Businesses have proposed to allocate ODA capital to develop support industries. The Vietnam Chamber of Commerce and Industry (VCCI) has voiced its support to the idea, saying that this was a reasonable solution. 

However, MPI is against the idea, saying that under current laws support industries are not subject to ODA loans, and that ODA is not reserved for commercial activities. 

Bui Ngoc Son from the Research Institute of the World’s Economics and Politics also noted that ODA has been mostly allocated to infrastructure and education development programs, not to trade and other commercial activities.

If ODA is disbursed to fund commercial activities, this will create an unfair playing field for business, because a part of businesses which can access preferential loans will have advantages over other businesses which cannot.

“Businesses must seek commercial loans for their investment projects,” he said.

He went on to warn that Vietnam will face high risks if it accepts to use a part of ODA capital to develop support industries. 

ODA providers offer preferential loans so that poor countries can develop their infrastructure systems – roads and power plants -  and the educational system.

An analyst, while agreeing that it would be risky to let businesses access ODA capital, noted that Vietnam should learn a lesson from Vinashin.

In 2005, the government of Vietnam issued $750 million worth of international bonds, which will reach maturity in 2016. The amount of money collected from the bond issuance has been re-lent to Vinashin, the national shipbuilder, in a program to develop the country’s shipbuilding industry. 

However, it is clear that Vinashin cannot pay the debt. As a result, the government has to come forward and pay money back to international investors for Vinashin.

Dr. Dinh Trong Thinh from the Finance Academy said it would be better to allow businesses to approach ODA capital, but he warned that businesses would face high risks if they make bad decisions.

If they borrow money in Japanese yen, for example, they will suffer heavily if the yen appreciates. Even if they can borrow at the interest rate of zero percent and management fee of 0.7 percent per annum, the capital cost would also be high.

Thinh also noted that ODA would not be a ‘magic wand’ which will help Vietnam develop supporting industries.

Dat Viet