Document of The World Bank FOR OFFICIAL, USE ONLY Public Disclosure Authorized Report No. 45613-VN INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED CREDIT INTHE AMOUNT OF SDR 66.9 MILLION (EQUIVALENT TO US$lOO MILLION) Public Disclosure Authorized TO THE SOCIALIST REPUBLIC OF VIETNAM FOR A PROPOSED SECOND PROGRAM 135 PHASE 2 SUPPORT OPERATION FOR COMMUNES FACING EXTREME HARDSHIP IN ETHNIC MINORITY AND MOUNTAINOUS AREAS April 21,2009 Public Disclosure Authorized Vietnam Sustainable Development Unit Sustainable Development Department East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized VIETNAM- GOVERNMENT FISCALYEAR January 1 -December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as ofMarch 3 1,2009) Currency Unit Vietnamese Dong US$1.oo 16,963 Weights and Measures Metric System ABBREVIATION AND ACRONYMS AusAID Australian Agency for International Development CAS Country Assistance Strategy CBRIP Community-Based Rural Infrastructure Project CDD Community-Driven Development CEM Committee for Ethnic Minorities CFAA Country Financial Accountability Assessment CPRGS Comprehensive Poverty Reduction and Growth Strategy CPS Country Partnership Strategy CSA Internal Control Self-Assessment CYXXXX Calendar Year xxxx DA Delegate Assembly DFA Development Financing Agreement DFID Department for International Development (UK) DPC1 First Development Policy Credit in Support of Program DPC2 Second Development Policy Credit - current operation DPC3 Third Development Policy Credit - proposed follow-on operation DSA Debt Sustainability Assessment FDI Foreign Direct Investment FYxxxx Fiscal Year xxxx GDP Gross Domestic Product GNP Gross National Product Government Government of Vietnam GSO General Statistical Office HEPR-JC Hunger Eradication and Poverty Reduction-Job Creation Program IDA International Development Association ICR Implementation Completion Report IEMA Institute for Ethnic Minority Affairs IFAD International Fund for Agricultural Development IFC International Finance Corporation ILSSA Institute ofLabor, Science and Social Affairs IMF International Monetary Fund fishAID Irish Agency for International Development LDP Letter of Development Policy M&E Monitoring and Evaluation MARD Ministry of Agriculture and Rural Development MDG Millennium Development Goal MIS Management Information System MOC Ministry of Construction .. 11 FOR OFFICIAL USE ONLY MOF Ministry of Finance MOHA Ministry of Home Affairs MOLISA Ministry of Labor, Invalids and Social Affairs MPI Ministry of Planning and Investment MTEF Medium-Tern Expenditure Framework MTR Mid-Term Review NGO Nongovernmental Agency NMPRP Northern Mountains Poverty Reduction Project N-PL Non-Performing Loans NTP National Target Program O&M Operation and Maintenance ODA Official Development Assistance P135-2 Program 135 for Socio-economic Development in Communes Facing Extreme Hardship in Ethnic Minority and Mountainous Areas, Second Phase PAR Public Administration Reform PC Partnership Committee PM&E Participatory Monitoring and Evaluation PER-IFA Public Expenditure Review - Integrated Fiduciary Assessment PHRD Policy and Human Resources Development Trust Fund (Japan) PPC Provincial People’s Committee PRSC Poverty Reduction Support Credit PSIA Poverty and Social Impact Analysis SAV State Audit of Vietnam SBV State Bank of Vietnam SEDP Socio-Economic Development Plan SDR Special Drawing Rights STV State Treasury of Vietnam TA Technical Assistance UNDP UnitedNations Development Program VDGs Vietnam Development Goals VHLSS Vietnam Household Living Standards Survey WTO World Trade Organization Vice President: James W. Adams, EAPVP Country Director: Victoria Kwakwa, EACVF Sector Director: John Roome, EASSD Sector Manager: Hoonae Kim, EASVS Task Team Leader: Steven N. Schonberger, EASRE Co-Task Team Leader: Son Thanh Vo, EASVS This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. VIETNAM PROPOSED FIRST PROGRAM 135 PHASE 2 SUPPORT TABLE OF CONTENTS CREDIT AND PROGRAM SUMMARY ......................................................................................................... v I. INTRODUCTION ................................................................................................................................ 1 I1. COUNTRY CONTEXT. ...................................................................................................................... 2 PROGRESS IN POVERTY REDUCTION ........................................................................................... 7 111. GOVERNMENT’S PROGRAM....................................................................................................... 11 Iv. BANK SUPPORT TO GOVERNMENT’S PROGRAM ................................................................ 14 LINK TO CASKPS ............................................................................................................................. 14 COLLABORATION WITH OTHER DONORS ................................................................................. 14 RELATIONSHIP TO OTHER BANK OPERATIONS ....................................................................... 15 LESSONS LEARNED......................................................................................................................... 16 ANALYTICAL UNDERPINNINGS ................................................................................................... 18 V . THE PROPOSED OPERATION...................................................................................................... 19 OPERATION DESCRIPTION ............................................................................................................ 19 VI. OPERATION IMPLEMENTATION ............................................................................................... 28 POVERTY AND SOCIAL IMPACT .................................................................................................. 28 IMPLEMENTATION, MONITORING AND EVALUATION .......................................................... 29 RISK AND RISK MANAGEMENT ................................................................................................... 31 DISBURSEMENT, REPORTING AND AUDITING ARRANGEMENTS ....................................... 35 ENVIRONMENTAL ASPECTS ......................................................................................................... 36 ANNEXES ANNEX 1: LETTER OF DEVELOPMENT POLICY ....................................................................... 38 ANNEX 2: OVERALL GOVERNMENT DEVELOPMENT PROGRAM..................................... -53 ANNEX 3 : OPERATION POLICY MATRE ................................................................................... 60 ANNEX 4: AIDE MEMOIRE ON JOINT MID-TERM REVIEW OF PROGRAM 135-11 BY GOVERNMENT AND DEVELOPMENT PARTNERS .................................................................... 66 ANNEX 5: REVISED TA MATRIX .................................................................................................. 87 ANNEX 6: FUND RELATIONS NOTE............................................................................................ -97 ANNEX 7: COUNTRY AT A GLANCE.......................................................................................... 10 1 IBRD Map 33511R iv CREDIT AND PROGRAM SUMMARY VIETNAM PROPOSED SECOND PROGRAM I35 PHASE 2 SUPPORT CREDIT Borrower The Socialist Republic ofVietnam Implementing Agencies Committee for Ethnic Minorities (CEM), Ministry ofPlanning and Investment (MPI), Ministry ofFinance (MOF), Ministry of Agriculture and Rural Development (MARD), Selected Provincial People’s Committees (PPCs). Financing Data SDR 66.9 million (US$lOO.O million equivalent) Standard IDA terms (40-year maturity with 1O-year grace period) Operation Type Second tranche in a programmatic series ofthree single-tranche development policy lending operations Main Policy Areas The proposed operation will support strengthened policies and their implementation as regards the primary public support program targeted to poor, remote ethnic minority communities. Specific policy areas include those related to: (i) poverty targeting; (ii) decentralization, participation and empowerment; (iii) fiduciary transparency and accountability; and (iv) monitoring and evaluation. Key Outcome Policy Area 1: Poverty Targeting: Indicators Provinces with criteria for allocating resources amongst communes which favor poorer communes. Baseline (DPCl): 0, (DPC2): 42, Target: 47 Policy Area 2: Decentralization, Participation & Empowerment: Percentage ofP 135-2 communes which serve as investment owners for at least a significant share ofprogram investments. Baseline (DPCl): 30%, (DPC2): 60%, Target: 100% Policy Area 3: Fiduciary Transparency and Accountability: Ensure adequate oversight over public funds through independent audits, covering both operational and financial aspects, as indicated by public disclosure ofaudit results at national and local levels, and documentation offollow up actions taken. Baseline (DPCl): No operational audits conducted in VN by State Audit Authority for a National Targeted Program. (DPC2): Financial and operational audit carried and publically disclosed out covering ten provinces and follow