|CERES No. 148 - Working out the links: labor in sustainable agriculture (1994)|
Edited by Kate Dunn
The "B-52s of foreign aid" are carpet-bombing Vietnam with billions of dollars as international donors and lenders fight for a foothold in the most promising agricultural economy in Southeast Asia. The Ho Chi Minh Trail is metamorphosing into Capitalist Way, and the International Monetary Fund, the World Bank, the Japanese, Australians, French and Scandanavians are all determined their signposts should lead the country in its new direction,
As foreign experts and foreign exchange flood into Hanoi, hopes are high. But will the dikes hold? The country has been cut off for decades from most international development efforts, first by war and later because of the U.S. economic embargo, only recently lifted - and there are those who believe its earlier isolation from lending agencies may have been a blessing in disguise.
In the late 1980s, crippled by food shortages and economic decline, Vietnam launched its policy of economic renewal, known as doi moi. The country's Marxist-inspired planned economy was gradually dumped as leaders opted for a "socialist-oriented market economy." Vietnam reformed its banking system and stimulated private farming and trade. Foreign governments cheered, but the U.S. watched with concern as other countries flocked to Vietnam and started snapping up all the good positions in aid and business propositions. Finally in January the new Clinton administration, backed by a Senate resolution, said it was time to end the embargo. Americans began pouring in, scrambling to catch up.
By November 1993, 23 countries and 17 international institutions had pledged over US$1.86 billion in grants and soft loans. Leading the pack were the Manila-based Asian Development Bank, which has promised US$1 billion, the World Bank, with $328.5 million in soft loans, and Japan, which has earmarked; $560 million for Vietnam. But is such "help" necessarily a good thing?
"It is the same story all over again," complains a young Australian economist who has worked in Vietnam for more than two years. "The Asian Development Bank and the World Bank will dump more money in this country than it can absorb. Some good projects will be done, but badly planned ones will also be funded because of donor pressures. Donors ask what the Vietnamese priorities are, but they do not really listen. They turn around and do something else better tied to their own commercial interests."
"Donors are competing for projects," complains a United Nations employee. "Everyone wants to get the high profile ones such as repairing Highway One (the country's main north-south road) or training top policy-makers. Few want to train local officials, even though it is a Vietnamese priority. Donors are all into policy-making. It is the new fashion."
Spared for 25 years
The past decades of isolation meant "Vietnam was spared 25 years of environmentally warped development projects and ill-advised loans," said one Hanoi-based economist working for an international agency. "We know better now. Vietnam will benefit from the lessons learned elsewhere."
Is there a Vo Vietnam (Vietnamese way) to develop? Will this country, with 80 per cent of its economy and people still on the farm, succeed in handling the powerful network of international organizations that have left other countries sinking in the shifting sands of debt and structural adjustment programs?
Vietnam's economy grew by 8.3 per cent in 1992 and seven per cent in 1993; the government managed to reduce inflation from a spiralling 700 per cent in 1986 to seven per cent in 1993. In just five years, Vietnam has gone from having to import hundreds of tons of rice, to being the world's third largest rice exporter (see Ceres No. 146).
With that record, does the post-socialist government need advice from outsiders? Most experts agree on the need for international loans used for rehabilitation of the transportation network. The poor state of most roads and ports slows down movement of agricultural products and thus the speed of economic growth. But there consensus stops.
What are the other priorities? "It doesn't help that the Vietnamese do not have a common view of the country's development," said a technical adviser to the World Bank. "There's a maze of interest groups in Vietnam: provincial powers, political factions, local interests. Everyone agrees agriculture and food processing must spearhead development, but the rural interests are under-represented in the policy-making debate."
Ray Mallon, a senior economist with the United Nations Development Programme (UNDP), remains optimistic. The Vietnamese leadership, he says, has closely studied the borrowing experiences of countries like Thailand, Malaysia and the Philippines. They've learned their lesson. Grants will be reserved for social spending on education and health. Loans will be used to build "economic infrastructure" such as roads, telecommunication and water systems, power plants, etc. The State Planning Committee (SPC), which is responsible for coordination of all foreign aid, chose this route so "loans will help improve production capacity and lead to an improvement of domestic revenues through taxation," said Vo Hong Phuc, SPC vice-chairman. "That money will then be applied to sectors such as education and health."
That's the theory, which has already been transgressed: a US$70 million soft loan from the World Bank will be used for primary education. While schools are social infrastructure which ensure a better-skilled work force and increase tax revenues over the long term, the fear is the money will be spent for foreign advice on curriculum development. "Sure they will build new schools in impoverished areas but those schools will create recurrent spending for new teachers," said a disgusted British expert. "The government will have to spend more and the increase in tax revenues will come too late to help repay the loans. Debts will mount."
"The Vietnamese attitude right now is the more loans the better," says Adam McCarthy, an economist based in Hanoi. "But those loans will have to be repaid, and they will require a 10-30 per cent counterpart fund (Vietnam's contribution). Where will they find the money?"
In the Vietnamese dance between capitalism and socialism, sometimes the steps get confused. For example, the government asked the Japanese International Cooperation Agency (JICA) to finance construction of a glucose factory for the Ministry of Health. Vietnamese hospitals badly need glucose solution and the project is on the government's priority list. JICA rejected the proposal because, true to the entrepreneurial spirit of the times, the factory would have also produced sweets for commercial sale, with revenues to go to the cash-strapped health ministry. "We need to better understand when donors want us to use market rules and when they do not," commented one tired Vietnamese planner.
Avoiding waste and corruption is the toughest challenge faced by Vietnamese loan managers. While foreign advisers sleep in US$200 per night hotel rooms, government employees rarely earn more than a 10th of that amount in a month's work. The government is clearly determined to set examples of how not to behave in the new order. Late in February, former Minister of Energy Vu Ngoc Hai and other officials were sentenced to three to five years in jail after some fancy financial footwork was used in moving 4 000 tons of steel destined for use in a $500 million north-south power line. A profit of $300 000 was made in the suspicious transactions.
There is fear the government cannot cope with the proliferation of aid projects. The flow of funds is not as quick as some would have it. "Our present ability to disburse money is very limited," admits UNDP foreign aid coordinator Andrew Bartlett, who works closely with the Vietnamese State Planning Committee. While that may frustrate donors, most Hanoi-based development workers prefer a gradual disbursement of loans to a flood. "If all the construction projects start at the same time, the price of cement and of design engineers will go sky high," warned an economist. "Private investors will suffer."
Duong Duc Ung, SPC's director of foreign economic relations, is confident in his staff's ability to handle these problems. "The Vietnamese are hard-working and learn fast. In Comparison with some other countries, our debt is small.
"The real question is our capacity to repay. It is not very big."
SPC experts are trying to estimate that capacity. Some say Vietnam can absorb $500-600 million/year; others suggest $1 billion. "Our objective is to keep the debt within safe limits," said Ung.
Jealousy breeds secrecy, as various levels of government in different regions keep quiet about money and plans for it, out of fear another arm of government will try to control it or take it away. "SPC wants to control the money instead of being a policy-maker and focal point for information," laments a foreign economist advising the Vietnamese authorities. "We are trying to convince them to supervise the process, not control it. If they attempt control, they will create a bottleneck. If they fail, they will lose credibility. In either case, it's bad news."
"If they went any faster the place would burst," said Andrew Bartlett. Most ministries were not set up to do the work they are now doing. Organizational charts are often two years old and few departments do what the chart indicates. "The people I work with have no job description," said Bartlett. "If we start writing rule books, the ones who are good at problem solving and who are getting the job done, will be stifled. But that is not easy to explain to the World Bank board of directors."