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Viet Nam - Japan cooperation set to promote development

Update: April, 28/2015 - 08:32

Mori Mutsuya

Japan International Cooperation Agency Chief Representative in Viet Nam

In response to the opinion piece Does Viet Nam really need or even want ODA? published on April 16, 2015 in the Viet Nam News which may cause misunderstanding about Jap-an's Official Development Assistance, we would like to present some basic facts on Japan's aid to Viet Nam.

To begin with, it should be understood that the goal of Japan's ODA is to help countries achieve sustainable growth and independence. Regarding this, the article acknowledged that ODA projects had significantly contributed to Viet Nam's socio-economic development.

On the other hand, the article features judgements on ODA that need to be explained in a more accurate way. There are two points about ways to think about future debt burdens.

Firstly, the article said that because ODA (loans) are money that is borrowed and needs to be repaid in the future, future generations will be burdened with debt and associated interest. In the context of the high ratio of public debt to GDP, the opinion piece argued that Viet Nam should not borrow ODA loans.

However, the loans are also clearly "an investment for the future", so the level of borrowing should be discussed in view of the benefits of socio-economic development and their effects on the affordability of future debts brought by such loans. One should not view ODA negatively focusing only on repaying what is "borrowed from the future".

Secondly, in the context of the difficult financial situation of Viet Nam, the article doesn't consider the precondition that if Viet Nam's public investment mainly relied on tax revenue, it would be very difficult for Viet Nam to invest enough in necessary public projects for future socio-economic development, and the future debt burden would become very different due to the use of alternative funds.

Low interest

For example, if Government bonds financed infrastructure improvement or building of hospitals and educational facilities, the interest rate would be at least about 5 per cent. Meanwhile, Japan's ODA offers an interest rate from 0.1 to 1.4 per cent on infrastructure projects, and only 0.3 per cent on loans for building hospitals or universities.

It can be seen that if the infrastructure was built with ODA instead of Government bonds, the amount of debt that today's children must pay in the future would be reduced by more than 50 per cent. More over, considering the context of a high consumer price index in Viet Nam, the interest rate on Japan's ODA becomes "minus", making the ODA loan an exceptional financial source.

The use of ODA rather than Government bonds for public investment is the best way to reduce many of this country's debts in the future. It was pointed out that repayment of ODA would reduce the amount of investment in important areas such as healthcare, education and social welfare in the future. If the funds came from Government bonds, the investments toward these areas would fall even more. JICA puts a focus on health and education for Viet Nam.

Another point that is not true for Japan's ODA is that recipient countries have to employ contractors and technologies designated by the donors. In Japan's ODA, projects that use Japanese contractors are limited. Japan's ODA loan divides standard Yen loans and STEP (Special Terms for Economic Partnership) loans.

Projects that hire Japanese companies as main contractors are limited to work that requires highly advanced technology. STEP projects are implemented based on a request from the Vietnamese Government, and include joint-venture co-operation between Japanese and Vietnamese enterprises.

JICA has actively transferred Japanese technology to help train Vietnamese engineers, contributing to their technical capacity. JICA hopes Vietnamese companies will construct a large cable-stayed bridge as Nhat Tan Bridge or an urban railway by themselves someday in the future. No one is forced to use Japanese technology.

The article noted a recent scandal in ODA and said that corruption in ODA was not rare and ODA should be utilised more properly. We believe that corruption is a serious problem in Viet Nam, not only in public projects, but also in the private sector, and this hinders economic development.

But it must be understood that it was the efficient management and administration systems of donor countries that led to these scandals being uncovered. After the JTC scandal, the governments of both countries are considering whether Viet Nam should implement more radical and stricter measures to prevent corruption.

Finally, the article concluded that "if we (Viet Nam) can stand on our own two feet, there is no reason to ask for help". JICA is more than willing to continue to co-operate with Viet Nam to achieve sustainable growth by supporting the country until it is able "to stand on its own feet".

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