Finding and Using Foreign Capital Sources

Capital sources are material factors that directly determine economic growth of any country. However, where to find capital sources and how to use them effectively is not simple.

Where are the sources?

Currently, Vietnam faces many difficulties in State budget-based capital sources. Although 23 per cent of gross domestic product is mobilised for State budget-based capital sources, this has yet to meet the demand. As a result, a State budget deficit often occurs. If enterprises' profits are used for re-investment, their development will slow down. Meanwhile, the stock market channel, where long-term capital is supplied, has yet to fully achieve its potential. The attraction of foreign investment capital has improved, but there are no positive signs in attracting the necessary capital with such fierce competition between China and other regional countries. In this situation, official development assistance (ODA) sources are very important. So far, 40 countries and international organisations have provided ODA capital for Vietnam with interest rates lower than those of commercial loans. Statistics show that from 1993 to 2003, donors pledged to provide US$25.34 billion in ODA for Vietnam, with US$2.83 billion in 2003 alone.

However, last year Vietnam disbursed less than 50 per cent of the ODA capital pledged by donors. This figure was lower than the US$1.5 billion in foreign investment. The disbursement was less than expected by donors and lower than other countries in the region.

Ample sources but ineffective disbursement?

Economic experts say that both the Vietnamese side and the foreign sources are to blame. For the Vietnamese side of the equation, the development of feasible projects remains slow. This has damaged Vietnam and has affected donors' trust in Vietnam. The lack of harmony in public procurement between Vietnam and its donors is also a reason as well as poor financial and project management capabilities. Meanwhile, foreign donors' complicated procedures have caused difficulties for the Vietnamese to implement the funds. With these obstacles, it is impossible to be optimistic about the plan to disburse US$10 billion in ODA capital in the 2001-2005 period. Facing such difficulties, without a breakthrough in administrative reform, preferential loans will become a burden to Vietnam in the future.

According to researches of ODA donor countries, if governments of receiving countries do not make a breakthrough in the implementation of sources or are not determined to implement policies relating to infrastructure development projects, the effectiveness of the capital source will not be as high as that of internal sources because ODA capital is wasted and lost before it reaches the end-users. Now, many countries tend not to rely on ODA capital any longer., including Thailand and Malaysia. Zhejiang province (China) with 60 million people also no longer relies on ODA capital and instead it relies on foreign investment capital, which makes up 90 per cent of the province's total investment capital. The other 10 per cent is mobilised from credit channels and the stock market.

This is a good lesson for Vietnam as capital sources from the domestic population are estimated at up to US$30 billion. Annual remittance from overseas Vietnamese to their homeland reaches more than US$2 billion and not all the amount is invested in business activities. With proper mobilisation policies, these sources would be greatly effective, helping Vietnam reduce its reliance on ODA capital. However, the positive impacts of ODA capital on the Vietnam economy cannot be denied and ODA capital is a necessary capital source for the country during the difficult time.

Talking with the press recently, Deputy Prime Minister Vu Khoan stressed that without ODA, there would not be major works such as Cai Lan seaport, Hai Van tunnel, Noi Bai international airport, My Thuan or Bai Bang Bridge in the coming time. Infrastructure development projects using ODA have boosted the economy of each locality.

• Phuong Vien