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Japan Bank for International Cooperation (JBIC) signed ODA loan agreements on March 30 with the aggregate total of up to 165;95.078bn for nine projects with the government of Vietnam.

 

Since adopting the Doi Moi policy in 1986, Vietnam has successfully put its economy on a relatively high growth path, driven by increasing exports and foreign direct investment, and in recent years its economy has been growing annually by about 7%.

 

Acceding to WTO in January 2007, the country is also expected to further integrate itself into the international economy, and it is gaining importance for Japanese firms as a destination for their business development.

 

Additionally, the robust growth has helped to diminish the poverty rate from 58% in 1993 to 24% in 2004.

 

In order to achieve sustainable economic growth and poverty reduction for the coming years, the country needs to further accelerate the transition to a market-oriented economy by promoting reforms of state-owned enterprises and the financial sector, while at the same time strengthening its international competitiveness by promoting the private sector, developing infrastructure, and improving the investment climate.

 

Additionally, there is a need to address new challenges, including urban traffic and environmental problems caused by urbanisation and growing income disparities between urban and rural areas as well as among different regions.

 

Highlights of this year’s ODA loan package are as follows:

 

(1) Construction of the first full-scale urban railway in Vietnam

 

With urban traffic volume ever increasing in parallel with the robust economic growth, Ho Chi Minh City, the largest city in Vietnam, is facing problems such as traffic congestion, deteriorating road safety and air pollution, which are hindering effective economic and social activities.

 

JBIC will support the Ho Chi Minh City Urban Railway Construction Project (Ben Thanh – Suoi Tien Section (Line 1)) (I), which is aimed at developing the regional economy and improving the urban environment in Ho Chi Minh City by constructing an urban railway line (consisting of the underground and elevated segments). Since this is the first full-scale urban railway project in Vietnam, and Japanese companies have advanced technology in the urban railway sector, Special Terms for Economic Partnership (STEP) will be applied to the project.

 

(2) A broad range of support contributing to sustainable economic growth, strengthening of international competitiveness, and environmental improvement

 

In an effort to encourage the Vietnamese private sector, JBIC places emphasis on: (1) economic infrastructure development that will serve to promote sustainable economic growth and strengthen international competitiveness; and (2) addressing environmental issues that economic development entails. JBIC will provide a broad range of support for economic infrastructure development that is urgently needed and economically viable, improvement of the investment climate, and upgrading of the living environment of urban residents.

 

(a) Transport sector

 

To improve safety and reliability, as well as to enhance the transportation capacity of the Hanoi-Ho Chi Minh railway line, a major line that stretches two-thirds of the total length of the national railway of Vietnam, seriously aging bridges will be rehabilitated/replaced in the Hanoi-HCMC Railway Line Bridges Safety Improvement Project (II).

 

In Vietnam, frequent traffic accidents on the road are hindering the sound operation of transport infrastructure. JBIC will support the Northern Vietnam National Roads Traffic Safety Improvement Project, where traffic safety facilities will be developed, educational and enlightening activities will be carried out and safe driving control will be enhanced in the four national highways located in northern Vietnam (NH No.3, 5, 10 and 18) to reduce the number of traffic deaths and accidents and alleviate damages. The project will thereby upgrade the living environments of local communities and improve convenience for road users.

 

(b) Power sector

 

Power demand has been growing by an annual 15% in recent years in Vietnam. In 2005, frequent power outages took place in the northern Vietnam area due to lack of water, reflecting the serious shortage of power supply. JBIC will support the construction of thermal power plants to effectively meet the country’s sharply increasing power demands in the Nghi Son Thermal Power Plant Construction Project (I) and the O Mon Thermal Power Plant and Mekong Delta Transmission Network Project (IV).

 

(c) Improving the investment climate

 

While foreign direct investment is one of the elements underpinning the robust growth of the country, investment flows in northern Vietnam tend to concentrate excessively in Hanoi City. To boost investment activities in Vinh Phuc Province located next to Hanoi and ensure well-balanced development in the Greater Hanoi area, JBIC will support infrastructure development in the road, power distribution, water supply and sewerage sectors, as well as the strengthening of the support system for investors in the province, in the Vinh Phuc Province Investment Climate Improvement Project.

 

(d) Improving the water environment

 

Despite the country’s rapid urbanisation and industrialisation, adequate environmental measures have not been put in place in urban areas and places where industry clusters. BIC will support the Southern Binh Duong Province Water Environment Improvement Project, in which sewerage system will be developed in Binh Duong Province lying next to Ho Chi Minh City to improve access to the sewerage system by the local community and increase the %age of water treated. The project will thereby improve the urban living and public health environment in the Province and Ho Chi Minh City located downstream.

 

(3) Reducing regional disparities by eliminating digital divide

 

Amid recent strong economic growth, narrowing the gap between the urban and rural areas has emerged as one of the top development agendas for the government of Vietnam. It is a known fact that the digital divide between the urban areas and farming villages is one of the factors fomenting such disparities.

 

To reduce poverty by eliminating the digital divide, JBIC will support the Rural Community Internet Use Development Project which aims at: (1) providing materials and equipment necessary for launching broadband internet service and creating the electronic government; (2) developing contents (on healthcare and sanitation, as well as farming information) for residents in the rural region; and (3) developing human resources who are savvy in information and communication technology (ICT) in Hoa Binh Province, one of the country’s poorest provinces.

 

(4) Making policy/institutional improvements toward economic growth and poverty reduction

 

The government of Vietnam drafted the Comprehensive Poverty Reduction and Growth Strategy (CPRGS) in May, 2002, and has been pursuing economic growth and poverty reduction by moving ahead with policy/institutional improvements under CPRGS. In support of the government efforts, Poverty Reduction Support Credits have been provided under the international cooperation framework led by the World Bank.

 

JBIC will also support the government’s effort for making policy/institutional improvements by providing the Fifth Poverty Reduction Support Credit in collaboration with other multilateral and bilateral donors.