Central Institute for Economic Management (Component 1 and Co-ordination), Ministry of Finance (Component 2) and State Bank of Vietnam (Component 3)
Contribution:
€ 3 million
Commencement:
December 2005
Background
Prospects for continued pro-poor growth in Vietnam depend critically on deepening Vietnam’s integration into the world economy. The access to the World Trade Organization (WTO) scheduled for 2006 will require an acceleration of reforms towards a market system. This entails both to redefine core functions of the state, reforming the respective legal environment accordingly and to strengthen the institutions so as to fulfill these functions more effectively and efficiently.
Objective/Target Groups
The Program aims at strengthening the market economy institutions of Vietnam in key areas.
The Program focuses on the legal framework and its implementation in areas key for developing a market economy: enterprise and investment law, law on planning, state budget law, and a number of laws and regulations governing the financial sector and capital markets.
Program interventions take place on three levels in order to achieve capacity development: changing the regulatory framework, reforming the organizations which are responsible for supervision and implementation and enhancing the capacity of its staff.
Three Program components reflect the key areas:
Component 1, economic and social policy, focuses on the implementation of the enterprise and the investment law, the reform of the law on planning, on strengthening the economic analysis and forecasting capacity and on improving the reporting on the economic situation of Vietnam.
Component 2, public finance, focuses on the implementation of the State Budget Law and on other regulations and instruments enhancing the capacity for efficient and effective budget management.
Component 3, financial systems development, focuses on the structural reform of the State Bank of Vietnam, enhancing the internal audit and risk management functions of commercial banks, on capital market development and on improving supervision and audit functions of the People’s Credit Funds.
Component 1, Economic and Social Policy, is coordinated by the Central Institute for Economic Management (CIEM) which also has the coordinating function for the program as a whole. The Component also involves the Prime Minister’s Research Commission which will hold an annual public forum on the economic and social situation in Vietnam. For economic analysis and forecasting, an informal working group will be established under the lead of CIEM, comprising representatives from the General Statistics Office (GSO), the Ministry of Planning and Investment (MPI), Ministry of Finance and the State Bank of Vietnam (SBV). The reform of the law on planning will support CIEM (lead) and other partners (MPI, MoF, and Ministry of Home Affairs) in drafting the law.
Component 2, Public Finance, is directed at the Budget Department in the Ministry of Finance focusing on four areas: refining regulations to increase the budget discipline (in particular cost norms, liquidity and debt management, extra budgetary funds, expenditure management and recurrent cost implication of capital expenditure), approach, process and instruments of medium-term fiscal planning; result-based budgeting (approach and implications for budget reform); and capacity development for implementing the State Budget Law in poor provinces.
Component 3, Financial Systems Development, is coordinated by the State Bank of Vietnam (SBV). It provides support in the areas of monetary policy and capital markets development, of central bank reform, of restructuring the commercial bank system, and in the development of the People’s Credit Funds system. At present, assistance is provided to SBV in the fields of monetary policies, structural reform of the central bank and banking supervision, to the State Security Commission in drafting the Securities Law and in establishing an independent Center for Securities Depository and Clearing, to selected commercial banks in strengthening internal audit functions and risk management, to the Association of the People’s Credit Funds (PCF) in establishing an external audit function for PCFs and to the PCFs and the Central Credit Fund in establishing an internal audit function.
Implementation
The Program has an overall time horizon of 6 years. The first phase comprising 3 years has started in December 2005.
The approach of the Program is demand-driven, process-oriented and flexible in order to support partner institutions in accelerating their reform process. Local expertise is given preference to international expertise, international experts who have already worked in Vietnam are given preference to newcomers. Many international short-term experts are practitioners in their respective field from financial institutions including central banks or ministries of finance. Annual operational plans reflect partner demands and represent a flexible framework. The program builds on long-term co-operation, particularly in the field of banking and budget reform since the early 1990s.
Outputs: The Program provides international state of the art expertise and assists partners in mobilizing national expertise for analysis of the legal environment in the respective fields, for commenting on draft laws and regulations and for analyzing their impacts, for organizational change (e.g. on the structural reform of the central bank, on establishing internal audit functions in commercial banks), for establishing analytical instruments (e.g. on macroeconomic forecasting or risk management for commercial banks) as well as for policy change and training in the areas covered by the three components. It also assists the respective partners in establishing institutionalized dialogue mechanisms (e.g. forum on economic and social situation, informal working group on macroeconomic analysis and forecasting).
