Regarding the increasing investment demand for urban infrastructure, the government has encouraged local authorities to pay more attention to infrastructure development. In this context, the local Development Investment Funds (DIFs) have been emerging as an important economic instrument thanks to their great contributions to infrastructure development
Since it first began operation in 1996, the DIF has been strongly developing and appears as a vital instrument in implementing level arrangement strategy launched by the government.
The local DIFs have to date established as many as 12 branches in cities and provinces nationwide. The figure already reflects the proper attention paid by local authorities to the fund, which was verified by its capital growth and operation expansion. According to a recent statistic, total capital gained via local DIFs increased by approximately 65 per cent in 2002-2004 period. In 2004 alone, total capital reached US$400 million.
The most active DIFs have gained many achievements in setting up collective name concerns in Vietnam, including BOT and BOO models. These branches have also been allowed to participate in both indirect investment (lending) and direct investment (share holdings) activities.
It is admitted that the local authorities will place further reliance on the local DIFs in the coming time as the level arrangement between the central and the local has been promoting.
However, the DIF model has also raised several financial risks, which Vietnam should repair to turn it into an effective financial intermediary, WB said.
The successful operation of the DIF model will mostly depend on incentives given by the government to the local authorities to operate the funds strategically and professionally.
Initiation and innovation are two key factors despite their negative impacts on regulations that protect financial power and improve safety standards of the local DIFs.
According to World Bank, the government should give more priorities to long-term investment funds in order to help the local DIFs operate effectively.
The shortage of long-term capital has been upsetting local authorities and DIF managers in development investment, hindering the local DIFs from accessing the capital market, and failing to gather investments into long-term economic projects and strategies.
All provincial People's Committees and DIFs, including Ho Chi Minh City's Fund for Urban Development Investment, have appropriate awareness of technical assistance in improving the role of the funds in business management, investment assessment, investment policies, risk management, standards of information promulgation, and others.
The absence of common regulations on legal conditions and operation standards is considered the biggest barrier hampering the growth of the local DIFs due to its adverse effects on debasing the legal prestige of the DIFs in capital mobilization, rate mechanism, and personnel policy.
The Government of Vietnam should clarify whether state-owned enterprises or other financial institutions have the right to apply legal frameworks in establishing the local DIFs or not and define certain role of local authorities in DIFs' operations.
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