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Donor control of ODA not an option (18/04)

06/08/2010 - 31 Lượt xem

On the wake of the PMU 18 scandal, the government has recently instructed the Ministry of Planning and Investment (MPI) and the Ministry of Finance (MoF) to check the mechanism to distribute, use, manage and inspect the use of ODA capital. Here after is the opinion of an expert related to that issue.

Corruption at PMU 18, and the implication of high-ranking officials, is a red alert regarding purity within the state apparatus, and importantly the use of foreign loans in developing the economy. Borrowing foreign capital for state spending, or raising capital through the sale of corporate bonds against which the State is the guarantor, the state is ultimately responsible for repaying any funds deemed outstanding.

Official development assistance (ODA) is capital that supports economic development. It is not aid. It comes in the form of soft loans from other countries or international organisations. Preferential interest rates for ODA loans are based on the six-month Libor rate plus 0.4 percentage points. The current interest rate is around 3.75%, much lower than market interest. The ODA interest rate offered by the Japanese government is even lower still, charged at less than 1%. Aside from interest rates, the borrower must pay service fees of 1.1% of the loan total.

When a country borrows capital on the international bond market, it must service its debt at a much higher interest rate. For example, Vietnam recently sold ten year term bonds worth US$750mil to raise capital for the Vietnam Shipbuilding Industry Corporation (Vinashin). On these bonds, the country must pay an interest rate of 7.5%. The payment to the company that sells the bonds may reach 3% of the total collection from sale. Thus, the actual sum of money that Vietnam receives from such sales is around $340mil, while service of the debt will be $750mil a decade later.

Vietnam currently owes $19bil (statistics of 2005) in foreign debt, which was mainly accrued in the form of soft loans. The country must pay foreign debt of around $2bil a year, a figure that may later increase to $3bil, as Vietnam was not required to service the debt in the first three years. Vietnam is planning to borrow a further $17bil in the 2006-2010 period, roughly $3.4bil annually. Thus the country needs up to $6.4bil/year to service the old debt and to be approved for new loans.

In five years, foreign debt will reach $32bil, increasing from 34% to 45-50% of gross domestic product (GDP). At that time, the economy will begin to exceed the threshold of safety. According to the five-year plan, the total investment in the economy may be $120bil. State investment (from the budget or through state re-lending or guarantees on loans) is $45bil. If the current margin of theft of public funding is 20% (possibly as high as 30% according to the General Department of Police), losses will equate to $10bil, equivalent to 60% of the sum of foreign capital the state plans to borrow.

Vietnam can only borrow soft loans from international organizations and other countries to invest in development projects. If it has to borrow capital to service existing debt, then the country will have to borrow at interest rates more reflective of market rates.

Borrowing ODA from other countries and international organizations is by no means an assurance that projects will be implemented any more effectively. It is a great mistake to believe that international organisations will closely monitor implementation of ODA projects.

The World Bank clearly announced in its Handbook for Project Implementation that the monitoring and evaluation of projects is the responsibility of the project monitoring group within the borrowing country. The bank’s Inspection Board only inspects the behaviour of its staff if it receives a complaint. Of course, loans from the World Bank or the Japanese government are often withdrawn, usually due to unfeasibly slow implementation of projects. Cancellation of a loan serves to cease disbursement – either temporarily or permanently – once donors recognise that a project is not running to the set pace, or has hit dire straights. The latter being the rarer of the two instances.

Based on my experience having monitored several small development projects, I think that evaluation of a project from a distance gives a very limited view, as the observer has no clear picture of whether the project developer is spending money on project requirements. For example, inspection of spending on paper, printed documents or records books only works if we check them, and this assumes that records have been properly kept.

Such action can only be undertaken by an inspection group of the borrowing country. If any donor wants to monitor activities to that extent, it would prove difficult for them to avoid creating political problems related to the host country’s sovereignty.

Inspection and assessment of projects, therefore, must be based on the borrowing country’s clean and capable organization and mechanism.

Dr. Vu Quang Viet

Senior expert, Head of the National Accounts Group of the United Nations Statistical Division

Source: Thời báo Kinh tế Sài Gòn