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6HOHFWHGHFRQRPLFLQGLFDWRUV GDP per capita: 419 ¼  GDP growth rate: 5.5% (2000) Rate of inflation: minus 1.7% (2000) Gross reserves: 3.2 billion ¼HTXLYDOHQWWRPRQWKVRILPSRUWV 

6HOHFWHGVRFLDOLQGLFDWRUV Life expectancy at birth: 69 years (1999) Infant mortality rate: 36.7 per thousand births (1999) Child malnutrition: 36.7% ( prevalence underweight under 5 years old, in 1999) Net enrolment in primary education: 91% (1998) Completion of 5th grade in primary education: 75.5% ( 1998-1999)

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ADB Asian Development Bank AFTA ASEAN Free Trade Area ALA Asia - Latin America APEC Asia Pacific Economic Co-operation ARF Asian Regional Forum ASEAN Association of Southeast Asian Nations ASEM Asia - Europe Meetings BTA Bilateral Trade Agreement CEPT Common Effective Preferential Tariff CGPRS Comprehensive Growth and Poverty Reduction Strategy CGPRS Comprehensive Growth and Poverty Reduction Strategy COMECON Council of Mutual Economic Assistance CPRGS Comprehensive Poverty Reduction and Growth Strategy CPV Communist Party of Vietnam CSP Country Strategy Paper DIPECHO Disaster Preparedness ECHO ECHO European Community Humanitarian Office EIB European Investment Bank FDI Foreign Direct Investment GDP Gross Domestic Product HDI Human Development Indicators IMF International Monetary Fund I-PRSP Interim Poverty Reduction Strategy Paper ISG International Support Group MUTRAP Multilateral Trade Policy Assistance Programme NGOs Non-Governmental Organisations NIP National Indicative Programme NIP National Indicative Programme ODA Overseas Development Aid PMNR Pu Mat Nature Reserve PMU Project Management Unit PRSC Poverty Reduction Support Credit RAP Returnee Assistance Programme SEDS Socio-Economic Development Strategy SFNC Social Forestry and Nature Conservation SMEDF Small and Medium Sized Enterprise Fund SMEs Small and medium-sized enterprises SOEs State-Owned-Enterprises SPS Sanitary and Phytosanitary SVSV Strengthening of Veterinary Services in Vietnam SWAp Sector Wide Approach TBT Technical Barriers to Trade TRIPs Trade Related Intellectual Properties UNDP United Nation Development Programme UNHCR United Nations' High Commissioner for Refugees WTO World Trade Organisation

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Vietnam is a Socialist Republic of about 80 million people, of whom 30 million live below the national poverty line and around 25 million are unemployed or underemployed. GDP per capita is ¼ After decades of war and a difficult reunification struggle, Vietnam launched in 1986 "Doi Moi", a renovation policy that embraced economic reform, the reshaping of foreign policy and renovation of the internal political system. Since 1986, the country has gone through various stages of economic growth that led to the doubling of its GDP between 1991 and 2000. Though reform has progressed at uneven speed, it is perceived as irreversible. A new breed of managers is taking over from the previous generation of leaders in the political system. The Communist Party of Vietnam discussed at its 9th Congress in April 2001 a strategy for the socio-economic development of Vietnam for the period 2001-2010, aimed at transforming a rural society into an industrialised one by 2020. Vietnam has little time to modernise its socio-economic system before it has to compete on equal terms with other countries in the region where reforms have been ongoing for decades. Non-implementation or ineffective implementation of reforms is -by and large- the major risk Vietnam is facing. Key factors to monitor include agricultural development, a sensitive sector given that 90% of the poor live in rural areas working mainly in agriculture and the external sector. Exports represent 44% of GDP, and AFTA, Vietnam's planned accession to WTO and implementation of the US-Vietnam BTA will have a direct impact on Vietnam's exports and investment performance. Structural reform, facilitating private sector development, is also a major issue, as SMEs face stiff and largely unfair competition from SOEs. Principal challenges faced by Vietnam therefore lie in transforming its rural economy, enhancing its human capacity (e.g. through better access to health and education), creating a supportive climate for enterprise, providing efficient infrastructure services, improving environmental quality, enhancing human rights and civil society participation in decision making processes, and building modern governance. Many of the challenges faced by Vietnam are similar to those of other developing countries. For Vietnam to overcome them effectively, it is likely to need to develop a more responsive, open and participatory decision-making system. Special attention is being paid in Vietnam to ensuring a high level of co-ordination among the EU Member States and the Commission to maximise coherence of strategies and complementarity of actions. Government-donor co-ordination and co-operation are relatively effective, assisted by an increasingly inter-active Consultative Group Meeting, a poverty working group, and sectoral partnerships for development. In the light of the above considerations, the overall aim of European Commission co- operation with Vietnam is to facilitate and accelerate the reduction of poverty in a sustainable manner. EC co-operation (for the period 2002-2006) will have an indicative budget of 162 million ¼DQGZLOOIRFXVRQWKHIROORZLQJWZRSULRULWLHV

1 • Enhancement of human development. This will be done in particular, through integrated rural development targeting some of the poorest provinces, and through support in the education field; • Integration of Vietnam into the international economy, by assisting reform towards a market oriented economy, and Vietnam's integration into world and regional economic structures. Crosscutting themes, as an integral part of EC-Vietnam co-operation, will include environmental protection, culture and education, gender equality, the promotion of human rights, and good governance. In the framework of the three-year rolling National Indicative Programme for 2002-2004 an indicative EC grant of 101 million ¼LVHDUPDUNHGWRLPSOHPHQWWKHSURSRVHGFRRSHUDWLRQ strategy: • Focal point 1, (55 million ¼  KXPDQ GHYHORSPHQW DQ LQWHJUDWHG UXUDO GHYHORSPHQW action in the Northern Uplands and two actions in education, one supporting the Ministry of Education and Training, and another on vocational training. • Focal point 2, (46 million ¼  9LHWQDP V LQWHJUDWLRQ LQWR WKH LQWHUQDWLRQDO HFRQRP\ three complementary actions aiming to provide support to institutional reform in public administration, and good governance; to the private sector; and to integration into global and regional economic arrangements.

2  (8523($1&20081,7<&223(5$7,212%-(&7,9(6 Article 177 of the 7UHDW\RIWKH(XURSHDQ&RPPXQLWLHV sets out the three broad objectives for Community development co-operation. These are: fostering of sustainable economic and social development; the smooth and gradual integration of the developing countries into the world economy; the fight against poverty. This article also states that Community policy should contribute to the general objective of developing and consolidating democracy and the rule of law and encouraging the respect for human rights and fundamental freedoms. Further to the Commission's Communication on "7KH(XURSHDQ&RPPXQLW\ V'HYHORSPHQW 3ROLF\" (1), the Joint Council and Commission Declaration on Development Co-operation of November 2000 states that Community development policy is grounded in the principle of sustainable, equitable and participatory human and social development. Promotion of human rights, democracy, the rule of law and good governance are integral elements of EC policy. Against this background, other key parameters helping to set the co-operation objectives are the (89LHWQDP &RRSHUDWLRQ $JUHHPHQW of 1 June 1996 and the broader regional and global co-operation frameworks, such as $6(0 (2) or EC-ASEAN (3), where both parties are partners and share their common objectives. The table below compares objectives for EC co-operation with Vietnam as stated in the Co- operation Agreement of 1996 and with Asia, as in the Commission's Communication  "(XURSH DQG $VLD: a strategic framework for enhanced partnership" ( ) of 2001. This comparison illustrates how some of the objectives coincide and how others are complementary and mutually reinforcing.

7ZRVHWVRIFRPSOHPHQWDU\REMHFWLYHV EC-Vietnam Co-operation Agreement (1996) Europe and Asia: A Strategic Framework for Enhanced Partnerships (2001) 1. To secure the conditions and to promote the increase and 1. Contribute to SHDFHÃDQGÃVHFXULW\Ãin the region and globally, development of bilateral WUDGHÃDQGÃLQYHVWPHQW between the two through a broadening of our engagement with the region parties in their mutual interest taking into account their 2. Further strengthen our mutual WUDGHÃ DQGÃ LQYHVWPHQW Ilows respective economic situations; with the region; 2. To support WKHÃVXVWDLQDEOHÃ HFRQRPLFÃ GHYHORSPHQW of Vietnam 3. Promote the GHYHORSPHQWÃRIÃWKHÃOHVVÃSURVSHURXVÃFRXQWULHVÃÃof and the improvement of living conditions of the poorer sections the region, addressing the root causes of poverty; of the population; Ã Contribute to the protection ofÃKXPDQÃULJKWV and spreading 3. To enhance economic co-operation in the mutual interest of the RIÃGHPRFUDF\ÃJRRGÃJRYHUQDQFHÃDQGÃWKHÃUXOHÃRIÃODZ parties, including support to the Government of Vietnam’s 5. Build JOREDOÃ SDUWQHUVKLSVÃ DQGÃ DOOLDQFHVÃ with Asian ongoing efforts to restructure its economy and to move towards countries, in appropriate international fora a PDUNHWÃHFRQRP\; and 6. strengthen the DZDUHQHVV of Europe in Asia (and vice versa) 4. To support environmental protection and the sustainable management of QDWXUDOÃUHVRXUFHV.

Another point of reference is the 81 PLOOHQQLXP GHYHORSPHQW JRDOV to the definition of which the Community contributed and which will be taken into account in the definition of priority areas for co-operation with Vietnam. An enhanced Community and Member State co-ordination in search of increased efficiency and complementarity, concentrating on a more limited number of sectors, will be a guiding aim for EC co-operation in Vietnam.

(1) COM (2000) 212 final, of 26.04.2000 (2) COM 2000 (241), 18 April 2000 (3) Council Regulation (EEC) 1440/80 of 30 May 1980 (4) COM(2001) 469 final "Europe and Asia: A Strategic Framework for Enhanced Partnerships"

3  7+(32/,&<$*(1'$2)9,(71$0 In April 2001 the "strategy for accelerated industrialisation and modernisation along socialist lines, laying the foundations for Vietnam to become by 2020 basically an industrialised country" was presented to the 9th National Congress of the Communist Party of Vietnam (CPV) and later endorsed by the Party Congress. The "6RFLR(FRQRPLF 'HYHORSPHQW 6WUDWHJ\ " (SEDS) has been taken as a point of reference for the setting of EC-Vietnam co-operation objectives and priorities. The strategic goals of SEDS are to: • bring Vietnam out of underdevelopment; • improve people’s material, cultural and spiritual life; • lay the foundations for a modern-oriented industrialised country by 2020; • enhance human resources, scientific and technological, infrastructure, economic, defence, and security potentials; • establish the institutions of a socialist-oriented market economy; • heighten the status of Vietnam on the international arena. To meet these goals, SEDS proposes that Vietnam should evolve from an economy mainly based on agriculture, to one primarily based on industry and knowledge. The specific goals of SEDS are to ensure that by 2010, GDP will have be at least double over the 2000 level; to raise substantially Vietnam's Human Development Index; best utilisation of endogenous scientific and technological capacities; progress in infrastructure to meet socio-economic needs; enhancement of the leading role of the State economic sector in key domains of the economy. VW  Based on the comprehensive joint report “VLHWQDP±(QWHULQJWKH &HQWXU\ ´by World Bank, Asian Development Bank and UNDP the table below summarises the main social and economic objectives of SEDS as set out in the report. 6RFLR(FRQRPLF'HYHORSPHQW6WUDWHJ\ 6('6  Main quality of life goals Main economic goals 1. Eradication of hunger and hard-core poverty 1. Annual average growth of 7% to double present GDP by 2010 2. Universalisation of lower secondary 2. Investment to increase from the current 25% of GDP to 30% education 3. Exports to grow at more than twice the rate of GDP (to around 3. Malnutrition rate of children to be reduced 15%) from a third to 15-20% 4. GDP structure to change the share of agriculture in GDP to decline 4. Life expectancy to increase from 68 to 70-71 from 25% to 16-17%; industry to increase from 35% to 40-41%; years and services to increase from 40% to 42-43%; 5. Access to clean water in urban areas to rise 5. Rural employment to decline from about two-thirds to half from 65% to 90% 6. Rural migration to the cities, increasing urban population from 25% 6. Forest coverage to rise from 28% to 43%. to 33%. The government of Vietnam has prepared an Interim Poverty Reduction Strategy paper (I- PRSP). A Comprehensive Growth and Poverty Reduction Strategy (CGPRS) 2001-2010 is planned for Spring 2002. While the I-PRSP contributes to drawing the attention of authorities, society and the donor community to Vietnam’s more pressing needs, further prioritisation is needed to focus efforts from all partners in order to meet the very ambitious challenges described in SEDS. The I-PRSP, in addition to some macroeconomic policies that are examined in point 3.2.3 of the present paper, proposes a series of sectoral policies to support the poor and reduce their vulnerability. In particular, in order to create opportunities for poor families, it highlights the

(5) Throughout the present paper the WB/UNDP/ADB report "Vietnam 2010 – Entering the 21st Century" is frequently used as a source of information.

4 need to: invest in essential infrastructure; increase productivity in agriculture and diversify the rural economy; increase the income of the urban poor; protect the environment; strengthen the ability of the poor, especially women, to access credit and enhance training on how to do business; raise the living standards of ethnic minorities; create conditions for the poor, especially women and children, to better access social, education and health care services.

 &28175<$1$/<6,6 Stretching along a 3,200 km section of the South China Sea, the Socialist Republic of Vietnam extends over 300,000 km2 of which about 23% is under cultivation and 29% is classified as forest or woodland VHHPDSLQDQQH[ . The most intensive cultivation is in the main rice-growing deltas, the Red River in the north and the Mekong in the south. The population (nearly 80 million) is almost 80% rural and is concentrated in the two Delta regions. One ethnic group, the .LQKUHSUHVHQWV87% of the total population, while there are some 53 minority ethnic groups, mostly in the mountainous areas. 3ROLWLFDOVLWXDWLRQ The political structure of the Socialist Republic of Vietnam is based on a single party system, where the Communist Party of Vietnam (CPV) holds the monopoly of the political process and does not tolerate direct challenges to its authority. Since reunification in 1974, Vietnam has been governed by a troika composed of the President of the State, currently Mr. Tran Duc Luong, the Government Prime Minister, Mr. Phan Van Khai, and the CPV Secretary General, Mr. Nong Duc Manh. Key decisions are taken by consensus within the troika. The general political framework extends to the Party Congress and the Politburo. The Head of State is responsible for the army and internal security. The Government is the most visible external face of the system, being in charge of the execution of political decisions, particularly relating to social and economic development, and is answerable to the elected National Assembly. The balance of power between the Party, the Government and the State representations is being altered by an increasingly assertive National Assembly, which may become a driving force in the country's democratisation process. Considerable progress has been made under the “Doi Moi” reform programme launched in 1986, in particular with elements of economic and foreign policy reform. Some progress has been made with political reform – and “Doi Moi” is seen to be irreversible. A new breed of managers is taking over from the previous generation of leaders in the political structures. Mr. Manh’s election was widely regarded as a victory for the reformist faction within the Party. While in his previous post as Chairman of the National Assembly, Mr. Manh was credited with revitalising this institution, the inertia of the vast Party structure will assure that the pace of change remains modest. Although it remains largely hidden from the public view, there is an intense internal debate between reformist and conservative elements in the Communist Party of Vietnam, which was apparently intensified by the impact on Vietnam of the Asian Financial Crisis. The issue of corruption has been an important element of this debate and in 1999 the Party launched a “campaign of self criticism” to fight corruption among its members, with limited results.

5 While pre-eminence of the CPV has clearly made of Vietnam one of the most stable countries in South East Asia, it has also hampered the emergence of an independent media or civil society through the lack of open political debate. The issue of Public Administrative Reform (PAR) in the framework of the Government and the Party has been overtly on the political agenda since 1995. Although progress has been somewhat piecemeal, the objective of promoting decentralisation, as well as greater transparency and accountability in local government, has been adopted. In May 1998 the “Grassroots Democracy Decree” was promulgated, together with the Law on Complaints and Denunciations of December 1998. Whilst this decree has the potential to improve local accountability, as the December 2001 Consultative Group Meeting recognised, implementation remains patchy. Although the Government has shown increasing willingness to engage in dialogue on Human Rights issues with its foreign partners, progress in this field is still limited. While the number of crimes punishable by the death penalty was reduced from 44 to 29 in July 2000, the death penalty still applies to a wide range of crimes, from drug-related to economic. Independent human rights organisations (6) are denied entry to the country and access to prisoners. The Vietnamese Government strongly denies the existence of any prisoners of conscience, stating that those imprisoned have been found guilty of breaking the law. During 2001, numerous institutions and organisations outside Vietnam (including the European Parliament) criticised Vietnam's human rights record -in general- and in particular the detention and imprisonment of a number of religious leaders, due to their outspoken demands for political reform. Other focuses of internal tension in the country have been the uprising in 1997 of several rural communes (mainly requesting land and economic reforms at the grass-roots level), which was reportedly ignited by local government corruption, and the protests in February 2001 by some members of the ethnic minorities "Montagnards" in the central highlands. Several of these hill tribes people subsequently crossed into Cambodia and requested political refugee status. The UNHCR granted some of them the status of “person of concern”. Following difficulties over the implementation of a tripartite agreement of January 2002 between the UNHCR, the Government of Cambodia and the Government of Vietnam for the voluntary repatriation of those Montagnards in camps in Cambodia, the Government of Cambodia authorised the departure to the United States of those Montagnards willing to be resettled there. This action could not be regarded as a final solution to the problems that brought about the flight of the Montagnards to Cambodia. The EU has therefore called upon Vietnam to take appropriate action to deal with these problems in particular in the context of the country's reform programme and to ensure that the rights granted under the Constitution are fully applied to all Vietnamese citizens. During the last few years, Vietnam has substantially reshaped its foreign relations away from its past isolationism and is now an active member of ASEAN (since 1995), ARF, ASEM, APEC (formally since 1999) and other regional and multilateral fora. Its only international dispute of significance is over the contested sovereignty of the Paracel and Spratly islands in the South China sea. Vietnam is expected to continue its policy of external engagement, while closely monitoring and restraining internal dissent. The likely outcome of increasing integration

(6) i.e. Amnesty International, Human Rights Watch, etc

6 in the international arena and the necessary changes to implement AFTA and future WTO commitments will be a relaxation of internal controls, evolution towards a level playing field for business, improved application of the rule of law, and increasing, but moderated, political demands from a nascent middle class. (FRQRPLFDQGVRFLDOVLWXDWLRQ 6WUXFWXUHDQGSHUIRUPDQFH Since 1986 when Vietnam launched its economic reform process the country has gone through various growth stages that led to the doubling of its Gross Domestic Product between 1991 and 2000, to attain an average per capita income of ¼ From 1992 to 1997 Vietnam achieved annual rates of growth of over 8%. The Asian financial crisis hit Vietnam despite its non-convertibility policy, growth slowed to 4.0 % in 1998 but rebounded to 5.5 % in 2000. As the positive effects of the first round of economic UHIRUPV - liberalisation of agriculture, small scale services and foreign investment±have ceased to be felt total LQYHVWPHQW has fallen from 30 % to 20 % of GDP, mainly due to a fall in foreign investment. GDP for 2001 is expected to have grown by 4.8 % (7), significantly below the 7% objective of SEDS (8). Despite the fact that, in the last decade, agricultural and industrial contributions to GDP have inverted (9) Vietnam remains a predominantly DJULFXOWXUDOcountry (10), with three quarters of the population living in the countryside. 6WDWH2ZQHG(QWHUSULVHV (SOEs) still represent a substantial part of the economy. In 1999 they contributed to 30 % of GDP, 40 % of industrial output and 50 % of exports. Nevertheless, most SOEs are not competitive and, since they absorb half the bank credit available, they deprive the private sector of growth opportunities. Also, not being able to service their debts, SOEs have weakened the position of the EDQNLQJsector. SOEs remain one of the major weaknesses of Vietnam’s economy. Since the dissolution of COMECON, Vietnam has accelerated the opening of its economy to the world's markets, with H[SRUWV representing 44 % of its GDP, compared to an average of 27 % for developing countries as a whole. Vietnam has succeeded in promoting the participation of the private sector in the export drive. But by applying a distorted trade regime, it has encouraged investment in highly tariff- protected sectors of the economy, such as steel, cement and telecommunications, thus creating serious FRPSHWLWLYHGLVDGYDQWDJHs for its businesses in relation to other countries in the region. .H\)DFWRUVWRPRQLWRU Agricultural development: The agricultural sector is a sensitive (11) one, in urgent need of further modernisation. Over the last five years Vietnam has suffered a number of calamities. Many of these have been due to acts of nature –such as flash floods- others have been the result of inappropriate policies. The sector needs to

(7) Vietnam Economic Monitor – Autumn 2001. World Bank (8) Doubling GDP in 10 years calls for an average annual increase of 7% (9) From of 32% (agriculture) and 25% (industry) in 1990, to 24% and 34% in 1999 respectively. (10)The agriculture sector represents 24% of GDP, 66% of employment and 30% of export revenues This includes aquaculture. Source: Vietnam 2010 – Entering the 21st Century. World Bank. (11)Over 90% of the poor live in rural areas, mainly work in agriculture and have few off-farm employment opportunities

7 increase its SURGXFWLYLW\ and encourage GLYHUVLILFDWLRQ, without introducing further distortion. Exports: Vietnamese exports increased spectacularly from ¼ EQ LQ  WR ¼EQLQ 12) and contribute significantly to the local economy, although relying heavily on a limited number of products, many of which are vulnerable to competition from new, cheaper suppliers. Failure to UHGXFH SURWHFWLRQ over recent years has lead to some investment misallocation. Rapid accession by Vietnam to the :72the implementation of the BTA (Bilateral Trade Agreement) with the US, and an early coming into force of $)7$ will be crucial to maintaining export growth. Structural Reforms: The Vietnamese private sector, in particular small and medium- sized enterprises (SMEs), faces stiff and largely unfair competition from SOEs, which have access to preferential treatment (both by the administration and other SOEs) and to credit lines with favourable conditions. For the period 1997-1999, the cost of keeping the SOE system (only 40% of SOEs are profitable) was 2.2% of GDP per annum. Reform of the 62(V and of the banking sector, as well as the establishment of policies and legislation to support 60(V are essential. 6RFLDO'HYHORSPHQWV Progress made by Vietnam during the last decade in improving the well-being of its population, as shown by the Human Development Indicators, has been considerable. But, while the number of people living in poverty has been cut by half in 10 years, almost PLOOLRQSHRSOH (37 % of population) still live inSRYHUW\(13). Moreover, 60% of the workforce is either unemployed or underemployed, and each year in the coming decade, more than one million people will be added to the labour market. Poverty remains a mainly UXUDO phenomenon VHH LOOXVWUDWLRQ LQ $QQH[  , the poorest provinces being mainly located in the Northern Uplands and Central Highlands (14). Poverty has a particular impact on HWKQLF minorities, as in 12 out of the 13 poorest provinces - located in remote, mountainous areas - ethnic minorities represent at least half of the population (as against the 15 % average nationally). The JDS between the rich and the poor is ZLGHQLQJ (15) and progress in improving living conditions of the poor is slow, particularly in relation to access to basic social services. Vietnam has a good record in providing KHDOWKFDUH to the whole of the population, with a comprehensive public health structure reaching down to commune level. However, a heavy bias towards curative care, budgetary constraints and the decision to shift more responsibility for health care financing to the provinces have contributed to a fall in the numbers of nurses, midwives and hospital beds per capita in recent years. The health insurance scheme only SDUWO\ FRYHUV ORZHU LQFRPH JURXSV, with supplementary payments representing a major barrier to access to treatment. The lack of public funds for the improvement of VDQLWDWLRQ DQG ZDWHU VXSSOLHV threatens to contribute to the spread of malaria, dengue fever, typhoid and cholera, the most prevalent infectious diseases. While still at a pre-epidemic stage, the spread

(12)In 2000 Vietnam exported ¼bn to the EU while it imported ¼bn of EU products. (13) WB country brief: Vietnam (14) WB: provinces with poverty headcount over 60% of individuals (15) the gap between the richest and poorest quintiles increased from 7.3 times in 1996 to 8.9 in 1999

8 of HIV/AIDS, mainly through prostitution and drug abuse, is a matter for serious concern. It is open to debate whether the current policy of prosecuting “social evils” will have a significant impact in preventing further spread of the disease. In basic HGXFDWLRQ Vietnam outperforms comparable developing countries, with relatively high levels of school registration (16). But while 94% of the population over 15 years old is literate, this figure conceals SRFNHWVRILOOLWHUDF\ in some HWKQLF PLQRULW\JURXSV. Access to higher education (117 students per 10,000 population) is limited. All citizens have the right to education, and primary education is free in theory, even if in practice parents may have to contribute “voluntary” donations and provide teaching materials for their children. There are inequalities in access to education, with teacher shortages, especially in the remote provinces, and frequently large classroom sizes. Furthermore, the current education and training system is often perceived as not supportive of economic development because it does not cater to the trained manpower requirements of the workforce. Raising the number of workers with vocational training to 30% by 2005 is one of the targets in Vietnam's five year socio- economic plan (2001-2005) (17). Gender inequality in Vietnam is modest when compared to other countries. However, gender inequalities vary significantly between groups of society and across the country. The gender gap is wider amongst the poor and in rural areas. Among five selected indicators (skilled labour, employment, education (18), life expectancy and human development), only in life expectancy, women score better than men. Although the “Doi Moi” process has promoted the household economy and empowered many women in economic terms, the traditional role of women has in many ways been maintained, particularly in the rural areas. The percentage of females in full time education declines as pupils progress from Primary to Secondary levels and is very low at the higher education level. 7KHUHIRUPSURFHVV Since the start of Doi Moi, reforms have proceeded at an uneven speed. Lack of effective implementation of essential reforms is at the root of current difficulties. This reflects the inconsistent nature of the balance between the internal political debate within the CPV and socio-economic and demographic pressures. Such pressures, alongside the large development gap with most other ASEAN members, exert a major force in favour of the acceleration of reforms, which is now an urgent priority. Reform priorities are (19): • To create a fair and HIILFLHQW EXVLQHVV HQYLURQPHQW, promote competition and strengthen the confidence of enterprises and people. To continue reform of SOEs; to create favourable conditions regarding land, support business activities and

(16) 90% of primary, 74% of lower secondary and 38% of upper secondary school age children are registered in state schools (17) Ministry of Planning and Investment (18) Gender inequalities in education have narrowed. Presently, enrolment rates at primary and lower secondary schools are similar for boys and girls, but the gender gap is still significant at higher levels of education in spite of some improvement between 1993 and 1998 (19) Interim-Poverty Reduction Strategy Paper

9 promote SMEs, co-operatives and agricultural farms; to make available skills vital to development at this crucial stage; to encourage foreign investment. • To maintain PDFURHFRQRPLF stability. To improve fiscal policy, consolidate the tax system and expand the tax base; to implement an appropriate monetary policy to maintain stability, control inflation and support economic development; to accelerate the process of integration into international trade flows. • To mobilise and use efficiently UHVRXUFHVIRUWKHSRRU. To mobilise all possible resources to finance economic, cultural and social development in poor areas, with special attention to family planning and community health care; to improve mechanisms to allocate funds for hunger eradication, to offset the impact of the widening urban-rural gap; to strengthen decentralisation and the efficient use of ODA financed projects; to integrate and gradually merge targeted programmes in the same region. • $GPLQLVWUDWLYH reform. To establish a transparent, effective and efficient public administration by identifying the functions proper to government; to implement decentralisation of administration; simplifying procedures, particularly dealing with business procedures and import-export activities; accountability and transparency of government agencies and effectiveness of the judiciary; effectively implement grass-root level democratisation; to enhance two-way information flows. 3XEOLFILQDQFHDQGVHFWRUDOSROLFLHV Macroeconomic performance has mostly been adequate and stable. The Vietnamese non-convertibleFXUUHQF\ has largely maintained its value against the US dollar. The spread with the non-official exchange rate has been very small so far. The strength of the currency might have cost the country in terms of exports vis-à-vis its Asian neighbours, yet it has enabled the country to project an image of stability. Domestic demand has been largely fuelled by industry and construction, making it difficult to separate organic growth from that resulting from a loose monetary policy. Despite major growth in FUHGLW in the last three years, (up by 20% in 1999, 38% in 2000 and 29% in 2001), LQIODWLRQ has been kept in check, thanks mainly to the falling prices of food products. Budget GHILFLW is kept to a manageable level (3-4% of GDP) and, after Vietnam’s successful re-negotiation of its foreign debt, servicing should not pose a problem. 7D[UHYHQXHV have not been in line with expectations and have fallen by 4 percentage points of GDP since 1996. During the early nineties, the main objective of DJULFXOWXUDOSROLF\ was to provide food security. After the government allowed households to cultivate their own plots of land and sell excess production freely, rice shortages gave way to surpluses and considerable exports. While rice still represents 60% of agricultural production, other products - with better profit margins - have emerged in the last few years, mainly coffee, rubber, pepper, tea and cashew nuts. Overproduction has pushed international prices of these commodities down, which (coupled with the limited use of agricultural insurance) has endangered the livelihood of farmers (20), pushing them into debt.

(20) Other issues negatively affecting farmers incomes are: poor post-harvest treatment and storage, which diminish quality and price; overpopulation of rural areas; lack of technology and research, leading to low

10 In order to address these issues, SEDS sets a series of goals (see table in point 2), namely the decline of the agricultural share of GDP to 16-17%, the reduction of rural employment from about two-thirds to half of total employment, and rural migration to the cities, increasing the urban population to 33%. SEDS also calls for an increase of industrial participation in GDP to 40-41%. In order to reach this objective, the government relies both on SULYDWH FRPSDQLHV and on an active LQGXVWULDO SROLF\. Meeting these goals entails specific risks. See 3.3 and 3.4. ([WHUQDOHQYLURQPHQW Vietnam has adopted an “open door” foreign policy. The country took its place as a full member of ASEAN in July 1995 and was in the Chair of ASEAN in 2000/2001. It became a member of APEC (Asia Pacific Economic Co-operation) in 1998. Vietnam is an active member of the United Nations, and was elected to the UN Human Rights Commission in July 2000. Vietnam has worked hard to develop constructive relations with its neighbours, including China, as well as with the United States and the European Union. However, its long struggle for independence has defined the primary objective of Vietnam’s external policy as to “firmly maintain national independence in regional and international integration [through] equitable and mutually beneficial co- operation on the basis of mutual respect”(21), which often translates into strong opposition to any hint of perceived interference in its domestic affairs. Since the boom years of the mid-nineties, when Vietnam was perceived as a potential new “Asian Tiger”, disbursed Foreign Direct Investment (FDI) has steadily fallen from around ¼EQSHUDQQXPWR¼P7KHVKDUSGHFUHDVHKLJKOLJKWVWKHQHHGWR recover investor confidence and the need to speed up economic reform. Vietnam must compete for investments in a world with a worsening economic outlook and where other countries in the region could be more attractive, for example China, in particular after accession into WTO. Furthermore, when the AFTA comes into force, Vietnam will have to compete directly with other ASEAN counties for foreign investment. Three major external events mark Vietnam’s immediate path to integration into world’s economic flows: • AFTA. The Common Effective Preferential Tariff (CEPT) mechanism of the ASEAN Free Trade Area (AFTA) calls for an average import tariff in Vietnam of 0% to 5% by 2006 (22). This is the agreement with the highest potential to influence the economic development of Vietnam in the short term, since it may create price competition by good quality substitute products for Vietnam’s main export earners. Furthermore, the recent (5 November 2001) decision on the establishment of a free trade area agreement between ASEAN and China (23), to be implemented within 10 years, adds further pressure for reform of Vietnam’s economic structure.

productivity; lack of basic infrastructure (i.e. access to clean water and roads); scarcity of alternative (non-farm) sources of income. (21) Quotation from the Communist Party Secretary General’s address on the 110th Anniversary of the birth of Ho Chi Minh (19 May 2000). (22 ) It is likely that the 0%-5% tariff rate becomes in most cases an effective 0%, since in many cases the administrative costs of enforcing such tariff would be higher than the collected revenue. Tariffs above 20% had to be cut to 20% on 1/1/2001, tariffs of 20% or below will be reduced to 0-5% on 1/1/2003. (23) A similar offer by Japan may be soon made public

11 • WTO. Vietnam has applied for membership of the World Trade Organisation and should present its offer in a number of sectors in early 2002. Non-membership of the WTO prevents Vietnam from profiting from access to markets on most beneficial terms, from having recourse to dispute and settlement mechanisms and, in particular, from defending its interests during the next round of WTO negotiations. Countries outside the WTO are likely to lose FDI too, since international investors would favour countries with a common framework agreement on trade and investment. • US-Vietnam BTA. A US-Vietnam bilateral Trade Agreement was concluded in July 2000 and was ratified in 2001. This Agreement provides significant access to the Vietnamese market for US goods (mainly agricultural) and services, including financial and telecom. The Government of Vietnam has confirmed through an exchange of letters that the Agreement with the US will not lead to any discrimination against EU companies. Vietnam’s exports remain heavily dependent on imported equipment and intermediate goods. The traditional trade pattern is reflected in an increasing deficit with the ASEAN countries, balanced by surpluses with Japan and the EU. The main traditional exports to Asian countries are raw materials and commodities, while those to the European Union are mainly manufactured goods. Although the EU is the second largest investor in Vietnam, it is largely absent in Vietnam’s imports of intermediate goods, possibly reflecting the relevant absence of EU investment in the fastest growing sectors of the Vietnamese economy.

6XVWDLQDELOLW\RIFXUUHQWSROLFLHV There is a large gap between current economic performance and the SEDS objectives. ,QYHVWPHQW is one of the areas where SEDS could fall short of its target. Growth in investment will have to come from domestic sources and FDI. As the whole south-east Asia region is suffering a decrease in FDI, domestic investment should become an important source of growth. A reform programme to encourage this is overdue in its execution. At the same time, adequate policies aimed at strengthening a non- discriminatory, stable and transparent framework in order to facilitate foreign investment should be developed, as a matter of urgency. An increase in domestic investment requires that SULYDWHVHFWRUGHYHORSPHQW, particularly through SMEs, and the OLEHUDOLVDWLRQ RI VHUYLFHV become WRS SULRULWLHV for the government. The labour market situation in Vietnam can be summarised in three basic facts: roughly 25 million workers are either underemployed or unemployed; there are around one million annual additions to the workforce; and the workforce is characterised by a particular population pyramid (24). These factors lead to the conclusion that natural retirement and the current pace of job creation are not enough to absorb the yearly additions to the labour market. It is essential to promote investment in ODERXULQWHQVLYH LQGXVWULHV, where SMEs are particularly strong, and to overcome shortages of VSHFLILF TXDOLILHGPDQSRZHU that could dampen economic development. Given the continued key role to be played by H[SRUWV, all efforts must be made to reduce their vulnerability by enhancing quality, broadening markets and diversifying export

(24) Given the long years of war, the bracket of 40 to 60 year old represent little over 15% of the population, while about 45% are 0-19 years old.

12 products. Special attention should be given to all economic and social aspects involved in WTO access negotiations. TheDJULFXOWXUDO sector needs urgent attention if social tensions are to be averted. Rural PLJUDWLRQ to the cities and to rural-based non-agricultural jobs results from the need to double agricultural productivity. Ideally, enough work opportunities should be created to absorb the 6 million people that could be moving away from agriculture. The creation of sufficient jobs and social services for those who resettle, as well as dealing with environmental concerns related to XUEDQ JURZWK (incl. water and sanitation, pollution, energy consumption, traffic), will be a significant challenge and will put considerable strain on the budget. Rapid economic growth, industrialisation and continuing population expansion is putting  an increasing pressure on Vietnam’s HQYLURQPHQW DQG QDWXUDO UHVRXUFHV . This, coupled with a weak institutional capacity to address environmental concerns adequately, a low level of public awareness on environmental issues, as well as limited financial resources allocated to environmental protection, and disaster preparedness and prevention activities, contributes to a wide range of environmental problems VHH HQYLURQPHQWDO EULHILQ$QQH[ . Promotion of enhanced gender equality is also needed. This includes improving women’s economic status and living standards, mainly by implementing women’s equal rights in the area of labour and employment, education and training opportunities, access to high quality health care services and family planning services for women, and, probably most importantly, to promote increased participation of women in leadership and decision- making (26). ,QVWLWXWLRQDOUHIRUP cannot be delayed, as it constitutes a building block of many other essential reforms. The OHJDOV\VWHP must evolve to ensure consistent implementation of the rule of law. *RYHUQDQFH programmes must be introduced to rein in corruption and wasteful spending. Ministries often lack the WUDLQHGKXPDQUHVRXUFHV necessary to carry out their own policies. The Government will also increasingly face the problem of how far to allow OLEHUDOLVDWLRQRIWKHSROLWLFDOV\VWHP. Its very welcome policy of promoting grass roots democracy and a more active role for the National Assembly may conflict with the desire to maintain the leading role of the Communist Party. The readiness of the authorities to allow the expression of divergences of view both inside and outside Party channels will determine the extent to which these issues may impact on Vietnam’s relations with its international partners.

0HGLXP7HUP&KDOOHQJHV Even though Vietnam has been successful in economic growth and poverty reduction rates in relation to comparative countries, the country still has 37 % of its population living in poverty and 60% of its workforce unemployed or underemployed. SEDS objectives for 2001-2010 seem particularly difficult to achieve given that the international context, in terms of trade-competitiveness and foreign investment, is less favourable.

(25) Vietnam entering the 21st Century report: “in the last 5 decades, natural forest cover has shrunk from 43% to 29% of land area and the country is facing an acute shortage of arable and. Over-fishing and destruction of coral reefs and mangroves have reduced fishing yield. (26) National Human Development Report Report 2001. National Centre for Social Sciences and Humanities, Hanoi 2001

13 Benefits from the Doi Moi process are showing diminishing returns and the type of reforms needed now are, technically, politically; and socially more difficult, but still necessary Vietnam has little time to modernise its socio-economic system before it has to compete on equal terms with other countries in the region where reforms have been ongoing for decades. Non-implementation or ineffective implementation of reforms is -by and large- the major risk Vietnam is facing. The result of this could be economic stagnation and social instability. Vietnam’s principal challenges are: • Transforming the UXUDO HFRQRP\. This involves agricultural intensification and diversification, off-farm employment, remote and upland area development and enabling a free and efficient internal market. It constitutes a formidable challenge for the government of Vietnam in terms of the amount of resources needed. Many international donors are involved, in particular several EU Member States. These are areas fully consistent with EC sustainable development objectives and the EC has experience in rural development in Vietnam, particularly in the Northern Uplands, as well as in other countries in the region. • Enhancing KXPDQFDSDFLW\. This comprises improving the quality of social services, basically education, vocational training, health care, and social safety nets, as well as improving the level and allocation of public expenditure. Vietnam’s needs are again enormous. Major donors are involved in these areas, including EU Member States. The EC supports this particular poverty reduction objective, but given the amount of resources needed it will have to focus on a limited number of priorities. • Creating a VXSSRUWLYHFOLPDWHIRUHQWHUSULVH. Main areas to target are private sector development, SOE and banking reform, and trade policies. The legal system and the judiciary need urgent modernisation. Ministries need assistance to be better equipped to analyse and define policy suited to a global, open, and fast-changing environment. In all of these areas, Vietnam will need technical advice. These reform areas are fully commensurate with the EC’s own objectives. In addition, the EC has already been active in providing support in trade policy, promotion of the private sector and banking. In SME development, the EC could offer further know-how and technical assistance as appropriate. • Providing efficient LQIUDVWUXFWXUHservices. This includes transport, energy, water and sanitation. This is an area where the EC has contributed indirectly via its rural development projects, targeting the poorest sectors of society and on a broader level, through its regional horizontal programmes. Some EU Member States are particularly active in this area. • Improving HQYLURQPHQWDO quality. This includes mainstreaming environmental protection in all sectors. This would specifically include integrating environmental considerations into economic decision-making, changing human behaviour and production practices, involving citizens and communities, improving the institutional effectiveness and increasing the level of investment in environmental protection. These priorities are fully in line with EC objectives for a sustainable development. The EC will continue its support in this area and will co-ordinate its efforts with other major donors • +XPDQ5LJKWVDQG&LYLO6RFLHW\ The EC includes human rights issues in its regular dialogue with Vietnam and it is ready to continue its co-operation in both human rights and support to civil society. The European Parliament has highlighted on several occasions the need for Vietnam to improve the level of human rights

14 protection. A modern nation needs a dynamic and independent civil society that can freely contribute to the social and political debate. Thus, improving application of the Grass- roots Democracy Decree at the local level, increasing freedom of expression and better information on citizen’s rights will help maintain social stability and improve participation and local accountability. As with other developing countries facing similar challenges, solutions could entail an enhanced participation of civil society in decision-making, promotion of the rule of law, and the promotion of economic, social and political rights. • Building modern JRYHUQDQFH. This involves more transparent and accountable civil service, transparent and professional financial management systems, a predictable and comprehensible legal system, and greater autonomy for the three branches of the State. The Commission has increasingly voiced its concerns regarding corruption and good governance in the region, and is ready to contribute to Vietnam’s efforts in an area where an increasing number of donor agencies are involved.

 29(59,(:2)3$67$1'21*2,1*(&&223(5$7,21  2YHUYLHZ In the year 2000, total ODA disbursements of EU Member States’ and the EC in Vietnam amounted to ¼  PLOOLRQ DFFRXQWLQJ IRU FORVH WR  RI WKH WRWDO 2'$ GXULQJ WKDW year. In terms of total cumulative EU aid disbursements, the EU is the second largest donor in Vietnam. By the year 2000, total cumulative commitments for EC-funded projects in Vietnam amounted to ¼ PLOOLRQ FRQVWLWXWLQJ  RI WRWDO (8 FRPPLWPHQWV 0HPEHU States plus Commission) of ¼ PLOOLRQ 7KH LQLWLDO IRFXV RI (&9LHWQDP &R operation was on support for the return and reintegration of refugees following the end of the US-Vietnam war. Between 1989 and 1996, grant aid of more than ¼PLOOLRQVZDV provided for this purpose. The holding of the first EC-Vietnam Joint Commission in September 1996 was the occasion for a complete assessment of EC-Vietnam Co-operation, leading to agreement on a framework strategy document (27). This led to the launch over the subsequent period of seven major bilateral Development Co-operation projects (see Annex 3) and two projects under bilateral Economic Co-operation. Year Total Cumulative Total Cumulative EU Disbursements 2000 EU Commitments EU Disbursements

2000 ¼PLOOLRQ ¼PLOOLRQ ¼PLOOLRQ

 3DVWDQG2QJRLQJ(&&RRSHUDWLRQ/HVVRQVOHDUQHG The principal objective of the EC-Vietnam co-operation strategy agreed in 1996 was the consolidation of the ongoing transition to a market economy launched by Vietnam’s ‘Do Moi’ programme, while contributing to the mitigation of the social costs of the transition. Taking into account the most essential needs, the involvement of other donors and the EC’s ability to deliver, the strategy was focused on: • development of the least favoured rural and mountainous areas of the country.

(27) EC-Vietnam Strategy (1996-2000): Towards a Comprehensive Co-operation Partnership

15 • social sectors affected by the transition to the market economy; • activities to ensure that environmental concerns would be taken into account; • on-going economic and administrative reforms; • conditions for the transfer of European technology; • conditions for the development of two-way trade and European investment; Based on evaluation reports and joint EC-Vietnamese assessments, it is possible to draw some general conclusions on the implementation of EC-funded projects in Vietnam. First, the projects are perceived as fully relevant to the objectives of the agreed 1996- 2000 Co-operation Strategy. Second, ongoing projects are in general making satisfactory progress, taking account of the realities of Vietnam’s situation as a country in transition. However, many of the projects have suffered delays and difficulties in implementation. It may be noted that experience to date demonstrates that the Commission’s model for individual project preparation and implementation, which is designed to ensure a genuine partnership and to achieve full ownership of the completed project by Vietnam is clearly more demanding on local resources than a simple budgetary contribution. In particular, the EU and Vietnamese Co-directors of the Project Management Unit (PMU) are the key to successful project implementation and must be selected with great care. All the more so, because EC-assisted projects are often ground-breaking for the Vietnamese institutions involved, which may have little or no previous experience of active co- operation with a foreign partner. The EU Co-director is selected by competitive tender, the Vietnamese Co-director is appointed by the responsible Vietnamese Agency). Equally important is the autonomy of the PMU, operating within the terms of the project Financing Agreement and under the policy guidance of the project Steering Committee. Future project development, management and implementation is expected to improve with the recent creation of the new EuropeAid Office and, in particular, with the de- concentration of the external service. Direct responsibilities for aid management are expected to be transferred from Commission headquarters in late 2002. This devolution is designed to result in speedier and more efficient aid delivery as most decisions regarding the implementation of projects will no longer need to be referred back to Commission Headquarters. The Delegation will also be in a position to tender for technical assistance, to sign contracts with contractors, and to make related payments. 6SHFLILFOHVVRQVFDQEHGHULYHGIURPWKHIROORZLQJPDLQ(&FRRSHUDWLRQLQVWUXPHQWV )LQDQFLDODQGWHFKQLFDOFRRSHUDWLRQSURMHFWVThis is the most important development instrument in budgetary terms, with seven projects approved since 1994 totalling ¼ million. The focus of support has been in the areas of rural development, environmental protection/nature conservation and social sectors, mainly health and education. The only project that has been subject to a final review is the EC Returnee Assistance Programme (RAP). That evaluation indicated that through that programme and its predecessors, the EU had been able to make a significant contribution to the return and sustainable resettlement of many thousands of Vietnamese refugees after the end of the US-Vietnam war and, in this way to assist Vietnam to deal effectively with its most immediate and potentially divisive socio-economic problem of that time. The RAP has also been described as the first example in Vietnam of an externally assisted socio- economic development programme carried out in a partnership of equals between the Government of Vietnam and a foreign donor. An incidental benefit of the programme

16 was the training given ‘on the job’ to a large cohort of local Vietnamese employees in the programme, many of whom are now directly employed by donor agencies or in other donor-assisted programmes. A recent mid-term review for the Social Forestry and Nature Conservation in Nghe An Province (SFNC), started in 1997, considered this project as highly relevant given the exceptional bio-diversity value of the Pu Mat Nature Reserve (PMNR). The PMNR is a priority bio-diversity conservation area, as it is the most extensive forested area in QRUWKHUQ 9LHWQDP and of highest significance in conserving the ecosystem of the Annamite mountains, including a high number of species threatened or near-threatened with extinction. It should also be noted in this context that the SFNC project has contributed to the conversion, in November 2001, of Pu Mat Nature Reserve to a National Park. A lesson from the implementation of this project is the need to pay greater attention to the LQFHSWLRQ SKDVH in order to improve preparation of local partners and collection of progress and impact indicators. A Mid-term review of the Strengthening of Veterinary Services in Vietnam (SVSV) took place in 2001. Since its initiation in 1998, this project has suffered from serious difficulties in implementation. Although implementation of project activities has advanced, further progress could likely have been achieved if increased efforts to involve local partners during the preparatory phase had been undertaken so as to enhance the level of project ownership. (QYLURQPHQWDO FRRSHUDWLRQ. Most of the EC contribution to address environmental protection concerns has been included as an integral element (eg. agro-forestry) in the rural development projects in Cao Bang-Bac Can and Son La-Lai Chau in the mountainous regions in Northern Vietnam, as well as in the SFNC project. In terms of EC horizontal co-operation instruments in the environmental sector, five projects have been approved since 1996 for a total amount of ¼  PLOOLRQ 7KHVH projects have focused, among others, on capacity building for environmental management and support to the expansion of the protected area network in Vietnam. The materials produced from these projects are being used in wider development planning in Vietnam and the latter project contributed to the establishment of several new nature reserves in the country. 1*2SURMHFWV. EC support through NGO’s has either been channelled through NGO co- financing programme or through thematic budget lines (eg. tropical forests and environment). In terms of NGO co-financing the EC has supported over 180 projects since 1991 for a total amount of ¼PLOOLRQ NGOs can offer innovative and locally tailored development options that enhance the participation of local communities, particularly vulnerable groups such as women and children. Furthermore, NGO projects have contributed to strengthening institutional capacity in the sectors most affected by economic reforms. The impact of NGO projects, however, has been somewhat restricted and EU visibility has also been limited, in part to due the limited distribution of project information materials. In general there has also been an insufficient level of co-ordination and networking between the NGO projects and few links have been established with the larger EC funded bilateral projects. Future project appraisal will pay particular attention to ensuring that adequate mechanisms for co-ordination and networking are included in NGO project design and implementation. Furthermore, interventions following programmatic approach will be promoted, preferably through the involvement of several NGOs in partnership, rather than single projects implemented in isolation.

17 +XPDQLWDULDQ DVVLVWDQFH DQG GLVDVWHU SUHSDUHGQHVV  Since 1996, the European Community Humanitarian Office (ECHO) has provided humanitarian assistance of almost ¼ PLOOLRQLQ UHVSRQVH WR QDWXUDO GLVDVWHUV LQ 9LHWQDP ,Q DGGLWLRQ  GLVDVWHU preparedness projects in Vietnam for a total amount of ¼ KDYH EHHQ IXQGHG under DIPECHO since 1999. There is scope for increased integration between different EC instruments and more co-ordination among donors and the relevant government agencies in order to achieve a higher impact in the field of humanitarian assistance and disaster preparedness. This will likely be improved with the establishment in 2001 of the Government-donor Natural Disaster Mitigation Partnership, of which the EC has become a formal partner. (FRQRPLFFRRSHUDWLRQIn the area of economic co-operation the main focus has been on supporting Vietnam in its transition towards a market economy and the promotion of small and medium sized enterprises. Since 1994, a total of 7 projects have been implemented for a total amount of ¼0 The Technical Assistance Programme for Transition to a Market Economy in Vietnam (Euro-TAP Viet) was the largest single technical assistance intervention ever undertaken by the EC in Asia. The EC-ALA Economic Co-operation Programme evaluation report indicated that this programme was very well designed to serve the specific European Co- operation Programme objective of creating an environment more favourable to investment and development in the partner country. Overall, the programme appears to have had significant impact in raising awareness of the regulatory and institutional needs of a market economy and in helping to lay the groundwork for the necessary legislative changes. However, it is clear from the Euro-TAP Viet evaluation that the failure so far to translate this increased understanding into substantial changes in legislation or other needed institutional changes, means the outcome has fallen short of the results implied by the programme’s objectives. On the other hand, the project did contribute to the approval in 2000 of the Vietnamese Law on Insurance Business. Another important bonus seems to have been a more visible EU profile in Vietnam. In having small and medium sized enterprises (SMEs) as the final beneficiaries, the Small and Medium Sized Enterprise Fund (SMEDF) was perfectly in line with the Vietnamese Government’s economic reform programme. At the beginning of the SMEDF project a number of national institutions and donor-financed projects provided support to SMEs, but there was a need for more long-term funding and general financing to SMEs. SMEDF established a revolving fund to meet their needs. Given the way SMEDF was designed, it was concluded that the project did not improve the financial services to SMEs in general, but only to a selected segment, which was nevertheless a considerable achievement. 5HJLRQDOFRRSHUDWLRQVietnam is an active participant in several regional EC-funded programmes. For example, ten projects worth ¼0KDYHEHHQDSSURYHGIRU9LHWQDP under the Asia-URBS Programme. Whilst that programme has fostered important linkages between European and Vietnamese cities in various areas of urban planning, the experience has shown that success is very much dependant on the quality and background of the European technical assistance. In the environmental sphere, Vietnam is actively participating in the project ASEAN Regional Centre for Biodiversity Conservation, as well as the programme promoting best practices and business in environment, Asia EcoBest. The mid-term evaluation of the Asia-EcoBest programme concluded that the programme was successful in creating an opportunity for European SMEs in the environmental area to start up operations in Asia and improve their immediate chances for conducting business in the region. A new

18 follow-on project entitled EU-Asia ProEco will provide additional opportunities for Vietnam to participate in regional cooperation in the environment field, as will the new regional EC-UNDP Small Grants Programme to Promote Tropical Forests. Vietnam has further benefited from this kind of co-operation by participating actively in the Asia- Invest programme, which also targets the creation of EU-Asian business linkages, with 44 project proposals involving Vietnam as lead applicant, partner organisation or target country, presented so far. It is further needed to link these activities with the bilateral co- operation projects.

 (80HPEHU6WDWHV¶DQGRWKHUGRQRUV¶SURJUDPPHV Total ODA disbursements to Vietnam during the period 1996-2000 amounted to ¼ M (28), which can be compared to FDI figures during the same period of approximately ¼ 6,200 M (29). Eleven European Union Member States are represented in Vietnam, and a number of them have been engaged in development co-operation with Vietnam since the early 1990s (see Annex 4). Among the EU Member States, France was the largest donor in 2000, followed by Sweden and Denmark. It should be noted also that, apart from the bilateral development co-operation by the EU Member States presented in this report, EU Member States also channel sizeable ODA funds to Vietnam through their substantial contributions to the multilateral financial institutions and other organisations, such as NGOs. In terms of disbursements in 2000, the five largest sectors for the EU Member States and EC development co-operation were Energy, Human Resources Development, Agriculture, Forestry and Fisheries, Natural Resources and Health. The sectoral distribution of the development co-operation reflects strongly the European Union’s firm commitment to poverty alleviation in Vietnam through support to economic, administrative and social reform. The (XURSHDQ,QYHVWPHQW%DQN (,% signed a Framework Agreement in 1997 with the Government of Vietnam. This set the stage for the approval of the first investment project financed by the EIB in Vietnam, namely a ¼0ORDQIRUWKH1DP&RQ6RQ3LSHOLQH This project was deemed eligible because of (i) its importance for the national economy by establishing a gas market in Vietnam, (ii) promoting the use of environmentally friendly fuel, and (iii) transfer of technology from major European partners to PetroVietnam. The EIB continues to support projects presenting a mutual interest for Vietnam and the European Union, particularly to private-sector undertakings involving subsidiaries of EU companies and EU-Vietnamese joint ventures. EIB is trying to structure a global loan facility through one or more EU banks established in Vietnam, the proceeds of which are primarily meant to support small and medium size enterprises. $XVWULD provides support for both technical and scientific co-operation, through post- graduate scholarships and research projects in academic co-operation. In 2000, a total disbursement of ¼0ZDVPDGHRQDGLUHFWELODWHUDOEDVLV %HOJLXP concentrates its co-operation on poverty alleviation, focusing on five sectors: primary health care, education and training, agriculture and food security, basic infrastructure and conflict prevention. Cross-sector themes are: gender, environment, social economy. Special attention is given to respect for human rights, democracy and good

(28) Investment projects in Vietnam to the year 2000 (Vietnamese Statistical Publishing House 2001) (29) Vietnam 2010 – Entering the 21st Century report

19 governance. The annual average value of ODA disbursements from 1996 to 1999 was ¼9.978 M. 'HQPDUN emphasises support to fisheries, water resources and agriculture, with a geographical focus on central highlands and the central coastal provinces. In addition, it contributes to improvement of the reform process, mixed credits for commercial operations and environment. The annual average value of assistance from 1997 to 2000 was ¼0 )LQQLVK co-operation covers poverty alleviation in rural areas, sustainable management of natural resources and public administration and public utilities. Support to urban development has continued. The annual average value of disbursements (both loans and grants) to Vietnam during the period 1997-2000 was ¼0 )UDQFH¶Vfour major priority sectors for co-operation are: 1) legal and politicaltransition, assisting in the legal reform process and in the definition of economic and development policies; training of executives and students; 2) research and educational system; 3) modernising rural economy and controlled urbanisation; promoting the emergence of a modern private sector and competitive public sector. and 4) social benefits in rural area supporting the medical sector. The annual average value of ODA disbursements (both loans and grants) to Vietnam during the period 1997-2000 was ¼0 *HUPDQ\ V priority sectors are the support to reform policies, promotion of private enterprises, vocational training, preservation and sustainable use of natural resources, water supply, waste water, solid waste disposal and health (family planning / reproductive health, and HIV/AIDS prevention, hospital equipment, etc.). The annual average disbursements of this leading donor (both loans and grants) to Vietnam during the period 1996-2000 was ¼0 ,WDO\ V co-operation focused on poverty reduction. Main priorities are basic social services (water and sanitation, basic health, human resources). Italy plans to support the modernisation of industrial system and the opening of the economy, targeting SMEs. The annual average value of disbursements (grants only) to Vietnam during the period 1998- 2000 was ¼0 /X[HPERXUJ s co-operation since the early nineties has focused on the tourism sector. Currently, it is concentrating on fight against poverty particularly the social sector (health and integrated rural development). Environmental aspects will receive increased attention. In collaboration with Singapore support is provided to administrative and financial sector reforms. Total disbursements in 2000 have been 5.2 M, all of which have been grants. 7KH 1HWKHUODQGV¶ co-operation concentrates on three sectors: forestry and bio-diversity conservation, water management and transport, and health. In addition support will be provided to some cross-cutting issues related to these sectors, such as institution building and gender and macro economic reforms. The Netherlands is exploring with Vietnamese partners possibilities a sector-wide approach in multi-donor partnerships in the three sectors. The annual average disbursements (both loans and grants) during the period 1998-2000 was ¼0 6SDLQ¶V co-operation priority is to help to release the productive potential of Vietnam and to address direct social needs, mainly in health and education. Co-operation is widely distributed across Vietnam. The annual average disbursements (both loans and grants) during the period 1996-2000 was ¼0

20 6ZHGHQ¶V priorities for its co-operation are poverty reduction in an environmentally sustainable manner, and the promotion of democracy and human rights. Five main sectors of co-operation are: a) economic, administrative and social reform processes, b) specifically disadvantaged areas and groups, c) environmentally sustainable development, d) democracy and human rights, mainstreaming transparency, popular participation and gender equality and e) energy sector, focused on disadvantaged areas. The annual average disbursements (both loans and grants) during the period 1994-2000 was ¼0 7KH 8QLWHG .LQJGRP¶V co-operation goal is to promote pro-poor growth. Specific objectives are: 1) stronger collaboration between government and donors in poverty elimination; 2) greater understanding of the causes, characteristics and consequences of poverty; 3) improved capacity of government to implement reforms; 4) improved income opportunities for rural poor. Annual average assistance during the period 1995-2000 was ¼07KHOHYHORIILQDQFLDODVVLVWDQFHLVH[SHFWHGWRJURZVXEVWDQWLDOO\LQWKHQH[WIHZ years. In terms of FRRUGLQDWLRQ, the (80HPEHU6WDWHVDQGWKH(& meet on a regular basis to enhance collaboration and exchange of information. The regular Consultative Group (CG) meetings co-organised by the World Bank and the Government of Vietnam offer a framework for co-ordination among the international donor community. In addition, more than twenty Government-donor SDUWQHUVKLSV have been established for a variety of sectors. The EC has been active particularly in the forestry, environment and natural disaster mitigation partnerships. The development of these partnerships is likely to have a number of effects on development assistance in Vietnam, including a move towards more programmatic and sector-wide approaches to aid delivery; broader coalitions in the fight against poverty; less overlap and fewer gaps between programmes; more informed planning for all partners; more efficient use of resources and, ultimately, better development outcomes for Vietnam30. At the December 2001 &RQVXOWDWLYH*URXSmeeting, the Chair announced total pledges of assistance in 2002 amounting to US $ 2.4 billion. (Total annual pledges have averaged over US $ 2 billion since the early 1990s). Forthcoming :RUOG%DQN support is expected to include budgetary (lending) support of US $ 250 millions under its new Poverty Reduction Support Credit (PRSC) facility, in which several EU Member States are participating, to help cover the fiscal costs of structural reforms in five areas: banking, State Owned Enterprises, private sector, trade and public expenditure. The International Monetary Fund (IMF) approved in principle in April 2001 a three year arrangement for lending Vietnam about US $ 368 millions in balance of payments support under its Poverty Reduction and Growth facility, which is also linked to the structural reform programme. The World Bank has also supported development programmes in Vietnam, including a US $ 75 million programme addressed at the 1,600 poorest communes, and has provided extensive technical assistance. Total commitments in 2000 were US $ 286 million. The $VLDQ 'HYHORSPHQW %DQN $'% has provided support for policy and institutional reforms, and for capacity building in the areas of rural development, financial sector development, enterprise development and human development, as well as governance and the legal framework. A new country operational strategy for Vietnam is expected to be anchored in the Government’s medium-term development plans and the ADB’s

30 Vietnam 2010: Entering the 21st Century: Partnerships for Development

21 overarching goal of poverty reduction, with a particular focus in the North Central Coast and the Central Highlands. Continued agricultural liberalisation and the development of the rural private sector will be supported. Assistance is by way of loans and the provision of technical assistance. Loan assistance in 2001 is expected to have totalled US$ 210 million, with an additional US $ 10 million in Technical Assistance. Traditionally, -DSDQhas been – and continues to be – the largest single donor to Vietnam. In recent years, Japan’s bilateral aid has been reinforced by a special programme of assistance to the countries most affected by the Asian Financial Crisis. Japan’s assistance to Vietnam includes soft loans for infrastructure projects – power generation and distribution, irrigation, roads and bridges – and grants for human resource development.

7+((&5(63216(675$7(*<  3ULQFLSOHVDQGREMHFWLYHVIRUFRRSHUDWLRQ Vietnam's SEDS first goals are to bring the country out of underdevelopment and improve noticeably the people's lives . In this connection, supporting Vietnam’s efforts to reduce poverty LQDQHFRQRPLFDOO\VRFLDOO\DQGHQYLURQPHQWDOO\VXVWDLQDEOHPDQQHU will be the EC's RYHUDUFKLQJFRRSHUDWLRQREMHFWLYH. To meet the SEDS goals, Vietnam needs to undertake a vigorous market-oriented reform and to integrate further its economy into the international trade and investment flows. Assuming the Government’s continued and enhanced determination to implement the necessary socio-economic reform measures, the EC is ready to assist Vietnam's efforts . Reforms include, among others, transforming the rural economy, enhancing human capacity, providing a supportive climate for enterprises, the provision of better infrastructure, and improving the quality of the environment. Reforms also need to address the improvement of human rights and civil society participation in decision- making, as well as building modern and accountable governance. Economic growth should, however, be equitable and therefore, specific policies aimed at reducing the increasing gap between the richest and poorest quintiles of the population may be needed. In consequence, the WZR main DUHDV RI FRQFHQWUDWLRQ for EC co-operation will be assistance to improve Vietnam's KXPDQGHYHORSPHQW, targeting the poor, and to facilitate LQWHJUDWLRQ of Vietnam LQWR WKH LQWHUQDWLRQDO HFRQRP\. &URVVFXWWLQJ themes that will receive particular attention during implementation of activities within the above- mentioned areas of concentration are: HQYLURQPHQWDO SURWHFWLRQ DQG GLVDVWHU SUHSDUHGQHVV KXPDQ ULJKWV DQG GHPRFUDF\ FXOWXUH DQG HGXFDWLRQ and JRRG JRYHUQDQFH. An indicative budget of ¼0IRUELODWHUDOFRRSHUDWLRQIRUWKHSHULRGLV foreseen. The following general considerations will be taken into account when selecting initiatives for support: - Whenever possible, sector-wide approaches will be favoured over individual projects. Close co-ordination with other donors’ activities, particularly those of the EU Member States, must be ensured to maximise the impact of the EC’s contribution and to ensure complementarity; - There must also be complementarity and links among different EC-supported initiatives. Budgetary constraints compel concentration of activities and enhanced linkages

22 between poverty reduction and progress in Vietnam's integration into the world economy.

Specific project selection will be subject to a detailed identification and appraisal to be undertaken by the Commission. EC initiatives should encourage and support the development of civil society actors such as indigenous non-governmental organisations. Efforts will be made to further enhance ownership and accountability of Vietnamese partners in the design of the co-operation interventions. Integral and essential objectives of all Community co-operation will be raising the EU’s profile and the visibility in Vietnam of EC co-operation instruments, and increasing mutual understanding between Vietnam and the European Union. 0DLQDUHDVRIFRQFHQWUDWLRQ  )RFDOSRLQW ,PSURYHPHQWRIKXPDQGHYHORSPHQW Assistance will be targeted on either a geographical or thematic basis to contribute towards Vietnam's efforts to improve human development. Particular attention will be paid to providing support to the most vulnerable sectors of society and ensuring the sustainable use of natural resources. Priorities for development co-operation are: • ,QWHJUDWHGUXUDOGHYHORSPHQW. Activities will aim to reduce poverty in some of the poorest provinces in Vietnam. Priority will be given to areas with concentration of ethnic minorities. Targeted areas will take into account other donors' interventions, local absorption capacity and EC experience in the zone. Northern Uplands provinces could be considered as an example. People living in this type of areas, are generally less educated and less skilled than the national average. They have more children, but less land. They have less access to credit, but have to pay more for it. They also have limited access to health services, and lack earning opportunities. EC support may have three components: rural development, basic health and basic education. In order to design, deliver and monitor its assistance as efficiently as possible, the EC will focus its support in order to contribute to the improvement of  Vietnam's Human Development ,QGLFDWRUV in the targeted provinces. - 5XUDOGHYHORSPHQW. This activity aims to increase self-sufficiency and income. In particular, it will support the sustainability and replicability of co-operation actions already being undertaken by the EC in these areas in rural development. In that context, specific components that have succeeded in alleviating poverty but that need further support to ensure their sustainability will be targeted . Increased attention will be paid to assisting alternative off-farm activities, supporting the establishment and development of household enterprises, and promoting the sustainable management of natural resources. - Enhanced DFFHVVWRKHDOWKVHUYLFHV. This possible intervention will aim to give increased access to basic health services. A specific intervention to be explored could target, on a pilot basis, the health insurance scheme.

(31) For example, it could target, according to the availability of information in the provinces: income level; agricultural product diversification; unemployment rate; clean water access; irrigated land; forest coverage; births attended by skilled personnel; under-five mortality rate; underweight children; enrolment in primary education; until 5th year schooling, ratio of girls to boys in primary.

23 - 3ULPDU\ HGXFDWLRQ. A targeted intervention in primary education to enhance quality of delivery and children's participation could be examined. • (GXFDWLRQ An intervention in education on a sectoral basis or, alternatively on a complementary basis with other major donors, could be explored. Components of this approach could be: - as the experience of co-operation with the Ministry of Education and Training illustrates, there is broad scope for assistance in improving the quality and efficiency of the educational delivery process. The possibility of further co- operation at SROLF\DQGLPSOHPHQWDWLRQ levels will be examined. - YRFDWLRQDOWUDLQLQJ is a likely area for intervention in the education sector as scarcity of VSHFLILF VNLOOV at this crucial stage in socio-economic WUDQVLWLRQ could dampen development efforts. This intervention could contribute to the development of the professional and technological skills needed to assist the expansion of the SME sector and to promote Foreign Direct Investment. This intervention is also linked to focal point 2, "human development". - On a focused geographical basis (see point above, for integrated rural development), targeted interventions in SULPDU\ HGXFDWLRQ for the poorest segments of population, such as some ethnic minorities in remote areas, could be examined. • +HDOWK. The principal intervention foreseen in the short term is in relation to the integrated rural development, as mentioned above. Any other possible bilateral co-operation in this sector should take account of previous EC experience in malaria control, drug abuse, HIVS/AIDS and health systems development, as well as progress made by co-operation in this sector by the donor community. The main EC instrument to support development co-operation is the “financial and technical budget line”. Various other EC horizontal instruments could reinforce the financial and technical instrument to facilitate the attainment of goals, through enhanced linkages with existing development projects. Examples of such horizontal instruments are Environment and Tropical Forest Regulations, the HIV/AIDS programme and particularly, the NGO co-financing programme.  )RFDOSRLQW ,QWHJUDWLRQLQWRWKHLQWHUQDWLRQDOHFRQRP\ Two complementary areas are targeted. First, assistance to the essential internal reforms Vietnam needs to undertake and second, to assist in the opening of its market to the international flows of trade and investment in the framework of its planned accession to WTO and existing commitments with AFTA: • 5HIRUP WRZDUGV D PDUNHW RULHQWHG HFRQRP\. The deep transformation that the social and economic structure of Vietnam is undergoing, and the need to accelerate progress involve some of the following aspects (32) that will be explored for co-operation. - +XPDQGHYHORSPHQW. Human resources are put under particular strain, both in the public and private sectors, as new types of education, know-how, training and skills are needed to implement the transition;

(32) see also point 3.4 "Medium Term Challenges" in the present paper.

24 - 3ROLF\PDNLQJ DQG LPSOHPHQWDWLRQ. As the successful Euro-Tap-Viet Programme has illustrated, the transition to a market oriented economy needs not only appropriate policies, laws and regulations to direct the process, but also assistance in their application by government and in both the public and private sector. A properly functioning judiciary system is also essential for effective implementation of the regulatory framework; - 3URPRWLRQRIWKHSULYDWHVHFWRU. The reform of State-Owned Enterprises and the anticipated migration of people away from the land will result in a more pressing need for employment creation. Increased numbers of small and medium-sized enterprises will be required to drive the modernisation of Vietnam’s economy and to maximise export and industrial co-operation opportunities (33). - $OOHYLDWLRQ RI WKH VRFLDO FRQVHTXHQFHV RI UHIRUP In particular, migration problems linked to important segments of rural population migrating to urban centres will be addressed; - Promotion of JRRG JRYHUQDQFH DQG EHVW DGPLQLVWUDWLYH SUDFWLFHV is an essential for the success of the reform process and the EC is ready to support Vietnam’s efforts as appropriate. One particular area to be explored will be corporate governance which could assist in the framework of SOE reform. • ,QWHJUDWLRQLQWRWKHLQWHUQDWLRQDODQGUHJLRQDOHFRQRPLFVWUXFWXUHV The analysis throughout the paper has highlighted how important it is for Vietnam to accelerate its integration into international trade and investment flows. Therefore co-operation may involve the following:   7UDGH SROLF\ formulation and accession to the World Trade Organisation. Experience of the EC-funded Multilateral Trade Policy Assistance Programme (MUTRAP) will be taken into account to continue support for the negotiations, policy decisions and implementing measures that will follow to adapt the regulatory framework to the new context. It is possible that Vietnam may need assistance to adapt its economic policy to meet the AFTA deadline. In that case the EC stands ready to provide assistance if requested. Possible areas where trade-related technical assistance may be appropriate include customs reform, market access for industrial goods – to identify export interests, negotiation techniques, tariffication, trade facilitation - through simplification of import and export procedures- as well as assistance with the SPS, TBT, and TRIPS agreements, and help to develop understanding of investment and competition issues. - A number of technical measures are also involved in facilitating DFFHVV RI Vietnam SURGXFWVLQWRWKHZRUOGPDUNHWVDQGDWWUDFWLQJ IRUHLJQLQYHVWPHQW. Among them, are enhanced quality of Vietnam’s products and the international recognition of its TXDOLW\ DVVXUDQFH V\VWHP. In addition to industrial products, particular attention will be paid to the quality (SK\WRVDQLWDU\ VSHFLILFDWLRQV) of its agricultural products. Strengthening

(33) Possible areas for EC technical assistance could be: SOE reform; promotion of financing for start-up and development costs; training for SMEs in, for example, quality control, marketing; establishment and development of trade and industrial associations; establishment of an institutional framework for the development of SMEs; helping SMEs to internationalise their activities.

25 implementation of the LQWHOOHFWXDOSURSHUW\ULJKWV protection system can assist to encourage WHFKQRORJ\WUDQVIHU to Vietnam. EC assistance in the implementation of reforms will be conditional upon Vietnam’s continued commitment to necessary reforms, and upon demonstrable progress in this field. The main EC instrument to support this focal point is the “political, economic, and cultural budget line” that finances horizontal and bilateral programmes. Activities aiming to foster better mutual understanding and business- to-business co-operation are generally supported through horizontal programmes, such as Asia-Invest, which provides support through a range of different schemes.  &URVVFXWWLQJWKHPHV As established in the EC's development policy, FURVVFXWWLQJ themes such as HQYLURQPHQW SURWHFWLRQ DQG GLVDVWHU SUHSDUHGQHVV JHQGHU HTXDOLW\; promotion of KXPDQULJKWVDQG GHPRFUDF\FXOWXUHDQGHGXFDWLRQ and JRRGJRYHUQDQFHwill be an integral part of the EC-Vietnam co-operation. When appropriate, specific co- operation actions can be developed to promote such themes on an ad-hoc basis. An example of integration of various cross-cutting themes -environment protection and disaster preparedness and prevention- could be the persistent flooding in the central provinces, linked to deforestation, that has led to repeated humanitarian crises and that could be the subject of a specific intervention with a social forestry approach. In addition to the above-mentioned EC instruments, horizontal ones such as the “environment and tropical forest protection”, “human rights” budget lines and the EC co-financing of NGOs can be utilised. The opportunities offered by horizontal programmes in the fields of higher education, science & technology or energy to support the above mentioned objectives should also be noted. &RKHUHQFHDQGFRPSOHPHQWDULW\ In November 2000, the Council and the Commission endorsed a Development Policy Declaration which firmly defined poverty reduction as the overarching objective of the EC’s development policy. The Declaration identified six core areas for EC Development Co-operation: trade and development, regional integration and co-operation, macro economic reform and social programmes, transport, food security and rural development, and institutional capacity strengthening. The Trade Policy of the EU is founded in the development of a fair and open, rule-based international trading system. The priorities for EC-Vietnam co-operation identified above are therefore fully consistent with the European Community’s Development and Trade Policies. They are also consistent with the Community’s specific policies for relations with Vietnam and with ASEAN. It is nevertheless important that the actions supported by the Community are planned and implemented in a manner which is coherent and complementary with the policies of the Government of Vietnam and the actions of the European Union Member States and other donors. In this respect, it is to be noted that considerable progress has been made in Vietnam in developing Government-donor co-ordination. The annual Government-donor Consultative Group Meeting has become increasingly inter-active in recent years, and it is supplemented each year by a Private Sector Forum and by a mid-term Consultative Group Meeting. A Poverty Working Group was established in February 1999. Recent years have also seen the establishment of “partnerships for development” - sectoral fora where evolving programmes and policies are discussed between the responsible Government Departments and donor representatives. Other “partnerships for

26 development“ include the Environment Support Group, the Partnership Support Programme for Vietnam’s Five Million Hectare Reforestation Programme, the Central Provinces Initiative to Mitigate Natural Disasters in Vietnam, the Education Forum and the International Support Group (ISG) and partnership group on health. The European Commission is represented by its Hanoi Delegation in all of the Government and donor partnerships relevant to the EC-Vietnam co-operation programme. Particular attention is paid in Vietnam to ensuring a maximum level of co-ordination of co-operation work among the EU Member States and the Commission, and the Development Counsellors of the EU Member States embassies and the Commission Delegation meeting on a monthly basis to exchange information on ongoing projects, planned initiatives, and future priorities. Such co-ordination contributes significantly to coherence of strategies and complementarity of actions. At the Consultative Group meeting in 2001 an EU statement was presented for the first time, allowing the EU to speak with one voice on a range of key issues. The statement had been drafted and agreed by the Development Counsellors of all Member States present in Vietnam and the Commission. Each year a comprehensive directory of EU co-operation projects is produced and widely circulated, resulting both in better co-ordination of Member State/Commission initiatives, in reduced risk of duplication, and in enhanced visibility for the combined EU effort. The Member States and the Commission have agreed on local cost norms to be applied to all co-operation projects. Member States and the Commission are keen to explore possibilities for using the forthcoming Comprehensive Growth and Poverty Reduction Strategy (CGPRS) as a reference point for future co-operation with Vietnam and for co-ordination among themselves. The opportunity for enhanced co- operation through the application of SWAPs is also to be explored. This would provide possibilities of co-financing by the Commission and Member States. The coherence and complementarity of EC actions in Vietnam with Government policy and the activities of other donors is also assured by the methodology used by the Commission to prepare its actions. First, the overall strategy is discussed with the EU Member States and the Government of Vietnam before being presented in a strategy paper. A similar process is followed in programming co-operation actions in the National Indicative Programme. Proposals for individual interventions, programmes or projects, within the framework of the Country Strategy and National Indicative Programme will include LPSDFW DQG LPSOHPHQWDWLRQSURJUHVVLQGLFDWRUV to facilitate their follow up. Impact indicators will be linked as far as possible to the specific socio-economic objectives established in Vietnam's SEDS and in its Poverty Reduction Strategy Paper, and should be extended as to assess the impact of the CSP / NIP. A summary of SEDS objectives can be found in the table in point 2 of the present paper (e.g.: malnutrition of children, forest coverage, scholarisation, etc.). The use of such indicators for early targeting of the nature and extent of the intervention objectives, will enhance focus during the design of the EC action and consistency with the EC's aim to assist Vietnam to achieve its defined goals. Specific EC interventions are agreed in principle with the Government before the launch of an expert project preparation mission, which is instructed to share with the Government and interested donors its thinking before presenting detailed proposals to the Commission and the Government for their consideration. Financing Agreements for the projects are then negotiated and signed with the Government of Vietnam. These agreements, and the Terms of Reference for the

27 implementation of the projects normally contain specific provisions for consultation and co- operation with other relevant projects.

28 $11(;(6

29 9LHWQDP0DS

Source: http://www.pmgeiser.ch/images/vietnam/maps/vietnam.jpg

30 $11(; '(9(/230(17,1',&$7256

,1',&$725 9$/8( <($5 6285&( (FRQRPLFZHOOEHLQJ Incidence of Extreme Poverty: Population below $1 na Per Day Proportion of people with per capita expenditures 37% 1997-1998 World Bank, Vietnam attacking poverty, p.2 under the total poverty line VND1.8 million=US$128 Inequality: Poorest Fifth’s Share of National Income 8% 1998 World Bank, World Development Indicators or Consumption database, 2001 Child Malnutrition: Prevalence of Underweight under 34% 1998 World Bank, Vietnam attacking poverty, p.4 5 years old 36.7% 1999 World Bank, World Development Indicators database, 2001 6RFLDO'HYHORSPHQW Net Enrolment in Primary Education 91% 1998 World Bank, Vietnam attacking poverty, 1999 100% 1997 The World Bank Group, For Schools Completion of 5th Grade of Primary Education 75.5% 1998-1999 The EFA 2000 Assessment: Country Reports (www.unesco.org) Literacy Rate of 10-64 year olds na Infant Mortality Rate 3.8 % 1998 Gvt-donor-NGO Poverty Task Force, Nov. 2001 3.4 % 1998 EDSD, Poverty database - SDBS 3.7 % 1999 World Bank, World Development Indicators database, 2001

C:\Temp\IECache\VNM-CSP-NIP final.doc 31 Under 5 Mortality Rate 4.8 % 1998 Gvt-donor-NGO Poverty Task Force, November 2001 4.6 % 1997 HNP/Poverty Thematic Group of the World Bank, May 2000 4.2 % 1999 World Bank, World Development Indicators database, 2001 Maternal Mortality Ratio 100 per 100,000 births 2000 Gvt-donor-NGO Poverty Task Force, Nov. 2001 Births Attended by Skilled Health Personnel 77% 1998 World Bank, World Development Indicators database, 2001 Contraceptive Prevalence Rate 75.3% 1998 World Bank, World Development Indicators database, 2001 HIV/AIDS prevalence among adult population 0.29% 2001 Gvt-donor-NGO Poverty Task Force, Nov. 2001 Simple literacy ratio, females (91%= 100%- 9% 0.96 1999 The World Bank Group, For School illiteracy rate) to males (95%=100%-5% illiteracy rate) Ratio of occupied elected positions, females (22.5%) 29% Committee on Elimination of Discrimination to males (77.5%) against Women, Twenty-fifth Session, 518 and 519 meetings, 11 July 2001 (QYLURQPHQWDOVXVWDLQDELOLW\DQGUHJHQHUDWLRQ Population with access to an improved water source- 56% 1999 World Bank, World Development Indicators Total database, 2001

Population with Access to safe water: - Total 36% 1990-1996 The World Bank Group, For School 29% 1998 World Bank, Vietnam attacking poverty, 1999 - Rural 75% 1998 World Bank, Vietnam attacking poverty, 1999 - Urban

C:\Temp\IECache\VNM-CSP-NIP final.doc 32 Biodiversity: Land Area Protected 4.03% 1996 UNEP World Conservation Monitoring Center, 1996 Global Protected Areas Summary Statistics, p.5 3% 1996 World Bank, World Development Report 2000/2001, p.290 Carbon Dioxin Emissions 0.5 metric tons/capita 1995 World Bank, World Development Report 2000/2001, p.292 Forest Area as % of Land Area 35.2% 2000 VN Statistical Yearbook 2000, p.16 30.2% 1999 World Bank, World Development Indicators database, 2001 Mangrove Areas 0.4% 1992-1993 UNEP Land cover assessment:1992-1993 0.11% 1995 Report of Vietnamese delegation at the fourth conference of the parties to the convention of biological diversity, Bratislava, Slovakia, May 4-15, 1998 (mangrove forest=34,700 ha)/ total area (32,924,100ha – VN Statistical yearbook 2000)

*HQHUDO,QGLFDWRUV GNI per Capita US$ 390 2000 The World Bank and Vietnam, Vietnam at a Glance - 2000 Adult Simple Literacy Rate 91% 1998 World Bank, Vietnam attacking poverty, 1999 93.1% 1999 UNDP Human Development Report 2001 Total Fertility Rate: Births per woman age 15-49 2.3 1997 HNP/Poverty Thematic Group of the World Bank, May 2000 Life Expectancy at Birth (years) 69 1999 World Bank, Vietnam at a Glance - 2000

C:\Temp\IECache\VNM-CSP-NIP final.doc 33 External Debt as % of GNI (estimated at) 51.3 2000 World Bank, Vietnam data profile, 2001

Investment as % of GDP 18.7 1999 World Bank Macroeconomic update 2000, p.1 27.2 1999 Asian Development Outlook 2000 25.4 1999 World Bank, World Development Indicators database, 2001 Trade as share of GDP 95.3% 1998 World Bank, World Development Indicators database, 2001

C:\Temp\IECache\VNM-CSP-NIP final.doc 34 $11(;

$1,//8675$7,212)7+(85%$1585$/63/,7 

The table below illustrates the gap in access to some basic services between urban and rural areas.

7KHODFNRIEDVLFVHUYLFHVLQWKHZHOORIIDQGSRRUSURYLQFHV 3URYLQFHFLW\ 3HUFHQWDJHRISHRSOH 3HUFHQWDJHRISHRSOH 3HUFHQWDJHRISHRSOHODFNLQJ ODFNLQJFOHDQZDWHU ODFNLQJVDQLWDWLRQ HOHFWULFLW\ %LJFLWLHV Hanoi 1.4 2.8 0.1 Ho Chi Minh City 1.2 2.3 1.5 5HPRWHSURYLQFHVLQ1RUWKHUQ8SODQGV Ha Giang (35) 63.5 37.9 60.0 Lai Chau 76.7 57.4 69.1 Source: Estimated based on VLSS98

In addition, richer regions provide cheaper healthcare. A single visit to a hospital in the South East region may cost three times less than in the Northern Uplands. According to some sources, over 50% of public financing in education has been invested in recent years in urban areas.

(34) Source: Social Watch "Economic growth and social development" at http://socialwatch.org (35) 90% of the population of Ha Giang province is comprised of ethnic minorities C:\Temp\IECache\VNM-CSP-NIP final.doc 35 $11(; 21*2,1*(&&223(5$7,21352-(&76

Since 1994, seven major bilateral Development Co-operation projects have been launched – the Vietnam national component of the regional Malaria Project (¼ millions) and the Health System Development Programme (¼PLOOLRQV DSURMHFWIRU Support to the Ministry of Education and Training (¼PLOOLRQV  WKH SURMHFW IRU Strengthening of Veterinary Services in Vietnam (¼PLOOLRQV WZR5XUDO'HYHORSPHQW projects in the poorer northern region, covering the provinces of Cao Bang/Bac Can (¼PLOOLRQV DQG6RQ/D/DL&KDX ¼PLOOLRQV DQGDSURMHFWRQ6RFLDO)RUHVWU\ and Nature Conservation in Nghe An Province (¼PLOOLRQV $ SURMHFW WR HVWDEOLVK lending facilities for SMEs, the Small and Medium-sized Enterprise Development Fund (SMEDF), was also established with funds recycled from the Returnee Assistance Programme. Under Economic Co-operation, a contribution of ¼PLOOLRQVKDVEHHQPDGHWRWKHPXOWL donor Mekong Project Development Facility managed by the International Finance Corporation (IFC) in support of the development of SMEs in the private sector, and the Multilateral Trade Policy Assistance Programme (MUTRAP) has been launched at a cost of ¼PLOOLRQVWRSURYLGHWUDLQLQJDQGWHFKQLFDODVVLVWDQFHWRNH\HFRQRPLF0LQLVWULHV involved in the preparation of Vietnam’s accession to the World Trade Organisation (WTO). The current total financing commitment to ongoing and pipeline projects under bilateral co-operation is approximately ¼PLOOLRQV,QDGGLWLRQ9LHWQDPKDVEHQHILWHGIURPWKH Regional Malaria Project for Cambodia, Laos and Vietnam (¼PLOOLRQV DQGIURPWKH Asia Invest Programme (11 projects selected in Vietnam), the ASIA Urbs Programme (6 Vietnamese projects selected from the first call for proposals), and the EC/UNFPA Asia Initiative for Reproductive Health (8 NGO projects financed in Vietnam), as well as the EC/FAO Integrated Cotton Pest Management in Asia project. Vietnam has also participated in EC-ASEAN co-operation projects, including the COGEN and AEEMTRC energy programmes and the Junior EU-ASEAN Managers (JEM) Programme. Vietnam is a participant in the Commission’s International Science and Technology Research and Development Programme, INCO-DC. Since 1992, 25 research projects have been financed in Vietnam. Other horizontal programmes of the Commission have also provided support for Vietnam, including the NGO co-financing programme, where 13 projects currently receive support amounting to a total of over ¼ PLOOLRQV 7ZR projects in Vietnam are currently assisted under the Commission’s programmes in support of Environmental Management and Tropical Forests and one is currently receiving support under the Commission’s HIV/AIDS programme. ECHO (the European Commission Humanitarian aid Office) has contributed almost ¼ PLOOLRQV WR DVVLVW flood victims in Vietnam in the last years and has also awarded in 2000 a total of just over ¼ PLOOLRQV WR IRXU SURMHFWV LQ 9LHWQDP GHDOLQJ ZLWK GLVDVWHU SUHSDUHGQHVV DQG prevention issues. All of these projects complement and support the over-arching objective of the agreed EC-Vietnam Co-operation Strategy – support for the consolidation of Vietnam’s ongoing transition to a free market economy, while contributing to the mitigation of the social costs of the transition.

C:\Temp\IECache\VNM-CSP-NIP final.doc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ource: European Union Development Cooperation Activities in Vietnam 2000

C:\Temp\IECache\VNM-CSP-NIP final.doc 37 $XVWULD aims at promoting sustainable economic development, which has direct effects on the “FDPSDLJQ DJDLQVW SRYHUW\“ in the partner countries. Furthermore, WKH SURPRWLRQ RI GHPRFUDF\JHQGHUHTXDOLW\DQGWKHSURWHFWLRQRIWKHHQYLURQPHQW are principles of Austrian development co-operation world-wide. Austria supported measures of technical and scientific co-operation, which promised to have a high multiplier effect, and could substantially contribute to the solution of national and regional development problems. The pertinent measures are implemented by means of established instruments such as post- graduate scholarships for the education and advanced training of experts as well as contributions to relevant research projects in the area of academic co-operation both within the region and in Austria. In addition to these initiatives a remission of debts has been undertaken. In 2000, a total disbursement of ¼ 0 WR 9LHWQDP ZDV PDGH RQ D GLUHFW bilateral basis. The %HOJLDQ development co-operation policy has been under review since 1996 and consequent changes has been introduced. Belgium currently concentrates on poverty reduction and poverty alleviation and focuses on five sectors: primary health care, education and training, agriculture and food security, basic infrastructure and conflict prevention, as well as on three cross-sector themes: gender, environment and social economy. Special attention is given to respect of human rights, democracy and good governance. In 1996, approximately 14 million euros was made available on a grant basis for projects initiated during the triennial period 1996-98. At the Joint Commission of July 2000, a new commitment was made for the years 2001 - 2003 amounting to the equivalent of ¼0 The average annual level of ODA disbursements from 1996 to 1999 was ¼9.9 M. In 1996 Belgium ODA disbursements in Vietnam amounted to ¼11.2 M and ¼ 13.1 M in 1999. Indirect grants are available for Belgian institutions such as universities and NGOs based on the programme approach of these organisations. Furthermore, several projects executed in Vietnam by international organisations are financed by Belgium. Emergency relief can be allocated through NGOs on a “case-by-case” basis. 'HQPDUN provides assistance to poverty alleviation in consideration of crosscutting issues such as gender issues, environment, democracy and human rights. Danish development co- operation with Vietnam is targeting the following sectors: fisheries, water resources and agriculture. In addition to this, Denmark supports improvement of the reform process, mixed credits and environment. The total budget of a programme for environmental assistance is of approximately US$ 80 million for the years 1999-2002. The assistance is concentrated within three areas 1) Capacity and awareness, 2) Sustainable management of natural resources, 3) Sustainable development of urban areas and industry. Under an agreement on mixed credits, the economic frame has been set at US$ 40 million, covering the period 1999- 2001. Mixed credits are “soft loans,” interest free and with a grant element of at least 35% of the total credit. They finance development projects executed in co-operation between Danish and Vietnamese companies. DANIDA also initiated a Private Sector Development Programme (PS) in Vietnam of which the objective is to contribute to the development of Vietnam by rendering financial aid to support long-term commercial co-operation between Vietnamese and Danish companies. The sector focus is supplemented by a geographical focus (10- 15 of Vietnam’s 61 provinces), mainly in the central highlands and the central coastal provinces. Efforts in the target sectors are designed to complement each other in these provinces. Since 1989 all Danish development assistance has been provided on grant terms. In the case of Vietnam the average annual level of assistance from 1997 to 2000 was ¼0EHLQJ¼0DQG¼0LQDQGUHVSHFWLYHO\ )LQODQGV development cooperation is guided by three documents: Decision-in-principle on Finland´s Development Cooperation from 1996, Finland´s Policy on Relations with Developing Countries from 1998, and Operationalisation of Development Policy Objectives from 2001. The goals of Finnish development cooperation are: (a) alleviation of widespread

C:\Temp\IECache\VNM-CSP-NIP final.doc 38 poverty, (b) prevention of global environmental threats and (c) promotion of equality, democracy and human rights. In addition to these, increasing global security as well as economic interaction are stated as objectives in the relations between Finland and developing countries. In future, Finland will focus on fewer and larger efforts.

Vietnam is one of Finland´s long-term partner countries. For about 20 years, from the middle of the 1970´s, Finland´s support was mainly focused on urban development and especially on urban water supply and sanitation. Since then, assistance has been provided, among others, to the areas of integrated rural development, forestry, capacity building of public utilities, child health care and culture. Discussions on the future priority sectors, no more than three, have been initiated between the two governments. A concessional credit scheme was started in 1995. So far four credits have been granted in energy sector and urban water supply and several new credits are being prepared in the fields of energy, transport and urban water supply.

The average annual disbursements (both loans and grants) to Vietnam during the period 1997-2000 was ¼0ZLWKWKHGLVEXUVHPHQWIRUWKH\HDUVDQGEHLQJ¼0 and ¼0UHVSHFWLYHO\

)UDQFH’s four major priority sectors are 1) supporting Vietnam in its legal and political transition, by assisting the Vietnamese legal reform process and participating in the definition of economic and development policies; training of executives and students; 2) supporting research and educational system modernisation, paying specific attention to linguistic and cultural diversity, by adopting a strategic position in terms of education policy; promoting linguistic pluralism and French speaking training programmes; supporting transformation of the Vietnamese research institutions; promoting cultural co-operation based on know-how transfer; 3) supporting economic transition by modernising rural economy; assisting implementation of a controlled urbanisation; promoting the emergence of a modern private sector and competitive public sector. and 4) working for poverty alleviation and improving social benefits by alleviating poverty in rural area and supporting the medical sector. French Development Aid also aims at strengthening the reliable partnership between France and Vietnam and together with contributing to Vietnamese sustainable development. French intervention is multiform and co-operation activities are implemented in several sectors. Each stakeholder develops specific activities related to its own capacities and know- how. Credits managed by the Economic and Commercial Service of the French Embassy are mainly allocated to equipment and infrastructure projects in the need for heavy investments. The Cultural and Development Co-operation Service of the French Embassy focuses at supporting human resources development throughout several training activities (primary, secondary, vocational and postgraduate training programmes). Education sector represents 22% of disbursements for 2000 (14.2 millions Euros) and are only financed by grants. Loans from the French Development Bank, which are mainly allocated to rural development sector, are strongly diversified among infrastructures, vocational training and water resources sectors. The average annual disbursements (both loans and grants) to Vietnam during the period 1997-2000 was ¼0ZLWKWKHGLVEXUVHPHQWIRUWKH \HDUVDQGEHLQJ ¼ and ¼ 0 UHVSHFWLYHO\ 7KH VHFWRU GLVWULEXWLRQ LV EDODQFHG )UHQFK 2'$ LQFOXGHV DQ important share of technical assistance, which is one specificity of the French system. *HUPDQ\ aims is to promote economic and social development in developing countries to improve living conditions of the poorer strata of the population in its development policy. Political criteria for evaluating the framework conditions in recipient countries determine

C:\Temp\IECache\VNM-CSP-NIP final.doc 39 type and scope of ODA, e. g. respect for human rights, participation of the people in the political process, the guarantee of security under the law and creation of a market-oriented economy. Germany has more than ten years of experience in planning and implementing technical co-operation projects in Vietnam, especially in the fields of agriculture and forestry, education, promotion of SME, financial; sector, transportation, health and water supply. Several projects once supported by the former German Democratic Republic are being successfully continued or were the basis for new programs. Today’s priority sectors of German-Vietnamese Development Co-operation are – as agreed between both governments – the support of reform policies, promotion of private enter- prises, vocational training, preservation and sustainable use of natural resources including forestry, sewerage and solid waste management, health, especially family health care and HIV/AIDS prevention and hospital equipment. The average annual disbursements (both loans and grants) to Vietnam during the period 1996-2000 was ¼ 0 ZLWK WKH disbursement for the years 1996 and 2000 being ¼0DQG¼0UHVSHFWLYHO\ ,WDO\ intends to support Vietnam’s effort in the areas of poverty reduction and social sustainability. As main priority sectors within the overall poverty reduction strategy, Italy proposes to concentrate on projects aimed at improving the Basic Social Service (Drinkable Water and Sanitation, Basic Health Care, Human Resources Enhancement) for the poor, at improving the use of water resources, at supporting sustainable productive activities to the benefit of poor communities. In this context, Italy emphasises its desire to assist Vietnam in its efforts to modernise the industrial system and to open the economy to a variety of actors creating the conditions for the development of a strong Small and Medium Sized Enterprise sector. In consideration of the significant economic losses incurred in Vietnam as a consequence of the recent devastating floods, Italy announced its decision to cancel the Vietnamese debt arising from Italian soft loans accorded under previous development co-operation Protocols for an amount at least equal to 40 billion Liras. The Government of Italy was considering the inclusion of Vietnam in the list of countries in its Poverty Reduction Programme. The average annual disbursements (grants only) to Vietnam during the period 1998-2000 was ¼ 0 ZLWK WKH GLVEXUVHPHQW IRU WKH \HDUV  DQG  EHLQJ ¼ 0 DQG ¼ 0 respectively. /X[HPERXUJ started its development co-operation with Vietnam in the early nineties. Whereas the first major investments had been done in the tourism field, the programme gives now more importance to the fight against poverty by concentrating on the social sectors, notably health and integrated rural development, including aspects of infrastructure, education, environment and income generating activities. Environmental aspects shall be given increased importance. Luxembourg is implementing its projects through its implementing agency Lux-Development. Luxembourg seeks also to promote the multilateral co-operation, mainly in fields complementary to the bilateral projects, or in close co- operation with other donors. This is particularly true for the health sector. Luxembourg also gives assistance, in collaboration with Singapore in the field of administrative reforms, as well as the reforms of the financial sector. Furthermore, Luxembourg encourages NGOs to be more active in the target countries of its development assistance. The identification of such projects remains a NGO responsibility. The support by the government for such actions is given on a case by case basis. Emergency relief is regularly attributed. With other partners Luxembourg is contributing to a better management of natural disaster that regularly hit Vietnam. Luxembourg is also giving contributions for nationals working as JPOs in international organisations in Vietnam. Total disbursements in 2000 have been ¼0DOORIZKLFKKDYHEHHQJUDQWV The 1HWKHUODQGV¶ principal objective of development assistance is sustainable poverty reduction. The Netherlands government is increasing its efforts to foster a combined C:\Temp\IECache\VNM-CSP-NIP final.doc 40 economic and social approach to poverty reduction via three channels: bilateral, multilateral and non-governmental/civil society organisation. The bilateral co-operation is concentrated in three sectors of priority: forestry and biodiversity conservation, water management and water transport, and health. In addition support will be provided to some cross-cutting issues for these sectors, such as institution building and gender, as well as to an enabling environment like macro economic reforms. Activities in other sectors are being phased out. In order to further increase aid effectiveness the Vietnamese government and the Netherlands are exploring the possibilities to shift away from isolated projects to a more sector-wide approach in multi-year and multi- donor partnerships in the three sectors of co-operation. As a first step efforts are being made to jointly develop programmes in sub-sectors within the three sectors of co-operation, thus trying to establish the closest possible link between government policies and programmes in the sectors and Dutch aid allocation. The average annual disbursements (both loans and grants) to Vietnam during the period 1998-2000 was ¼0ZLWKWKHGLVEXUVHPHQWIRUWKH years 1998 and 2000 being ¼0DQG¼0UHVSHFWLYHO\ 6SDLQ Poverty alleviation, Private Sector development, Governance, Women in development and State reform are at the core of ODA policies and targets. Spain’s Bilateral Co-operation in Vietnam is still recent. A Financial Programme (FCP-I) valued at US$ 80M started execution in 1996. A second Programme (FCP-II) valued at US$ 102M was signed in 1997. They gave rise to 17 projects mainly through soft loans with an additional portion of grants for project reparation. The main objective of this bilateral co-operation is to help releasing the productive potential of the country and to address direct social needs, mainly in health and education. Projects and programmes are widely distributed across Vietnam. A Financial Working Group manages the soft loan packages. Smaller projects have also been financed since 1997, mostly through Spanish NGOs. Health care and rural development are its main sectors of attention. Grants through NGOs neared US$ 1,1M in 2000. The average annual disbursements (both loans and grants) to Vietnam during the period 1996-2000 was ¼ 0 ZLWK WKH GLVEXUVHPHQW IRU WKH \HDUV  DQG  EHLQJ ¼ 0 DQG ¼ 0 respectively. In 2001 Spain has adopted a third (FCP-III) programme for an amount of ¼ M. 6ZHGHQ’s development co-operation shall contribute to improving the living standards of the poorest groups as well as to creating fairer living conditions for poor people. To this end, the Swedish Parliament has laid down six goals for the co-operation: (i) economic growth, (ii) economic and social equality, (iii) economic and political independence, (iv) democratic development, (v) environmental care and (vi) gender equality. The objectives and priorities of the development co-operation with Vietnam are 1) to promote opportunities for Vietnam to increase the country’s prosperity and to reduce poverty, in a long-term and environmentally sustainable manner, and 2) to promote transparency and development towards democracy and increased respect for the human rights. The co-operation focuses on five main sectors and areas: a) support to strategic projects within the economic, administrative and social reform processes in order to promote the transformation to a market economy, b) projects directed towards specifically disadvantaged areas and groups, c) support to the promotion of an environmentally sustainable development, d) promotion of democracy and human rights, through dialogue, direct projects, and through mainstreaming into all projects and programmes of transparency, popular participation and gender equality, and e) projects within the energy sector, focused on disadvantaged areas. The average annual disbursements (both loans and grants) to Vietnam during the period 1994-2000 was ¼ 0 ZLWK WKH GLVEXUVHPHQW IRU WKH \HDUV 1994 and 2000 being ¼0DQG¼0UHVSHFWLYHO\

C:\Temp\IECache\VNM-CSP-NIP final.doc 41 The 8QLWHG .LQJGRP¶V development policy focuses on mobilising the international development system to meet the internationally agreed 2015 development targets. The most important of these targets is to lift one billion people out of abject poverty by 2015. The goal of DFID in Vietnam is to promote pro-poor growth in order to reduce the proportion of people living in poverty in line with the international development targets. Specific objectives are: 1) More effective collaboration between government and donors in seeking poverty elimination; 2) greater understanding of the causes, characteristics and consequences of poverty; 3) improved capacity of government to implement reforms; 4) improved income opportunities and human development for the rural poor. The main elements of the current programme include: Co-financing the second rural transport project with the World Bank; Funding the core UNICEF programme in rural water supply and sanitation; Co-financing the Ha Tinh Poverty Alleviation Programme with the Ha Tinh PPC as well as the NGOs ACTIONAID; Save the Children (UK) and Oxfam (GB); Support for Poverty Analysis Capacity in the World Bank office in Hanoi; SoE reform English Language Teacher Training. The average annual level of assistance to Vietnam during the period 1995-2000 was ¼0ZLWKWKHGLVEXUVHPHQWIRUWKH\HDUVDQGEHLQJ ¼0DQG¼0UHVSHFWLYHO\

C:\Temp\IECache\VNM-CSP-NIP final.doc 42 $11(; &RXQWU\(QYLURQPHQWDO%ULHI

 ,QWURGXFWLRQ The rapid changes in Vietnam in the last few decades in terms of rapid economic growth, industrialisation and continuing population growth have had adverse impacts on the natural environment. This, coupled with a weak institutional capacity to adequately address environmental issues, as well as a limited technical infrastructure and financial resources allocated to environmental protection, has contributed to a wide range of environmental problems. The macroeconomic policies of Vietnam, as all other countries, must strike a balance between economic development, improvement of life quality and protection of the environment. In this context, it should be noted that environmental protection has a very strong connection with priority areas of sustainable development, such as reduction of poverty, public health, agriculture and other crosscutting themes such as gender. In the last years environmental issues have received increased recognition in Vietnam, but more efforts still need to be made to mainstream and integrate environmental protection into economic and development planning across all sectors.  %DFNJURXQG Vietnam is situated on the east coast of the Indochina peninsula, in the tropical and temperate zone. It is characterised by a strong monsoon influence. The total area of the country is 331.114 sq km. It borders with China to its north, the Lao PDR to the west and Cambodia to the southwest and the ocean to its east and south. It is a long and narrow strip of land dominated by semi-arid plateaus and austere mountains, with stretches of tropical rain forest. The coast stretches more than 3200 km and its territorial waters are as large as 1 million square kilometres. As regards national economic development, Vietnam is in the transition from a centrally planned, bureaucratic and subsidised economy to a market oriented economy. This process has resulted in economic growth, industrialisation and high population growth, especially in the urban areas. Vietnam is today among the most densely populated countries in the world, with an estimated population of 78.5 million in 2000, growing at an annual rate of 1.5 percent, 4.5 percent in urban areas. A quarter of the population live in the urban areas, mainly in along the coastal plains and deltas of the Red river in the northeast, and the Mekong in the south. In comparison with the other countries of Southeast Asia, Vietnam's education system is rather developed. Following the launching of environmental protection policies in the early 90’s, environmental awareness has increased, although a lot still remains to be done to raise public environmental awareness.  6WDWHRIWKH(QYLURQPHQW In the last few decades Vietnam has witnessed a striking destruction of its natural resources, including an increasing rate of deforestation, biodiversity loss, reduction of fishing yields, rapid deterioration in environmental quality and natural resources, and water and air pollution. For a poor mountainous and disaster prone country such as Vietnam, which is also highly dependent on irrigated-agriculture, forest cover has a specifically strong impact on sustainable development. An increase in forest cover contributes to limit soil erosion, provides a better catchment for rainwater, supplies fuel and building material for local communities and increases job opportunities in forestry. Vietnam is therefore working C:\Temp\IECache\VNM-CSP-NIP final.doc 43 actively to increase the forest cover, particularly within the context of the Five Million Hectares Reforestation Programmei. One important issue to keep in mind in this context, however, is that whilst the TXDQWLWDWLYH targets are likely to be achieved, the TXDOLW\ of the resulting forest cover, for example in terms of biodiversity, is less certain. Furthermore, Vietnam’s 3,200 km long coastline and corresponding marine and coastal natural resources represents a significant opportunity in terms of providing local income, export revenues and food. More than 50 percent of the protein intake of the Vietnamese comes from fish harvest of more than one million ton each year, of which approximately 70 percent comes from the seaii. However, Vietnam’s 29 coastal provinces are uniformly experiencing a decrease in productive coastal and marine natural resources, including degradation of highly productive habitats. More specifically, near shore fisheries are heavily exploited and are harvested at unsustainable levels, while inshore fish stocks have collapsed and catch per unit effort is also decreasing. Coastal aquaculture could replace natural capture as a principal source of protein, but degradation of coastal habitats, especially wetlands and mangrove forests caused by unsustainable aquaculture practices, threatens even this potential. Weak coastal zone management and planning is a contributing factor. Vietnam ranks 18th among the top 20 countries with largest number of threatened mammal species and bird species respectively, and 6th among the top 20 countries in terms of threatened reptile speciesiii. Finally, insufficient wastewater treatment and waste management from both domestic and industrial sources, are causing severe problems of water and air pollution.  (QYLURQPHQWDO3ROLF\OHJLVODWLYHDQGLQVWLWXWLRQDOIUDPHZRUN In connection to the economic renovation, the government issued in 1991 a National Environmental Protection Strategy (1991-2000) that recognized the urgency of the problem and set out programs for action. A variety of policies and legislation regarding natural resources management and environmental protection were formulated, including the Law on Environment Protection (1994) and a Biodiversity Action Plan (1995). The National Environment Agency (NEA) was created in 1994 under the Ministry of Science, Technology and Environment (MOSTE), as the lead agency responsible for environmental protection, including Environmental Impact Assessments (EIA). Following the launching of NEA, local government arms of MOSTE, called DOSTE, were established in all 61 provinces, and from 1995, environment divisions have been set up in every DOSTE. Other Ministries and government authorities also have responsibilities relating to the environment, including, among others, the Ministry of Agriculture and Rural Development (MARD), Ministry of Fisheries, National Centre for Science and Technology (NCST), ministry of Education and training (MOET) and the Ministry of Planning and Investment (MPI). Vietnam is party to the following Multilateral Environmental Agreements (MEAs): Biodiversity, Climate Change, Desertification, Endangered Species, Environmental Modification, Hazardous Wastes, Law of the Sea, Ozone Layer Protection, Ship Pollution, Wetlands and has signed on, but not yet ratified the Kyoto Protocol. The effectiveness in the implementation of environmental policies is not yet satisfactory. The governmental agencies involved in environmental issues, as the Ministry of Science, Technology and Environment (MoSTE) and the National Environment Agency (NEA), among others, need to strengthen their capacity both at central and local levels and to decentralise their functions. Furthermore, possibilities for public participation in decision making related to, for example, environmental impact assessments and planning, should be enhanced.

C:\Temp\IECache\VNM-CSP-NIP final.doc 44 Finally, environmental protection must be adequately addressed and mainstreamed in all economic sectors. Some sectoral line ministries, such as the Ministry of Industry (MOI), are strengthening their environmental planning capacity. However, the communication between the line ministries and NEA is often weak and the role and status of NEA as a regulatory body should be strengthened. Furthermore, because of the wide-ranging nature of the sources and consequences of environment destruction, institutional co-operation is vital in responding to the problem. Effective communication and co-ordination within and between relevant departments and institutions should be encouraged. To address some of these issues in a comprehensive manner, a new draft National Environmental Protection Strategy (2001-2010) has been prepared, with an Action Plan for the next five years.  (&DQGRWKHULQWHUQDWLRQDOGHYHORSPHQWDVVLVWDQFH The EC has provided significant support in the area of environment and natural resources management. The emphasis has so far been on forestry and biodiversity conservation, mainly through the projects ‘6RFLDO )RUHVWU\ DQG 1DWXUH &RQVHUYDWLRQ LQ 1JKH $Q VW 3URYLQFH’ and the project ‘([SDQGLQJWKH3URWHFWHG$UHD1HWZRUNLQ9LHWQDPIRUWKH &HQWXU\’ ((&%LUG/LIH ,QWHUQDWLRQDO). Furthermore, the project ‘&DSDFLW\ %XLOGLQJ IRU (QYLURQPHQWDO 0DQDJHPHQW¶ (EC/VUB), which was completed in 2000, aimed at increasing the capacity for environmental and natural resources management. That project produced series of EIA guidelines, including specific guidelines for tourism development and urban planning. The project also contributed in the development of a Strategic Environmental Assessment (SEA) of Ha Long City Master Development Plan. A new ‘6PDOO *UDQWV 3URJUDPPH WR 3URPRWH 7URSLFDO )RUHVWU\¶ (EC-UNDP/GEF), will contribute to create grass roots capacity sustainable management of forest resources. Several EU Member States are actively supporting the environment and natural resources sectors. In terms of institutional strengthening of NEA, Sweden has provided significant support. Several EU Member States are supporting the forestry sector, including the Netherlands, Germany, Finland, Sweden and Denmark. In terms of biodiversity conservation, the Netherlands, Denmark, Spain, United Kingdom and Sweden, among others, have provided significant support. France, Germany, Sweden and Denmark are providing support to urban environmental planning and industrial pollution control. Several EU Member States are also providing support to coastal zone management and the fisheries sector, including Denmark, Sweden and the Netherlandsiv. Others donors that are supporting the environment and natural resources sectors include, the United Nations Development Programme (UNDP), the World Bank (WB), the Asian Development Bank (ADB), several NGOs (WWF, IUCN, FFI, BirdLife International etc), and the Governments of Switzerland, Canada, USA, among others. With regard to donor co-ordination, the EC has taken an active participation in various donor-government partnership groups, specifically in the areas of forestry, environment and disaster mitigation. In the forestry sector, the EC is a partner to the Forest Sector Support Programme (FSSP). The FSSP will address the forestry sector in a broad sense and not be limited only limited to reforestation. The EC is also part of the International Support Group on the Environment (ISGE). These partnerships all aim at sector wide approaches to aid delivery.

C:\Temp\IECache\VNM-CSP-NIP final.doc 45  5HFRPPHQGHGSULRULW\DFWLRQV Y In terms of priorities, the following general actions should be mentioned : (a) mainstream environmental considerations into all relevant sectors and overall Government strategies and plans (e.g. 10 year Socio-Economic Development Strategy); (b) strengthen institutional capacity at all levels, from central to local level and across sectors, to enable adequate implementation of ambitious targets presented in draft National Environmental Strategy and Action Plan; (c) enhance public environmental awareness and accountability to promote public and NGO participation in environmental stewardship, (d) improve environmental monitoring and enforcement; (e) promote sub-regional collaboration (eg. disaster prevention, trans-boundary pollution and natural resource conservation); (f) increase effectiveness in the use of specific tools, such as Environmental Impact Assessment (EIA) and land-use planning- with broadened public participation; (g) develop a system to monitor the implementation of the draft National Environment Strategy and Action Plan; and ensure and diversify funding sources for environmental protection and natural resources management (eg. Government budget, ODA, private sector, user fees etc) Specifically concerning future EC support to the environment and natural resources sector, actions can be taken on several fronts. First of all, environment should be mainstreamed and integrated into present and future development and economic cooperation projects. This would include, among others, making sure that rural infrastructure is subject to adequate EIAs, promoting environmental integration into, for example, tourism development projects, small and medium size enterprise development etc. The horizontal budget lines (Environment and Tropical Forests) can serve as an important targeted complement to these actions. Future EC support in this sector should, in general, focus on natural resources management in poorest regions in Vietnam, building on the experiences of the on-going rural development (CBBCRDP and SLLCRDP) and integrated conservation and development projects (SFNC). In this context, the link between environment, poverty and sustainable livelihoods should be considered; especially considering the detrimental effects environmental degradation has on poverty in terms of lost endowments and increasingly vulnerable livelihoods. In addition, institutional strengthening in the area of environmental planning and management, both at the central level and decentralised level (eg. urban planning), is another priority cross-cutting area that could be considered for possible future EC support. Possibilities could also be explored to provide support to enhance the environmental sustainability in the productive sectors relevant for Vietnam-EU trade relations (eg. fisheries sector). Consideration could also be made to help Vietnam fulfil its obligations in the Multilateral Environment Agreements (MEA), within the context of supporting Vietnam’s efforts to integrate into the international economy. Finally, it should be noted that for any future support, efforts have to be made to ensure complementarity with other donors, particularly EU Member States. i Vietnam 2010: Entering the 21st Century. Partnerships for Development. Vietnam development report 2001, WB in partnership with ADB and UNDP. ii Environments in Transition: Cambodia, Lao PDR, Thailand, Vietnam. ADB 2000 iii IUCN Red List of Threatened Species, 2000. iv European Union Development Co-operation Activities in Vietnam 2000. v According to the main priorities highlighted during the Consultative Group Meeting, Hanoi, December 2000

C:\Temp\IECache\VNM-CSP-NIP final.doc 46

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TABLE OF CONTENTS

(&9LHWQDP&RXQWU\6WUDWHJ\   ,QGLFDWLYH%XGJHW  )RFDOSRLQW9LHWQDP VKXPDQGHYHORSPHQW  )RFDOSRLQW9LHWQDP VLQWHJUDWLRQLQWRWKHLQWHUQDWLRQDOHFRQRP\  3ULRULW\,PSURYHPHQWRI9LHWQDP VKXPDQGHYHORSPHQW )RFDO3RLQW    6WUDWHJ\&RQWH[W-XVWLILFDWLRQ  3.1.1 Integrated rural development in the Northern Uplands  3.1.2 Support to the Ministry of Education and Training; Vocational Training    $FWLRQ,QWHJUDWHG5XUDO'HYHORSPHQWLQWKH1RUWKHUQ8SODQGV  3.2.1 Objectives   3.2.2 Expected Results   3.2.3 Activities  3.2.4 Implementation  3.2.5 Risks and Assumptions  3.2.6 Performance/Outcome Indicators  3.2.7 Financial Envelope   3.2.8 Indicative timeframe   6XSSRUWWRWKH0LQLVWU\RI(GXFDWLRQDQG7UDLQLQJ  3.3.1 Objectives   3.3.2 Expected Results   3.3.3 Activities  3.3.4 Implementation  3.3.5 Risks and Assumptions  3.3.6 Performance/Outcome Indicators  3.3.7 Financial Envelope   3.3.8 Indicative timeframe   9RFDWLRQDO7UDLQLQJ   3.4.1 Objectives   3.4.2 Expected Results   3.4.3 Activities  3.4.4 Implementation  3.4.5 Risks and Assumptions  3.4.6 Performance/Outcome Indicators  C:\Temp\IECache\VNM-CSP-NIP final.doc 48

3.4.7 Financial Envelope   3.4.8 Indicative timeframe  3ULRULW\)DFLOLWDWH9LHWQDP VLQWHJUDWLRQLQWRWKHLQWHUQDWLRQDOHFRQRP\ )RFDO SRLQW    6WUDWHJLFFRQWH[W-XVWLILFDWLRQ   $FWLRQ3XEOLFDGPLQLVWUDWLRQLQVWLWXWLRQDOUHIRUPDQGJRRGJRYHUQDQFH   4.2.1 Objectives   4.2.2 Expected results  4.2.3 Activities:  4.2.5. Risks and Conditionalities  4.2.6. Performance/ Outcome Indicators   4.2.7. Financial Envelope  4.2.8. Indicative Timeframe  

 $FWLRQ6XSSRUWWRWKH3ULYDWH6HFWRU   4.3.1 Objectives   4.3.2 Expected results  4.3.3 Activities  4.3.4. Implementation  4.3.5. Risks and Conditionalities  4.3.6. Performance/ Outcome Indicators   4.3.7. Financial Envelope  4.3.8. Indicative Timeframe    $FWLRQ,QWHJUDWLRQLQWRLQWHUQDWLRQDODQGUHJLRQDOHFRQRPLFVWUXFWXUHV   4.4.1 Objectives   4.4.2 Expected results  4.4.3 Activities  4.4.4. Implementation  4.4.5. Risks and Conditionalities  4.4.6. Performance/ Outcome Indicators   4.4.7. Financial Envelope  4.4.8. Indicative Timeframe  

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C:\Temp\IECache\VNM-CSP-NIP final.doc 49

 (&9LHWQDP&RXQWU\6WUDWHJ\ The EC-Vietnam Country Strategy Paper takes into account the goals of European Community co-operation policy, the Vietnamese policy agenda and the country analysis, as well as past and ongoing co-operation experience. The CSP states that the RYHUDUFKLQJ REMHFWLYH of EC co-operation will be to VXSSRUW 9LHWQDP V HIIRUWV WR UHGXFH SRYHUW\ LQ D HFRQRPLFDOO\ VRFLDOO\ DQG HQYLURQPHQWDOO\ VXVWDLQDEOH PDQQHU. The WZR main DUHDV RI FRQFHQWUDWLRQ for co-operation will be assistance to improve Vietnam's KXPDQ GHYHORSPHQWand facilitation of the LQWHJUDWLRQ of Vietnam LQWRWKHLQWHUQDWLRQDOHFRQRP\. All interventions will be screened to ensure that horizontal issues such as environmental protection and disaster preparedness, gender equality, human rights (particularly of vulnerable groups), good governance, disaster mitigation, culture and education, among others, are adequately addressed and integrated into co-operation design and implementation. Moreover, coherence with EU policies and complementarity within the EU and with other donors will be pursued in all areas of co-operation. In particular, the present indicative programme will aim to complement and support where appropriate projects which are financed by EU Member States. Specific project selection will be subject to a detailed identification and appraisal to be undertaken by the Commission. In the preparation of EC interventions, particular efforts will be made to ensure that the socio-economic objectives of Vietnam as stated in the SEDS, I-PRSP, and (when available) the CPRGS (v), as well as various documents produced by the government-donors Poverty Task Force in the context of the "Strategies for Achieving the Vietnam Development Targets" are taken into account in the project- programme design and its follow-up, so as to ensure maximum impact on Vietnam's own development goals. An integral aspect of all Community co-operation will be raising the EU's profile - concept, values, culture - and visibility in Vietnam. A particular effort will be made to integrate development and economic co-operation approaches. EC assistance will be conditional upon Vietnam's continued commitment to the development strategy and the necessary reforms, as well as to demonstrable progress in the field.

 ,QGLFDWLYH%XGJHW During the period covered by the National Indicative Programme, from 2002 to 2004, a total EC grant of ¼ M can be committed to support the total budget for EC-Vietnam co-operation activities. The following is the breakdown of this aggregated grant amount (more details in annex 1):

)RFDOSRLQW 9LHWQDP VKXPDQGHYHORSPHQW ¼0 Action 1: Integrated rural development in the Northern Uplands ¼0 Action 2: Support to the Ministry of Education and Training ¼0 Action 3: Vocational Training ¼0

)RFDOSRLQW 9LHWQDP VLQWHJUDWLRQLQWRWKHLQWHUQDWLRQDOHFRQRP\ ¼0 Action 1: Public administration, institutional reform, and good governance ¼0 C:\Temp\IECache\VNM-CSP-NIP final.doc 50

Action 2: Support to the private sector ¼0 Action 3: Integration into global and regional economic arrangements ¼0

 3ULRULW\,PSURYHPHQWRI9LHWQDP VKXPDQGHYHORSPHQW )RFDO3RLQW 

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 ,QWHJUDWHGUXUDOGHYHORSPHQWLQWKH1RUWKHUQ8SODQGV Activities under this focal point aim to reduce poverty in some of the poorest provinces in Vietnam. While Vietnam is a developing country with high levels of poverty in large areas of the country, provinces in the region of the Northern Uplands, as illustrated in annex 2 to the EC-Vietnam Country Strategy paper, have a very high concentration of ethnic minorities, are among the poorest in Vietnam and have the lowest percentage of population with access to clean water, sanitation, electricity, basic education and health in the country. Support under this Focal Point will also build on the experience of the 1996-2000 EC- Vietnam Co-operation Programme and therefore, it will continue to concentrate on integrated development and natural resource management in the disadvantaged and remote provinces of the Northern Uplands, providing assistance to the poorest members of society. 'HILQLWLRQRIWDUJHW+XPDQ'HYHORSPHQW,QGLFDWRUV Y ZLOOEHPDGHLQWKHHDUO\VWDJHVRI SURMHFWSURJUDPPH GHVLJQ so as to define its components with maximum efficacy and facilitate implementation and impact monitoring The lessons learned from the ongoing EC-funded projects in the Northern Provinces - &DR %DQJ%DF &DQ 5XUDO 'HYHORSPHQW 3URMHFW and 6RQ /D/DL &KDX 5XUDO 'HYHORSPHQW 3URMHFW - will be applied in the preparation of new actions, and consolidation of achievements will be sought. Effective integration of conservation and development, based on the experience of the project ‘6RFLDO)RUHVWU\DQG1DWXUH&RQVHUYDWLRQ3URMHFWLQ1JKH $Q3URYLQFH’ will be replicated where appropriate. Support to the decentralisation process will be given through training and capacity building at local level. Sustainability will be ensured, by using a participatory approach to ensure better informed interventions and greater ownership of project initiatives by the beneficiaries. Environmental protection, gender and ethnic minority issues will be common cross-cutting concerns for all co- operation activities. Attention will also be paid to increasing non-farm employment in the rural areas, to supporting the establishment and development of household enterprises, and to encouraging and facilitating the involvement of the private sector, both in infrastructure works and the provision of services and supplies. In order to define the specific EC intervention appropriate account will be taken of other government funded or donors ongoing or planned interventions in the region, such as government poorest communes programme or WB led Northern Mountains poverty reduction programme. Increased access to basic education and health services to enhance the well-being of the poorest in these targeted provinces is an identified need that will be further explored for possible EC support. The experience of the co-operation with the Ministry of (GXFDWLRQ and the two major EC-funded KHDOWK VHFWRU SURMHFWV in the fields of Malaria and particularly Health Systems Development, will also be assessed, as will that of initiatives supported by other donors in this field. In addition, the preparation of an activity involving

C:\Temp\IECache\VNM-CSP-NIP final.doc 51 street children, aiming to palliate the problems created by migration of children from rural to urban areas will be built on.

 6XSSRUWWRWKH0LQLVWU\RI(GXFDWLRQDQG7UDLQLQJ9RFDWLRQDO7UDLQLQJ While Vietnam achieves good results in terms of scholarisation, the quality of education around the country is extremely mixed. The Ministry of Education and Training lacks the capacity to upgrade standards and the quality of education delivered. Curriculum planning and teacher training are weak. As Vietnam’s economy develops and as new industries are established, the need for skilled labour becomes more acute. As people migrate from the country to the cities and as State Owned Enterprises are rationalised, more and more people will come onto the labour market and they will require skills in order to find employment. Increased access to, and enhanced quality of, vocational training are required. The results of the project “6XSSRUWIRUWKH0LQLVWU\RI(GXFDWLRQDQG7UDLQLQJ” (which was designed to test alternative methodologies for the improvement of primary education) will be fully evaluated and taken into account, together with the actions of other donors. Also, the preparatory work for possible support for a /DERXU 0DUNHW 2EVHUYDWRU\ and subsequent re-orientation resulting from the other donors interventions, particularly the ADB, will be fully taken into account in the design of specific EC support to vocational training. EC interventions in the sector of education will take properly into account the government's education strategy 2010 and the Ministry of Education and Training plan to achieve education for all.

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 2EMHFWLYHV(v) The objective of this Action is to assist improve Human Development in provinces of the Northern Uplands. EC intervention will take into account its impact on provinces' HD indicators. The EC contributions will aim to: - consolidate and expand the achievements of the EC-supported UXUDOGHYHORSPHQW and integrated conservation and development projects in the mountainous areas in northern Vietnam, in order to improve their prospects for sustainability and to generate greater impact; - specific support in the primary education sector, as well as in the creation of sustainable employment; - provide support to the poorest members of society through an intervention in the health sector, recognising that the high incidence of poverty has a direct effect on access and use of KHDOWKservices. Special attention shall be paid to the most vulnerable groups.

([SHFWHG5HVXOWV The Action is expected to result in the following: • Sustainable reduced levels of poverty and of deprivation. These will be defined according to appropriate indicators, in agreement with relevant HDI; • A sustainable leading role for local communities as the driving force behind poverty alleviation and economic and social development; C:\Temp\IECache\VNM-CSP-NIP final.doc 52

• Increased institutional capacity and improved co-ordination between central and local government agencies; • To ensure the sustainability of interventions initiated and carried out by those co- operation actions; • The internalisation (ownership) of successful rural development models/practices drawn from EC-supported rural development and integrated conservation and development co-operation actions by the GOV, local authorities and rural development stakeholders. This should enable the beneficiaries to replicate those models in similar circumstances in the same or neighbouring areas, either on their own or with other donors.

$FWLYLWLHV Three types of activities are foreseen under this integrated action: consolidating rural development co-operation, increasing access to the education system/enhancing the quality of education, and improving access to basic health services. The first set of activities aims to consolidate support already provided by EC rural development and integrated conservation and development co-operation projects, including, among others, rural infrastructure - such as market access roads, clean water supply, irrigation-, agriculture, forestry, environmental protection and disaster mitigation. The other two sets of activities, in the education and health sectors, will also be examined. In education sector, initiatives to enhance quality and access to primary education will be examined, as well as a possible targeted intervention to upgrade vocational training needed in the selected provinces. In the health sector, the feasibility of supporting a health insurance scheme for the poorest segment of the population should be explored. Enhancing food safety systems could also be explored.To this aim, studies will be undertaken with a view to selecting specific activities to be supported in both sectors.

,PSOHPHQWDWLRQ Each set of activities will have its own independent preparation phase. In particular, the consolidation of rural development will be prepared in time for the completion of the ongoing projects in the region, which takes into account the absorption capacity of Vietnamese partners. Identification missions for the other two sets of activities, increased access to health and education services, may begin early in 2002 and implementation should start as soon as possible, likely in 2003, to supplement the impact in the region of the ongoing rural development projects. The implementation modalities of these interventions, which will be defined during the formulation stage, could take account of the following main principles: • Fitting within the principles of Government-donor partnerships in the areas of poverty reduction, forestry etc; • Decentralised management; • Best use of local human resources, in particular those that have been developed during the implementation of EC projects; • Maximum involvement of civil society.

5LVNVDQG$VVXPSWLRQV The field-level activities will strongly depend on the political will of the concerned local authorities to support programme activities.

C:\Temp\IECache\VNM-CSP-NIP final.doc 53

3HUIRUPDQFH2XWFRPH,QGLFDWRUV Performance and outcome indicators will be defined at the formulation stage.

)LQDQFLDO(QYHORSH The EC grant for the integrated action is estimated to be ¼  PLOOLRQ (& JUDQW 7KH budgetary commitment could take place in two parts: one early in 2003 for the specific health and possibly education components with an indicative amount of ¼  0 DQG D second in 2003 or early 2004 for the remaining ¼  0 IRU WKH UXUDO GHYHORSPHQW consolidation.

,QGLFDWLYHWLPHIUDPH The interventions should be implemented over a period of 4 years. Activities in health and education sectors could start early in 2003 to support the ongoing rural development activities. The component on consolidation of rural development could be launched in 2004, on completion of the ongoing rural development co-operation activities.

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2EMHFWLYHV(v) The objective of this action is to enhance the quality and efficiency of the educational delivery process in Vietnam so that its children have access to higher quality schooling that will prepare them for a role in the country’s rapidly modernising and industrialising economy. As stated in the CSP, an EC intervention on a sectoral basis or, alternatively, on a complementary basis with other major donors shall be explored.

([SHFWHG5HVXOWV The Action is expected to result in the following: • Better planning and organisational capacity within the Ministry of Education and Training, and provincial Education Departments; • Enhanced education of children through more appropriate systems for education delivery; • Increased numbers of children going on to vocational training and secondary education;

$FWLYLWLHV Institutional support in order to improve the delivery of education to children;

,PSOHPHQWDWLRQ The implementation modalities of the interventions will be defined during the formulation stage. The forthcoming Mid-Term Review of the ongoing EC-supported project “Support to the Ministry of Education” will provide important input. Implementation modalities could take account of the following main principles: • Fitting within the principles of Government-donor partnerships in the area of education;

C:\Temp\IECache\VNM-CSP-NIP final.doc 54

• Best use of local human resources, in particular those that have been developed during the implementation of EC co-operation actions.

5LVNVDQG$VVXPSWLRQV The success of the action will depend on the willingness and absorption capacity of the partner ministries, provincial authorities and educational establishments.

3HUIRUPDQFH2XWFRPH,QGLFDWRUV Performance and outcome indicators will be defined at the formulation stage.

)LQDQFLDO(QYHORSH The EC grant is estimated to be ¼PLOOLRQ(&JUDQWWREHFRPPLWWHGLQ

,QGLFDWLYHWLPHIUDPH The intervention should be implemented over a period of 4 years starting in 2004.

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2EMHFWLYHV(v) The objective of this action is to enhance the quality and availability of vocational training in Vietnam so that its young adults have access to training that will prepare them for a role in the country’s rapidly modernising and industrialising economy. The action aims at three different possible areas of support: - Labour Market Observatory. Assisting current efforts to better identify vocational training needs at national level; - National policy. Providing advice on policy at national level to translate identified needs into adequate training curricula and delivery systems; - Pilot scheme to assist policy implementation. A limited number of vocational training centres (not only in the major cities, but also in smaller towns) could be targeted for a pilot scheme in assisting implementation of curricula development and feeding back to the national policy for possible adjustment.

([SHFWHG5HVXOWV The Action is expected to result in the following: • Better quality of training delivered; • New areas of vocational training delivered in different parts of Vietnam; • Increased numbers of young people trained to carry out technical jobs in the growing number of Vietnamese and foreign-owned companies that are operating in sectors of industry that may be new to Vietnam; • Reduced levels of unemployment, particularly as the reduction in the size and numbers of State-owned companies and the migration of people to cities puts more people onto the job market.

C:\Temp\IECache\VNM-CSP-NIP final.doc 55

$FWLYLWLHV Support for the setting up and/or strengthening of institutions to deliver vocational training, including apprenticeships, at a post-school (but lower than university) level. The specific type of training needed will be reviewed during preparation of the EC support, in the light of the experience gained during the preparation of the Labour Market Observatory project proposed at an earlier stage.

,PSOHPHQWDWLRQ The implementation modalities of the interventions will be defined during the formulation stage. Implementation modalities could take account of the following main principles: • Fitting within the principles of Government-donor partnerships in the area of vocational training; • Decentralised management; • Best use of local human resources, in particular those that have been developed during the implementation of EC co-operation actions; • Maximum involvement of civil society, in particular, of the private sector.

5LVNVDQG$VVXPSWLRQV The success of the action will depend on the willingness and absorption capacity of partner ministries and other organisations.

3HUIRUPDQFH2XWFRPH,QGLFDWRUV Performance and outcome indicators will be defined at the formulation stage.

)LQDQFLDO(QYHORSH The EC grant is estimated to be ¼PLOOLRQWREHFRPPLWWHGLQ

,QGLFDWLYHWLPHIUDPH The intervention should begin in 2002 with a duration of 4 years.

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 675$7(*,&&217(;7-867,),&$7,21 A variety of structural problems impede Vietnam from successfully achieving sustainable economic growth and interacting with the global community. The CSP has identified potential areas to target for supporting Vietnam's socio-economic UHIRUP SURFHVV that needs to be accelerated: human development; policy-making and implementation; promotion of the private sector; alleviation of the social consequences of reform; good governance and best administrative practices. In this context, key priorities include: (a) the establishment of a transparent, effective and efficient public administration and institutions, (b) the creation of a fair and efficient

C:\Temp\IECache\VNM-CSP-NIP final.doc 56 business environment, including the promotion of competition and strengthening of the private sector, and (c) enhanced commercial exchanges with the international community. Assisting Vietnam adapt its economy to the external environment with the immediate challenges of accessing WTO and the ASEAN Free Trade Area deadline, as well as the opportunities offered by the free trade agreement between ASEAN and China, have been identified in the CSP as areas for EC co-operation. The Commission has in the past contributed to a number of initiatives supporting Vietnam’s efforts to restructure its economy and to LQWHJUDWHLQWKHUHJLRQDODQGJOREDOHFRQRP\. These include the European Technical Assistance Programme for Transition to a Market Economy (Euro-TAP-Viet), the Small and Medium Enterprise Development Fund (SMEDF) and the Multilateral Trade Policy Assistance Programme (MUTRAP). Future support will build on these experiences.

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 2EMHFWLYHV(v) The general objective is to support Vietnam in its efforts to allow a properly functioning market economy and to create fair conditions for a transparent, predictable, and competitive investment and business environment by establishing a transparent, effective and efficient public administration and institutions. Also, interventions under this action will aim to assist the government of Vietnam to alleviate the social consequences of reform.

 ([SHFWHGUHVXOWV Focusing on areas considered as bottlenecks that constrain progress in reform, this action is expected to result in a more transparent, effective and efficient public administration. Specific policy, legislation, regulation or administrative instructions will be identified during the preparatory stage for each of the activities described below.

 $FWLYLWLHV Activities covered by this action aim to respond to the various potential areas described in point 4.1 and could tentatively include (non-exhaustive list): - taxation; - customs; - statistics, companies registration, country information systems; - accounting and auditing; - standards and quality assurance (particularly sanitary and phytosanitary) - intellectual property rights; - agricultural policy advice; - telecommunications; - banking; - corporate governance; - foreign investment; - management training; - urban and environmental planning; - street children integration; C:\Temp\IECache\VNM-CSP-NIP final.doc 57

Detailed activities and the selection of sectors would be subject to further review and priority screening during the formulation phase. Specific assistance under this action could aim not only at public sector administration, but also private sector economic entities, such as associations, chambers of commerce and leading companies on a pilot basis. The assistance could take one of the two following approaches: • 3ROLF\DGYLFHDQGLQVWLWXWLRQDOVXSSRUW. Technical assistance including inter alia for preparation of legislation and regulations to be provided at both central and local levels. • &DSDFLW\ EXLOGLQJ DQG WUDLQLQJ. To support reforms and to ensure smooth implementation of new policies and regulations, assistance could be provided for skills upgrading, through, for example, training, seminars and workshops aiming to the producing, processing or receiving organisations of the policies.  ,PSOHPHQWDWLRQ The modalities of implementation of the action will be defined during the formulation phase. Some of the potential activities are in an advanced stage of definition and could be ready for launching in 2002. In particular co-operation in assisting the transition to market economy (v): - by assisting in SROLF\ PDNLQJ DQG LPSOHPHQWLQJ enhancement of quality and reliability of Vietnamese products and services, supporting co-operation in "standards, quality assurance and conformity assessment", including in the phytosanitary field, and facilitating the transfer of technology by assisting to strengthen the "intellectual property rights" protection. Tentatively ¼DQG0UHVSHFWLYHO\ - by contributing to DOOHYLDWHWKHVRFLDOFRQVHTXHQFHVRIUHIRUP including the massive transfer of population from rural areas to urban centres, by supporting "urban environmental planning" and assisting integration of "street children". Tentatively ¼  0 DQG  0 respectively. Remaining potential co-operation activities will take into account experience learned from the Euro-TAP-Viet programme and the identification mission completed in view of the preparation of the second phase of Euro-TAP-Viet project, as well as new needs stemming from the government reform programme. The activities will be defined during 2002 and commitments should take place in 2002 and 2003. Therefore, given the variety and importance of this action for Vietnam's reform process, maximum flexibility will be adopted for the launching and implementation of the activities described in point 4.2.3 above.

 5LVNVDQG&RQGLWLRQDOLWLHV The most important risk is lack of political will in the Government and lack of ownership of the reform process among counterpart agencies.

 3HUIRUPDQFH2XWFRPH,QGLFDWRUV Detailed performance indicators will be defined during the formulation phase. However, the following tentative indicators are foreseen: • legislation and policies drafted with EC-support are adopted by the Government • capacity in selected ministries, agencies and institutions increased

 )LQDQFLDO(QYHORSH The total EC grant is estimated at ¼PLOOLRQ$ERXW¼0VKRXOGEHFRPPLWWHGLQ for activities already identified (urban environmental planning, assistance to street children C:\Temp\IECache\VNM-CSP-NIP final.doc 58 and Euro-TAP-Viet follow-up/support to government reform) and the remaining ¼  0 could be committed in 2003.

 ,QGLFDWLYH7LPHIUDPH The proposed duration of activities under this action is 4 years starting in 2002. The budgetary commitment would take place in 2002 by different stages, according to the readiness of the activities proposed.

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 2EMHFWLYHV(v) The objective of this Action would be to help create a dynamic private sector in Vietnam, contributing to develop employment and sustainable small and medium size enterprises.

 ([SHFWHGUHVXOWV The establishment, consolidation and internationalisation of small and medium sized companies.

 $FWLYLWLHV Detailed activities would be subject to further review and priority screening during the formulation phase, but are likely to focus on the creation and development of SMEs aiming to increase their productivity and competitiveness, through the provision of: - an extension of the financing facility (SMEDF) aiming to strengthen the capacity of the relevant lending institutions by enhancing their ability to assess risks related to projects presented by SMEs and reducing the practice of asking for excessive collateral and / or a risk premium. This specific intervention would facilitate access to existing SMEDF lending facility by SMEs; - other financial support to SMEs to be further examined, such as guarantees; - technical assistance to improve performance in for example marketing and quality assurance, access to business co-operation opportunities with economic operators outside Vietnam; - accompanying services for innovative start-ups to ensure their feasibility ; - assistance in the development of chambers of commerce and trade/industrial associations, promoting access to EU regulatory industrial requirements; - assistance to reform of a selected group of State Owned Enterprises.

 ,PSOHPHQWDWLRQ The detailed implementation arrangements for the programme will be defined during the formulation stage. Some of the potential activities are in an advanced stage of definition. In particular the institutional strengthening of SMEDF should be ready for launching in 2002. Other possible activities will be defined in 2002-2003.

 5LVNVDQG&RQGLWLRQDOLWLHV The activities foreseen under this Action are highly dependent on the progress made in legal and C:\Temp\IECache\VNM-CSP-NIP final.doc 59 policy reform and the political will of the Government to develop a fair and competitive market economy.

 3HUIRUPDQFH2XWFRPH,QGLFDWRUV The main performance indicator for this Action will be the creation of a dynamic and competitive private sector.

 )LQDQFLDO(QYHORSH The EC Grant is estimated at a total of ¼PLOOLRQ$EXGJHWDU\FRPPLWPHQWRI¼0 could take place in 2002 for the first activity described under 4.3.3 (SMEDF extension). The rest of the activities could be committed in 2003.

 ,QGLFDWLYH7LPHIUDPH The initially proposed duration of the programme is 4 years starting in 2002.

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 2EMHFWLYHV (v) The objective of this Action is to support Vietnam in its efforts to integrate into the international trade and investment flows.

 ([SHFWHGUHVXOWV The action is expected to result in enhanced integration of Vietnam’s economy in the global community by: • early entry of Vietnam into the WTO, • appropriate adaptation of the regulatory framework to the conditions negotiated and its efficient implementation.

 $FWLYLWLHV Detailed activities would be subject to further review and priority screening during the formulation phase, but are likely to centre on policy and regulatory advice, judicial and commercial capability building and implementation. This would include assistance to the Government in areas relating to: - among others, implementation of the actions involved in Vietnam’s accession to multilateral trade agreements, in particular the World Trade Organisation (WTO); - implementation of Doha Development agenda; - in preparing its economy to adapt to the requirements of AFTA; - in training conference interpreters, a specific need to assist Vietnamese representatives in conducting the necessary negotiations.

 ,PSOHPHQWDWLRQ The detailed implementation arrangements for the programme will be defined during the formulation stage. The opportunity to implement part of the activities through a small project facility to facilitate quick reaction to identified needs will be explored. C:\Temp\IECache\VNM-CSP-NIP final.doc 60

The training of conference interpreters activity is in an advanced stage of definition and could be ready for launching in 2002. The other possible activities to be defined in 2003 could be launched in 2004.

 5LVNVDQG&RQGLWLRQDOLWLHV The activities foreseen under this Action are highly dependant on the progress made in the legal and policy reform and the political willingness of the Government to develop a fair and competitive market economy.

 3HUIRUPDQFH2XWFRPH,QGLFDWRUV The main performance indicator for this Action will be Vietnam’s early entry into the WTO.

 )LQDQFLDO(QYHORSH The EC Grant is estimated at a total of ¼PLOOLRQ¼0VKRXOGEHFRPPLWWHGLQIRU the interpreters activity and the rest could be committed in 2004.

 ,QGLFDWLYH7LPHIUDPH The initially proposed duration of the programme is 4 years starting in 2002.

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 (4.2.7) Public administration, institutional reform & good governance   

 (4.3.7) Support to private sector  

 (4.4.7) Integration into global economy and regional arrangements  727$/    

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$11(;

%$&.*5281',1)250$7,21

 8UEDQ(QYLURQPHQWDO3ODQQLQJFRRSHUDWLRQ This project was first discussed at the EC-Vietnam Joint Commission meeting in 1998. An indicative amount of Euro 10 M has been allocated to assist Vietnam to strengthen the municipal capacities in up to three provincial cities to address the environmental challenges of urban growth. It is hoped that the experience to be drawn from this project will be applied to urban environmental planning in other small and medium-sized cities in Vietnam. A preparation mission is to be launched in early 2002. Whilst the GoV is insisting that the programme mainly strengthen the institutional capacity at the central level to deal with urban growth (e.g. Ministry of Construction, Ministry of Science, Technology and Environment etc), it should be noted that most of the decisions involving environmental planning are in fact being taken at the municipal or regional level. In this context, it should also be noted that an EC-funded programme would need to take into account what several other donors (incl., among others, Denmark, Germany and France) are already supporting in this area.  /DERXU0DUNHW2EVHUYDWRU\DQG'HYHORSPHQWRI+XPDQ5HVRXUFHV An identification mission was carried out at the end of 2000 on the potential for an intervention and for supporting other actions designed to enhance Vietnam’s ability to face up to the labour market demands of a developing economy, such as vocational training. That study recommended allocating a budget of Euro 10 M to finance the project. The sector is considered of crucial importance for Vietnam’s economy, and, consequently, characterised by a significant number of donors involved. The difficulty is not so much to justify an EC involvement in the sector as to clearly identify the scope for an intervention that will bring added value to the activities of other actors in the field. Of particular importance is an ADB-led initiative (around US$120 M), which contains i.a. also a labour market observatory component and support to several technical colleges. Given the involvement of other donors in this sector and rapid developments in the labour field, it was agreed at the EC-Vietnam Joint Commission meeting of November 2001 that Vietnamese and EC officials should meet to review requirements and to decide in principle what form the EC’s assistance in this area should take. In this context, it will be important to ensure that the two concerned Government authorities in this sector, MOLISA and MOET, are adequately involved in the intervention in a co-ordinated manner. In this context is should be noted that GTZ is currently engaged in an initiative to enhance the communication between these two ministries on this topic.  6PDOODQG0HGLXP6L]HG(QWHUSULVH'HYHORSPHQW)XQG60(')H[WHQVLRQ Following the successful completion of the first phase of the project, which established lending facilities for SMEs making use of revolving funds established under the refugee assistance programme, an Identification Mission was fielded in 2001 to prepare a new intervention to consolidate and further develop these facilities. Based on the recommendations of the Identification Mission report, it was agreed at the EC-Vietnam Joint Commission meeting in November 2001 that further consultation would be needed between Vietnamese and Commission officials with regards to specific co-operation needs, with a view to launch this intervention as soon as possible during the first half of 2002. In C:\Temp\IECache\VNM-CSP-NIP final.doc 63 this context, it should be noted that an amount of approximately Euro 20 M is still available in the existing revolving Fund that can be used during a follow-up phase. Since the operation of the fund generates revenues, and since these can be used to finance the fund’s management, new EC assistance could be limited to the provision of institutional support to better assess project risks and avoid excessive collateral demands on the SMEs, and could remain in the area of Euro 1 M. It should also be noted that after project completion, the funds would have to be integrated (as equity) into the formal banking system in order to achieve sustainable ownership of the funds. A proposal has been made to have the Development Assistance Facility (DAF) as the implementing agency for a new intervention. The proposed Euro 1 M EC contribution for institutional support could therefore be used to strengthen DAF as well as provide training in banking skills for staff of selected intermediary banks.  7UDLQLQJFRQIHUHQFHLQWHUSUHWHUVIRU9LHWQDPHVH0LQLVWULHV A Financing Agreement was signed for this initiative in 1998, but the project was delayed due to insufficient qualified interest in the tender the Commission launched. The Financing Agreement has now been cancelled and a new project is to be designed (end of 2001 or early 2002) with the European Community interpreting service (SCIC) providing the necessary technical assistance. Training of trainers would be an important element in a possible intervention. (XUR7$39LHW Following successful completion of the EuroTAP Viet project, which provided technical assistance for a number of key elements in Vietnam’s Economic Reform programme, an Identification Mission was fielded in 2000 to prepare a new co-operation action. However, changes that have occurred since that Identification Mission may have rendered some components irrelevant or in need of revision. It was agreed at the Joint Commission meeting in November 2001 that a new identification mission should be launched early in 2002 to make a clear assessment of Vietnamese needs in a range of horizontal fields. ,QWHOOHFWXDOSURSHUW\SURMHFW Whilst the Vietnamese side has urged that consideration be given to providing bi-lateral rather than regional assistance, the EC has indicated that it could, for example, be an advantage for Vietnam to implement a national Intellectual Property Rights (IPR) project within the framework of the regional IPR programme, in view of maximising national implementation and gaining regional co-ordination. The objective of this project would be to enhance investment and trade between the European Union and Vietnam by upgrading intellectual property protection in Vietnam in line with European Union standards and practices. The project would enhance the institutional capacity of the National Office for Industrial Property (NOIP), the Copyrights Office (COV) and other related authorities in Vietnam to adequately deal with matters relating to Intellectual Property Rights. The project would also increase the public awareness and knowledge about intellectual property, its rights and the consequence of infringement. The EC contribution is estimated at Euro 1.5 M to be committed in 2002.

 6XSSRUWWRWKH0LQLVWU\RI(GXFDWLRQDQG7UDLQLQJ The current project is due to end in April 2003. On the basis of the progress made, the EC should envisage a continued support to the sector, which is also in line with the EC view to split the initial co-operation activities in this sector into two phases (the on-going project is the first phase). This phased approach would take into account the complexity of the Vietnamese education system and the need to get a better insight of the sector before embarking into a larger scale project. The first phase was designed to implement pilot activities to conciliate C:\Temp\IECache\VNM-CSP-NIP final.doc 64 practical programming with a strategy of innovation, adaptation and experimentation. A Mid-term Review for the project will take place in early 2002. Based on the recommendations from the MTR, the EC would support the replication and expansion of the activities into a comprehensive framework of sector development. In this context, the budgetary commitment of about 20 million Euro should be made in 2002 to ensure continuity between the two phases while taking into account the assessment of the on-going project.  $VVLVWDQFHWR6WUHHW&KLOGUHQ This project was first discussed at the EC-Vietnam Joint Commission Meeting in 1998. It was then decided that the revolved funds from the credit component of the RAP Project would be used to finance the activities of an intervention aimed at tackling the street children problem in Vietnam. A first identification mission took place in 2000, followed by a preparatory mission 2001. The main objective of the project would be to assist Ministry of Labour, Invalids and Social Affairs (MOLISA) to implement programmes related to disadvantaged street children. The project would be initiated in 2002 and the EC would finance the technical assistance with an approximate amount of Euro 1 M.  9LHWQDP(XURSH&HQWUHIRU(FRQRPLFVDQG0DQDJHPHQW The Vietnamese side renewed at the EC-Vietnam Joint Commission Meeting in 2001 its request to the Commission for financial support for this institution. The EC responded that as the infrastructure elements of this request would fall outside the realm of economic co- operation, it rather recommended that a study be launched in early 2002 under the Bangkok based regional ASEAN-EU University Network Programme (AUNP) to assess potential support for the centre.

C:\Temp\IECache\VNM-CSP-NIP final.doc 65

REVISED

NATIONAL INDICATIVE PROGRAMME

2002 – 2004

VIETNAM

Country/Region : Vietnam

Budget Years : 2002 – 2004

Budget Line : ALA 1910 (ex B7-300, B7-301)

Legal Base : ALA Regulation (Council Regulation 443/92 of 25/02/92)

Cost of Order : €128 M

Programming Service : DG RELEX H/5

Head of Unit : Pierre Amilhat

Co-ordinator : Renate Hahlen

Changes to the initial document are marked by a shadow colour.

1 TABLE OF CONTENTS

1. 1...... EC-VIETNAM COUNTRY STRATEGY 4 2. 2...... INDICATIVE BUDGET 5 2.1 FOCAL POINT 1: VIETNAM'S HUMAN DEVELOPMENT €60 M ...... 5 2.2 FOCAL POINT 2: VIETNAM'S INTEGRATION INTO THE INTERNATIONAL ECONOMY €46 M ...... 6 2.3 CROSS-SECTOR SUPPORT: €22 M...... 6 3. 3. . PRIORITY: IMPROVEMENT OF VIETNAM'S HUMAN DEVELOPMENT (FOCAL POINT 1) 6 3.1 STRATEGY CONTEXT/JUSTIFICATION...... 6 3.1.1 Integrated rural development and natural resources management ...... 6 3.1.3 Support to the Ministry of Education and Training; Vocational Training ...... 8 3.2 ACTION: INTEGRATED RURAL DEVELOPMENT AND NATURAL RESOURCES MANAGEMENT ...... 8 3.2.1 Objectives ()...... 8 3.2.2 Expected Results ...... 9 3.2.3 Activities...... 10 3.2.4 Implementation...... 10 3.2.5 Cross-cutting issues ...... 10 3.2.6 Risks and Assumptions ...... 11 3.2.7 Performance/Outcome Indicators...... 11 3.2.8 Financial Envelope...... 11 3.2.9 Co-ordination with Member States ...... 11 3.2.10 Indicative timeframe...... 11 3.3 SUPPORT TO RURAL HEALTH IN THE NORTHERN UPLANDS AND CENTRAL HIGHLANDS ...... 12 3.3.1 Strategy context/justification...... 12 3.3.2 Objectives ...... 12 3.3.3 Expected Results ...... 12 3.3.4 Activities...... 12 3.3.5 Implementation...... 12 3.3.6 Cross-cutting issues ...... 12 3.3.7 Risks and conditions ...... 13 3.3.8 Main indicators...... 13 3.3.9 Estimated EC contribution ...... 13 3.3.10 Co-ordination with Member States ...... 13 3.3.11 Indicative timeframe...... 13 3.4 SUPPORT FOR IMPROVED SECTOR MANAGEMENT OF EDUCATION AND TRAINING ...... 13 3.4.1 Strategy context/ justification:...... 13 3.4.2 Objectives ()...... 14 3.4.3 Expected Results ...... 14 3.4.4 Activities...... 14 3.4.5 Implementation...... 15 3.4.6 Cross-cutting issues ...... 15 3.4.7 Risks and Assumptions ...... 15 3.4.8 Main Indicators ...... 15 3.4.9 Estimated EC contribution ...... 15 3.4.10 Co-ordination with Member States ...... 16 3.4.11 Indicative timeframe...... 16 3.5 VOCATIONAL TRAINING...... 16 3.5.1 Objectives ()...... 16 3.5.2 Expected Results ...... 16 3.5.3 Activities...... 16 3.5.4 Implementation...... 17 3.5.5 Risks and Assumptions ...... 17 3.5.6 Performance/Outcome Indicators...... 17

2 3.5.7 Financial Envelope...... 17 3.5.8 Indicative timeframe...... 17 4. 4. PRIORITY: FACILITATE VIETNAM'S INTEGRATION INTO THE INTERNATIONAL ECONOMY (FOCAL POINT 2) ...... 17 4. 1 STRATEGIC CONTEXT /JUSTIFICATION ...... 17 4.2 ACTION: PUBLIC ADMINISTRATION, INSTITUTIONAL REFORM AND GOOD GOVERNANCE ...... 18 4.2.1 Objectives ()...... 18 4.2.2 Expected results ...... 18 4.2.3 Activities:...... 18 4.2.4 Implementation:...... 19 4.2.5 Risks and Conditionalities ...... 19 4.2.6 Performance/Outcome Indicators ...... 19 4.2.7 Financial Envelope...... 20 4.2.8 Indicative Timeframe...... 20 4.3 ACTION: SUPPORT TO THE PRIVATE SECTOR...... 20 4.3.1 Objectives ()...... 20 4.3.2 Expected results ...... 20 4.3.3 Activities ...... 20 4.3.4 Implementation...... 20 4.3.5 Risks and Conditionalities ...... 21 4.3.6 Performance/Outcome Indicators ...... 21 4.3.7 Financial Envelope...... 21 4.3.8 Indicative Timeframe...... 21 4.4 ACTION: INTEGRATION INTO INTERNATIONAL AND REGIONAL ECONOMIC STRUCTURES ...... 21 4.4.1 Objectives ()...... 21 4.4.2 Expected results ...... 21 4.4.3 Activities ...... 21 4.4.4 Implementation...... 22 4.4.5 Risks and Conditionalities ...... 22 4.4.6 Performance/ Outcome Indicators ...... 22 4.4.7 Financial Envelope...... 22 4.4.8 Indicative Timeframe...... 22 5. 5. CROSS SECTOR SUPPORT...... 22 5.1 ACTION: CONTRIBUTION TO THE POVERTY REDUCTION SUPPORT CREDIT III ...... 22 5.1.1 Strategy context/Justification ...... 22 5.1.2 Objectives ...... 23 5.1.3 Expected Results ...... 23 5.1.4 Activities...... 23 5.1.5 Implementation...... 23 5.1.6 Cross-cutting issues ...... 24 5.1.7 Risks and conditions ...... 24 5.1.8 Main indicators...... 24 5.1.9 Estimated EC contribution ...... 24 5.1.10 Co-ordination with Member States ...... 24 5.1.11 Indicative timeframe...... 24 5.2 SMALL PROJECT FACILITY...... 24 6. ANNEX 1 INDICATIVE ACTIVITIES TABLE...... 26 7. ANNEX 2 BACKGROUND INFORMATION ...... 27 8. ANNEX 3: CONSULTATION OF EU MEMBER STATES ON NIP 2002 – 2004 REVISION...... 30

3

1. EC-Vietnam Country Strategy The EC-Vietnam Country Strategy Paper takes into account the goals of European Community co-operation policy, the Vietnamese policy agenda and the country analysis, as well as past and ongoing co-operation experience. The CSP states that the overarching objective of EC co-operation will be to support Vietnam's efforts to reduce poverty in an economically, socially and environmentally sustainable manner. The two main areas of concentration for co-operation will be assistance to improve Vietnam's human development and facilitation of the integration of Vietnam into the international economy. All interventions will be screened to ensure that horizontal issues such as environmental protection and disaster preparedness, gender equality, human rights (particularly of vulnerable groups), good governance, disaster mitigation, culture and education, among others, are adequately addressed and integrated into co-operation design and implementation. Moreover, coherence with EU policies and complementarity within the EU and with other donors will be pursued in all areas of co-operation. In particular, the present indicative programme will aim to complement and support where appropriate projects which are financed by EU Member States. Specific project selection will be subject to a detailed identification and appraisal to be undertaken by the Commission. In the preparation of EC interventions, particular efforts will be made to ensure that the socio-economic objectives of Vietnam as stated in the SEDS, I- PRSP, and (when available) the CPRGS (1), as well as various documents produced by the government-donors Poverty Task Force in the context of the "Strategies for Achieving the Vietnam Development Targets" are taken into account in the project-programme design and its follow-up, so as to ensure maximum impact on Vietnam's own development goals. An integral aspect of all Community co-operation will be raising the EU's profile - concept, values, culture - and visibility in Vietnam. A particular effort will be made to integrate development and economic co-operation approaches. EC assistance will be conditional upon Vietnam's continued commitment to the development strategy and the necessary reforms, as well as to demonstrable progress in the field. In line with the findings of the CSP mid-term review (MTR) of 2003 – see chapter 1 of the National Indicative Programme 2005 – 2006 document – some modifications to the NIP 2002 – 2004 are suggested and summarised as follows: • Inclusion of support in the Central Highlands through the extension of the focus area (initially only the Northern Uplands) for support to rural health. The Central Highlands are an area of importance politically and in the context of poverty reduction. • Inclusion of natural resources management into the rural development priority as well as support to the groundwork required to prepare the Government of Vietnam, especially the Ministry of Agriculture and Rural Development, for a sector approach in rural development at a later stage.

(1) SEDS: Socio-Economic Development Strategy 2001-2010. I-PRSP: Interim Poverty Reduction Strategy Paper. CPRGS: Comprehensive Poverty Reduction and Growth Strategy

4 • The carrying out of groundwork to be done in the education sector to prepare for a sector approach before the EC provides support in that framework in the NIP 2005- 2006. • As a new action, focussing on both CSP focal points, a contribution – via budget support and accompanying technical assistance in the field of public finance management, to the performance-based Poverty Reduction Support Credit (PRSC), linked to the implementation of the Comprehensive Poverty Reduction and Growth Strategy. These modifications are described in detail hereafter (3.1, 3.2, 3.3 and 5.) Moreover, a €2 M Small Project Facility (SPF) was added to the initiatives anticipated by the initial NIP 2002-2004, this in line with the EC’s policy to establish SPFs in Asian partner countries, as a flexible tool enabling Delegations to finance small actions that are in keeping with the priorities of the CSP, particularly in the area of governance. The project has been approved by the EU Member states (ALA committee of 20 November 2003) and the European Commission (on 15 December 2003). The overall objective of this programme is to support the on-going reform process of Vietnam’s economy and systems of governance, as well as to facilitate Vietnam’s integration into the international economy. This is to be achieved inter alia through an enhanced involvement of civil society partners and of the private sector and by facilitating interactions in the fields of governance, administrative reform, decentralisation, integration into the regional and world economy, strengthening of civil society and public interest organisations as a contribution to grass-roots democracy, better governance, and the respect of the rule of law.

The CSP MTR and intended modifications to the NIP 2002-2004 were discussed at a meeting of EU Development Counsellors in Hanoi on 23 May 2003. The minutes of the Development Counsellors’ meetings are attached in annex 3.

2. Indicative Budget During the period covered by the National Indicative Programme, from 2002 to 2004, a total EC grant of €128 M (initially 101 M) can be committed to support the total budget for EC- Vietnam co-operation activities. The following is the breakdown of this aggregated grant amount (more details in annex 1): 2.1 Focal point 1: Vietnam's human development €60 M Action 1: Integrated rural development and natural resources management € 20 M Action 2: Support to Rural Health in the Northern Uplands and Central Highlands €18 M Action 3: Support for improved sector management of education and training (initially: Support to the Ministry of Education and Training) €12 M Action 4: Vocational Training €10 M

5 2.2 Focal point 2: Vietnam's integration into the international economy €46 M Action 1: Public administration, institutional reform, and good governance €30 M Action 2: Support to the private sector €10 M Action 3: Integration into global and regional economic arrangements €6 M 2.3 Cross-sector support: €22 M Action 1: Support for the Poverty Reduction Support Credit: €20 M Action 2: Small Project Facility €2 M Total: €128 M

3. Priority: Improvement of Vietnam's human development (Focal Point 1) 3.1 Strategy Context/Justification 3.1.1 Integrated rural development and natural resources management Activities under this focal point aim to reduce poverty in some of the poorest provinces in Vietnam. While Vietnam is a developing country with high levels of poverty in large areas of the country, provinces in the region of the Northern Uplands, as illustrated in annex 2 to the EC-Vietnam Country Strategy paper, have a very high concentration of ethnic minorities, are among the poorest in Vietnam and have the lowest percentage of population with access to clean water, sanitation, electricity, basic education and health in the country. Support under this Focal Point will also build on the experience of the 1996-2000 EC- Vietnam Co-operation Programme and therefore, it will continue to concentrate on integrated development and natural resource management in the disadvantaged and remote provinces of the Northern Uplands, providing assistance to the poorest members of society. More specifically under this priority, the EC wishes to support sustainable forest management and the conservation of biodiversity to improve the livelihoods of people in forest dependent areas, leading to the enhanced contribution of a reformed forestry sector to the national economy. The EU emphasises of importance of co-ordinated forest sector support around national forest programmes (NFPs). Coordination between the European Commission and EU Member States (at Headquarters and capitals level) has led to the design of a global multi-donor initiative to provide small-grant support to the establishment and implementation of NFPs in developing countries. This initiative, known as the Nation Forest Programme Facility, is funded by the European Commission, Sweden, Netherlands, Finland, France and Norway and hosted by the FAO. Germany provides contributions in-kind through country programmes, and the UK provided finance during the design phase of the initiative. The European Commission funding for the global initiative is provided from the horizontal budget line for tropical forests. There is strong EU interest in replicating this co-operation at country level, through co-ordinated EU support to a Multi-Donor Trust Fund in the forestry sector. In Vietnam such a Multi-donor Trust Fund is under preparation with incremental support from EU Member States (notably Netherlands). The EC will explore the possibility of contributing to this Trust Fund, also building on its support for, and experience in, reforms

6 in land-use planning, state-owned forest enterprises, and in the transition towards a market economy. It is anticipated that the trust fund initiative in Vietnam shall, over time, also prepare the ground for a sector programme in this field. Through its work in rural development in the Northern Uplands and in the province of Nghe An (Social Forestry and Nature Conservation project), as well as through the EC-financed, UNDP-implemented, regional Small Grants Programme to Promote Tropical Forests (financed from the global thematic budget-line for tropical forests), the European Commission is a major player in the forestry sector in Vietnam, and is – via its Delegation in Hanoi - active in the Forest Sector Support Partnership. The Trust Fund is to be managed by the Government of Vietnam (Ministry of Agriculture and Rural Development), with possible technical assistance (provided by an EU donor, e.g. possibly Germany) to support the management of the Trust Fund. The Trust Fund will provide grants for initiatives in the forestry sector and open a sector support window, giving support to initiatives that can provide institutional strengthening and carry out work to prepare the ground for a sector approach. It is anticipated that the sector support window will gradually expand with progress against policy-related benchmarks. Definition of target Human Development Indicators (2) will be made in the early stages of project-programme design so as to define its components with maximum efficacy and facilitate implementation and impact monitoring. The lessons learned from the ongoing EC-funded projects in the Northern Provinces - Cao Bang/Bac Can Rural Development Project and Son La/Lai Chau Rural Development Project - will be applied in the preparation of new actions, and consolidation of achievements will be sought. Effective integration of conservation and development, based on the experience of the project ‘Social Forestry and Nature Conservation Project in Nghe An Province’ will be replicated where appropriate. Support to the decentralisation process will be given through training and capacity building at local level. Sustainability will be ensured, by using a participatory approach to ensure better informed interventions and greater ownership of project initiatives by the beneficiaries. Environmental protection, gender and ethnic minority issues will be common cross-cutting concerns for all co-operation activities. Attention will also be paid to increasing non-farm employment in the rural areas, to supporting the establishment and development of household enterprises, and to encouraging and facilitating the involvement of the private sector, both in infrastructure works and the provision of services and supplies. In order to define the specific EC intervention appropriate account will be taken of other government funded or donors ongoing or planned interventions in the region, such as government poorest communes programme or WB led Northern Mountains poverty reduction programme. 3.1.2 Support to Rural Health in the Northern Uplands and Central Highlands Increased access to and improved availability of quality health services to enhance the well- being of the poorest in these targeted provinces is an identified need that will be further

(2) For example, it could target on a general level and according to the availability of information in the provinces: income; agricultural product diversification; unemployment rate; clean water access; irrigated land; forest coverage; births attended by skilled personnel; under-five mortality rate; underweight children; enrolment in primary education; until 5th year schooling, ratio of girls to boys in primary.

7 explored for possible EC assistance. This will be in support of and in the framework of the Government-led decentralisation process. The EC support will also be designed to enhance the policy development capacity of the Ministry of Health, especially with regard to health financing. Other areas such as pharmaceuticals can be explored. The experience of the two major EC-funded health sector projects in the fields of Malaria and particularly Health Systems Development, will also be assessed, as will those initiatives supported by other donors. 3.1.3 Support to the Ministry of Education and Training; Vocational Training While Vietnam achieves good results in terms of scholarisation, the quality of education around the country is extremely mixed. The Ministry of Education and Training lacks the capacity to upgrade standards and the quality of education delivered. Curriculum planning and teacher training are weak. As Vietnam’s economy develops and as new industries are established, the need for skilled labour becomes more acute. As people migrate from the country to the cities and as State Owned Enterprises are rationalised, more and more people will come onto the labour market and they will require skills in order to find employment. Increased access to, and enhanced quality of, vocational training are required. The results of the project “Support for the Ministry of Education and Training” (which was designed to test alternative methodologies for the improvement of primary education) will be fully evaluated and taken into account, together with the actions of other donors. Also, the preparatory work for possible support for a Labour Market Observatory and subsequent re-orientation resulting from the other donors interventions, particularly the ADB, will be fully taken into account in the design of specific EC support to vocational training. EC interventions in the sector of education will take properly into account the government's education strategy 2010 and the Ministry of Education and Training plan to achieve education for all. 3.2 Action: Integrated Rural Development and natural resources management 3.2.1 Objectives (3) General • The objective is to assist and improve Human Development in the provinces of the Northern Uplands. EC intervention will take into account its impact on the provinces' HD indicators. The EC contributions will aim to consolidate and expand the achievements of the EC-supported rural development and integrated conservation and development projects in the mountainous areas in northern Vietnam, in order to improve their prospects for sustainable development and economic prosperity. • Sustainable poverty alleviation in the poorest provinces of the Northern Uplands which have a high proportion of ethnic minorities. • The sustainable management of forests and the conservation of biodiversity to achieve: a) protection of the environment, b) improved livelihoods of people in forest dependent areas, and c) enhanced contribution of a reformed forestry sector to the national economy.

(3) see CSP, first bullet point in 5.2.1

8

Specific • Significantly improved income of the poor in the target areas, particularly among ethnic minority people living in the most remote areas; • reinforced grass-roots democracy; • enhanced institutional capacity at provincial, district, and communal levels; • increased environmental protection and sustainable use of natural resources; • Closer alignment of ODA support with priorities agreed in the Forestry Sector Support Partnership framework; • Improved poverty focus of ODA support to the forest sector, consistent with the CPRGS; • Harmonised support to the forestry sector at reduced transaction costs for the GoVN; • Advancements in the preparations for an eventual sector approach in the forest sector; • Promotion of the EU Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT); • Capacities of central government and provincial administration, notably the Ministry of Agriculture and Rural Development, strengthened to enable the implementation of support towards rural development through a sector approach. Special attention shall be paid to the most vulnerable groups. 3.2.2 Expected Results • Enhanced management capacities at the local levels to achieve poverty reduction and efficiently implement the Comprehensive Poverty Reduction and Growth Strategy; • Reduced levels of poverty and of deprivation. This will be measured according to appropriate indicators, in agreement with relevant human development indicators; • A sustainable leading role for local communities as the driving force behind poverty alleviation and socio-economic development; • Increased institutional capacity and improved co-ordination between central and local government agencies; • Sustainability of interventions initiated and carried out by these co-operation actions; • The internalisation of successful rural development models/practices drawn from EC- supported rural development and integrated conservation and development co-operation actions by the GoVN, local authorities and rural development stakeholders. This should enable the beneficiaries to replicate those models in similar circumstances in the same or neighbouring areas, either on their own or with other donors; • More sustainable use of natural resources; • Improved pro-poor and forest land management, at policy and implementation level; • Increased donor harmonisation and co-ordination; • Progress in the Implementation of the Forest Sector Support Programme framework and the national Forest Development Strategy at provincial and local level; • Increased capacity of the Government of Vietnam to further develop the necessary strategies and capacities to head towards a sector approach at both the central and provincial level; • Agreed mechanism in place for delivery of forestry sector support and possibly rural development at large.

9 3.2.3 Activities • Consolidate support already provided by EC rural development and integrated conservation and development co-operation projects, including, among others, rural infrastructure - such as market access roads, clean water supply, irrigation-, agriculture, forestry, environmental protection and disaster mitigation. • Rural development, but may include financing for technical assistance (e.g. for the development of participatory land-use planning), small-scale infrastructure, agricultural inputs. • Development of benchmarks against which sector support contributions will be made in the framework of the Forestry Sector Support Partnership (FSSP); efficient delivery of support for FSSP implementation (e.g. project support through grants from the trust fund, capacity building of GoVN entities involved in the Trust Fund management etc.). • Activities shall be defined for the support to the Ministry of Agriculture and Rural Development, but will probably include financing for technical assistance and other support, as defined in close cooperation with other donors actively involved in preparation for a move to a sector approach in rural development. 3.2.4 Implementation • The consolidation of rural development will be prepared in time for the completion of the ongoing projects in the region, which takes into account the absorption capacity of Vietnamese partners. The implementation modalities of these interventions, which will be defined during the formulation stage, could take account of the following main principles: - Fitting within the principles of Government-donor partnerships in the areas of poverty reduction, forestry etc; - Decentralised management; - Best use of local human resources, in particular those that have been developed during the implementation of EC projects; - Maximum involvement of civil society. • Implementation will be done through a Trust Fund established by interested donors and administered by the Ministry of Agriculture and Rural Development (MARD), with technical support from an EU Member State (probably Germany) before administration passes to entirely the FSSP Co-ordinating Office. 3.2.5 Cross-cutting issues • These will include poverty reduction (overarching goal), gender (ensuring full participation of women in activities supported/ensuring granting of land-use titles to man and wife), environment (sustainable natural resource management/proposals to be screened for environmental aspects), governance/ institutional reform (improved institutional capacity at the local level, enhanced grass-roots democracy, capacity building in forest management and reform of the state forest enterprises). • The support for rural development will maximise potential for linkages with initiatives in the health and education fields (NIP 2002 – 2004 and NIP 2005 – 2006).

10

3.2.6 Risks and Assumptions • The field-level activities will strongly depend on the political will of the concerned local authorities to support programme activities; • Weak institutional and human capacity (e.g. in provinces/ remote areas, at the FSSP Co- ordinating Office of MARD) may hamper implementation; • Fiduciary risk in terms of the transparency of budget execution/ in terms of Trust Fund Management; • Difficulty of agreeing on modalities of Trust Fund management with donor partners; • Vested interests of public officials in illegal logging/cross-border trade of illegally logged timber; • Willingness of Government of Vietnam to engage in full policy dialogue for programme preparation and to move to sector approach strategies. 3.2.7 Performance/Outcome Indicators Output indicators: to be defined. • Outcome indicators (all from Comprehensive Poverty Reduction and Growth Strategy) may include: average income (disaggregated among ethnic groups), percentage of people receiving support in production services, forest coverage, percentage of special use forest area to be preserved, percentage of ethnic minority people with land-use right titles for all forms of land-use, percentage of land-use titles granted to both husband and wife, percentage of communes with staff to monitor the poverty reduction strategy. • In the forestry sector support outcome indicators may include: forest coverage, quality of forest cover, conservation of special use forest area, better forest utilisation, institutional reform of state forest enterprises, bio-diversity of conserved forest areas, active engagement of provincial authorities, the extent to which FSSP has been replaced with a fully government-driven sector approach. 3.2.8 Financial Envelope €20 M 3.2.9 Co-ordination with Member States • Preparation and implementation of support to Ministry or Agriculture and Rural Development to launch the groundwork for a sector approach to be carried out in collaboration with at least one Member State. • The design and establishment of the Trust Fund has been facilitated by the Netherlands, in collaboration with Germany, Finland, and Sweden. Switzerland, as well as the EC, through its Delegation in Hanoi, have also been also involved. Assistance to MARD for the management of the Trust Fund for a transitional phase is likely to be provided by an EU Member State, probably Germany. 3.2.10 Indicative timeframe • The component on consolidation of rural development could be launched in 2004, upon completion of the ongoing rural development co-operation activities. • The Forestry Trust Fund is likely to start its transition phase in 2004. EC should join in 2005. The transitional phase is scheduled to end in 2006, with the full implementation of

11 the Trust fund running from 2007 to 2010, when it is planned that the Trust Fund will be replenished annually. 3.3 Support to Rural Health in the Northern Uplands and Central Highlands Support for the health sector in the Northern Uplands is foreseen in the chapter 3.2 of the original NIP 2002-2004 document (Integrated Rural Development in the Northern Uplands). 3.3.1 Strategy context/justification The €8 M now not allocated to education (see hereafter 3.4) will be used for support to the health sector in the Central Highlands, and a combined initiative focussing on both the Central Highlands and Northern Uplands prepared in the framework of the NIP 2002- 2004. There are considerable needs in terms of poverty reduction in the Central Highlands. Pre-identification work has indicated that the health sector, particularly in remote areas, should be targeted. It is feasible to combine support to the health sector in the Central Highlands with support under preparation (in the framework of the original NIP 2002-2004) for health in the Northern Uplands. The new activity will have an indicative budget of €18 M, of which €8 M is earmarked for the Central Highlands, subject to the results of identification and appraisal work. 3.3.2 Objectives General: Support to the Government of Vietnam and especially the Ministry of Health in improving the health status of the poor. Specific: -Enhancing access to, and availability of, quality health care services especially for the poor in the selected northern and central provinces. This will be in support of, and in the framework of, the Government-led decentralisation process. -Enhancing/supporting the policy development capacity of the Ministry of Health, especially with regards to health financing. Other areas such as pharmaceuticals can be explored. 3.3.3 Expected Results -Improved quality of health services. -Improved accessibility to health services for the poor sections of the population. -Improved policy making capacity with key tools developed and implemented for the sector. 3.3.4 Activities -Technical assistance to support policy development and implementation in specific areas to be determined during the appraisal of the programme which measure?), and to support the development of tools for the management of the sector and their implementation; -Capacity building activities at decentralised level in the targeted provinces; -Provision of small-scale medical equipment and small rehabilitation of infrastructure. 3.3.5 Implementation The project will be implemented by the Ministry of Health, with the support of TA and of the European Commission. 3.3.6 Cross-cutting issues Cross-cutting issues include gender equality, poverty reduction, governance and HIV/AIDS.

12 3.3.7 Risks and conditions -Government health policy to focus on health quality and accessibility and to promote the disadvantaged groups must remain firm and consistent; -Main Government stakeholders continue to support the decentralisation policy; -Implementation in disadvantaged areas can be hampered by: o Low absorption capacity; o Weak institutional capacity. 3.3.8 Main indicators Process and output SMART indicators will be defined during the appraisal of the measure. They will refer to: - the accessibility of appropriate health services by the poor; - the quality of health services; - the enhancement of policy making capacities; - HIV/AIDS. Outcome indicators related to the Millennium Development Goals for this measure are likely to include: -under-five mortality rate; -percentage of births attended by skilled health personnel. 3.3.9 Estimated EC contribution €18 M 3.3.10 Co-ordination with Member States The project will support the sector reform process and pave the way towards a multi-donor supported sector programme or sector approach at a later stage. As a first step towards this, the project is to be designed and implemented in close co-ordination with Belgium, which has a similar project planned for the province of Hoa Binh. Sharing of expertise and experience will be assured and the Belgian and EC projects will work closely together on, inter alia, institutional strengthening at the central level. Possibilities of working closely with Sweden, as well as with the Asian Development Bank, in the Central Highlands are being explored. Health is a target sector in the framework of the EU Action Plan for Co- ordination and Harmonisation in Vietnam. 3.3.11 Indicative timeframe Further identification work and appraisal are to take place in early 2004, with financial commitment to be made before the end of the year. 3.4 Support for improved sector management of education and training 3.4.1 Strategy context/ justification:

In the original NIP 2002 – 2004 an indicative budget of €20 M has been earmarked for support to the Ministry of Education and Training (MoET). It had been planned to explore the possibility of providing support to the Government of Vietnam in the framework of a sector approach. However, the EC, sharing the views of other donors, concluded in the CSP mid-term review that more progress was necessary in the area of institutional reform to

13 accommodate a sector approach. However, progress has been slower than expected, meaning that EC assistance could not be financed through full budgetary support during the life time of NIP 2002 - 2004. In 2003, the Government of Vietnam adopted the national Education for All plan in 2003 to advance towards meeting the Millennium Development Goals in the education sector. In the same year, an “education sector partnership” was launched as an informal coordination forum of interested donors and the Government of Vietnam. In light of these achievements, it was agreed that €12 M (instead of the original €20 M allocation) will be spent on groundwork for a sector approach through the provision of technical assistance at central and provincial levels aimed at capacity building and the development and implementation of management and planning tools.

A sector approach that would be financed through budgetary support is expected to become feasible under the NIP 2005-2006. The characteristics of the intervention are now foreseen as follows: 3.4.2 Objectives (4) The overall objective of the action is to enhance the quality and efficiency of the educational delivery process in Vietnam so that its children have access to higher quality schooling that will prepare them for a role in the country’s rapidly modernising and industrialising economy. The specific objective is to facilitate the move towards sector based management of basic education in key areas through support primarily to the Ministry of Education of Training (MoET) at central and decentralised levels, but also to the Ministry of Finance (MoF) and the Ministry of Planning and Investment (MPI). The areas identified will build on the strengths of the current EC supported project “Support to the Ministry of Education and Training” (SMoET), which has an EC contribution of €7.6 M, and will focus on institutional strengthening and capacity building. In line with the decentralisation process, a principal focus will be on measures to support and strengthen the capacities available to implement sector-based management of education and training at the provincial, district and school levels. 3.4.3 Expected Results -Better planning, organisational and management capacity within the Ministry of Education and Training, provincial education departments, districts and schools. -Greater flexibility and cost efficiency in the delivery of educational services. -Improved and streamlined working relationships in support of educational activities between the Ministries of Education and Training, Ministry of Finance and the Ministry of Planning and Investment. -The further development of the necessary strategies and capacities to head towards a sector approach, and funding through budgetary support. 3.4.4 Activities Subject to appraisal work, the main activities/components may include:

(4) see CSP, first and third indents in second bullet point, in 5.2.1

14 -Technical assistance to support education sector management and planning capacity. -Capacity building and institutional strengthening to be implemented both nationally as well as, and especially, at the provincial and district levels. -Technical assistance to support preparations for targeted budgetary support for basic education (see NIP 2005-2006). -Support for the development, strengthening and implementation of systems and software of the existing information management systems down to school level. -Technical support to the linkages between MoET, MPI and MoF in relation to budgetary and investment measures to the sector. -A limited support for the purchase of equipment and upgrading of infrastructure. This proposed project builds on the institutional objectives of the current EC project SMoET, which aim to strengthen the institutional capacity of the MoET in terms of policy setting and policy implementation within the sector renovation context, set by the Education Law and related sector policy decisions. 3.4.5 Implementation To be implemented by the MoET at central and decentralised levels, with technical and financial support from the European Commission and possibly other donors involved in the education sector through the Education Sector Working Group. 3.4.6 Cross-cutting issues Cross-cutting areas supporting the measures and identified as priorities include support for gender equality, and governance (capacity building in education planning and management, particularly at the provincial/local level). A further cross-cutting area will focus on the support through education and training for reintegration of disabled persons into the community. 3.4.7 Risks and Assumptions -Government’s education policy to focus on education quality and to promote the disadvantaged groups must remain firm and consistent. -Main Government stakeholders continue to support the decentralisation policy. -The Government (MoF) is willing to be transparent in their method of public financial management. -The different ministries involved (MoET, MoF, MPI) are prepared to work closely together towards sector based management of education. 3.4.8 Main Indicators -Repetition rates decreased, primary education completion rates increased, FSQL (Fundamental School Quality Level) raised. -Gap between education plan targets and implementation is significantly reduced. -The inter-departmental co-operation of MoET and with the Provincial Government and other concerned stakeholders (MoF, MPI and donors) is improved. 3.4.9 Estimated EC contribution €12 M

15 3.4.10 Co-ordination with Member States The implementation of the project will be overseen not only by the partner ministries and the European Commission, but also by a committee of donors involved in the education sector and in the Education Sector Working Group, all of which have an interest in institutional strengthening particularly in preparation for a sector approach and budgetary support. EU Member States involved are UK, France, and Belgium. Education is a target sector in the framework of the EU Action Plan for Co-ordination and Harmonisation in Vietnam. 3.4.11 Indicative timeframe Appraisal is to take place during early 2004, with financial commitment to be made before the end of the year. 3.5 Vocational Training 3.5.1 Objectives (5) The objective of this action is to enhance the quality and availability of vocational training in Vietnam so that its young adults have access to training that will prepare them for a role in the country’s rapidly modernising and industrialising economy. The action aims at three different possible areas of support: - Labour Market Observatory. Assisting current efforts to better identify vocational training needs at national level; - National policy. Providing advice on policy at national level to translate identified needs into adequate training curricula and delivery systems; - Pilot scheme to assist policy implementation. A limited number of vocational training centres (not only in the major cities, but also in smaller towns) could be targeted for a pilot scheme in assisting implementation of curricula development and feeding back to the national policy for possible adjustment. 3.5.2 Expected Results The Action is expected to result in the following: • Better quality of training delivered; • New areas of vocational training delivered in different parts of Vietnam; • Increased numbers of young people trained to carry out technical jobs in the growing number of Vietnamese and foreign-owned companies that are operating in sectors of industry that may be new to Vietnam; • Reduced levels of unemployment, particularly as the reduction in the size and numbers of State-owned companies and the migration of people to cities puts more people onto the job market. 3.5.3 Activities Support for the setting up and/or strengthening of institutions to deliver vocational training, including apprenticeships, at a post-school (but lower than university) level. The specific

(5) see CSP, second indent in second bullet point, in 5.2.1

16 type of training needed will be reviewed during preparation of the EC support, in the light of the experience gained during the preparation of the Labour Market Observatory project proposed at an earlier stage. 3.5.4 Implementation The implementation modalities of the interventions will be defined during the formulation stage. Implementation modalities could take account of the following main principles: • Fitting within the principles of Government-donor partnerships in the area of vocational training; • Decentralised management; • Best use of local human resources, in particular those that have been developed during the implementation of EC co-operation actions; • Maximum involvement of civil society, in particular, of the private sector. 3.5.5 Risks and Assumptions The success of the action will depend on the willingness and absorption capacity of partner ministries and other organisations. 3.5.6 Performance/Outcome Indicators Performance and outcome indicators will be defined at the formulation stage. 3.5.7 Financial Envelope The EC grant is estimated to be €10 M to be committed in 2002. 3.5.8 Indicative timeframe The intervention should begin in 2002 with a duration of 4 years. 4. Priority: Facilitate Vietnam's integration into the international economy (Focal point 2) 4. 1 STRATEGIC CONTEXT /JUSTIFICATION A variety of structural problems impede Vietnam from successfully achieving sustainable economic growth and interacting with the global community. The CSP has identified potential areas to target for supporting Vietnam's socio-economic reform process that needs to be accelerated: human development; policy-making and implementation; promotion of the private sector; alleviation of the social consequences of reform; good governance and best administrative practices. In this context, key priorities include: (a) the establishment of a transparent, effective and efficient public administration and institutions, (b) the creation of a fair and efficient business environment, including the promotion of competition and strengthening of the private sector, and (c) enhanced commercial exchanges with the international community. Assisting Vietnam adapt its economy to the external environment with the immediate challenges of accessing WTO and the ASEAN Free Trade Area deadline, as well as the opportunities offered by the free trade agreement between ASEAN and China, have been identified in the CSP as areas for EC co-operation. The Commission has in the past

17 contributed to a number of initiatives supporting Vietnam’s efforts to restructure its economy and to integrate in the regional and global economy. These include the European Technical Assistance Programme for Transition to a Market Economy (Euro-TAP-Viet), the Small and Medium Enterprise Development Fund (SMEDF) and the Multilateral Trade Policy Assistance Programme (MUTRAP). Future support will build on these experiences. 4.2 Action: Public administration, institutional reform and good governance 4.2.1 Objectives (6) The general objective is to support Vietnam in its efforts to allow a properly functioning market economy and to create fair conditions for a transparent, predictable, and competitive investment and business environment by establishing a transparent, effective and efficient public administration and institutions. Also, interventions under this action will aim to assist the government of Vietnam to alleviate the social consequences of reform. 4.2.2 Expected results Focusing on areas considered as bottlenecks that constrain progress in reform, this action is expected to result in a more transparent, effective and efficient public administration. Specific policy, legislation, regulation or administrative instructions will be identified during the preparatory stage for each of the activities described below. 4.2.3 Activities: Activities covered by this action aim to respond to the various potential areas described in point 4.1 and could tentatively include (non-exhaustive list): - taxation; - customs; - statistics, companies registration, country information systems; - accounting and auditing; - standards and quality assurance (particularly sanitary and phytosanitary) - intellectual property rights; - agricultural policy advice; - telecommunications; - banking; - corporate governance; - foreign investment; - management training; - urban and environmental planning; - street children integration; Detailed activities and the selection of sectors would be subject to further review and priority screening during the formulation phase. Specific assistance under this action could aim not only at public sector administration, but also private sector economic entities, such as associations, chambers of commerce and leading companies on a pilot basis. The assistance could take one of the two following approaches:

(6) see CSP, first bullet point, in 5.2.2. Promotion of the private sector is dealt in another EC action of present NIP.

18 • Policy advice and institutional support. Technical assistance including inter alia for preparation of legislation and regulations to be provided at both central and local levels. • Capacity building and training. To support reforms and to ensure smooth implementation of new policies and regulations, assistance could be provided for skills upgrading, through, for example, training, seminars and workshops aiming to the producing, processing or receiving organisations of the policies. 4.2.4 Implementation: The modalities of implementation of the action will be defined during the formulation phase. Some of the potential activities are in an advanced stage of definition and could be ready for launching in 2002. In particular co-operation in assisting the transition to market economy (7): - by assisting in policy making and implementing enhancement of quality and reliability of Vietnamese products and services, supporting co-operation in "standards, quality assurance and conformity assessment", including in the phytosanitary and environmental fields, and facilitating the transfer of technology by assisting to strengthen the "intellectual property rights" protection. Tentatively €2.5 M and €1.5 M respectively; - by contributing to alleviate the social consequences of reform, including the massive transfer of population from rural areas to urban centres, by supporting "urban environmental planning" and assisting integration of "street children". Tentatively €10 M and 1 M respectively. Remaining potential co-operation activities will take into account experience learned from the Euro-TAP-Viet programme and the identification mission completed in view of the preparation of the second phase of Euro-TAP-Viet project, as well as new needs stemming from the government reform programme. The activities will be defined during 2002 and commitments should take place in 2002 and 2003. Therefore, given the variety and importance of this action for Vietnam's reform process, maximum flexibility will be adopted for the launching and implementation of the activities described in point 4.2.3 above. 4.2.5 Risks and Conditionalities The most important risk is lack of political will in the Government and lack of ownership of the reform process among counterpart agencies. 4.2.6 Performance/Outcome Indicators Detailed performance indicators will be defined during the formulation phase. However, the following tentative indicators are foreseen: • legislation and policies drafted with EC-support are adopted by the Government • capacity in selected ministries, agencies and institutions increased

(7) see indents in first bullet point in 5.2.2 of CSP

19 4.2.7 Financial Envelope The total EC grant is estimated at €30 M. About €22 M should be committed in 2002 for activities already identified (urban environmental planning, assistance to street children and Euro-TAP-Viet follow-up/support to government reform) and the remaining €8 M could be committed in 2003. 4.2.8 Indicative Timeframe The proposed duration of activities under this action is 4 years starting in 2002. The budgetary commitment would take place in 2002 by different stages, according to the readiness of the activities proposed. 4.3 Action: Support to the Private Sector 4.3.1 Objectives (8) The objective of this Action would be to help create a dynamic private sector in Vietnam, contributing to develop employment and sustainable small and medium size enterprises. 4.3.2 Expected results The establishment, consolidation and internationalisation of small and medium sized companies. 4.3.3 Activities Detailed activities would be subject to further review and priority screening during the formulation phase, but are likely to focus on the creation and development of SMEs aiming to increase their productivity and competitiveness, through the provision of: - an extension of the financing facility (SMEDF) aiming to strengthen the capacity of the relevant lending institutions by enhancing their ability to assess risks related to projects presented by SMEs and reducing the practice of asking for excessive collateral and / or a risk premium. This specific intervention would facilitate access to existing SMEDF lending facility by SMEs; - other financial support to SMEs to be further examined, such as guarantees; - technical assistance to improve performance in for example marketing and quality assurance, access to business co-operation opportunities with economic operators outside Vietnam; - accompanying services for innovative start-ups to ensure their feasibility ; - assistance in the development of chambers of commerce and trade/industrial associations, promoting access to EU regulatory industrial and environmental requirements; - assistance to reform of a selected group of State Owned Enterprises. 4.3.4 Implementation The detailed implementation arrangements for the programme will be defined during the formulation stage.

(8) see CSP, "promotion of the private sector" indent in first bullet point, in 5.2.2

20 Some of the potential activities are in an advanced stage of definition. In particular the institutional strengthening of SMEDF should be ready for launching in 2002. Other possible activities will be defined in 2002-2003. 4.3.5 Risks and Conditionalities The activities foreseen under this Action are highly dependent on the progress made in legal and policy reform and the political will of the Government to develop a fair and competitive market economy. 4.3.6 Performance/Outcome Indicators The main performance indicator for this Action will be the creation of a dynamic and competitive private sector. 4.3.7 Financial Envelope The EC Grant is estimated at a total of €10 M. A budgetary commitment of €1 M could take place in 2002 for the first activity described under 4.3.3 (SMEDF extension). The rest of the activities could be committed in 2003. 4.3.8 Indicative Timeframe The initially proposed duration of the programme is 4 years starting in 2002. 4.4 Action: Integration into international and regional economic structures 4.4.1 Objectives (9) The objective of this Action is to support Vietnam in its efforts to integrate into the international trade and investment flows. 4.4.2 Expected results The action is expected to result in enhanced integration of Vietnam’s economy in the global community by: • early entry of Vietnam into the WTO, • appropriate adaptation of the regulatory framework to the conditions negotiated and its efficient implementation. 4.4.3 Activities Detailed activities would be subject to further review and priority screening during the formulation phase, but are likely to centre on policy and regulatory advice, judicial and commercial capability building and implementation. This would include assistance to the Government in areas relating to: - among others, implementation of the actions involved in Vietnam’s accession to multilateral trade agreements, in particular the World Trade Organisation (WTO); - implementation of Doha Development agenda; - in preparing its economy to adapt to the requirements of AFTA;

(9) see CSP, second bullet point, in 5.2.2

21 - in training conference interpreters, a specific need to assist Vietnamese representatives in conducting the necessary negotiations. 4.4.4 Implementation The detailed implementation arrangements for the programme will be defined during the formulation stage. The opportunity to implement part of the activities through a small project facility to facilitate quick reaction to identified needs will be explored. The training of conference interpreters activity is in an advanced stage of definition and could be ready for launching in 2002. The other possible activities to be defined in 2003 could be launched in 2004. 4.4.5 Risks and Conditionalities The activities foreseen under this Action are highly dependant on the progress made in the legal and policy reform and the political willingness of the Government to develop a fair and competitive market economy. 4.4.6 Performance/ Outcome Indicators The main performance indicator for this Action will be Vietnam’s early entry into the WTO. 4.4.7 Financial Envelope The EC Grant is estimated at a total of €6 M. €1 M should be committed in 2002 for the interpreters activity and the rest could be committed in 2004. 4.4.8 Indicative Timeframe The initially proposed duration of the programme is 4 years starting in 2002. 5. Cross Sector support 5.1 Action: Contribution to the Poverty Reduction Support Credit III 5.1.1 Strategy context/Justification An indicative €20 M is earmarked to provide budgetary support and technical assistance in the framework of the World Bank-led and multi-donor supported Poverty Reduction Support Credit. The PRSC covers three areas of reform: completion of the transition to a market economy, making development inclusive, and building modern governance. The PRSC is a performance-based, result-oriented instrument linked to the objectives of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS). The World Bank and other donors have already supported the reforms linked to the CPRGS within PRSC I in 2002 and PRSC II in 2003. Both operations have been fully and punctually implemented. The EC feels confident about entering the PRSC process in its third phase, following the adoption of the CPRGS by the Government of Vietnam in 2002 and the continuing implementation of CPRGS related policy and regulatory changes since then. Subject to the findings of diagnostic work, a satisfactory fiduciary risk assessment, and the results of identification/appraisal work, an indicative €15 M is to be contributed to the PRSC as budgetary support, while the remaining indicative €5 M will finance accompanying technical assistance in the context of the reform of the public financial management (by strengthening, for example, the State Audit of Vietnam and/or the State Bank of Vietnam).

22 EC support to the PRSC III is of great political and strategic importance. However, it is inappropriate to divert initially programmed NIP funds from other earmarked activities, given in particular the commitment the Commission has made to the Government of Vietnam regarding the provisions of the NIP 2002-2004 and the fact that the preparation of almost other relevant activities is already at an advanced stage and coordinated with activities of other donors. The €20 M earmarked for PRSC III will hence come in addition to the funds originally earmarked for the NIP. The PRSC III has the following indicative characteristics: 5.1.2 Objectives General Progress in the implementation of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS). Specific - completing the transition to a market economy; - making development inclusive; - building modern governance; - strengthening financial management (through TA component). 5.1.3 Expected Results The results consist of prior actions defined by the donors in collaboration with the Government of Vietnam during the preparation of the PRSC, and building on experience gained during the implementation of PRSC I and II. Funds are disbursed when prior actions have been successfully carried out by the Government. There are likely to be around forty prior actions, in fields such as such as trade liberalisation, state-owned enterprise reform, financial-sector reform, private sector development, health, education, environmental sustainability, public administration/governance, public financial management, and anti- corruption measures. The EC will focus its attention on approximately four areas of interest, for which prior actions will be set, implementation monitored and their relation to the CSP and bilateral projects examined. For the PRSC III (to be supported within the framework of the revised NIP 2002-2004), the focal areas are likely to be financial reform, public finance management, private sector development and social development). Subject to the results of identification and preparation work, technical assistance will be provided to strengthen public financial management. This is likely to be through capacity building in the State Audit of Vietnam and/or the State Bank of Vietnam. 5.1.4 Activities -Establishing prior actions and monitoring performance. Funds are to be disbursed when prior actions are completed. -The provision of technical assistance. 5.1.5 Implementation -PRSC III funds will be paid to the World Bank and via the World Bank into the consolidated account of the GoVN at the State Bank of Vietnam. Funds are fully fungible.

23 -Accompanying institution strengthening for public financial management to be implemented by e.g. the State Audit/State Bank with technical assistance to be recruited by the European Commission. 5.1.6 Cross-cutting issues Gender, environment, governance, HIV/AIDS are all likely all to feature among the prior actions. 5.1.7 Risks and conditions -A loss of momentum in the reform process, and resistance from vested interests, could entail a risk of slippage, especially in the area of public sector reform. -The reform costs could be higher than estimated if the resolution of non-performing loans proceeds at a slower pace, or if policy lending by the Government goes into unviable projects. -Fiduciary risk and a failure to ensure that adequate progress is made with budget transparency could defeat the attempt to build modern governance. -Lack of progress in the resolution of misunderstandings related to foreign exchange resources of the State Bank of Vietnam (= Central Bank) may result in the suspension of the Poverty Reduction and Growth Facility (PRGF) by the IMF. 5.1.8 Main indicators Monitoring indicators will be linked to the advancement in the reforms agenda. Teey will be discussed with the government and all donors participating in the operation and will be aligned to the Comprehensive Poverty Reduction and Growth Strategy.

5.1.9 Estimated EC contribution €20 M (an estimated €15 M contribution as budgetary support to the PRSC and estimated €5 M for technical assistance). 5.1.10 Co-ordination with Member States -Certain EU Member States (the Netherlands, UK, Sweden) have already supported PRSC I and or PRSC II. For PRSC III (to be supported by the EC in the framework of the revised NIP 2002-2004) Member States involved are likely to be the Netherlands, UK, Sweden and Denmark. Belgium has also indicated interest. -Work on public financial management reform will also be closely co-ordinated with EU Member States and other donors. Several Member States (e.g. Germany, UK, Netherlands) are already working in this field. 5.1.11 Indicative timeframe Preparations for PRSC III are beginning early in 2004, with a World Bank board decision foreseen for May 2004. EC funds should also be committed during 2004.

5.2 SMALL PROJECT FACILITY A detailed description of the operation is contained in the Financing Proposal submitted to the Member States for the ALA committee of 20 November 2003 and adopted by the European Commission on 15 December 2003.

24 A €2 M Small Project Facility (SPF) was added to the initiatives anticipated by the initial NIP 2002-2004. This is in line with the EC’s policy to establish SPFs in Asian partner countries, as a flexible tool enabling Delegations to finance small actions that are in keeping with the priorities of the CSP, particularly in the area of governance. The overall objective of this programme is to support the on-going reform process of Vietnam’s economy and systems of governance, as well as to facilitate Vietnam’s integration into the international economy. This is to be achieved, by promoting civil society dialogue and facilitating mutual understanding and interactions in the fields of governance and respect for the rule of law.

25 ANNEX 1 INDICATIVE ACTIVITIES TABLE

INDICATIVE BUDGET NIP 2002 – 2004 FOLLOWING THE REVISION

Action (NIP point) / Million euro in year 2002 2003 2004 TOTAL 1. Improvement of Vietnam’s human development 60 1.1 Integrated rural development and natural resources 20 20 management 1..2 Support to Rural Health in the Northern Uplands and 18 18 Central Highlands 1.3 Support to Ministry of Education & Training 12 12 1.4 Vocational Training 10 10 2. Facilitate Vietnam’s integration into the international 46.1 economy 2.1 Public administration, institutional reform & good 11 11 8 30 governance 2.2 Support to private sector 1 9 10 2.3 Integration into global economy and regional arrangements 1 5.1 6.1 3.3 Cross-sector support 22 3.1 Poverty Reduction Support Credit 20 20 3.2 Small Projects Facility 2 2 TOTAL 23 27.1 78 128.1

NIP 2002-2004 Initial indicative allocations Action (NIP point) / Million euro in year 2002 2003 2004 TOTAL 1. Improvement of Vietnam’s human development 55 1.1 Integrated development in Northern Uplands (rural 10 15 25 development and rural health) 1.2 Support to Ministry of Education & Training 20 20 1.3 Vocational Training 10 10 2. Facilitate Vietnam’s integration into the international 46 economy 2.1 Public administration, institutional reform & good 22 8 30 governance 2.2 Support to private sector 1 9 10 2.3 Integration into global economy and regional arrangements 1 3 2 6 TOTAL 34 50 17 101

26 ANNEX 2 BACKGROUND INFORMATION

1. Urban Environmental Planning co-operation. This project was first discussed at the EC-Vietnam Joint Commission meeting in 1998. An indicative amount of €10 M has been allocated to assist Vietnam to strengthen the municipal capacities in up to three provincial cities to address the environmental challenges of urban growth. It is hoped that the experience to be drawn from this project will be applied to urban environmental planning in other small and medium-sized cities in Vietnam. A preparation mission is to be launched in early 2002. Whilst the GoV is insisting that the programme mainly strengthen the institutional capacity at the central level to deal with urban growth (e.g. Ministry of Construction, Ministry of Science, Technology and Environment etc), it should be noted that most of the decisions involving environmental planning are in fact being taken at the municipal or regional level. In this context, it should also be noted that an EC- funded programme would need to take into account what several other donors (incl., among others, Denmark, Germany and France) are already supporting in this area. 2. Labour Market Observatory and Development of Human Resources An identification mission was carried out at the end of 2000 on the potential for an intervention and for supporting other actions designed to enhance Vietnam’s ability to face up to the labour market demands of a developing economy, such as vocational training. That study recommended allocating a budget of €10 M to finance the project. The sector is considered of crucial importance for Vietnam’s economy, and, consequently, characterised by a significant number of donors involved. The difficulty is not so much to justify an EC involvement in the sector as to clearly identify the scope for an intervention that will bring added value to the activities of other actors in the field. Of particular importance is an ADB- led initiative (around US$120 M), which contains i.a. also a labour market observatory component and support to several technical colleges. Given the involvement of other donors in this sector and rapid developments in the labour field, it was agreed at the EC-Vietnam Joint Commission meeting of November 2001 that Vietnamese and EC officials should meet to review requirements and to decide in principle what form the EC’s assistance in this area should take. In this context, it will be important to ensure that the two concerned Government authorities in this sector, MOLISA and MOET, are adequately involved in the intervention in a co-ordinated manner. In this context is should be noted that GTZ is currently engaged in an initiative to enhance the communication between these two ministries on this topic. 3. Small and Medium Sized Enterprise Development Fund - SMEDF extension Following the successful completion of the first phase of the project, which established lending facilities for SMEs making use of revolving funds established under the refugee assistance programme, an Identification Mission was fielded in 2001 to prepare a new intervention to consolidate and further develop these facilities. Based on the recommendations of the Identification Mission report, it was agreed at the EC-Vietnam Joint Commission meeting in November 2001 that further consultation would be needed between Vietnamese and Commission officials with regards to specific co-operation needs, with a view to launch this intervention as soon as possible during the first half of 2002. In this context, it should be noted that an amount of approximately €20 M is still available in the

27 existing revolving Fund that can be used during a follow-up phase. Since the operation of the fund generates revenues, and since these can be used to finance the fund’s management, new EC assistance could be limited to the provision of institutional support to better assess project risks and avoid excessive collateral demands on the SMEs, and could remain in the area of €1 M. It should also be noted that after project completion, the funds would have to be integrated (as equity) into the formal banking system in order to achieve sustainable ownership of the funds. A proposal has been made to have the Development Assistance Facility (DAF) as the implementing agency for a new intervention. The proposed €1 M EC contribution for institutional support could therefore be used to strengthen DAF as well as provide training in banking skills for staff of selected intermediary banks. 4. Training conference interpreters for Vietnamese Ministries A Financing Agreement was signed for this initiative in 2002. The European Community Interpreting Service (SCIC) is providing the necessary technical assistance and has a sub- delegation to manage the project. At the end of 2003, 17 interpreters and trainers from various ministries have been trained in the SCIC facilities in Brussels. 5. Euro-TAP-Viet Following successful completion of the Euro-TAP Viet project, which provided technical assistance for a number of key elements in Vietnam’s Economic Reform programme, an Identification Mission was fielded in 2000 to prepare a new co-operation action. However, changes that have occurred since that Identification Mission may have rendered some components irrelevant or in need of revision. It was agreed at the Joint Commission meeting in November 2001 that a new identification mission should be launched early in 2002 to make a clear assessment of Vietnamese needs in a range of horizontal fields. 6. Intellectual property project Whilst the Vietnamese side has urged that consideration be given to providing bi-lateral rather than regional assistance, the EC has indicated that it could, for example, be an advantage for Vietnam to implement a national Intellectual Property Rights (IPR) project within the framework of the regional IPR programme, in view of maximising national implementation and gaining regional co-ordination. The objective of this project would be to enhance investment and trade between the European Union and Vietnam by upgrading intellectual property protection in Vietnam in line with European Union standards and practices. The project would enhance the institutional capacity of the National Office for Industrial Property (NOIP), the Copyrights Office (COV) and other related authorities in Vietnam to adequately deal with matters relating to Intellectual Property Rights. The project would also increase the public awareness and knowledge about intellectual property, its rights and the consequence of infringement. The EC contribution is estimated at €1.5 M to be committed in 2002. 7. Support to the Ministry of Education and Training (SMoET) The overall objective of the project is to improve the effectiveness of the educational delivery process, with a specific attention to primary education. The specific objectives are to: strengthen the institutional capacity of MOET in terms of policy setting and policy implementation, education management, and improvement of pedagogic quality; - support an efficient management of the system; and improve pedagogical quality. It is anticipated that

28 the current project, due end in April 2004, will be extended till the end of 2004. Very promising results have been achieved particularly, for example in terms of the establishment of a nationwide Education Management Information System, and of the strengthening of management capacity in a range of fields. The proposed 9 month extension of the project is essentially to pursue completion of: (i) the installation of the nation-wide education sector management, personnel, financial and school management systems as well as (ii) capacity building, particularly at the provincial and district levels. This will include the installation of an educational management web-site which will link all Provinces. The extension will also help the MOET in modernising the country’s policy and tools for pupil achievement and examination as well as in implementing the new Education Law. By December 2004, these outputs are to develop the foundation that will then enable the MOET, with support from the anticipated SMOET II Project, to effectively introduce and change over to sector-based management of education, starting with a first targeted budget operation scheduled 2005.

8. Assistance to Street Children This project was first discussed at the EC-Vietnam Joint Commission Meeting in 1998. It was then decided that the revolved funds from the credit component of the RAP Project would be used to finance the activities of an intervention aimed at tackling the street children problem in Vietnam. A first identification mission took place in 2000, followed by a preparatory mission 2001. The main objective of the project would be to assist Ministry of Labour, Invalids and Social Affairs (MOLISA) to implement programmes related to disadvantaged street children. The project would be initiated in 2002 and the EC would finance the technical assistance with an approximate amount of €1 M. 9. Vietnam-Europe Centre for Economics and Management At the EC-Vietnam Joint Commission Meeting in 2001, the Vietnamese side renewed its request to the Commission for financial support for this institution. The EC responded that as the infrastructure elements of this request would fall outside the realm of economic co- operation, it recommended that a study be launched in early 2002 under the Bangkok based regional ASEAN-EU University Network Programme (AUNP) to assess potential support for the centre.

29 ANNEX 3: CONSULTATION OF EU MEMBER STATES ON NIP 2002 – 2004 REVISION

Minutes from the meeting among EU Development Counsellors on harmonisation and revision of the EC’s NIP 2002 - 2004 23 May 2003

Attendances: Pietro Sequi (Presidency-Italy), Marcus Leroy (Belgium); Philippe Orliange (France); Alan Johnson (United Kingdom); Andrew Jacobs, Francisco Fontan and Colette Seyler (European Commission)

Item 1: Harmonisation Issues

The meeting discussed the draft Action Plan and made a few changes to the text. Education was added to the target sectors for harmonisation and co-ordination. The modified text of the Action Plan was agreed.

It was agreed that a timetable needed to be drawn up for the Action Plan in order to make it effective. It was also agreed however that the Commission Delegation should send the agreed Action Plan to Commission Headquarters in Brussels for the information (and possibly endorsement) of the EU Directors General for Development. The EC would then begin work on a time-table to accompany the Action Plan, and seek the agreement of the MS.

It was agreed that it was important to make available human and financial capacity in the EU embassies and the EC Delegation in order to realise the goals of the co-ordination and harmonisation excessive.

The EC asked the meeting whether Trade should not rather be changed to Trade Related Technical Assistance. It was agreed that this would be too limiting.

Item 2: CSP and NIP

The EC informed the meeting that after considering an update of the Country Strategy Paper, the Commission had come to the conclusion that the changes proposed were not major enough to justify a revision. But the National Indicative Programme would need to be changed. In order to provide money for a new project in the Central Highlands the amount of €20 M originally foreseen for Education would be reduced to €12 M, so that €8 M would be available. It was apparent that a Sector-wide Approach in education was not yet feasible, and so the EC would in principle earmark substantial funds for this in the NIP 2005/2006, while a new project in education would help to do the groundwork necessary for a SWAp. Furthermore a new programme (Small Project Facility - SPF) was foreseen that would need €3.5 M, money that would be taken from the amount foreseen for rural development in the Northern Uplands, reducing that money available from €15 M to € 11.5 M. The MS accepted the proposed changes to the NIP.

30 UK suggested that some money could be foreseen to address the activities foreseen in the harmonisation action plan. The EC responded that most planned EC interventions were already in the areas foreseen in the Harmonisation Action Plan and that for example necessary studies on harmonisation would not be considered by Brussels as qualifying for development money, but that the necessary fund could be made available elsewhere. BE expressed its concern with SPF as it can be very much on an ad-hoc basis and serving rather the public relations of an embassy than the long-term benefit of the country. The EC informed that the proposal would have to be within the scope of the CSP and NIP, that the Delegation would do a yearly planning with clearly defined areas and call for proposals. BE proposed that in the upcoming and possible joint BE-EC project on health, part of the budget (10 to 20 %) could be set aside for more flexible ad-hoc initiatives.

Item 3: Any Other Business The UK informed that the Cost Norms had been discussed at the Like Minded group and that they would welcome an update and a broader agreement in order to make them more binding and try to find a way to build them also into consultancy contracts. The EC informed that meeting that it was working on the update of the norms and that it will send a new proposal around soon. BE suggest that also other donors should be able to comment on the norms. Concerning the Blue Book, IT informed that it was trying hard to get it finalised in time for the Sapa meeting. The quotations received for the printing seemed quite reasonable. The common text should be produced shortly.

31

THE NATIONAL INDICATIVE PROGRAMME

2005-2006

VIETNAM

Country/Region: Vietnam

Budget Years: 2005-2006

Budget Lines: 1910

Legal Base: ALA Regulation (Council Regulation (EEC) 443/92 of 25/02/1992)

Cost of Order: NIP 2005 – 2006: € 34 million

Programming Service: DG Relex H5

Head of Unit: Pierre Amilhat

Co-ordinator: Renate Hahlen

1

Table of Contents ABBREVIATIONS ...... 3

1. PREAMBLE ...... 4 1.1 INTRODUCTION...... 4 1.1.1 THE ALA REGULATION ...... 4 1.1.2 THE COUNTRY STRATEGY PAPER (CSP) 2002 - 2006 ...... 4 1.1.3 EC-VIETNAM REGIONAL COOPERATION AND SUPPORT THROUGH THEMATIC BUDGET LINES ...... 4 1.1.4 THE POLICY FRAMEWORK: THE EUROPE-ASIA STRATEGY (2001) AND THE NEW PARTNERSHIP WITH SOUTH EAST ASIA (2003)...... 4 1.1.5 THE NIP 2002 - 2004...... 5 1.2 THE MID-TERM REVIEW (MTR) ...... 7 1.2.1 MAIN POLITICAL, ECONOMIC, AND SOCIAL DEVELOPMENTS IN VIETNAM...... 7 1.2.2 NEW EC/EU POLICY OBJECTIVES AND COMMITMENTS...... 10 1.2.3 RESULTS, PERFORMANCE, AND LESSONS LEARNT ...... 10 1.2.4 QUALITY IMPROVEMENTS...... 11 1.3 CONCLUSIONS...... 12 1.3.1 THE PRIORITIES OF THE CSP 2002 – 2006 ARE STILL VALID...... 12 1.3.2 SUMMARY OF ADJUSTMENTS TO THE NIP 2002-2004...... 12 Total: € 128 million ...... 13 1.3.3 PRIORITIES FOR THE NIP 2005-2006 ...... 13 1.4 CONSULTATION ...... 13 1.4.1 CONSULTATION WITH THE MEMBER STATES IN HANOI...... 13 1.4.2 CONSULTATIONS WITH THE GOVERNMENT OF VIETNAM...... 13 1.4.3 CONSULTATION WITH CIVIL SOCIETY ...... 14 2.1 SUMMARY OF THE NIP 2005-2006 PRIORITIES...... 14 2.2 INDICATIVE BUDGET ...... 15 2.3 PRIORITIES AND ACTIONS...... 16 2.3.1. EDUCATION...... 16 2.3.2 POVERTY REDUCTION (SUPPORT TO PRSC IV AND V)...... 18 2.3.3 SUPPORT FOR INSTITUTION BUILDING, ADMINISTRATIVE REFORM, GOVERNANCE AND HUMAN RIGHTS ...... 21 ANNEX 1 COUNTRY STRATEGY PAPER 2002 – 2006 EXECUTIVE SUMMARY ...... 22

ANNEX 2 ONGOING AND PIPELINE EC-VIETNAM CO-OPERATION PROJECTS (BILATERAL AND THEMATIC BUDGET LINES)...... 24

ANNEX 3 ACTION PLAN FOR CLOSER CO-ORDINATION AND HARMONISATION AMONG EU DONORS IN VIETNAM ...... 27

ANNEX 4: CONSULTATION OF EU MEMBER STATES ON NIP 2002 – 2004 REVISION ...... 31

ANNEX 5: CONSULTATION OF EU MEMBER STATES REPRESENTATIVES IN HANOI ON NIP 2005- 2006...... 33

ANNEX 6 PROPOSED INDICATIVE ALLOCATION FOR NIP VIETNAM 2005 - 2006 ...... 36

ANNEX 7 DEVELOPMENT INDICATORS VIETNAM ...... 37

ANNEX 9 : DONOR MATRIX ...... 43

2

ABBREVIATIONS

ALA – Asia Latin America APEC – Asia-Pacific Economic Cooperation ARF – ASEAN Regional Forum ASEAN Association of Southeast Asian Nations CG – Consultative Group CPRGS – Comprehensive Poverty Reduction and Growth Strategy CSP – Country Strategy Paper EFA – Education for All FAO – UN Food and Agriculture Organisation FDI – Foreign Direct Investment FLEGT – Forest Law Enforcement, Governance and Trade FSSP - Forestry Sector Support Partnership GAERC – General Affairs and External Relations Council GoVN – Government of Vietnam IMF – International Monetary Fund JAI – Justice and Home Affairs JC – Joint Commission (Senior officials meeting under the EC – Vietnam Cooperation Agreement) MARD – Ministry of Agriculture and Rural Development MDG – Millennium Development Goals MTEF – Medium Term Expenditure Framework MOET – Ministry of Education and Training MOF – Ministry of Finance MoFA – Ministry of Foreign Affairs MPI – Ministry of Planning and Investment MTR – Mid-Term Review MUTRAP – Multilateral Trade Related Assistance Project Vietnam NDM – Natural Disaster Mitigation NIP – National Indicative Programme NPF – National Forest Programmes PRSC – Poverty Reduction Support Credit PRSP – Poverty Reduction Strategy Paper RRM – Rapid Reaction Mechanism SME – Small and Medium Enterprises SOE – State Owned Enterprises SPSP – Sector Policy Support Programme TRTA – Trade-Related Technical Assistance TREATI - Trans-Regional EU ASEAN Trade Initiative WB – World Bank

3 1. PREAMBLE

1.1 INTRODUCTION

1.1.1 THE ALA REGULATION

Council Regulation (EEC) 443/92 of 25 February 1992 provides for the multi-annual programming of European Community financial and technical and economic co-operation with Asia and Latin America (Article 9, to be read in conjunction with Articles 14 and 15). The multi- annual programming process consists of Country and Regional Strategy Papers (CSPs and RSPs), that cover a five-year period, and National Indicative Programmes (NIPs). Two NIPs cover the lifetime of a CSP. The first NIP covers a period of three years, while the second NIP a period of two years. While the CSPs present an analysis of the situation and needs in a partner country, and establish priorities in terms of the focus of co-operation, the NIPs enumerate areas for European Community support and are the basis for identification work to be carried out prior to the financing and implementation of projects and other forms of aid.

1.1.2 THE COUNTRY STRATEGY PAPER (CSP) 2002 - 2006

The European Commission’s CSP for Vietnam covers the period 2002 to 2006. An executive summary of the CSP is attached in annex 1. The priorities set down in the CSP, which carries an indicative budget of € 161 million for bilateral co-operation, are: • The enhancement of human development, to be carried out in particular through integrated rural development targeting some of the poorest provinces, and through support in the education field; • The integration of Vietnam into the international economy, by assisting reform towards a market-oriented economy, and Vietnam’s integration into world and regional economic structures. The CSP implementation is front-loaded with a revised NIP 2002 – 2004 for an indicative amount of € 128 million and a NIP 2005-2006 for an indicative allocation of € 34 million, thus exceeding the initial CSP allocation by € 1 million.

1.1.3 EC-VIETNAM REGIONAL COOPERATION AND SUPPORT THROUGH THEMATIC BUDGET LINES

In addition to actions supported through funds committed in the framework of the EC’s bilateral co-operation programme with Vietnam, the Commission also finances activities through thematic budget lines (for example, for projects proposed by Non-Governmental Organisations and projects designed to protect forests) and through regional programmes such as Asia-Invest (for business co-operation), Asia-Link (for co-operation in higher education), Asia-Urbs (for co- operation among municipalities) and Asia IT&C (for co-operation in the information and communications technology). The EC contribution to projects of this kind involving Vietnam is between € 5 and € 15 million per annum, thus bringing the overall indicative EC contribution – bilateral cooperation and through regional and thematic cooperation projects - to an estimated € 200 million for the period 2002 - 2006.

1.1.4 THE POLICY FRAMEWORK: THE EUROPE-ASIA STRATEGY (2001) AND THE NEW PARTNERSHIP WITH SOUTH EAST ASIA (2003)

4 EC co-operation with Vietnam is also informed by the Commission Communication of 4 September 2001 “Europe and Asia: A Strategic Framework for Enhanced Partnerships” (COM (2001) 469). This defines the core objective in the framework of relations with Asia as strengthening the EU’s political and economic presence across the region, and raising this to a level commensurate with the emerging weight of an enlarged EU and the growing economic dynamism of the Asia region as a whole. Priorities set down in the strategy document that are of particular relevance for Vietnam include: • Further strengthening mutual trade and investment flows; • Promoting the development of the less prosperous countries of the region, addressing the root causes of poverty; • Contributing to the protection of human rights and to the spreading of democracy, good governance and the rule of law. Co-operation with Vietnam is also to be seen in the context of the Commission Communication of 9 July 2003 “A New Partnership with South East Asia” (COM (2003) 399/4). This sets down a strategy designed to revitalise the EU’s relations with ASEAN and the countries of South East Asia through a deepening of co-operation in a range of fields including human rights, good governance, justice, and home affairs issues. Of particular importance in the framework of relations with Vietnam are the objectives of the partnership document concerning: • Injecting a new dynamism into regional trade and investment relations; • Continuing to support the development of less prosperous countries; • Human rights, democratic principles and good governance.

1.1.5 THE NIP 2002 - 2004

The NIP covering the period 2002 to 2004 has, in reflecting the priorities set down in the CSP, two focal points: “Enhanced human development” and “Vietnam’s integration into the international economy”. They are complemented by cross-sector support activities. The following actions are underway or are still to begin implementation, subject in some cases to the approval of the EU Member States and the Government of Vietnam: Focal point 1: Enhanced human development: • A programme of support to the Ministry of Education and Training (final appraisal to take place early 2004, indicative EC contribution up to € 12 million, provisions amended as described in the revised NIP; project appraisal and decision scheduled for 2004); • A health project targeting poor communities in the Northern Uplands and the Central Highlands (provisions amended as described in the revised NIP; appraisal to take place early 2004, indicative EC contribution € 18 million); • A support for rural development and natural resource management comprising an intervention in the Northern Uplands, a contribution to a Forestry Trust Fund and support to the Government of Vietnam for the groundwork required to pass to a sector approach for rural development assistance at a later stage (identification/appraisal in 2004, indicative EC contribution € 20 million). The intervention in the Northern Uplands follows up and takes account of lessons learnt and results of the mid-term evaluations in the ongoing rural development projects in the Northern Cao Bang and Bac Kan provinces and the Son La and Lai Chau provinces. The mid-term evaluation for the Cao Bang/ Bac Kan project (in 2002) resulted in an extension of the Financing Agreement and certain

5 changes in emphasis. The Son La/Lai Chau mid-term evaluation was done in 2003 and was an excellent review. Relevant quotation from the executive summary: “The project is well aligned with both the EC Country Strategy and the Comprehensive Poverty Reduction and Growth Strategy with its focus on poverty alleviation and food security and its location in the Northern mountainous region where ethnic minority groups predominate.” • A vocational training initiative (“Labour Market Project”), for which a Financing Agreement was signed with the Government of Vietnam in 2003; tender scheduled for launch in 2004 (EC contribution € 10 million); Focal point 2: Vietnam’s integration into the world economy: • A project providing technical assistance to financial intermediaries giving loans to small and medium-sized companies (Financing Agreement signed in 2003, EC contribution € 995,000; project implementation to begin in Spring 2004); • A private sector development programme to improve the administrative and regulatory environment for SME development at provincial level and support to the development of business associations and creation of new enterprises (SME incubators), approved by the EU Member States in November 2003 (EC contribution € 9.05 million; signature of Financing Agreement with GoVN expected for Spring 2004, followed by tendering for technical assistance); • A project assisting Street Children, seeking to alleviate the social consequences of reform (Financing Agreement Signed in 2003, EC contribution € 990,000; project to begin operations Spring 2004); • An Urban Environmental Planning Programme, approved by the EU Member States in October 2003 (EC contribution € 10 million; signature of Financing Agreement with GoVN expected Spring 2004, followed by tendering for technical assistance); • A programme to train Vietnamese conference interpreters (ongoing since 2002, EC contribution € 850,000); • An institutional development programme for the introduction of administrative and legal reforms, targeting the National Assembly and the judiciary (appraisal to be completed early 2004, indicative EC contribution € 8 million; implementation to start in 2005); • A programme providing assistance in multilateral trade negotiations and preparation for accession to the World Trade Organisation (MUTRAP II) (approved by the EU Member States in October 2003, EC contribution € 5.1 m; signature of Financing Agreement with GoVN expected Spring 2004, followed by tendering for technical assistance); the assistance should complement EU’s regional policy within Southeast Asia, including co- operation under the Trans-Regional EU ASEAN Trade Initiative (TREATI) and, where appropriate, promote regional integration within ASEAN; • A programme of support to improve economic and social development by facilitating decision making in the public administration in particular providing support to the Ministry of Finance, primarily in customs and taxation, and the Ministry of Planning and Investment (Financing Agreement signed in 2003, EC contribution € 11.034 million; signature of Financing Agreement with GoVN expected Spring 2004, followed by tendering for technical assistance); Cross-sector support:

6 • A contribution to the World Bank-led Poverty Reduction Support Credit (PRSC) III, combined with technical assistance in public financial management (provisions amended as described in the revised NIP; to be prepared in 2004, indicative EC contribution € 20 million). • A “Small Projects Facility”, to provide grants for small-scale activities (approved by the EU Member States in November 2003, EC contribution € 2 million; Financing Agreement to be signed with the Government in Spring 2004, followed by beginning of implementation). A full list of bilateral projects (ongoing and pipeline) is attached in annex 2.

1.2 THE MID-TERM REVIEW (MTR)

The General Affairs and External Relations Council (GAERC) of March 2003 fixed four criteria for assessing the validity of the Country Strategy Papers and the need for possible changes: (a) Main political, economic and social developments in the country, (b) New EC/EU Policy Objectives and Commitments, (c) Results, Performance and Lessons Learnt, and (d) Quality improvements. A mid-term review (MTR) of the Country Strategy Paper 2002 to 2006 concluded that no modifications to the CSP were necessary, that some changes in the NIP 2002-2004 were required, and that the latest developments in Vietnam would be reflected in the NIP 2005- 2006. The conclusions of the MTR have been shared both with the EU Members States’ representatives in Hanoi and with the Vietnamese Government (see 1.4 below). The findings of the MTR of the CSP can be summarised as follows:

1.2.1 MAIN POLITICAL, ECONOMIC, AND SOCIAL DEVELOPMENTS IN VIETNAM The political situation in Vietnam remains stable. Following National Assembly elections in May 2002, the President, Communist Party Secretary General, and the Prime Minister all had their mandates extended. A full Government re-shuffle was completed in August 2002, strengthening the position of the Prime Minister. The Government announced a new drive to eliminate endemic corruption in public administration. Upon accession of Vietnam to the Association of Southeast Asian Nations (ASEAN), the Council of the European Community (EC) agreed to extend the EC - ASEAN Cooperation Agreement to Vietnam (see OJ L 117 of 05.05.1999, page 30). Vietnam is an increasingly active member of ASEAN and also participates in other regional groupings such as ASEM (Asia- Europe Meeting), ARF (ASEAN Regional Forum) and APEC (Asia-Pacific Economic Cooperation). ASEM is an informal process of dialogue and cooperation bringing together the EU Member States and the European Commission, with ten Asian countries (Brunei, China, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand, and Vietnam). The ASEM dialogue addresses political, economic and cultural issues, with the objective of strengthening the relationship between our two regions, in a spirit of mutual respect and equal partnership. The first ASEM Summit was held in Bangkok in March 1996, giving rise to an ongoing process including Summit-level meetings every second year, Ministerial-level meetings in the intervening years (although now normally once a year) plus a range of meetings and activities at the working level. Vietnam will host the next ASEM summit in autumn 2004 in Hanoi. Vietnam wants to be elected to the UN’s Security Council in 2008.

7 Vietnam’s most important bilateral partners are Japan (important trade relations; largest bilateral provider of FDI, largest ODA provider), China (geo-strategic and economic role; growing regional economic and political influence, and party to the dispute of the Paracel and Spratly archipelagos; 3rd largest exporter to Vietnam), USA (geo-strategic and economic role (main global power and balance to China, large prospective export market following entry into force of Bilateral Trade Agreement in 2002; main base of political opposition by Vietnamese living in exile; Singapore, South Korea and Taiwan (economic interests as main bilateral FDI sources after Japan), Australia (strong in political analysis and follow up of the whole region); the EU as a whole has for a long time by far been Vietnam’s main export market with € 4.4 bn and largest FDI provider and remains Vietnam's largest grant donor). Due to past involvement in the region, France carries largest political influence and is the EU's second largest source of FDI (USD 819m) after the Netherlands (USD 1 bn.) and the largest individual development assistance donor within the EU. Sweden is also influential, due to its support to Vietnam during and after the war and important development assistance. Germany is Vietnam's main EU trading partner. Other important FDI sources: United Kingdom USD 712m, Sweden USD 360m. The human rights situation continues to fall short of international standards and is an area of deep concern for the Commission, the EU Member States, and the European Parliament. An area of particular concern is the Central Highlands (poverty, rights of minorities, religious freedom). The EU's position remains that Vietnam's reform policies aimed at alleviating poverty and fostering sustainable economic growth should progress in parallel to good governance and the promotion and protection of human rights, since they are interdependent and interrelated. The related analysis of the CSP is still valid. Since the latter was drawn up, however, there has been a reinforcement of the local EU human rights dialogue with the Government of Vietnam. Moreover, in the framework of the EC-Vietnam Co-operation Agreement the EC-Vietnam, the Joint Commission of November 2003 agreed to establish a new sub-group on “Co-operation in institution building, administrative reform, governance and human rights”. With regard to both poverty reduction and economic growth, Vietnam continues to perform very well. In 2003 growth is expected to have been around 7%, making Vietnam one of the fastest growing economies in the world after China and certain African countries (Chad, Equatorial Guinea and Botswana). The World Bank (WB) estimates that similar growth rates will be maintained in the medium term (“Taking Stock”, published by the World Bank in December 2003). The WB expects sustained economic expansion driven by export growth and buoyant domestic activity, and rapid growth of the private sector. However, slow progress on state- owned enterprise and state-owned commercial bank reform may lead to misallocation of capital investment and impair long-term growth. Partly thanks to the strong growth in exports, Vietnam is increasingly integrated into the global economy, and negotiations with a view to joining the World Trade Organisation by 2005 have continued. The EU participates in the Working Party for Vietnam’s WTO accession, which held two meetings in 2003. In addition it has held four rounds of bilateral consultations with Vietnam. However, while Vietnam's latest offers and the most recent rounds of multilateral and bilateral negotiations have brought some progress, Vietnam must enhance its efforts in particular in the field of services if the 2005 goal is to be met. Bilateral EC-Vietnam trade negotiations, focussing on improved market access for Vietnamese textile products and other liberalisation measures resulted in a new agreement entering into force in February 2003 and into provisional application in September 2003. Integration into the global economy needs to go hand-in-hand with reforms establishing a level-playing field for business, and the Government

8 of Vietnam is making progress, with the adoption by the National Assembly foreseen for 2005 of a uniform legislative framework for all enterprises. Household survey data indicate that Vietnam has managed to reduce poverty impressively: in 2002, 29 % of the Vietnamese population fell below the international poverty line, as opposed to 37 % in 1998, and 58 % in 1993. Nevertheless, evidence suggests that poverty did not decrease at the same pace in rural areas, especially in areas with a considerable population of ethnic minorities. In the Central Highlands, poverty seems to have even increased. Further achievements in poverty reduction require sustained socio-economic reform. In 2002, the Government adopted the Comprehensive Poverty Reduction and Growth Strategy (CPRGS), which is Vietnam’s version of a Poverty Reduction Strategy Paper (PRSP), continued Public Administrative Reform, and approved a legal needs assessment as well as a related ten-year action plan for broad judicial reforms. Corruption remains a widespread phenomenon in Vietnam, and could pose a threat to sustainability of poverty reduction, as some types of corruption impact directly on the poor. The Government has proposed an Ordinance on Corruption and introduced some measures to fight corruption (for example, rotation obligation for civil servants in high-level posts in central and provincial governments). However, additional steps are required, such as the creation of a comprehensive legal framework for anti-corruption, public administration reform, enhanced transparency and accountability of decision making processes; a more significant role of the media; SOE and financial sector reform. These issues are an essential part of the policy dialogue of partner countries with the Government of Vietnam (e.g. in the context of the Consultative Group meetings). The majority of donors in Vietnam, including the EC, align their co-operation strategies to the CPRGS. The CSP is fully compatible with the CPRGS, the main elements of which were already known when the CSP was being drafted in early 2002. The CPRGS, as its name suggests, consists of a comprehensive strategy for growth and poverty reduction, with a focus on rapid and sustainable economic growth, the creation of a level playing field for business for all types of enterprises, structural economic reforms (such as the reorganisation of state-owned enterprises), the development and expansion of social protection, and public administrative reform. A new chapter on large-scale infrastructure was added to the CPRGS in 2003. The progress report of the GoVN on the CPRGS implementation at the Consultative Group meeting in December 2003 revealed that implementation is so far proving successful. Immediate challenges pertain to the “rolling out” of the CPRGS into the provinces to ensure that it becomes the key reference document for decision making at central government as well as at provincial government and district levels. The EC emphasised that the CPRGS and the Government’s 10 year socio- economic development strategy should be merged over time to ensure the coherence and consistence of Government policies. All the above developments are in line with the descriptions and assumptions presented in the CSP. The MTR concluded that CSP country analysis and response strategy, including the identified medium-term challenges, are still relevant and appropriate. In the light of the particular problems of the Central Highlands – both politically and because of the high prevalence of poverty - and taking account of different EU Troika missions and a pre- identification study - the MTR advised that under the NIP 2002-2004 specific action under the focal point “enhanced human development” should be taken to deal with the poverty related issues of this particular region. The Vietnam development indicators, contained in the CSP 2002 – 2004 have been updated based on available statistical data by end of 2003 (see annex 7). Moreover, comparative

9 development statistics for Vietnam, compared to other Mekong countries (Cambodia, Laos, Thailand) are enclosed (see annex 8).

1.2.2 NEW EC/EU POLICY OBJECTIVES AND COMMITMENTS The CSP was analysed and the policy dialogue with GoVN extended in the light of new priorities for EC/EU policies: • TRTA was confirmed as a priority sector for EC co-operation with Vietnam in the CSP and NIP 2002-2004. • The CSP is in line with the priorities agreed at the Johannesburg Summit on Sustainable Development. The cross-cutting nature of sustainable resource management is a key concern in the context of integrated rural development as well as in the framework of the alleviation of the social consequences of reform. • The importance of the fight against AIDS, tuberculosis, and malaria is stated in the CSP as an issue for both regional and bilateral co-operation. • A modification of the CSP is not necessary to accommodate a discussion of Justice and Home Affairs (JAI) issues through a policy dialogue with the GoVN. Some JAI issues are dealt with through regional EC co-operation of ASEAN and ASEM (e.g. migration and combating terrorism). No comprehensive reference to JAI issues in the CSP is required. However, the Commission introduced these themes into the policy dialogue with Vietnam at the JC meeting of 2003 and agreed with GoVN on further consultations and on the exploration of enhanced dialogue and co-operation. • The Commission presented the EU Action Plan for Forest Law Enforcement, Governance and Trade (FLEGT) at the EC-Vietnam JC meeting of 2003 and agreed with GoVN that further dialogue on FLEGT should take place in the framework of the Forest Sector Support Partnership, the informal local consultation and co-ordination group of interested donors and the GoVN. • The CSP’s call for closer co-ordination with EU Member States remains highly relevant with regard to the EU Council decision of 2002 to take concrete steps in the area of EU co- ordination of policies and harmonisation of procedures before 2004. Vietnam is a pilot country for this initiative, and in May 2003 EU donors represented in Vietnam agreed on an EU Action Plan for co-ordination and harmonisation (see annex 3). At the beginning of 2004 a working group of representatives of different harmonisation initiatives in Vietnam was created to search for the best way for GoVN and donors to work together for the implementation of the GoVN Harmonisation Action Plan unveiled in December 2003.

In the light of these new EU/ EC policy initiatives the CSP remains pertinent.

1.2.3 RESULTS, PERFORMANCE, AND LESSONS LEARNT The MTR concluded that overall EC-Vietnam co-operation was progressing smoothly and that the general direction of co-operation is still relevant given the progress and results to date. Despite some delay in 2002-03 in implementing some actions of the NIP 2002-2004 compared to initial planning, the total indicative fund allocation is very likely to be committed by 2004, subject to availability of budget credits. Delays had been mainly due to (1) the SARS crisis in the

10 first half of 2003 and (2) the difficulty of mobilising suitably qualified experts for identification and preparation work. Regarding the education sector, progress in institutional reforms necessary to accommodate a sector approach has been slower than expected. The MTR advised that the EC should support the necessary groundwork for a sector approach / budgetary support, without rushing into such forms of aid before safeguards are in place and Vietnamese partners are ready. The MTR advised therefore to reduce the indicative allocation for education under the NIP 2002 – 2004, but to keep education as a priority for the NIP 2005-2006 in anticipation of an emerging sector approach by that time. A weakness of the NIP 2002-2004 is its provision for a large number of individual actions of limited size under the two focal points of the CSP, exclusively designed as “traditional” projects, which has stretched the implementation capacities of the EC as well as of the Vietnamese counterparts, notably the Ministry of Planning and Investment. A concentration on few priorities and actions under the NIP 2005-2006, based on an intensified policy dialogue with GoVN is required to enhance aid effectiveness, depending on the availability of budget resources. 1.2.4 QUALITY IMPROVEMENTS Vietnam is a privileged partner for ODA-co-operation of almost all EU Member States and a large and increasing number of international donors. Most continue to provide aid through “traditional” projects. The capacity of GoVN to manage the considerable amounts of aid coming into the country, particularly at the provincial and local level, is limited and overall ODA disbursement rates are falling. This is an issue of particular concern since the GoVN’s ownership of, and commitment to, the development process is particularly strong. Against this background, increasing numbers of donors in Vietnam as well as the GoVN are wishing to move towards innovative types of support, such as multi-sector or targeted budget support. The WB-led Poverty Reduction Support Credits (PRSC) to assist with the implementation of the reform agenda defined in the CPRGS is a form of multi-sector budget support, to which several EU Member States have contributed since 2002. The PRSC process increases government ownership of CPRGS implementation, reduces transaction costs, and provides a forum for the GoVN to discuss reform with, and benefit from the consolidated advice of, a group of different donors. In order to move away from a purely project-based approach the Commission intends to join this multi-annual process with support under the revised NIP 2002-2004 and the NIP 2005-2006. Along with other donors, the Commission will advise on the prioritisation of policy measures pertaining to poverty alleviation and promotion of economic growth (e.g. definition of prior actions before allocated funds can be disbursed, monitoring and influencing performance). EC- involvement in the PRSC is expected to bring about the following improvements in the EC – Vietnam co-operation programme: (1) increased poverty focus, (2) enhanced co-ordination with other donors, especially with those EU Member States also contributing to the PRSC, (3) more efficient EC cooperation portfolio (balance between “traditional” projects, sector approaches and budget support operations). Moreover, the MTR concluded that in line with the overall EC policy to introduce a Small Projects Facility into all bilateral cooperation programmes with Asian countries, such a facility should also be created for Vietnam.

11 It is to be noted that, thanks largely to the devolution of responsibility to the EC Delegation in Hanoi for projects financed by the EC from thematic budget lines (e.g. for NGO financing etc.) and regional programmes (Asia-Invest, Asia-Link, Asia-Urbs etc.) – foreseen for mid-2004 - attention will be paid to ensuring that synergies with the bilateral programme are exploited to the full. Although thematic budget lines and regional programmes are not programmed by the CSP and NIP, actions supported by them fall within the CSP/NIP priorities or are complementary to them, and there can be much beneficial sharing of information and other forms of collaboration, as well as benefits for the EU/EC in terms of visibility.

1.3 CONCLUSIONS 1.3.1 THE PRIORITIES OF THE CSP 2002 – 2006 ARE STILL VALID The basis on which the CSP was designed remains pertinent and no modifications to the CSP are necessary. While annual growth rates continue to be high, Vietnam still faces the twin challenges of poverty reduction/human development and integration into the international economy, reflected in the priorities of the CSP. Vietnam is still in transition towards a market economy, with a considerable agenda of administrative, financial, and governance-related reforms to be implemented. The political situation remains unchanged, with the issue of human rights still high on the agenda for the European Union and the donor community at large. 1.3.2 SUMMARY OF ADJUSTMENTS TO THE NIP 2002-2004 The proposed amendments to the NIP 2002 – 2004 are described in detail in the revised NIP 2002 – 2004 document. The modifications to the NIP 2002-2004 allow the EC to provide support in the Central Highlands, an area of importance politically and in the context of poverty reduction. They also allow for groundwork to be done in the rural development and education sectors to prepare for a sector approach, before the EC provides support in that framework (only for the education sector) in the NIP 2005-2006. Moreover the aspect of natural resources management through contribution to a Multi Donor Forestry Trust Fund could be included into the NIP 2002 – 2004. The modified NIP 2002-2004 gives the EC Delegation a new financing tool to support small initiatives in line with the CSP (Small Project Facility), and enables the EC to provide budgetary support, and accompanying technical assistance in the financial field, through the performance- based Poverty Reduction Support Credit (PRSC) III, linked to the implementation of the Comprehensive Poverty Reduction and Growth Strategy. The table hereafter summarises the interventions planned within the revised NIP 2002 – 2004: Focal point 1: Vietnam's human development € 60.0 million Action 1: Integrated rural development and natural resources management € 20 million Action 2: Support to Rural Health in the Northern Uplands and Central Highlands € 18 million Action 3: Support for improved sector management of education and training (initially: Support to the Ministry of Education and Training) € 12 million Action 4: Vocational Training € 10 million

12 Focal point 2: Vietnam's integration into the international economy € 46 million Action 1: Public administration, institutional reform, and good governance € 30 million Action 2: Support to the private sector € 10 million Action 3: Integration into global and regional economic arrangements € 6 million Cross-sector support: € 22 million Action 1: Support for the Poverty Reduction Support Credit: € 20 million Action 2: Small Project Facility € 2 million Total: € 128 million

1.3.3 PRIORITIES FOR THE NIP 2005-2006 The NIP 2005-2006 will enhance the poverty reduction focus of the CSP, while ensuring a concentration and consolidation of EC support and enabling the EC to continue the drive to provide the bulk of its support, if possible, through sector approaches and budgetary support. The new NIP will build on EC experience and expertise in the selected focus sectors. The new NIP will also consolidate co-ordination and harmonisation with other donors, particularly the EU Member States. 1.4 CONSULTATION Against the background of the large number of international donors active in Vietnam, continuous co-ordination among donors is a pre-condition for improved aid effectiveness. More than 20 informal “sector partnerships” have been established during the past several years. These are co-ordination and sector policy discussion fora for the interested donors and the GoVN. The European Commission, via its Delegation in Hanoi, actively participates in these partnerships, which include: the Forest Sector Support Programme and Partnership, Health Sector Working Group, Education Sector Working Group (newly created), Education Forum, Natural Disaster Mitigation (NDM) Partnership, Agriculture and Rural Development Partnership, Financial Sector Partnership, SME Partnership, International Support Group in the environment, Trade Reform Partnership, and the Harmonisation and Aid Effectiveness Working Group. The policy dialogue forum encompassing the entire donor community and the GoVN is the Consultative Group, for which there is one formal and one informal meeting per year. The EC is part of the group advising the GoVN and the World Bank in preparing the agenda of the CG meetings. The EU as a whole presents a joint policy statement and a joint ODA pledge at the CG. 1.4.1 CONSULTATION WITH THE MEMBER STATES IN HANOI The Commission’s preliminary concepts for the NIP 2005-2006 were presented to the EU Development Counsellors in Hanoi on 6 November 2003 (see Minutes of meeting in annex 4) and to the EU Heads of Mission in advance of the December 2003 Consultative Group meeting. The CSP MTR and intended modifications to the NIP 2002-2004 were discussed at a meeting of EU Development Counsellors on 23 May 2003. The minutes of the Development Counsellors’ meetings are attached in annex 5). 1.4.2 CONSULTATIONS WITH THE GOVERNMENT OF VIETNAM After informal discussions with the Ministry of Planning and Investment in Hanoi since June 2003, the NIP 2005-2006 outline was discussed and endorsed by the Dialogue and Co-operation

13 Working Group held prior to the EC-Vietnam JC meeting in November 2003, with the agreed minutes stating, inter alia: “With reference to the National Indicative Programme 2005 – 2006, which needed to be seen in the framework of the Country Strategy Paper, the EC side stated that it was considering the inclusion of support to the Poverty Reduction and Support Credit and funds for targeted budgetary support in education. The Vietnamese side supported these ideas and requested in addition consideration for capacity building in the context of international economic integration. It also urged inclusion of support for rural development, for the improvement of living conditions and livelihoods in the context of the Comprehensive Poverty Reduction and Growth Strategy, as well as to strengthen provincial capacity. If possible a sector approach should be adopted, using a government rural development/poverty reduction programme as a vehicle. The Vietnamese side favoured close co-ordination between future rural development activities and initiatives in other fields such as education. It also felt that consideration should be given to the inclusion of health in the new Indicative Programme.” GoVN was represented at the Working Group meeting by the Ministry of Planning and Investment, together with the Ministry of Finance and several line ministries, including the Ministries of Health, Education and Training, and Rural Development. 1.4.3 CONSULTATION WITH CIVIL SOCIETY There are currently few, if any, civil society organisations in Vietnam that are in a position to give a truly independent opinion of the Government or the Communist Party. The Commission Delegation has therefore not carried out a formal consultation. However, civil society actors (chambers of commerce, municipalities, higher education institutions etc) are considerably involved in activities supported by the EC through some of its bilateral projects and through its regional programmes.

2 THE NATIONAL INDICATIVE PROGRAMME (NIP) 2005-2006

2.1 SUMMARY OF THE NIP 2005-2006 PRIORITIES

Based on the CSP focal points (enhanced human development, integration of Vietnam into the international economy), the findings of the MTR and the dialogue with partners, the NIP 2005 – 2006 will focus on three priorities: (1) education, and (2) support to the Poverty Reduction Support Credit process. Moreover, a small amount will be reserved for possible cross-sector support for institution building, administrative reform and improved governance, while retaining some flexibility to meet emerging new priorities relating to trade-related technical assistance needs. The overall objective of the education action is to expand access to universal basic education and support the improvement of education quality. The specific objectives are to increase the number of schools achieving “Fundamental School Quality Levels” (FSQL) and to support the establishment of an enabling environment for expanded education access and improved service delivery through continued development of a policy framework in education, planning, and governance. Taking account of the adoption of the National Education for All Plan in 2003 by the GoVN, the revised NIP 2002-2004 provides €12 million to be spent on groundwork for a sector approach in education through technical assistance support to the Ministry of Education and Training (MoET). This shall facilitate the move towards a sector-based management of basic education.

14 The general objective of the Poverty Reduction Support Credit process is to ensure satisfactory progress in the implementation of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS). Specific objectives include the completion of Vietnam’s transition to a market economy, making development inclusive and building modern governance. The objectives and details of any support for Institutional Strengthening and Governance are to be defined at a later date, subject to the progress and outcome of discussions in the framework of the EC-Vietnam Sub-Group on “Co-operation in institution building, administrative reform, governance and human rights”, set up by the EC-Vietnam Joint Commission in November 2003. Since the € 5.1 million Multilateral Trade Assistance Project Vietnam II (MUTRAP II) was approved in October 2003 and will be implemented in the next four years, no specific action has been foreseen in the field of Trade Related Technical Assistance (TRTA). Given the Commission’s continued commitment to TRTA, within the MUTRAP II programme, a comprehensive needs assessment for future TRTA will be carried out, focusing in particular on Doha Development Agenda issues and Vietnam’s commitments pertaining to its WTO accession, as well as facilitation of bilateral trade and investment and practical assistance for Vietnamese exporters. This needs assessment will enable identification of priority activities. The Commission is willing to cover new priority activities, which are neither covered by the 2002-2004 NIP nor require implementation in the next CSP/NIP 2007-2011, within the flexibility foreseen under the current NIP 2005/6, which would be revised to this effect, if necessary. During 2005 – 2006, additional actions will be supported through specific regional projects and thematic and horizontal budget lines, the programming of which is established on a yearly basis. These thematic and horizontal budget lines include co-financing with NGOs, and support in the fields of human rights and democracy, gender, drugs, uprooted people, tropical forests, reproductive health, food security, and other areas. Additional resources may be mobilised through specific instruments such as the Rapid Reaction Mechanism (RRM) or humanitarian aid.

2.2 INDICATIVE BUDGET MEUROS*

TOTAL 34

• Education 16 – 18 • Poverty Reduction (PRSC IV and V) 14 - 16 • Support for Institution Building, Administrative Reform, Governance and Human Rights 1 – 2

The EC believes that the continuation of its contribution to the PRSC process as well as the preparation of sector approaches and to the participation in the related policy dialogue with GoVN on a regular basis during the NIP 2005 – 2006 period is crucial. Depending upon the availability of additional funds during the programming period the support to the PRSC or specific sectors, sufficiently prepared for a support delivered along with other donors, could be further reinforced.

* The margins given allow the European Commission to take absorptive capacity and pace of reform into account during the finalisation stage of programme design.

15

2.3 PRIORITIES AND ACTIONS

Despite rapid economic growth, human development remains a fundamental challenge for Vietnam and its co-operation partners. The gap between the poor and the well-off is increasing (with a likely reduction in social cohesion). In spite of considerable successes in reducing poverty, Vietnam still has a large number of highly impoverished people, many of them being ethnic minorities living in rural areas, especially in the Northern Uplands and Central Highlands. This is borne out by the World Bank’s Vietnam Development Report 2004 produced in December 2003 for the Consultative Group Meeting, which states, inter alia, “it is fair to say that in the case of ethnic minorities, growth will not be enough. Specific policies targeted to them will be needed.”

For this reason, the European Commission decided to strengthen the poverty reduction focus under the NIP 2005 – 2006. The priorities of the new NIP concentrate on the CSP focal point of enhanced human development. However, the cross-sector character of the PRSC IV and V, for which support is envisaged to enhance Vietnam’s capacity to implement the CPRGS, also covers objectives related to CSP focal point of support for Vietnam’s integration into the international economy.

A number of actions from NIP 2002-2004 specifically targeting key challenges of Vietnam’s economic transition will be under implementation during the remaining lifetime of CSP 2002 – 2006 so that no additional actions are envisaged under NIP 2005 – 2006 (see annex 2 list of NIP 2002 – 2004 projects).

2.3.1. EDUCATION

(a) Strategy context/ justification Support to the education sector, especially the improvement of basic education, is a core priority of the CSP 2002 – 2006. While access to education in Vietnam is almost universal at primary level, quality of education is still low and requires significant improvement if the development and growth of Vietnam are to be sustained. EC programming builds on positive experience from ongoing project support (decided prior to CSP 2002-2006) to the Ministry of Education and Training (MoET, EC contribution of € 7.6 million), which has been particularly successful at strengthening the institutional capacity of the MoET at central and decentralised levels. Further experience and assistance from co-operation under the revised NIP 2002 – 2004 (€ 12 million for education) will facilitate the move towards a sector based management of basic education in key areas through support primarily to the MoET at central and decentralised levels, but as well to the Ministry of Finance (MoF) and the Ministry of Planning and Investment (MPI). The NIP for 2002 – 2004 had initially planned to explore the possibility of providing support to the Government of Vietnam in the framework of a sector approach. However, the EC, sharing the views of other donors, concluded in the CSP mid-term review that more progress was necessary in the area of institutional reform to accommodate a sector approach. However, progress has been slower than expected, meaning that EC assistance could not be financed through full budgetary support during the life time of NIP 2002 - 2004. In 2003, the Government of Vietnam adopted the national Education for All plan to advance towards meeting the Millennium Development Goals in the education sector. In the same year,

16 the “Education Sector Working Group” was launched as a coordination forum between interested donors and the Government of Vietnam. In light of these achievements, it was agreed that under the NIP 2002 – 2004 € 12 million will be spent on groundwork for a sector approach through the provision of technical assistance at central and provincial levels aimed at capacity building and the development and implementation of management and planning tools. An essential element for the move towards a sector approach is the finalisation of a medium-term expenditure framework (MTEF) for the education sector, expected to be completed by 2005. Support to education under the NIP 2005-2006 will be in the context of the Government of Vietnam’s Education for All (EFA) plan, established in 2003. The EC will join forces with other donors for a major initiative within this framework.

(b) Objectives General To expand access to universal basic education and support the improvement of education quality. Specific • to increase the number of schools achieving “Fundamental School Quality Levels” (FSQL) • to support the establishment of an enabling environment for expanded education access and improved service delivery through continued development of policy framework in education, planning, and governance.

(c) Expected Results • Within the framework of the National Education for All plan, the meeting of FSQL in a number of targeted provinces, and the sustaining of quality performance over time. • Greater coherence in sector budgeting, planning, and spending. • Strengthened capacity for public expenditure resource allocation, administration, and performance.

(d) Activities To be defined, but may include the selection of provinces in need of support through the development of a targeting mechanism, establishment of FSQL, calculation of financing needed to raise schools to FSQL in targeted areas, allocation of funds through GoVN top-up transfer mechanisms, technical assistance for capacity building, monitoring of implementation.

Preparation for the initiative, which is currently being undertaken within the framework of the NIP 2002 – 2004, will be supported by the EC’s Sector Management of Education and Training programme, and carried out jointly by the donors involved in the Education Sector Working Group and the relevant Government stakeholders.

(e) Implementation To be implemented through pool financing or budgetary support.

(f) Cross-cutting issues These will include poverty reduction, gender and governance.

(g) Risks and conditions -Agreement of modalities of financing with donor partners and the Government. -Time schedule for the commitment will not only depend on the EC.

17 -Ownership by the Government. -Adoption of FSQL as official policy. -MTEF finalised. -Fiduciary risk in terms of the transparency of budget execution.

(h) Main indicators -Output indicators: pupil-teacher ratio, pupil textbook ratio, primary teachers with equivalent secondary education qualification as a percentage of teacher population, numbers of contact hours per week. -Outcome indicators: achievement of FSQL, gross enrolment rate, net enrolment rate, completion rate (grade 6), average repetition rate, average drop out rate (all disaggregated by gender, ethnicity, and geographical area) Plus indicators set down in the CPRGS.

(i) Estimated EC contribution Between € 16 - 18 million.

(j): Co-ordination with Member States The implementation of the project will be overseen not only by the partner ministries and the European Commission, but also by a committee of donors involved in the education sector and in the Education Sector Working Group, all of which have an interest in institutional strengthening particularly in preparation for a sector approach and budgetary support. EU Member States involved are UK, France, and Belgium. Education is a target sector in the framework of the EU Action Plan for Co-ordination and Harmonisation in Vietnam.

Regardless of whether the modalities of implementation involve budgetary support or pool financing, the initiative will be prepared and implemented together with other donors. The lead donor has yet to be identified. Donors already committed or interested include the World Bank, UK, Belgium, Canada, and Norway. Education is one of the focus sectors for EU harmonisation and co-ordination in Vietnam.

(k) Indicative timeframe Implementation is to begin in 2005 or 2006, depending on a number of factors such as the availability of an MTEF for the education sector.

2.3.2 POVERTY REDUCTION (SUPPORT TO PRSC IV AND V)

(a) Strategy context/ justification

Sustainable human development requires: (a) an equitable society that is successful in caring for all its members and in allowing them to fulfill their potential. This demands the building of a modern public administration, legal and governance system, with reforms in, public finance, legal development, and access to information. (b) an equitable, socially inclusive and sustainable pattern of growth, with appropriate sectoral and social policies and programmes.

18 (c) sustained economic growth. The transition to a market economy in Vietnam needs to be completed, with reforms in foreign trade, state owned enterprises, the financial sector, and private sector development. The objectives of Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (CPRGS) coincide with the above three requirements (see 1.2.1 above). The Poverty Reduction Support Credits (PRSC) cover three areas of reform: completion of the transition to a market economy, making development inclusive, and building modern governance. The PRSC is a World Bank-led performance-based, result-oriented budget support instrument, linked to the objectives of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS). Funds are disbursed subject to the successful completion of a range of reform-related prior actions by the Government. The prior actions are established in agreement with the Government by the donors supporting the PRSC. Funds are provided in the form of loans (by e.g. the World Bank) and grants (by e.g. bilateral donors such as the UK and the Netherlands). The Commission will provide funds to the PRSC III (2004) through the framework of the revised NIP 2002-2004 (€ 20 m). Should this operation prove successful, further support to the PRSC is envisaged under NIP 2005-2006, as the implementation of the CPRGS is a long-term challenge and requires constant support from the donor community. For this reason, the PRSC instrument is designed to assist this process over several years and follows annual cycles. The World Bank and other donors have already supported the reforms linked to the CPRGS within PRSC I in 2002 and PRSC II in 2003. Both operations have been fully and punctually implemented. The EC feels confident about entering the PRSC process in its third phase, following the adoption of the CPRGS by the Government of Vietnam in 2002 and the continuing implementation of CPRGS related policy and regulatory changes since then. The provision of budget support is a new departure for the EC in Vietnam. It shall strengthen the EC’s partnership with the GoVN by helping to set the reform and development agenda in Vietnam through strengthened policy dialogue, the establishment of prior actions and in monitoring their implementation. This approach leads to more intense co-ordination with other donors contributing to the PRSC process, including EU Member States. The move away from “traditional” project aid shall also reduce transaction cost of cooperation and improve ODA effectiveness.

(b): Objectives General Progress in the implementation of the Comprehensive Poverty Reduction and Growth Strategy (CPRGS) Specific -completing the transition to a market economy; -making development inclusive; -building modern governance.

(c): Expected Results The results consist of prior actions defined by the donors in collaboration with the Government of Vietnam during the preparation of the PRSCs, and building on experience gained during the implementation of PRSC III (see revised NIP 2002 – 2004, chapter 5.1). Funds are disbursed when prior actions have been successfully carried out by the Government. There are likely to be around forty prior actions, in fields such as such as trade liberalisation, state-owned enterprise

19 reform, financial-sector reform, private sector development, health, education, environmental sustainability, public administration/governance, public financial management, and anti- corruption measures. The EC will focus its attention on approximately four areas of interest, for which prior actions will be set, implementation monitored and their relation to the CSP and bilateral projects examined. For the PRSC III (to be supported within the framework of the revised NIP 2002-2004), the focal areas are likely to be financial reform, public financial management, private sector development and social development. The exercise of establishing prior actions will be carried out twice, once for the PRSC IV (2005) and again for the PRSC V (2006).

(d) Activities Establishing prior actions and monitoring performance. Funds, which are fully fungible, are to be disbursed upon the completion of prior actions. Possibly technical assistance to assist the government in the reform agenda.

(e) Implementation Funds will be paid to the World Bank and via the World Bank into the consolidated account of the GoVN at the State Bank of Vietnam.

(f) Cross-cutting issues Gender, environment, governance, HIV/AIDS are all likely all to feature among the prior actions.

(g) Risks and conditions -A loss of momentum in the reform process, and resistance from vested interests, could entail a risk of slippage, especially in the area of public sector reform. -The reform costs could be higher than estimated if the resolution of non-performing loans proceeds at a slower pace, or if policy lending by the Government goes into unviable projects. -Fiduciary risk and a failure to ensure that adequate progress is made with budget transparency and tackling corruption could defeat the attempt to build modern governance.

(h) Main indicators Monitoring indicators will be linked to the advancement in the reforms agenda. They will be discussed with the government and all donors participating in the operation and will be aligned with the Comprehensive Poverty Reduction and Growth Strategy.

(i) Estimated EC contribution € 14 – 16 million, e.g. € 7 – 8 million for PRSC IV and V respectively. As a function of the availability of additional funds the contribution to the PRSC process could be increased.

(j) Co-ordination with Member States Certain EU Member States (the Netherlands, UK, Denmark, Sweden) have already supported PRSC I and or PRSC II. For PRSC III (to be supported by the EC in the framework of the revised NIP 2002-2004) Member States involved are likely to be the Netherlands, UK, Sweden and Denmark. Belgium has also indicated interest. The same EU Member States are likely to support PRSC IV and PRSC V, and more may join.

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(k) Indicative timeframe Preparations for PRSC IV are likely to begin in late 2004, with World Bank board decision in May 2005. EC funds should be committed shortly afterwards. The same pattern is likely to be followed in 2005/2006 for PRSC V.

2.3.3 SUPPORT FOR INSTITUTION BUILDING, ADMINISTRATIVE REFORM, GOVERNANCE AND HUMAN RIGHTS

An indicative € 1 – 2 million shall be reserved for activities emerging from the EC-Vietnam sub- group on “Cooperation in institution building, administrative reform, governance and human rights”. The sub-group, newly created under the EC-Vietnam Cooperation Agreement (see above 1.2.1), foresees annual formal meetings of senior officials and side meetings (seminars, work- shops, round tables, visit programmes). The active work of the sub-group is expected to start in 2004. The sub-group shall suggest future cooperation activities in institution building, administrative reform, governance and human rights to improve Vietnam’s track record in these fields. The objective of the proposed EC support is to facilitate the implementation of decisions and guidelines developed by the sub-group. The details of the actions are subject to progress in the sub-group’s work and can only be determined at a later stage.

The Commission will endeavour to mobilise additional funds from other budget lines, notably the European Initiative for Democracy and Human Rights (EIDHR), under which Vietnam has, however, so far not been a focus country and only marginally benefited.

21 Annex 1 Country Strategy Paper 2002 – 2006 Executive Summary

Vietnam is a Socialist Republic of about 80 million people, of whom 30 million live below the national poverty line and around 25 million are unemployed or underemployed. GDP per capita is € 419. After decades of war and a difficult reunification struggle, Vietnam launched in 1986 "Doi Moi", a renovation policy that embraced economic reform, the reshaping of foreign policy and renovation of the internal political system. Since 1986, the country has gone through various stages of economic growth that led to the doubling of its GDP between 1991 and 2000. Though reform has progressed at uneven speed, it is perceived as irreversible. A new breed of managers is taking over from the previous generation of leaders in the political system. The Communist Party of Vietnam discussed at its 9th Congress in April 2001 a strategy for the socio-economic development of Vietnam for the period 2001-2010, aimed at transforming a rural society into an industrialised one by 2020. Vietnam has little time to modernise its socio- economic system before it has to compete on equal terms with other countries in the region where reforms have been ongoing for decades. Non-implementation or ineffective implementation of reforms is -by and large- the major risk Vietnam is facing. Key factors to monitor include agricultural development, a sensitive sector given that 90% of the poor live in rural areas working mainly in agriculture and the external sector. Exports represent 44% of GDP, and AFTA, Vietnam's planned accession to WTO and implementation of the US- Vietnam BTA will have a direct impact on Vietnam's exports and investment performance. Structural reform, facilitating private sector development, is also a major issue, as SMEs face stiff and largely unfair competition from SOEs. Principal challenges faced by Vietnam therefore lie in transforming its rural economy, enhancing its human capacity (e.g. through better access to health and education), creating a supportive climate for enterprise, providing efficient infrastructure services, improving environmental quality, enhancing human rights and civil society participation in decision making processes, and building modern governance. Many of the challenges faced by Vietnam are similar to those of other developing countries. For Vietnam to overcome them effectively, it is likely to need to develop a more responsive, open and participatory decision-making system. Special attention is being paid in Vietnam to ensuring a high level of co-ordination among the EU Member States and the Commission to maximise coherence of strategies and complementarity of actions. Government-donor co-ordination and co-operation are relatively effective, assisted by an increasingly inter-active Consultative Group Meeting, a poverty working group, and sectoral partnerships for development. In the light of the above considerations, the overall aim of European Commission co-operation with Vietnam is to facilitate and accelerate the reduction of poverty in a sustainable manner. EC co-operation (for the period 2002-2006) will have an indicative budget of 162 million € and will focus on the following two priorities: • Enhancement of human development. This will be done in particular, through integrated rural development targeting some of the poorest provinces, and through support in the education field; • Integration of Vietnam into the international economy, by assisting reform towards a market oriented economy, and Vietnam's integration into world and regional economic structures.

22 Crosscutting themes, as an integral part of EC-Vietnam co-operation, will include environmental protection, culture and education, gender equality, the promotion of human rights, and good governance. In the framework of the three-year rolling National Indicative Programme for 2002-2004 an indicative EC grant of 101 million € is earmarked to implement the proposed co-operation strategy: • Focal point 1, (55 million €) "human development": an integrated rural development action in the Northern Uplands and two actions in education, one supporting the Ministry of Education and Training, and another on vocational training. • Focal point 2, (46 million €) "Vietnam's integration into the international economy": three complementary actions aiming to provide support to institutional reform in public administration, and good governance; to the private sector; and to integration into global and regional economic arrangements.

23 Annex 2 Ongoing and pipeline EC-Vietnam Co-operation Projects (bilateral and thematic budget lines)

Projects endoresed by ALA cttee and decided by COM shouId be considered "ongoing" projects. The "duration" should reflect the end of project activities as indicated in the financing agreement. For most projects a project n° should be available.

DURATION COMMITMENTS Budget Line Sectors/Project's Title Starting Ending TOTAL C.E. (Euro) (Euro) Ongoing B7-3000/ALA/VIE/94/24 Social Forest Conservation in Nghe An mai-97 déc-04 18.700.000 17.500.000 B7-73000/ALA/VIE/96/20 Strengthening of Veterinary Services in Vietnam mars-98 mars-04 9.500.000 9.000.000 B7-3000/ALA/VIE/97/12 Health System Development Programme oct-98 mars-05 30,095,195 23.095.195 B7-3000/ALA/VIE/97/17 Cao Bang/Bac Can Rural Development Project févr-99 déc-04 21.250.000 19.350.000

B7-3000/ALA/98/0124 Support to the Ministry of Education and Training janv-00 avr-04 7.943.000 7.600.000 B7-3010/97/294 MUTRAP - Multilateral Trade Policy Assistance août-00 mars-04 3.100.000 3.100.000 B7-3000/ALA/VIE/97/18 Son La/Lai Chau Rural Development Project nov-00 nov-05 21.450.000 19.940.000

B7-3010/Relex/2001/032 EC-Vietnam Cooperation in the Audio-Visual Sector oct-01 oct-04 1.500.000 950.000

B7-3010/97/0176 European Studies Programme - ESP nov-01 nov-04 1.078.000 998.000 B7-3010/97/234 Human Resources Development in Tourism janv-04 janv-09 12.000.000 10.800.000

B7-3010/97/0298 Training conference Interpreters for VN Ministries Nov-02 nov-05 850.000 850.000 Project implementation on the ground has not yet Pipeline (NIP 2002-2004) started/ projects under preparation SMEDF 2 - Institutional Support to Lending VNM/AIDCO/2000/2469 Institutions 2.395.000 995.000 ETV 2 - European Technical Assistance VNM/AIDCO/2002/0589 Programmes for Vietnam 12.024.800 11.034.800

VNM/AIDCO/1999/0027 Assistance for street children 6.815.220 990.000 VNM/AIDCO/2002/0484 Labour Market Project 11.200.000 10.000.000 Support to Private Sector 9.050.000 Urban Environmental Planning Programme 10.000.000 Small Project Facilities 2.000.000 MUTRAP II 5.100.000 Institutional Support 8.000.000 Support to Rural Health Sector in Northern Uplands & Central Highlands 18.000.000 Support to Education Sector 12.000.000 Rural Development and natural resources management 20.000.000 Poverty Reduction Support Credit 20.000.000

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VIETNAM AIDCO/F February 2004 Date signature Date Zone Numéro contrat CRIS Intitulé contractant échéance Contractant Montant Payé Solde Etat géographique Advancing policy reform for mitigating the adverse ENV/AS4/1999/037 impact of forest fires in WORLDWIDE FUND 2/000001 54229 south east asia 31/12/1999 31/12/2003 FOR NATURE 986.496 926.040 60.456 A clôturer SE Asia Cambodia, Indonesia, Community Forestry ASIA FOREST Philippines, ENV/ASE/2001/019 Support Project 2000 for NETWORK Thailand, 3/000001 54457 Southeast Asia 1/01/2001 31/12/2004 FOUNDATION 1.979.230 1.752.724 226.506 En cours Vietnam Cambodia, Indonesia, Laos, Malaysia, Pakistan, Philippines, Sri UNITED NATIONS Lanka, ENV/ASI/1999/0158 Tropical Forestry Small DEVELOPMENT Thailand, /000001 54200 Grants 26/12/2000 31/12/2007 PROGRAMME 15.132.500 2.400.000 12.732.500 En cours Vietnam

Toward Sustainable Practices and Effective Biodiversity Management: A Databank and Network for Conservation and AIDCO/B7- Monitoring of Southeast Istituto di Ecologia ASEAN 6200/01/0374/ENV 59122 Asian Mammal Biodiversity 12/09/2002 30/04/2006 Applicata (IEA) 927.296 362.906 564.390 En cours countries STICHTING THE ENV/VNM/2000/234 Creating Agarwood supplies RAINFOREST 7/000001 54430 in Vietnam 8/01/2001 8/01/2006 PROJECT 1.731.850 1.305.367 426.483 En cours VN Community-based conservation of the Hoang Fauna and Flora AIDCO/B7- Lien Son Mountain Preservation Society 6200/01/413/TF 59146 Ecosystem 31/12/2002 30/06/2006 (FFI) 834.940 260.596 574.344 En cours VN

DRG/AS1/2000/233 B7-6210/00/04 - ASEM Anti INTERNATIONAL 7/000001 54426 Money Laundering Initiative 20/12/2001 19/12/2004 DEVELOPMENT 610000 171500 438500 En cours TPS SYSTEMES D'ADDUCTIONS D'EAU DANS LES VILLAGES APPEL - AIDE AUX ONG- MONTAGNARDS,CENTRE- ENFANTS VICTIMES PVD/2000/113/VN 11357 SUD,VIETNAM 31/01/2001 1/12/2005 DE CONFLITS 94.518 75.614 18.904 En cours VN

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TEA IPM DEVELOPMENT AND TRAINING PROJECT - THAI NGUYEN ANDPHU ONG- THO PROVINCE - BROEDERLIJK PVD/2000/126/VN 11363 VIETNAM 12/12/2000 1/07/2004 DELEN 293.576 264.219 29.357 En cours VN

THANH SON COMMUNITY ONG- DEVELOPMENT JUST WORLD PVD/2000/865/VN 11638 PROJECT, VIETNAM 31/01/2001 1/01/2005 PARTNERS 204.045 172.938 31.107 En cours VN NAPA QUANG BINH(INCOME AND EMPLOYMENT STICHTING GENERATION INTERKERKELIJKE PROJECT,QUANG BINH ORGANISATIE PROVINCE)-SECOND VOOR ONG- PHASE(2001-2005)- ONTTWIKKELINGS PVD/2001/373/VN 11765 VIETNAM 4/01/2002 1/01/2006 SAMENWERKING 998.553 340.737 657.816 En cours VN

Développement Institutionnel et Associations GROUPE DE Locales pour l'Organisation RECHERCHE ET et la Gestion de Services D'ECHANGES ONG- collectifs - DIALOGS, TECHNOLOGIQUES PVD/2001/600/VN 11845 Vietnam 23/12/2002 1/11/2006 .(GRET) 2.649.389 507.838 2.141.551 En cours VN AN INTEGRATED UNITY AND COMMUNITY-BASED COOPERATION DEVELOPMENT FOR ONG-PVD/2003/ STRATEGY IN PHU THO DEVELOPMENT OF 019-880/VN 19880 PROVINCE - VIETNAM 16/01/2003 1/05/2009 PEOPLE 748.969 164.090 584.879 En cours VN Early Childhood Development in remote mountainous ethnic minority ONG-PVD/2003/ communities in Northern ENFANTS ET 020-019/VN 20019 Vietnam 26/02/2003 1/05/2009 DEVELOPPEMENT 1.495.771 312.914 1.182.857 En cours VN

Health Services Initiative in Four Re-Education Schools WORLD ONG-PVD/2003/ for Adolescents in Conflict POPULATION 020-200/VN 20200 with the Law in Vietnam 21/02/2003 1/05/2008 FOUNDATION-NE 524.765 165.331 359.434 En cours VN Total 12 Projects

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Annex 3 Action Plan for Closer Co-ordination and Harmonisation among EU Donors in Vietnam

1. Statement of Purpose

The European Union (EU) in Vietnam recognises that the totality and wide variety of donor requirements and processes for preparing, delivering, and monitoring development assistance are generating unproductive transaction costs for, and drawing down the limited capacity of, partner countries. The EU is aware of Vietnamese concerns that donors’ practices do not always fit well with its national development systems, including their budget, programme, and project planning cycles and public expenditure and financial management systems. The EU in Vietnam recognises that these issues require urgent, coordinated, and sustained action to improve our effectiveness on the ground. The key element that will guide the EU’s harmonisation work in Vietnam is a country-based approach that emphasises country ownership and government leadership, includes capacity building, and recognises diverse aid modalities (projects, sector-wide approaches, etc).

2. The context

2.1 Harmonisation, co-ordination and integration are at the heart of the European Union and have been practised for four decades. The European Union has been a pioneer in mainstreaming development policies since the first Lomé convention (1975). Furthermore, by the present EU-treaty the Member States and the Commission are bound, among other things, to operate in co-ordination and complimentarily in the field of development co-operation. It goes without saying that the importance of this will increase even more in the near future when the Union will be expanded to ten new member states (who are expected to become new donors as well).

2.2 Donors and partner countries recognise that major gains in aid effectiveness and efficiency, as well as significant reductions in transaction costs, can be attained through harmonisation. Much work has been carried out in this area by the Organisation for Economic Co-operation and Development (OECD)/Development Assistance Committee (DAC), groups of donors such as Multi-lateral Development Banks (MDBs), and by the European Union. The Monterrey Consensus of March 2002 provided a significant impetus to the harmonisation initiative.

2.3 A High Level Forum on Harmonisation took place in Rome on 24 and 25 February 2003. This brought together multilateral and bilateral development institutions, representatives of the International Monetary Fund (IMF), other multilateral financial institutions, and partner countries (including Vietnam). The Forum reaffirmed the commitment of the development partners to harmonisation and set down a number of priority steps to be taken. The Rome Declaration states, inter alia: “Our deliberations are an important international effort to harmonise the operational policies, procedures, and practices of our institutions with those of partner country systems to improve the effectiveness of development assistance and thereby contribute to meeting the Millennium Development Goals (MDGs).”

2.4 With regard to the harmonisation initiative of the European Union, the General Affairs Council, in its Conclusions on the Effectiveness of the Union’s External Action of 9 October 2000, called on the Commission “in conjunction with the Member States, to continue and to intensify the work on operational co-ordination so as to ensure effective co-ordination of external assistance efforts and to reinforce their coherence and complementarity". This resulted in "guidelines for strengthening operational co-ordination between the Community, represented by the Commission, and the Member States in the field of External assistance" (adopted by the Council on 18 January 2001), which made far-reaching commitments in relation to most areas of aid delivery and in terms of coherence, co-ordination, and complementarity (“the three Cs”).

2.5 In preparation for the Monterrey Conference, the Council of the European Union agreed in Barcelona in March 2002 to take concrete steps in the area of co-ordination of policies and harmonisation of procedures before 2004. This commitment was reinforced through the insertion of a similar element into the Monterrey Consensus. In order to prepare the implementation of this political commitment, EU Member States decided in June 2002 to ask the Commission to launch a pilot initiative. The mission analysed four country cases: Morocco, Nicaragua, Mozambique and Vietnam.

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2.6 The conclusions of the pilot initiative in 2002 were presented in a report. Although it noted some progress it pointed to challenges in the operational implementation of EU co-ordination on the ground. In addition there are considerable differences in the application between the regions and countries concerned. The conclusions of this pilot initiative, which were discussed by EU Directors General for Development at their October informal meeting, also tie in with most of the findings of the work carried out at the DAC special task-force on donor practices.

2.7 The EU Directors General for Development agreed that, in addition to a global action plan for harmonisation and co-ordination being drawn up, the country-specific action plans for the four pilot countries should be proposed jointly by the EU (Member States and EC) delegates in the field and presented as the result of the efforts of the local community of EU donors.

3. EU Co-ordination and Harmonisation in Vietnam: achievements so far

3.1 Co-ordination and harmonisation among EU donors (twelve active Member States and the European Commission) in Vietnam have already reached good levels. Specific achievements include the following: - formal monthly meetings among development counsellors and frequent ad hoc meetings on a range of issues; - the establishment in 2001 of EU Guidelines for financing of local costs in development co-operation with Vietnam; - the annual publication of a directory of all European Union Development Co-operation Activities in Vietnam (the “Blue Book”); - the establishment in 2003 of a joint Country Fact File - collaboration on progress towards Sector-wide Approaches and Budgetary Support - use of the Vietnam’s Comprehensive Poverty Reduction and Growth Strategy (which adapts the MDGs to the local context) as a central reference point for co-operation activities - the drafting and delivery of Joint EU Statements at major events such as Consultative Group meetings - combined EU pledging at Consultative Group meetings - joint work on Human Rights issues, through, for example, the Troika format - involvement of a number of EU Member States in the Like-Minded Donor Group (LMDG), working closely with the Ministry of Planning and Investment (MPI) on harmonisation; - involvement of EU Member States in the harmonisation activities carried out by development banks.

4. Considerations for the future

4.1 Co-ordination among EU donors is already strong, but there is still considerable scope for harmonisation across a range of issues.

4.2 EU embassies and the EC Delegation need to make the necessary resources available in order to strengthen harmonisation and co-ordination and to ensure that this Action Plan is carried out.

4.3 EU donors must seek harmonisation with the Government of Vietnam in the first place, and not only among themselves, but also with other donors.

4.4 Harmonisation efforts must take fully into account and build on EU experience, strengths, and common interests.

4.5 Given that the EU (Member States and Commission combined) is Vietnam’s most important development partner in terms of grant aid, as well as being Vietnam’s biggest trading partner, a collateral benefit of closer co-ordination and harmonisation would be enhanced visibility for the European Union.

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4.6 Through closer co-ordination and harmonisation the European Union can act more effectively to complement the efforts of other donors.

4.7 The EU should draw on the lessons learnt by Member States, the EC, and other donors in harmonisation efforts, and should built on achievements, while avoiding pitfalls. It should concentrate on harmonisation in fields where gains are likely to be the most significant and progress rapid.

4.8 EU harmonisation should be the natural result of closer co-ordination and collaboration. The EU should take a practical approach and seek harmonisation in the planning and carrying out of new activities. It should not seek to force on an ad hoc basis artificial harmonisation of procedures for harmonisation’s own sake.

5. The Plan for Vietnam

5.1 EU co-ordination and harmonisation in Vietnam is at two levels: at the strategic/ policy level and at the operational level.

5.2 At both of these levels the EU in Vietnam will seek to intensify co-ordination and harmonisation across the board, and will focus their harmonisation activities in five sectors of co-operation: HEALTH, EDUCATION, PRIVATE SECTOR DEVELOPMENT, TRADE, and GOVERNANCE, and on one geographical area: THE CENTRAL HIGHLANDS.

5.3 General Co-ordination and Harmonisation

5.3.1 At the strategic/policy level, the EU in Vietnam will: a) continue to make joint statements at Consultative Group meetings and in other appropriate contexts; b) develop common policy frameworks for different fields of co-operation; c) seek to establish a common framework agreement for co-operation with Vietnam (covering e.g. benefits for consultants);

5.3.2 At the operational level, the EU in Vietnam will: a) continue to publish the directory of all European Union Development Co-operation Activities in Vietnam (the “Blue Book”); b) update the EU Guidelines for financing of local costs in development co-operation with Vietnam; c) work together to identify areas, among the different phases of the project cycle, for possible harmonisation and harmonise them to the maximum extent possible, and make reference to DAC/OECD Good Practice papers in project preparation and implementation; d) organise joint training courses for EU and partner country staff.

5.4 Co-ordination and Harmonisation in Target Sectors and Geographical Areas

5.4.1 The four sectors are chosen because: - they are fields in which the European Union has particular interests and strengths, - the European Commission has ongoing or planned co-operation activities; - several Member States have ongoing or planned co-operation activities.

5.4.2 The Central Highlands is selected as a target geographical area because: - several Member States and the EC have ongoing or planned co-operation activities; - the European Union has a keen interest in helping to address the political problems and to improve the well-being of the people in the region, one of the poorest in Vietnam. Two troika fact-finding missions took place there in 2002 in view of the need to monitor rights; - there is considerable scope for new donor activity in a range of fields.

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5.4.3 With reference to the co-operation sectors Health, Private Sector Development, Trade, and Governance, and the Central Highlands the EU donors will seek closer co-ordination and harmonisation through:

5.4.4 Joint policy development - the establishment of a common policy framework; - sharing and exchange of information on ongoing activities, perceptions and experiences, and future plans through monthly sector meetings, facilitating joint analysis and thereby reducing numbers of donor missions and reports;

5.4.5 Joint project management - the development of new harmonised models for project management through - joint project identification and appraisal; - the exploration of every opportunity for close collaboration on activities/projects through parallel financing/co-financing/pooled financing/, and through innovative approaches;

5.4.6 Budgetary Support/Sector Wide Approaches (SWAPs) - exploration of possibilities for budgetary support/SWAPs;

5.4.7 Joint monitoring and evaluation To include joint meetings with the Government of Vietnam and other Vietnamese partners to review progress and to present common policy advice.

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Annex 4: Consultation of EU Member States on NIP 2002 – 2004 revision

Minutes from the meeting among EU Development Counsellors on harmonisation and revision of the EC’s NIP 2002 - 2004 23 May 2003

Attendances: Pietro Sequi (Presidency-Italy), Marcus Leroy (Belgium); Philippe Orliange (France); Alan Johnson (United Kingdom); Andrew Jacobs, Francisco Fontan and Colette Seyler (European Commission)

Item 1: Harmonisation Issues

The meeting discussed the draft Action Plan and made a few changes to the text. Education was added to the target sectors for harmonisation and co-ordination. The modified text of the Action Plan was agreed.

It was agreed that a timetable needed to be drawn up for the Action Plan in order to make it effective. It was also agreed however that the Commission Delegation should send the agreed Action Plan to Commission Headquarters in Brussels for the information (and possibly endorsement) of the EU Directors General for Development. The EC would then begin work on a time-table to accompany the Action Plan, and seek the agreement of the MS.

It was agreed that it was important to make available human and financial capacity in the EU embassies and the EC Delegation in order to realise the goals of the co-ordination and harmonisation excessive.

The EC asked the meeting whether Trade should not rather be changed to Trade Related Technical Assistance. It was agreed that this would be too limiting.

Item 2: CSP and NIP

The EC informed the meeting that after considering an update of the Country Strategy Paper. The Commission had come to the conclusion that the changes proposed were not major enough to justify a revision, but the National Indicative Programme would need to be changed. In order to provide money for a new project in the Central Highlands the amount of € 20 M originally foreseen for Education would be reduced to € 12 M, so that € 8 M would be available. It was apparent that a Sector-wide Approach in education was not yet feasible, and so the EC would in principle earmark substantial funds for this in the NIP 2005/2006, while a new project in education would help to do the groundwork necessary for a SWAp. Furthermore a new programme (Small Project Facility - SPF) was foreseen that would need € 3.5 M, money that would be taken from the amount foreseen for rural development in the Northern Uplands, reducing that money available from € 15 to € 11.5. The MS accepted the proposed changes to the NIP.

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UK suggested that some money could be foreseen to address the activities foreseen in the harmonisation action plan. The EC responded that most planned EC interventions were already in the areas foreseen in the Harmonisation Action Plan and that for example necessary studies on harmonisation would not be considered by Brussels as qualifying for development money, but that the necessary fund could be made available elsewhere. BE expressed its concern with SPF as it can be very much on an ad-hoc basis and serving rather the public relations of an embassy than the long-term benefit of the country. The EC informed that the proposal would have to be within the scope of the CSP and NIP, that the Delegation would do a yearly planning with clearly defined areas and call for proposals. BE proposed that in the upcoming and possible joint BE-EC project on health, part of the budget (10 to 20 %) could be set aside for more flexible ad-hoc initiatives.

Item 3: Any Other Business The UK informed that the Cost Norms had been discussed at the Like Minded group and that they would welcome an update and a broader agreement in order to make them more binding and try to find a way to build them also into consultancy contracts. The EC informed that meeting that it was working on the update of the norms and that it will send a new proposal around soon. BE suggest that also other donors should be able to comment on the norms.

Concerning the Blue Book, IT informed that it was trying hard to get it finalised in time for the Sapa meeting. The quotations received for the printing seemed quite reasonable. The common text should be produced shortly.

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Annex 5: Consultation of EU Member States representatives in Hanoi on NIP 2005-2006

Agreed Minutes of the EU Working Group (WG) meeting of the Development Counsellors 06th November 2003

Attendees: Mr Pietro Sequi (Presidency - Italy), H.E. Ambassador Anton Hajduk (Slovakia), Mr. Alain Freynet (France), Mr. Leo Faber (Luxembourg), Mr. Oskar Andesner (Austria), Ms. Jane Rintoul (DFID), Ms. Kathrin Oellers (Germany), Mr. Ramon Molina (Spain), Ms. Maria Paz Ramos (Spain HCMC Office), Mr. Markus Leroy (Belgium), Mr. Karl-Anders Larsson (Sweden), Ms. Meria Sundberg (Finland), Mr. Martin Pelikan (Czech), Mr. Imre Simon (Hungary), Mr. Francisco Fontan Pardo (European Commission). Observers: Ms Ida D’Alessandro (UNDESA Fellow, Italian Embassy), Ms Laurence Assous (French Embassy)

The Agenda of the Meeting is herewith attached (Attachment 1) for ease of reference to the items listed below.

Item 1: Circulation of the Draft Minutes of the Meeting on the 14th October; The Presidency circulated the Draft Minutes and asked for comments and/or approval.

Item 2: Monthly Donor Group Forum on the 31st of October on the CG Meeting: outcome, discussion on; The Presidency introduced point 2.a): Vietnam Harmonization Action Plan and its implication for the EU “Action Plan for Closer Co-ordination and Harmonization among EU Donors in Vietnam” and asked Mr. Markus Leroy (BE) who was present at the Forum to report on the outcome of the meeting. Mr. Leroy summarized the outcome of the meeting. 1. The World Bank and MPI presented a revised Agenda (Attachment 2) for the forthcoming CG Meeting incorporating the suggestions made by the WG of the Development Counsellors during the 14th of October meeting. The revised agenda received favourable review by the Forum and was approved; 2. As far as the Vietnam Harmonization Action Plan, Mr. Leroy proposed to change the wording of the draft EU Common Statement concerning the EU Harmonization Plan to take into account the issuance of this new document and propose to organize early next year a smaller WG to study the implication of this new Plan. Ms Jane Rintoul (DFID) reported on the meeting held at DFID office with UNDP, WB, ADB, LMG, EC Delegation, Embassy of Japan, to present the Vietnam Harmonization Action Plan. The Presidency proposed to fix a date in the next week or so for an ad hoc DC WG meeting dedicated to discuss the impact of this new document in view of the EU presentation on its own Coordination and Harmonization Plan at the forthcoming CG Meeting.

Item 3: EU Common Statement for 2003 CG Meeting, final review and approval before sending it to the HoMs;

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The Presidency circulated two different revisions of the Statement: the first one as originally sent and revised by the EC Delegation and the second one incorporating all the suggestions made so far only by the Dutch Ambassador and the Italian Ambassador on the previous revision and asked for comments: • Mr. Markus Leroy (BE) proposed to change the wording of the EC Common Statement on the Harmonization taking into account the new Vietnam Action Plan on Harmonization; • Ms. Jane Rintoul (DFID) circulated the DFID suggestions herewith attached (Attachment 3) • Ms Merja Sundberg (FI) proposed to modify the wording to separate at pg. 3 the economic, social and cultural rights from the civil and political ones; • Ms Katrin Oellers (DE) proposed to remove from the first page the reference to Decree 88 as there is a mention to it in the paragraph dedicated to Human Rights; • Mr Karl-Anders Larsson (SE) proposed to have a stronger mention to Public Finance management transparency and to be less positive on the environmental issues. The Presidency took note of all the suggestions and volunteered to redraft the Statement, before the end of the day, taking all of them into account and to have it circulated by the Italian Embassy to all the HoMs, for the final approval before sending it to the Capitals. Mr. Louis Arsac (FR) asked if at the CG meeting, after the Common Statement is read by the Presidency, other interventions by the MS were allowed. The Presidency answered that, based on the DC WG agreement, after the presentation by the Presidency of the Common Statement and the highlights of the EU ODA in Vietnam, MS statements will be allowed on specific issues only and reminded that after the Common Pledge no other bilateral statement should take place. The Presidency also reported on the format of the table for the pledge derived from the previous year. It was agreed that the Pledge Table needed some clarifications and the Presidency offered to work on an improved revision of the Pledge Table that follows OECD-DAC criteria and circulated as soon as possible among MS.

Item 4: Presentation of “The EC’s National Indicative Programme 2005/2006” for comment; Mr Francisco Fontan Pardo (ED) reported that, tentatively and still under discussions, for 2005/2006 “EC’s National Indicative Programme” (NIP) would receive 61 million Euro. (20 million Euro for PRSC 4 and 5, 20 million Euro for Educations, 10-15 million Euro for Rural Development, 2-3 million Euro for Forestry Trust Fund. Item 5: EU Development Report 2002: feedback after its Launch Press Conference; The Presidency asked the WG Counsellors to report on the feedbacks that they may have had on the Press Conference for the launch of the Blue Book and reported on the articles published on the Vietnam News and Vietnam News Agency. It was reported that also Le Courrier du Vietnam had published an article on the Blue Book.

Item 6: EU Cost Norms Approval; Mr Francisco Fontan Pardo (ED) briefly reported on the EU Cost Norms Approval and asked if there were additional comments beside the Netherlands’ ones. None was made.

Item 7: News from Member States and the European Commission; • Mr Leo Faber (LU) informed about the visit of the Vietnamese Delegation to Luxemburg on the 17th of November for bilateral talks;

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• Mrs Katrine Oellers (DE) informed that on the 18th of November there would be a meeting with Dr. Hung for the negotiations of the bilateral programme; • Mr. Francisco Fontan Pardo (ED) informed of the meeting in Brussels with a Vietnamese delegation on trade and Investment; • Mr. Markus Leroy (BE) explained that, due to the visit of the new Belgian Minister of Development Cooperation to Vietnam on the 14-19 December, the bilateral talks would be held on the 15th of December; • Mr. Imre Simon (HU) informed of the visit of both the Director General and the Deputy General Director from Hungary on the occasion of the CG Meeting, he also added that the draft Cooperation Agreement between Hungary and Vietnam is being prepared and will be ready by the end of the month.

Item 8: Any other business; • Mr. Francisco Fontan Pardo (ED) reminded of the ASEM Trust Meeting on the 7th of November.

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Annex 6 Proposed Indicative Allocation for NIP Vietnam 2005 - 2006

Action (NIP point) / Million euro in year 2005 2006 TOTAL

1. Education 16 - 18 16 – 18 2. Poverty Reduction (PRSC IV (2005) and V (2006)) 7 - 8 7 - 8 14 - 16 3. Support for Institutional Strengthening and Good Governance 1 - 2 1 - 2 TOTAL 34

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ANNEX 7 DEVELOPMENT INDICATORS VIETNAM

INDICATOR VALUE YEAR SOURCE Economic well-being Incidence of Extreme Poverty: Population below $1 12%, 55.8% 2003 World Bank, East Asia and Pacific Region Per Day , $2 Per Day (2003) Proportion of people with per capita expenditures 37% 1997-1998 World Bank, Vietnam attacking poverty, p.2 under the total poverty line VND1.8 million=US$128 Inequality: Poorest Fifth’s Share of National Income 7.8% 2002 Government of Vietnam or Consumption Child Malnutrition: Prevalence of Underweight under 30.1% 2002 Government of Vietnam 5 years old 33% 2000 Asian Development Bank 2003

Social Development Net Enrolment in Primary Education 95.4% 2000 World Bank Education Statistics 90.1% 2002 Vietnam Living Standards Survey Completion of 5th Grade of Primary Education 75.5% 1998-1999 The EFA 2000 Assessment: Country Reports (www.unesco.org) Adult literacy rate (% age 15 and above) 92.7% 2001 Human Development Report 2003 Infant Mortality Rate (per 1000 live births) 30 2001 Asian Development Bank 2003 26 2002 Vietnam Demographic Changes Survey Under 5 Mortality Rate (per 1000 live births) 38 2001 Human Development Report 2003 Maternal Mortality Ratio 95 per 100,000 births 2000 Human Development Report 2003 Births Attended by Skilled Health Personnel 70% 2000 Asian Development Bank 2003 Contraceptive Prevalence Rate 75% 2001 Human Development Report 2003 HIV/AIDS prevalence (age 15-49) 0.30% 2001 UNICEF HIV prevalence among IDUs 24% 2001 UNAIDS

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Proportion of seats held by women in national 26% 2002 Asian Development Bank 2003 parliament Environmental sustainability and regeneration Population with sustainable access to an improved 77% 2000 Human Development Report 2003 water source- Total

Population with Access to safe water: - Total 48.5% 2002 Vietnam Households Living Standards Survey

56% 2002 World Bank Vietnam Environment Monitor

- Rural 39.6% 2002 Vietnam Households Living Standards Survey

- Urban 76.3% 2002 Vietnam Households Living Standards Survey Biodiversity: Land Area Protected 3.5% 2002 Asian Development Bank 2003 Carbon Dioxin Emissions 0.6 metric tons/capita 1999 Human Development Report 2003 Forest Area as % of Land Area 35.2% 2000 VN Statistical Yearbook 2000 30.2% 2000 Asian Development Bank Mangrove Areas 0.4% 1992-1993 UNEP Land cover assessment:1992-1993 0.11% 1995 Report of Vietnamese delegation at the fourth conference of the parties to the convention of biological diversity, Bratislava, Slovakia, May 4-15, 1998 (mangrove forest=34,700 ha)/ total area (32,924,100ha – VN Statistical yearbook 2000)

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General Indicators GNI per Capita US$ 430 2002 World Bank , Vietnam at a Glance 2003 Total Fertility Rate 2.3 2000-2005 Human Development Report 2003 - projection Life Expectancy at Birth (years) 70 2002 World Bank, Vietnam at a Glance - 2003 External Debt as % of GNI 38.4% 2001 Asian Development Bank 2003

Gross Domestic Investment as % of GDP 32.1% 2002 World Bank, Vietnam at a Glance 2003 Trade in goods as % of GDP 93.6% 2001 World Development Indicators Database 2003

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Annex 8 Current Development Statistics for Vietnam, compared to Mekong countries (except Burma)

GNI Per Capita Figures available for 2002 (World Development Indicators Database, World Bank, July 2003) Country (US Dollars) Cambodia 280 Laos 310 Thailand 1980 Vietnam 430

Net Official Development Assistance (World Development Indicators 2003, Asian Development Bank [ADB] Key Indicators 2003) (US$ Million) Country 1996 (ADB) 2001 (ADB) Cambodia 422 (418.5) 409 (399) Laos 332 (383.6) 243 (245.8) Thailand 830 (751.3) 281 (243.4) Vietnam 939 (616.9) 1435 (1485.6)

Education Figures available for 2002 (EdStats World Bank 2003, UNESCO 2002, ADB Key Indicators 2003) Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Literacy Rate 15-24 yrs % Male n/a (85) n/a (86) n/a (99) n/a (95) Female n/a (76) n/a (73) n/a (99) n/a (96)

Figures available for 2001 Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Adult illiteracy rate (age 15+) % 31.3 (n/a) 34.3 (n/a) 4.3 (n/a) 7.3 (n/a)

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Figures available for 2000 Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Gross enrolment ratio PRIMARY % 110.1 (117M; 103F) 113.1 (121M; 104F) 94.8 (97M; 93F) 105.6 (109M; 102F) Net enrolment ratio PRIMARY % 95.4 (n/a) 81.4 (n/a) 95.4 (n/a) 95.4 (n/a)

Gross enrolment ratio SECONDARY % 18.7 (24M; 13F) 37.6 (44M; 31F) 81.9 (84M; 80F) 67.1 (70M; 64F) Net enrolment ratio SECONDARY % 16.7 (n/a) 30.2 (n/a) n/a (n/a) 62.5 (n/a)

Gross enrolment ratio TERTIARY % 2.8 (4M; 2F) 3.3 (4M; 2F) 35.3 (39M; 32F) 9.7 (11M; 8F) Net figures unavailable

Education spending as % total govt expenditure 10.1 (n/a) 8.8 (n/a) 31 (n/a) ~ Total public spending as % of GDP 1.9 (1.3) 2.3 (1.0) 5.4 (4.5) ~

Trained teachers in PRIMARY education as % of total 95.9 (n/a) 76.2 (n/a) ~ 84.9 (n/a) PRIMARY pupil-teacher ratio 53 (n/a) 30 (n/a) 21 (n/a) 28 (n/a)

Health Figures available for 2001 (World Bank 2003, Asian Development Bank [ADB] 2003, UNAIDS 2002) Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Life expectancy at birth, total (M/F), years 54 [2002] (52M; 55F) 54.5 [2002] (54M; 56F) 69.2 [2002] (66M; 72F) 69.7 [2002] (67M; 72F)

Mortality rate, infant (per 1,000 live births) 97 (97) 87 (87) 24 (24) 30 (30)

Mortality rate, under-5 (per 1,000 live births) 138 (n/a) 100 (n/a) 28 (n/a) 38 (n/a)

Child Malnutrition (% of under age 5) 45 (46 [2000]) 40 (40 [2000]) n/a (19* [2000]) 34 (33 [2000])

Health spending as % of total govt expenditure n/a (16.9) n/a (8.1) n/a (23.4 [2002]) ~

Total public spending as % of GDP 2 (0.9 [2000]) 1.3 (1.0 [2000]) 2.1 (1.3 [2000]) 1.3 (n/a)

Adult HIV-1 seroprevalence (% of pop aged 15-49) 2.6 [2002] (n/a) 0.05 [2002] (n/a) 1.8 (n/a) 0.3 (n/a)

Contraceptive Prevalence Rate (% of women aged 15-49) 23.8 (n/a) n/a (29 [2000]) n/a (72 [1996]) 75 (74 [2000])

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Health (continued)

Figures available for 2000 (World Development Indicators Database 2003, Asian Development Bank 2003) Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Births attended by skilled health personnel (%) 34 (32) 21 (17) n/a (98 [2001]) 70 (70)

Population with access an improved water source (%) n/a (Urban 54; Rural 26) n/a (Urban 61; Rural 29) n/a (Urban 95; Rural 81) n/a (Urban 95; Rural 72)

Population with access to improved sanitation (%) Urban 56; Rural 10 Urban 67; Rural 19 Urban 96; Rural 96 Urban 82; Rural 38

* Differs from standard definition / pertains to only part of the country

Poverty Figures available for 2001 (UNDP 2002, 2003) Country Indicator Cambodia Laos Thailand Vietnam Population living below $1 a day (%)** 36 [2000] 26.3 <2 17.7

Share of poorest 20% in national income or consumption (%)** 6.9 7.6 6.1 8.0

Human Development Index (HDI) [rank] 0.556 [130/175] 0.525 [135/175] 0.768 [74/175] 0.668 [109/175]

Figures available for 1997-8 (UN Statistics Division 2003, Asian Development Bank [ADB] 2003) Country Indicator Cambodia (ADB) Laos (ADB) Thailand (ADB) Vietnam (ADB) Percentage of population below national poverty line, rural 40 (40.1) 41 (41) n/a (17.2) n/a (45)

Percentage of population below national poverty line, urban 21.2 (25.2 [1999]) 26.9 ( 26.9) n/a (1.5) n/a (9)

** Refers to data available for year most recent to 2001

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ANNEX 9 : DONOR MATRIX EC and Member States with cooperation with Vietnam The EU is the country's biggest grant donor (approximately 20 % of ODA disbursements in 2001). The EU's strategy is to support Vietnam's development goals aims at sustaining the country's own efforts in integrating into the international economy, enhancing human development and eradicating poverty. Planned disbursements for 2003 (EUR millions) Countries Sectors EC B DK D E F I L NL A FI S UK

Education 3.5 3.8 1.8 9 0.8 5 NA 8.2 Health 12 0.3 6 12.4 0.7 1.6 5.4 5 0.5 3 3.9 Water supply 1.5 14 0.3 2.4 2.7 1.3 2.2 and sanitation Government 2 0.5 6 4 2.7 0.1 1.1 9 4.7 and Civil Society Transport and 1.2 6.7 2.5 6.6 storage Communicatio 0.5 3.7 ns Banking and 2.3 23.3 0.2 1.5 2 financial services Business/Priva 0.5 2 3 7.9 1.1 2.7 te sector Energy 2.5 7 Agriculture, 17 1.5 14 2.4 15.6 1.4 1.4 5 3.5 8 forestry, fishing Industry, 0.3 0.7 Mining and Construction Trade and 2 0.6 0.7 1.7 tourism Environmental 3 1.5 6 3.5 0.6 0.1 0.8 Protection Gender 1 Commodity 1.6 aid Budget 5.6 10 11 support /SAP Food aid Debt relief 2.6 Emergency 0.2 assistance Support to 1.2 1.2 0.5 0.3 1 0.2 0.7 NGOs Others 1 0.2 31.2 0.7 0.1 1 5 8 Total 41.5 13.3 50 32 22.8 85.2 12.5 10.8 28.5 NA 9.4 34 45.8

N.B. No disbursements by Greece, Ireland, and Portugal. Figures for Germany relate to 2002

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A Consultative Group Meeting takes place annually in Vietnam, as does a Mid-Year Meeting. These give the Government of Vietnam and donors the opportunity to review the country’s development and to tackle challenges together. Over 20 sectoral Partnership Groups exist in Vietnam, bring together donors, government, and other stakeholders. EU development counsellors meet at least once per month to exchange views and information, to plan joint EU responses to situations, and to work on harmonisation. The EU donors make joint statements (and pledges) at Consultative Group and other important meetings.

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