to the financial Separate preferential and policy-based credit activities from the State- implementation of sector owned commercial banks, and let them operate in a competitive restructuring plans MPDF has environment established a Bank Address audit qualifications laid out in the IAS Audit Report on training center to 2000 accounts (2003). improve capacity of staff in the financial Resolve non-performing loans of state-owned commercial banks to sector 20% of total debts (2002) and another 30% of non-performing loans (2003). Complete the separation of the Bank for the Poor from the Bank for Agriculture and Rural Development of Vietnam and let it act as a policy-based bank (2003). Increase Bank for the Poor's lending to disadvantaged areas. Restructure and reinforce joint stock banks, close or merge weak banks and ensure that they are in compliance with prudential regulations. Reduce the numnber of total joint stock banks to 28 (2003). Implement Decision No. 1627 to reclassify all non-performing loans in the four SOCBs and to phase-in provisioning within 3 years (2003-2005) to bring loan loss provisions in line with international standards and to allow for financial status assessment of SOCBs. CAS - Annex D1 Page 6 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 AAA Lnding Other Donors Promulgate a decree guiding the implementation of the revised Land Law to create favourable conditions for transfer, leasing, and mortgage to borrow loans from banks and to make contribution to joint ventures. Provide concrete guidelines on regulations to allow foreign banks operating in Vietnam to accept land use rights as collateral. State-owned commercial banks should raise gradually the share of credit to private small and medium enterprises and enterprises operating in rural and disadvantage areas. Allow Postal Savings and the People Credit Funds to receive deposits and expand their operating scope in order to lend for production development. Foreign exchange policies to Increase flexibility and transparency of the foreign exchange regime. increase competitiveness, Develop inter-bank foreign exchange market. liberalize the current account Build a system and measures to control the foreign capital rotation, especially short-term capital. Control and limit using foreign currencies within Vietnam territory. Reduce gradually the ratio of foreign exchange surrender. CAS - Annex DI Page 7 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 AAA Lending Other Donors 3. External debt policies to Monitor all debts including debts incurred by government, SOEs, Public Financial Australia, keep debt service burden at a and those guaranteed by Government, debts ofjoint venture Management Switzerland and serviceable level companies (including FDI loans) and private sector debts. Project (FY03) UNDP provides TA for extemal debt management. 4. Trade policy: Measures to Promote vigorously economic integration; strictly implement Trade and Poverty PRSCs Australia, EU, open trade, promote exports commitments in the process of integration. (FY03) Finland, New and international integration, Make active preparations to take part in comnutted bilateral and multi- Zealand, Sweden, and strengthen the country's laterl co-operation mechanisms. Carry out the bilateral trade agreement Switzerland, UNDP competitiveness,.n S rvd with the United States, paving the way for accession to the World Trade and USA provide Organization (WTO). technical assistance on trade liberalization Implement trade polices for rural, mountainous and island areas; review the performance of the Law of Trade (2002-2003). Increase the access to markets of the poor, particularly from rural, remote and isolated areas. Continue to remove quota restriction barriers imposed on restricted import goods, excluding the barriers on petroleum, lubricant, diesel and sugar.... Strictly implement Decision No. 46/QD-TTg on the export-import mechanism in the period 2001-2005. Put all import goods that are currently in the Temporary Exemption List (TEL) into the Inclusion List (IL) with reduction of minimum rate import tax to 20% in order to implement CEPT/AFTA agreements (2003). Continue to remove QRs imposed on rice exporting enterprises and on fertilizer imports. Increase gradually activities to organize quota auctions for garment exports to create favourable conditions for exporters (including those from private sector) to access the market Expand the rate of quota auctions for garment exports to 35% and apply measures to improve auction procedures (2003). CAS - Annex Dl Page 8 of 19 A. Macroeconomic and Structural Policies to promote economic growth, raise income and create opportunities for the poor. Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Lending Other Donors Protect the poor from the Promulgate the Law of Competition (2003); promulgate the State Study on Trade and negative impact of trade Law on National Treatment and Most Favoured Nation Status competitiveness liberalization (2003); promulgate the State Law on self-defense measure in (FY04) international trade business (2002-2003). Implement the Customs Law (2002) to simplify and rationalize customs procedures (2002-2005). Operate effectively the Export Support Fund, the Export Credit Guarantee Fund (2002-2005). Publish all trade laws, decrees, decisions, and rules of procedures in official gazettes. Undertake a research to examnine the impact of trade policy reforms on the poor. III. Public Administration reform; promote grass roots democracy and legal supportfor the poor. Public Financial Accelerate the reform of Implement Decree No. 136/2001/QD-TTg issued by the Prime Public Financial Management is one Multi-donor Trust pubhc administration, Minister on accelerating public administration reform in four areas: Management and pillar of the ne fund to support work providing the poor with administrative institutions, management bodies, personnel Fiduciary Review pillar of The in this area knowledge of the Law and strengthening and public expenditure. (FY04) Master plan. The their legal rights and ~~~~~~~~~~~~~~~~~~~~Public Financial their legal rights and Prioritize administration reform in key agencies that directly relate Development Management. obligations, to the poor, such as MARD, MOH, MOTE, etc. to ensure the access Policy Review project together of the poor to basic services of health, education, infrastructure, etc. (FY03) with the multidonor in provinces, especially mountainous and urban poor areas. Technical trust fund for Public Ensure that all citizens have access to information about the law and assistance for Financial their legal rights and obligations, and that the poor have better managing the Management will access to the justice system. irnplementation of the agenda under Improve targeting for the poor and the allocation of resources to pro- the action plans in this pillar poor programs. Assessment (FY03- E-Government Implement the action plans embedded in the Legal Needs FY05) Systems and Assessment. Capacity Building (FY06) CAS - Annex Dl Page 9 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction I Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors . _ _ _ _ _ __ _ _ _ _ _ AAA Lending I. Policies and measures to develop sectors and areas and create opportunities for the poor. 1. Develop agriculture and the Continue to implement the Govermment's Resolution No. 09 and No. 05 Land Use Rights PRSCs A formal forestry rural economy to reduce on directions and policies to shift the economic structure and product Study (FY03-FY04) partnership has been widely poverty sale. Forest Sector established between Imnplement Resolution No. 13 to continue reform and improve the o Project (FY04) the Government and efficiency of Cooperatives; Resolution No. 14 to continue reform of alberahzatlon of different donors mechanisms and policies to encourage the private sector. and output rnarkets Provide concrete guidelines to protect land use rights in accordance (FY03) Poor Communes A donor partnership with the Revised Land Law. Advance the task of planning land use Infrastructure and led by the Ministry of and link it to land transfers. Complete land classification and Forestry and Livelhoods (FY06) Agriculture and Rural accelerate the process of issuing land use right certificates to Upland Development and farmers, including those living in mountainous communes. (FY05) FAO are Develop rural industrial zones at the district and commune level. coordinating the Implement Decree No. 90 on support policies for developing small agricultnTal and medium enterprises. Vietnam. Other Diversify professions and encourage developing off-farm participants are the professions in rural areas. Implement Decision No. 132 issued by the World Bank, ADB, Prime Minister on developing rural professions. UNDP, Denmark, Promote measures to help poor households that need cultivation land Germany, and the to be given enough land for production, to stabilize their hvelihood, Netherlands. reduce poverty and gradually become richer. Allocate un-used and under-utilized land to poor farmers. Encourage all economic sectors to invest in the agricultural sector; develop household-scale economies; disseminate economic models for farming in order to promote agricultural diversity and development. Complete rural financial policies, expand access to financial and credit resources in rural areas. Increase the role of the People's Credit Fund and micro fiscal programs in rural areas. Develop regulations and standards regarding the safety and quality CAS - Annex DI Page 10ofl9 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 _ Other Donors . _ ~~~ ~ ~~~AAA Lending of agricultural products, and work jointly with farmers and traders to apply a monitoring mechanism for quality assurance. Continue to liberalize input markets (fertilizer, insecticide, etc.) and output markets (rice, coffee, etc.). Create an environment that enables farmers to become rnore narket oriented by establishing a system for rapid access to market prices and price forecasts. Facilitate the development of closer links between farmers, traders, processors and exporters. Policies to develop and manage fishery resources. Implement Decision No. 132 issued by the Prime Minister on the fiscal mechanism for rural road development programs, fishery infrastructure and rural professional infrastructure. Research and issue policies on supporting production and consumption of important agricultural, forestry and fishery products that have high econonric value, are competitive, have a large consumer market, both export and import substitutions, using technical, economnic and market analysis to assess Vietnam's comparative advantage for producing these commodities. Raise annual investment in agricultural research with a fair share going the research for upland farming. Increase spending on extension to put in place a highly qualified extension service that is responsive to the needs of farmers, especially in ethnic minority areas. Encourage co-payments by farmers for extension services for industrial crops. 2. Develop industry and urban Develop agricultural industries (chermicals, fertilizer, packaging, Urbanization Urban Upgrading Official Development areas to create more jobs and etc.) - Strategy, including (FY04) Assistance to improve the living standard . . . City Development GEF funds to Partnership (ODAP) for the poor. Develop dustnes to process agincultural, forestry and fishery Strategies for select support demand- and the Urban Forum or poor. products, and microbiological industry. cities (FY03-04) side management in provides the Implement Decree No. 90 on encouraging the development of small Study on human the Energy sector framework for and medium scale enterprises in specific traditional sectors and settlements policies (FY03) coopertion among professions with modem technology. in urban areas the Government CAS - Annex Dl Page 11 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending professions with modem technology. (FY03) and the donors in the Develop the legal framework to permit establishing business Urban Congestion urban sector. associations. Develop an enabling policy environment for the (FY05) operation of Business Development Service (BDS) providers, regardless of their ownership structure. [BDS refers to training, consultancy, technical services, accounting and auditing services, market information services, computer services, internet and telephone, advertising, etc).] Provide guidance and implement Regulations on preferential ADB provides policies to encourage industries to relocate to rural areas. support for Build urban development strategy; promote the urban-rural linkages vocational training that include suburb development along the lines of master-plans. Synchronize the development of urban infrastructures in tandem with job creation to reduce urban unemployment. Promote the performance efficiency of employment promotion centers and vocational training systemn; accelerate the export of labour and specialists. Carry out the reform of public administration procedures to reflect the actual situation of the urban poor in such areas as land and housing management, business and construction certificate issuance, residency registration, etc. Develop criteria, process and norms in urban planning and design to ensure that sanitation and environmental requirements are met and that also take into account the requirements of the urban poor and their ability to pay. Develop housing development policies for the urban poor; upgrade current residential neighborhoods squares taking into account the economic condition of the urban poor and also ensuring their employment. Create access to basic social services for all urban people, including unregistered migrants. Develop measures to help poor people find CAS - Annex Dl Page 12 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction I Policies, measures and timeframe for Implementation during Bank Group Instruments Policy areas and Objectives 2003.2005 Other Donors AAA Lending appropriate jobs in urban areas. Review labour migration policy and household registration policy to make it easy for people to move to better-paying jobs. Develop decrees on the demand side of energy management and energy efficiency 3. Develop infrastructure and Implement policies on ensuring essential infrastructures, especially Towards Program Road Network The partnership with create opportunities for the water supply and living hygiene, for all poor areas, poor communes Financing in Rural Improvement Japan and the UK on poor to access public services. and poor quarters in cities and towns (Program No. 135. No. 143). Roads (FY03) (FY03) rural transport is Continue the mechanism of the "State and people will do it together" Rural Transport II, expected to be to develop infrastructure in rural areas. The Govermment will provide (FY05) continued. support to train and coach staff who are in charge of management, Rural Water and operation, and maintenance of basic infrastructure constructions. Sanitation Fomulate regulations on utilizing basic infiastructure constructions at astructure and the commune level. Health Promote the use of local labor for implementing infrastructure Improvement projects. Project (FY05) Strengthen the participation of local people in planning, implementation and maintenance of local infiastructure projects. 4. Training and Education: Build a more equal and higher Strengthen and develop the achievements of primary education Follow-up to Primary Education UNICEF provides quality education for people. universalization and illiteracy eradication, moving towards primary Quality Assessment for Disadvantaged assistance to the education at right age universalization and gender equality, paying of Primary Children (FY03) Ministry of special attention to disadvantaged areas and communities. Education Education to monitor Increase the net enrolment rate in lower secondary education with TA to prepare a progress on meeting the aim to achieve universal lower secondary education by 2010. national framework Higher Education H1 the intenational for "Education for (FY05) commitments under Raise budget expenditure for education and training from 15% of all" i"Education for all" the Education for All Move twrctotal budget expenditure to 18% in 2005, moving in the direction of uc programme. Move towards completon of increasing expenditure for basic education. Continue policies on the MTEF (FY06) junior secondary package exemption of school fees for poor children, extend CAS - Annex Dl Page 13 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003.2005 Other Donors . ~~AAA Lending ________ education universalization and preferential loans to poor students to cover training fees. for PRSC m (FY04) Japan is supporting illiteracy eradication. Raise the awareness of parents in remote, isolated and ethnic Education (FY03) the Ministry of minority communities about the value of education through Education in information, education and commrunication. preparing its Primary Education Provide improved school infrastructure and facilities for basic Development Plan education in difficult areas to replace "leaf' schools and start the move towards full-day schooling for such communities. Expand the lending of textbooks and books for children to schoolchildren from ethnic minorities. Encourage the participation of the private sector in education and training, especially vocational. Adjust the rate of training levels; focus on training for a skilled workforce. Develop special policies for teachers and training staff working in disadvantaged areas, complete the salary and allowance regime, training priorities and other preferential regimes. Have appropriate policies to strengthen, train and stabilize the livelihood of teachers and training staff working in disadvantaged areas and to train them on new teaching programs, methodologies and information to inprove teaching. Improve curriculum and teaching in tertiary education by linking scientific research and technology transfer in universities and colleges with research institutes. Implement priority regimes regarding land use and preferential loans for investment in education infrastructure. Promote training according to location; apply the appointed selection enrolment for disadvantaged areas. 5. Health: Improve quality of Implement Instruction No. 06 issued by the Party's Central Study on linkages Curative Care for WHO is leading a health services; increase the Secretariat on strengthening and completing the grassroots-based between health the Poor (FY05) health sector donor equity and efficiency of the health care network; continue support policies on primary health service availability, working group which health care system: concentrate care tasks for people, especially for poor people and poor areas. health service again provides input on developing basic health care utilization and into the international CAS - Annex DI Page 14 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 AAA Lending Other Donors and community health care. Continue investments to develop health stations and ambulatory health outcomes support group under health groups in mountainous, remote and isolated areas. (FY03). the Ministry of Maintain the achievements in abolishing infant poliomyelitis and MTEF for health Health tetanus. Continue to implement extended vaccination in 10 kinds of (FY03) vaccine for children. Early Childood Have appropriate policies to provide financial support to health Development Study services for poor people. (FY04) Encourage the development of traditional medicine in light of Instruction No. 25 issued by the Prime Minister. Transport Safety Implement Government Resolution No. 90 on the socialization of Strategy Review health, education and culture. (FY03) Continue investment and complete policies for the National Action Plan on HIV/AIDS control and prevention. Mobilize the masses to strive to control and prevent HIV/AIDS and to manage the care ofthose infected with HrV/AIDS. Have appropriate preferential mechanisms and policies for medical personnel working in disadvantaged, remote and isolated areas. Strengthen information dissemination, education and propagation of hygienic practices, disease prevention and health imnprovement for poor people and poor areas. Gradually increase the share of recurrent budget expenditure for health to 5% of total budget expenditure in 2005 and to 8% in 2010. Inplement appropriate policies to channel financial resources to support health care for the poor. Implement the National Strategy on Maternal Health Care for the period of 2001-2010. Promote the regime of health insurance and free-of-charge health examination and treatment for the poor. Continue to expand the scope and level of support for medical examination, treatment and medicines for poor people and disadvantaged children. CAS - Annex Dl Page 15 of 1 9 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction PoHcies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending Increase population coverage of health insurance by mobilizing premium collections among those who can afford to pay. Implement Decision No. 147 issued by the Prime Minister on the implementation of the National Population Strategy of Vietnam for the period 2001-2010, strengthening information dissemination on family planning. 6. Develop a modem culture Promote investment to develop culture and information; develop a UNESCO closely lined to the identity of modem culture closely linked to our national identity. the nation and improve the provision of information to Concentrate investment on the development of commune cultural help people expand their centers, which can be extended to meetinghouses and entertainment capacity to make choices, areas. The Government will provide primary material support to capacity build essential infrastructure works such as cultural houses, post offices, radio and television stations, library of technological and scientific books, etc. 7. Strengthen environmental Continue implementation of Decision No. 104 issued by the Prime Annual Rural Water and Environmental protection and ensure a healthy Minister on the National Strategy for Rural Hygiene and Clean Water to Environmental Sanitation institutional environment for the poor. the year 2010. Monitor (FY03- Infrastructure strengthening has Approve and implement the National Strategy for Environmental FY06) Project (FY05) been selected as the Protection (NSEP) 2001-20 10. Strengthen capacity in government Urban Congestion Water Resources first partnership and agencies at the central and local level for environmental (FY05) Assistance Project is being supported by assessments. Improve environmental monitoring and disclosure of (FY03) UNDP, Sweden, environmental data. Denmark, Canada, Limit and roll back the environmental degradation in industrial Local Switzerland, zones and densely populated areas in cities and rural areas. Actions Project IUrCN Strengthen education, mobilization and control of environmental (FY06-FY07) Australia, Japan, hygiene with respect to aninal breeding at the household level and at Austrk, Japans the large scale level and in craft villages. Rural Energy II Denmark, Netherlans . ~~~~~ ~ ~ ~~~(FY04) and ADB are [1 ctive Supplement, complete and develop new legal normative documents in the area of Water to provide concrete guidelines for implementation of the Water Resource Resource Law, Environmental Protection Law and other legal management documents. Expand the range of regulatory instruments and CAS - Annex Dl Page 16 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending incentives for pollution reduction. Build construction works to clean the environment such as wastewater and rubbish treatment stations, dust and noise treatment facilities in cities, townships. Develop auto-disintegrative latrines in rural areas. Improve the quality of natural resource management with respect to the pdor, who mainly depend on natural resources for their livelihood. Develop the framework to enable community participation in natural resources management. Encourage the use of biogas in rural areas and develop solar, wind energy and other energy resources. Strengthen the sustainability of Develop the classification of forestry and reform forest data using natural resources in rural collection. areas. Implement the transfer of land and forests to farmers in association with fixed-cultivation and fixed-residence and stabilize the livelihood of mountainous farmers. Research, revise and amend policies on standard price norms in caring for protected forests, afforestment and protective forest protection. Evaluate the current forest classification system and improve the monitoring system of forest covering level. Integrate the National Program on 5 million hectare afforestation with the Forestry Assistance and Co-operation Program. Implement the Water Resource Law to improve the sustainable management of water resources, river headed forests and land resources. Develop prudently fishery production, ensuring the environment assessment and proper area selection to be carried out. 11. Ensure the balanced development, increase gender equity and advancementfor women 1. Promote balanced Continue increasing investment in less developed areas with the PovertY Assessment Mekong Japan and 1 "~~~~~~~~~~~F 04) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ CAS - Annex DI Page 17 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 AAA Lending Other Donors and sustainable economic aim of reducing the development gap between different areas, urban Regional Poverty Region Australia are growth between regions. and rural areas in particular. Reduction Infrastructure expected to co- . . . . . . ~~~~~Strategies (FY04- Project (FY06) finance the Mekong Ensure an appropriate population distribution across areas; increase FY06) Region infrastructure step by step the quality of life for all population strata with the aim Poverty Update Project of reducing the gap in living standard between different strata and PeyU to groups; bring population variables into development plans. (FY06) Sources of growth and causes of poverty in the Mekong Delta (FY04) 2. Promote gender equity, Implement Decision No. 19 issued by the Prime Minister on the Gender UNDP provides TA enhance the participation of National Strategy for the Advancement of Women to the year 2010. mainstreaming fund for mainstreaming women at all levels of for high priority gender in national leadership. Ensure that the names of both husband and wife appear on land-use projects (FY03- policies and pl leadership. ~~~rights certificates by 2005. FY06) Increase the number of women in government-elected bodies. Reduce inequality in naking decisions in families. Increase the role Country Gender of women with respect to their family's assets. Assessment (FY05) Strengthen women's access to credit resources and capital from the National Strategy for Poverty Reduction, creating conditions for them to access social services fully, equitably and equally. Have policies to reduce the vulnerability of women against family violence. 3. Create conditions to enable Ensure that ethnic minorities in the mountainous areas benefit from Rural transport and Poor Communes A partnership all social strata to fully take growth. Evaluate and disseminate models to support disadvantaged poverty Infrastructure and supporting the part in economic growth areas and ethnic minorities, and encourage them to take part in the Rural energy and Livelihoods (FY06) Government's economic development process. poverty Program 135 to assist Encourage NGOs and socio-political organizations to take part in Evaluation of cormunes poverty reduction by providing a legal framework for NGOs. project impacts on coordinates work _ Improve the access of the poor to legal support services. Help the project affected among donors in this CAS --Annex Dl Page 18 of 19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Other Donors AAA Lending ________ poor inprove their knowledge of their legal rights and obligations. people (including area Increase the two-way information system between local government ethnic minorities) and poor families. Implementation of Irnplement fully the Decree on Democracy at the Grassroots Level, indigenous people and create an enabling environment for poor households to take part development plan in local economic development plans. III. Develop the social safety net to support poor and vulnerable people. 1. Minimize social impacts on Reduce negative impacts on the poor caused by ongoing reforms. ASEM grant the poor in the process of Broadly disseminate information on policy changes to facilitate imnplement and adjustment farmers in changing their production and business operations. monitor the social safety net for Ensure job security, extend unemployment insurance, training for redundant workers the redundant workforce and improve working conditions. (FY03-FY05) TA on "Unemployment Insurance Policy" (through ASEM or other grant) (FY03- FY05) 2. Minimize the impacts of Develop a set of solutions to effectively address emergency social Transport Safety Natural Disaster A formal partnership natural disasters on the poor relief for poor and vulnerable people who are hurt by natural Strategy Review Management on Natural Disaster disasters and accidents. (FY03) Project (FY05) management was Expand the official social safety net (health insurance, social established in 2001. insurance, etc.) and encourage the development of the voluntary It is now in the safety net (school insurance and insurance of crops, diseases, etc.) developing action plans based on identified priority areas CAS - Annex DI Page 19of19 B. Policies and measures to develop major sectors and areas to ensure sustainable growth and for poverty reduction Policies, measures and timeframe for implementation during Bank Group Instruments Policy areas and Objectives 2003-2005 Lending Other Donors 3. Protect worker rights and Review and strengthen the role of labor unions in protecting worker working conditions in a market rights and working conditions. economy. 4. Provide targeted assistance Improve the targeting mechanisms of programs 133, 135, and 143 to vulnerable groups. and implement them in a more participatory way. Undertake independent evaluations of these programs and use findings to improve the design of the projects. C. Monitoring and Evaluation 1. Improve macroeconomic Promulgate the Law of Statistics. statistics Strengthen the statistical agencies at various levels. Promote the transparency and data quality. Strengthen the statistical database. Strengthen the national account within 2 years and improve budget data quality to correspond to the Governments fiscal statistical standards. Present a website of Vietnam in the International Fiscal Statistical Book published by IMF. 2. Poverty monitoring Collect high quality data on the poverty situation and trends, and Supor t ensure that data and information is publicized and used regularly. CPRGS (FY03- Implement enterprise surveys to collect high quality data on growth FY06) and employment trends, and make it publicly available. CAS - Annex D2 Page I of I CAS Summary of Development Priorities Country Major issue b Country Bank priority C Reconciliation of Network area performance' priorityC country and Bank priorities d Poverty Reduction & Economic Management Poverty reduction Excellent Sustainability High High Economic policy Good, Implementation High High Public sector Fair Pace of reforms High High Gender Good Ownership of land Moderate Moderate Human Development Department Education Good Affordability for the poor High High Health, nutrition & population Good Affordability for the poor Moderate Moderate Social protection Good Lack of targetting to the poor Moderate Moderate Environmentally & Socially Sustainable Development Rural development Good Slow off-farm employment generation High High Environment Fair Low management capacity Moderate Moderate Social development Good High poverty among ethnic minorities Moderate Moderate Finance, Private Sector & Infrastructure Financial sector Fair Non-performing loans High High Private sector Fair Business environment High High Energy & mining Good Energy prices High High Infrastructure Fair Maintenance High High a. Use 'excellent,' good,' 'fair," or 'poor." b. Indicate principal country-specific problems (e.g., for poverty reduction, 'rural poverty;' for educaton, 'female secondary completion;" for environment, "urban air pollution"). c. To indicate priority, use 'low," "moderate," or "high." d. Give explanation, if priorities do not agree; for example, another MDB may have the lead on the issue, or there may be ongoing dialogue. -29' < < >7z}54/g 2>chL80, 14 2 LT.ng Proborg S ,m , . / 2 7N 22 M 21 7I ' b l ' ' on.DbngH& 1n / T H A I L A N D_ { / 4_- < % N Dolol I 19 HNt0~o.,g 49 B ~ToBA L Vy 22HNn 52VIC DoogTAL I , _ + \ X EOUNDAR~~~~~~~~~~~~I E I I f I (@ i NH= Bn,I S2 D=G,ong co hDPomP>\(fG)4 / } ° 2 E MOCRATn G RE PBnh (China 10 hTh>ho 460n,VInI, TO I_ e ,dyIOop-,~ 0B~IT, Wo,I4Bo,kb 27 HoOy47BnhTI omb , < , Kbo5 29 QNmh gBnnh 54 An lo2ngC VIEooTNAMB~ J,I,ho o,i 25 NhLon I7 1 I0n 30 ROD Jr 3n 6 a m 9cpneoser RIER 61 Aab ID 0 0 Doa Al IMAGING Report No.: 24621 VN Tvne: _ CAS _