1The World Bank has been working in Vietnam since 1993, when it returned after a hiatus of nearly two decades. In a twist of fate, the same Robert McNamara who led the Vietnam War as US Secretary of Defense in the 1960s was the man who then, as President of the Bank, decided under American pressure to halt funds to the country (Gwin, 1997).
- 1 The Economist, Special Report on Vietnam, 24th April 2008.
- 2 The authors thank Martin Rama and two anonymous referees for very relevant comments on a previous v (...)
2In this paper, we analyse this paradox using some concepts of international political economy.2 Following Wade (2002) and Engel (2010), we consider the World Bank as an institution which serves the interests of the US hegemony, by promoting its dominating ideology, which is ‘neo-liberalism’. In this context, the World Bank cannot accept alternative models, which would contradict the development model it is promoting (Cling et al., 2011).
3This is the reason why the existence of a specific model which explains the success of the first wave of Asian emerging countries has been hardly acknowledged by the World Bank in its well-known East-Asian Miracle report (World Bank, 1993). This report puts forward the major contribution of liberal policies to the economic performance of East-Asian countries and neglects the impact of industrial and other state policies. According to Wade (1996), ‘the result is heavily weighted towards the Bank’s established position, and legitimizes the Bank’s continuing advice to low-income countries to follow the “market-friendly” policies apparently vindicated by East Asia’s success’. For the same reason, the model followed by Vietnam has to be normalized in order to be formally integrated into the dominant model. There is no alternative, as the World Bank has been confronted with a persistent crisis of legitimacy since the 1990s (Bresser Pereira, 1995; Cling et al., 2003; Engel, 2010) and is desperately looking for model countries in order to legitimize its policy recommendations, as the countries taken as an example have all successively failed after a while and consequently have all become ‘black sheep’. Indonesia, which has been number one in the list for several decades until the Asian crisis in 1997, is one of the best examples in this respect (Engel, 2010). The World Bank cannot therefore allow itself not to include countries such as Vietnam, which are emerging from under-development and are successfully eradicating extreme poverty. Indeed, refusing this would threaten the legitimacy of its neo-liberal model.
4Our analysis shows how the World Bank takes over ownership of economic policies followed by Vietnam and of their results, which it has to adapt and to present in a biased way in order to make them fit into its policy model, and how this is accepted by Vietnam because it brings the country economic and political benefits. This ‘marriage of convenience’ between donors on the whole and Vietnam, taking advantage of its ‘success story’ status and of the ‘disbursment culture’ of development aid agencies, has already been analysed by Gainsborough (2010). We apply this concept to the relationship between the World Bank and Vietnam, adding the ideological dimension presented here above. The analysis is based primarily on various studies and reports concerning the activities of the World Bank in this country and the history of economic policy and reform in Vietnam. Three reports prepared by this international organization to relate the history of its interventions in this country (World Bank, 2012a; 2012b and 2012c) have been especially mobilized, as well as a parallel report prepared by the State Bank of Vietnam (2012), which is entitled significantly Vietnam-World Bank: Long Term Companions in Development. It also draws on numerous interviews held with staff of the World Bank, other international institutions working in this country and government officials.
5The first part analyses the main characteristics of the development model followed by Vietnam since Doi Moi (‘Renewal’) and derives from the analysis that the claims made by the World Bank are a fallacy: presenting Vietnam as a success story of liberalism and claiming that the World Bank has played a decisive role in reform and therefore in Vietnam’s economic performance is unfounded. The second part seeks to understand the actors’ rationality and the ‘role play’ in which the World Bank and Vietnam are engaged: why does this country accept this biased presentation made by the World Bank to the international community, and what does it gain from it? Conversely, what does the World Bank have to give Vietnam to make it accept this message? In order to answer these questions, we analyse the relationship between the World Bank and Vietnam adopting an international political economy approach and show that the usual unequal power relationship maintained with poor countries gives way to a more balanced relationship. The World Bank has had to adapt its way of doing business in order to be accepted, while the Vietnamese authorities have accepted to be taken as a model and have benefitted from this situation. The third part is a case study of this very specific relationship, which describes how the World Bank eventually managed to ‘plant its flag’ in Vietnam through poverty reduction policies. Since the adoption of the Millenium Development Goals (MDGs) in 2000, poverty reduction has been put at the core of development policies worldwide (Cling et al., 2003). As Vietnam’s performance in this area over the last few decades is among the best in the world, the World Bank has presented Vietnam as a model and has included Vietnam in the new poverty reduction strategies it promotes. By doing so, it has legitimized these strategies while increasing its hegemony among donors. The conclusion looks at the World Bank’s prospects in Vietnam now that it has become a middle-income country, and wonders how this could change its modus operandi.
6Vietnam has posted remarkable macroeconomic performances since the launch of Doi Moi. Despite arriving in this country nearly a decade after the launch of reforms and economic take-off, the World Bank did not hesitate to rapidly take over ownership of policies and of economic results. Indeed, it claimed that it had a decisive intellectual influence on the design of policy reform and constantly reaffirmed that Vietnam was following a liberal economic model corresponding to its recommendations. We show in this first part that this is a fallacy: not only has the Vietnamese development model numerous specificities which make it essentially different from the ‘post-Washington consensus’, but reform has been mostly ‘endogenous’ in Vietnam and not imposed from outside.
- 3 The Economist, Special Report on Vietnam, ibid.
7After decades of war followed by years of economic depression and penury, Doi Moi (1986) marked Vietnam’s transition to ‘market socialism’. The economic take-off observed since then is quite exceptional among developing countries. Since the mid-1980s, GDP growth has been close on 8% per year (a performance similar to China whose annual growth rate has hovered around 9% over the same period) and export growth has been even higher than in China over the last decade. These performances prompted the weekly The Economist to hail Vietnam as ‘Asia’s other miracle’ (the first being China) in a special report on the country.3
8Vietnam shares indeed many common characteristics with China in terms of economic policies and performances, in spite of the huge size difference. These two countries are the only ones worldwide which combine a market economy with a one-party State led by the Communist Party. Some authors go as far as considering that they follow the same economic model, called ‘socialist market economy’ in China and ‘socialist-oriented market economy’ in Vietnam (Lê Hữu Tầng and Liu Han Yue, 2006).
- 4 The Vietnamese report prepared by the State Bank only mentions this concept once and almost at the (...)
9Doi Moi set the stage for the emergence of a vibrant private sector alongside a huge sustained public sector, with state-owned enterprises continuing to control whole swathes of the economy (energy, industry, banks, etc.). The government has, by and large, continued to conduct highly active public policies in all areas (agricultural, industrial and planning policies), to regulate basic commodity prices, and so on (Beresford, 2008). This distinctive economic model, of a market economy combined with strong government intervention, has been called ‘developmental state’, ‘state capitalism’ or ‘alliance capitalism’ and has been applied in equivalent forms by most of the emerging Asian countries (World Bank, 1993). As pointed out by Masina (2006), there is a debate concerning the classification of Vietnam, some researchers consider that it is applying ‘state capitalism’ (like other emerging ‘capitalist’ countries) and some others rather ‘state socialism’ (such as China). Apart from political considerations and the existence of economic five-year planning, the fact that Vietnam accessed WTO as a ‘non-market economy’ (like China) acknowledges this latter specificity. However, for reasons detailed in the second part of this paper, there is an implicit agreement to present Vietnam as a regular market economy: neither the above mentioned reports prepared by the World Bank on the history of its interventions in Vietnam mention that it is a ‘socialist-oriented market economy’ (or at least not a usual market economy), nor the companion report prepared by the Vietnamese authorities.4 Furthermore, the concept of ‘socialist-oriented market economy’ is never defined precisely, which gives room for maneuver to play on words.
10All in all, as shown by Masina (2006) and Thoburn (2009), comparisons made with China and other Asian emerging countries should not lead to underestimate the specificities of the Vietnamese development model.
11First and from a broad perspective, Vietnam shares many characteristics with other Asian emerging countries and can be qualified as a developmental state. Its economic boom over the last quarter of a century is due to an original combination of mutually supporting (political and economic) institutions and agents. The key role played by public authorities with considerable administrative, managerial and implementation capacities, the permanence and long term planning of growth policies (fixing long term national goals) implemented shape the main common characteristics of this original “political settlement”, using the terminology proposed by Khan and Blankenburg (2009). From this perspective, emerging Asia neither adhere to the models followed by other developing countries nor to the normative framework of liberal market economies.
12Second, Vietnam and China are undoubtedly different within this region, because of their political regime and the balance of power which derives from this regime. The one-party system gives the Communist party and its affiliated organs (mass organizations) very strong control over the transmission of decisions from the national to the local level. However, this “democratic centralism” is counterbalanced by a high level of decentralization (see for example Albrecht et al., 2010, for the case of Vietnam; and Aglietta and Bai, 2012, for that of China). Decentralisation allows the pressure imposed by the one-party system to be alleviated, by regulating top-down and bottom-up initiatives. In this respect, the situation of Vietnam and China contrasts with the highly centralized systems that characterized such economies as South Korea and Taïwan.
- 5 The pros and cons of the “gradualist” vs “big bang” approach have been strongly debated in academic (...)
13Third, Vietnam differentiates from China in many respects, and especially in the degree of decentralization which is even higher in the former than in the latter country. Not only local (provincial) authorities have more extended powers, but wide income redistribution between provinces gives even the poorest some financial means necessary to conduct public policies. This balance has led Vietnam to achieve much better results than China in terms of economic inequalities or social cohesion. The degree of freedom allowed to local authorities has also shaped significant differences in the way reform has been implemented in both countries. Although both have adopted a flexible and gradualist approach5, Vietnamese “operational pragmatism” has been quite different from Chinese “theoretic pragmatism”. In Vietnam, the central authorities authorized a substantial leeway for experimenting, before scaling up when successful. In China, new innovative policies had to get the green light from central authorities prior to being tested (Lê Hữu Tầng and Liu Han Yue, 2006)
14As in other South-East Asian emerging countries and because of their size, there is a heavy reliance on exports which also implies high vulnerability to the international economy.
15Indeed, like most of the emerging Asian countries, Vietnam has applied an export-driven growth model supported by massive foreign direct investment, which contributes to the majority of its exports (Cling et al., 2009b). This has prompted swift international integration despite the American embargo on the country remaining in place until 1994. This international integration is the result of a combination of economic liberalism, improvement of market access to industrialized countries and pro-active public policies: fixed exchange rate, contrary to flexible exchange rate policies promoted by the Bretton Woods Institutions (BWIs), the Dong exchange rate following a ‘crawling peg’ to the US dollar; import substitution policies, which have mixed selective import protection with strategies to develop new export sectors. Starting from scratch at the beginning of the 2000s, Vietnam has become over a decade the second largest exporter of garments to the American market (after China) and manufactured products now represent half of its exports. Export surge has been supported by export subsidies, tax exemptions in export processing zones, etc. Trade liberalization has been very gradual, and the effective protection rate was still at a very high level until the mid-2000s. The same goes with financial liberalization: the national currency is still not convertible and foreign investment in financial services was prohibited until WTO accession (2007). Agricultural performances have been astounding, particularly regarding previous food shortages. Starting also almost from scratch in the 1990s, Vietnam has now become the world number two exporter of rice and a leading exporter for several cash products (Chaponnière and Cling, 2009). Liberalization (production and trade) has certainly contributed to agricultural production growth; but land reform is another key factor, insomuch as the collectivization-decollectivization process has distributed land to small farmers who have later been the main engine of the boom registered since the 1980s. This complex mix of factors is acknowledged by The World Bank report on Pro-poor growth in the 1990s, which underlines that ‘trade liberalization and land reforms promoted the rapid emergence of Vietnam as a major world exporter of rice and coffee’ (OPPG, 2005). But it forgets to mention the decisive role played by ‘pioneer front’ policies (in the case of coffee) and does not delve on land reform in Vietnam, beyond creating land markets and granting land property rights to smallholders. The same happened with the Vietnam Development Report (VDR) 2012 entitled Market Economy for a Middle-Income Vietnam, which only refers to trade liberalization, decollectivization and land rights as the major drivers of export growth (World Bank, 2011).
- 6 This change of stance also led to the discharge of the debts contracted with the BWIs by the South (...)
16The Bank re-engaged with Vietnam in 1993 following the American administration’s change of stance after Clinton came to power.6 Coming, as it did, one year before America lifted its embargo against Vietnam, the Bank’s return marked the end of the country’s isolation and the resumption of activities by other donors. Only the UNDP (United Nations Development Programme) and the Swedish International Development Cooperation Agency (SIDA) had remained in Vietnam for nigh-on two decades of isolation that followed the country’s reunification in 1975. The historical circumstances surrounding the Bank’s arrival in Vietnam played (and continue to play) a decisive role. Facing acute economic difficulties and food shortages, the country decided to launch Doi Moi on its own initiative without foreign advice before the international institutions turned up in the country (Rama, 2008). At a time when Vietnam was under the American embargo and isolated internationally, the authorities urgently needed technical assistance to carry through the reform process. Yet their ‘brother countries’ were in no position to provide this assistance: either because they had their own problems (Russia and other Eastern European countries) or because relations had been cut off with China, which had embarked upon its own reform in 1978.
17Even before the World Bank’s official return to Vietnam, it was providing this assistance on an informal basis. The Prime Minister’s aides at the time have fond memories of the days when, with just one ‘Dollar’ (David Dollar, today the Bank’s Country Director for China), the Bank played a role in making the country open to international experiences. The exchanges concerned macro-economic stabilization, trade liberalization, foreign investment, etc. Two decades later, this dissemination of foreign experiences is still one of the Bank’s most welcome contributions to Vietnam.
18Towards the end of the 1990s, the World Bank started presenting Vietnam as a success story of development aid reforms (in this case less for financial than for intellectual reasons). A famous report co-authored by D. Dollar (one of the coordinators of the first dialogue with Vietnam) and L. Pritchett formulates this thesis, while recalling the first ‘informal’ World Bank interventions before it officially returned to this country (World Bank, 1998).
19The above mentioned report emphasizes with modesty that ‘It is impossible to measure the exact effect of these donor activities’, but later on, nonetheless, boasts that ‘Intensive staff time [implying “of the World Bank”] required little money and made a big contribution to the country’s reform and development’. This conclusion is very excessive, as it is confirmed by the chronology of reform in Vietnam and of the progressive come-back of the World Bank, as it is recalled by the World Bank itself in a report on the historical process of reform in Vietnam, prepared for the Growth Commission by the then chief economist of the World Bank in Vietnam (Rama, 2008). As this latter report rightly confirms, reform in Vietnam has been more ‘endogenous’ than ‘exogenous’, without neglecting the usefulness of outside advice such as the one brought about by the World Bank and other foreign agencies.
20Another proof of this limited influence of the World Bank in policy decisions lies in the fact that on several occasions over the last two decades, the Vietnamese government refused to go ahead with reforms that the World Bank (and more generally the BWIs) tried to impose. At the end of the 1990s, Vietnam refused to launch a structural adjustment programme, in spite of the significant and badly needed funding offered by the World Bank and the IMF (Hayton, 2010). The government signed in 1996 a joint Policy Framework Paper, which defined the global design of this programme. It was then too reluctant to go any further. In 1997, it refused a structural adjustment credit which would have meant going ahead with the programme; on several other occasions, the government refused conditional funding subject to structural reform: privatization of State-Owned Enterprises (SOEs); restructuration of the banking sector; trade reform. The Minister of Planning and Investment (MPI) declared: ‘You cannot buy reforms with money… no one is going to bombard Vietnam into acting’ (quoted by Hayton, 2010). Vietnam’s retrospective view on this conflict is put diplomatically: ‘the World Bank has drawn the lesson that the ownership of each country in development formulation is extremely important for the sustainability of reforms’ (State Bank of Vietnam, 2012). Ironically, this is precisely what of the main lesson drawn later by the World Bank from the failure of structural adjustment policies in developing countries on the whole, which inspired the new rules of aid ownership (World Bank, 2002; OECD, 2005).
21Another example of this endogenous character of reform and of this reluctance to accept outside pressure concerns trade liberalization. Vietnam eventually signed the bilateral free trade agreement with the United States (USBTA), which the USA pushed for very actively. But Vietnam later on refused to speed up the negotiations for WTO accession (in spite of the World Bank’s and foreign encouragements), which had been started in 1995. It is only when the trade gains obtained through the USBTA became obvious that the government decided to go ahead with multilateral trade liberalization and with WTO accession which became effective at the beginning of 2007.
22How much of a role has the World Bank played in the growth path of the Vietnamese economy? It is hard to give an accurate answer to this question, knowing that M. Rama (2010) admits that ‘the World Bank has had a limited impact on the trajectory of the Vietnamese economy’. In a similar vein, the historical report on Vietnam and the World Bank is rather modest about its contribution: ‘The Bank’s role in providing access to knowledge on development is consistently raised by officials as its most important contribution’ (World Bank, 2012a). Contrary to its practice in many developing countries, the Bank, like the other donors, cannot really claim to have influenced the economic policy choices in Vietnam, much less the pace of reform implementation. Nevertheless, the Bank has provided advisory services, economic analyses and capacity building (Cling et al., 2009). The part played by the Bank on the policy research front especially meets a real demand from the Vietnamese authorities who want to draw on international experience, not to apply as are the models presented as benchmarks (best practices), but to fuel internal discussions on the directions to take. Reform implementation decisions are made only when they have enough analytical elements to prove their relevance to Vietnam. So the Vietnamese authorities mobilize the resources and research in order to steer and implement reforms with their own homegrown agenda. Vietnamese authorities summarize this relationship this way: ‘support from donors on policy development should be based on the roadmap for reform of the Government with strong incentives for implementing policies rather than a plan to impose these policies’ (State Bank of Vietnam, 2012). But at the same time, the Vietnamese authorities seem to overestimate the contribution of the World Bank, emphasizing that ‘it [the World Bank] has huge and effective contributions for economic development, social progress and poverty reduction in Vietnam’ (State Bank of Vietnam, 2012).
23The question is therefore to know why the Vietnamese authorities have let the World Bank present the country as the most accomplished example of success of its development policy recommendations, and what has been the price of this arrangement? If the motivations of the World Bank are relatively obvious, given its crisis of legitimacy, it is somehow a paradox that the Vietnamese authorities accept this situation, insomuch as ideological inclinations seem to be antagonistic.
24As shown in the previous part, the Vietnamese context is characterized by great pragmatism of the authorities and by a limited influence of the World Bank in spite of its claims. At the same time, and in spite of a few clashes as seen here above (especially at the turn of the century with the World Bank concerning structural adjustment policies and with the IMF concerning privatizations and exchange rate policy), the authorities are well aware that they need the World Bank and development aid in order to finance the country’s development and acquire international credibility. This is the main reason why, according to Masina (2006), ‘The Vietnamese authorities have chosen to avoid confronting the international financial institutions with strong policy declarations… Their line of resistance could only be detected by looking at how the various measures were implemented’. At the same time, the World Bank has shown some flexibility in order to maintain its activities in the country and to keep its privileged relationship with the authorities. Vietnam acknowledges this relationship of mutual interest and goes as far as to suggest that ‘the relationship between Vietnam and the World Bank developed from a “normal” relationship between the World Bank and a member country to a mutual partnership’ (State Bank of Vietnam, 2012). In this part, we analyze this ‘marriage of convenience’ and how it has been working in the 2000s.
25In Vietnam as in other developing countries, the Bank aims through its funding to influence development (macro-economic and sector) policies. Because there is no IMF programme in Vietnam, the capacity of the Bank to influence policies is increased. But Vietnam above all follows its own development path, even if it also borrows from the experience of other (especially Asian) countries. Because of this, the influence of the Bank in Vietnam can only be based on a non-doctrinary approach taking into account these specificities.
26The Bank’s ability to adapt to the Vietnamese environment is to its credit. Firstly, as it rather inspired misgivings over the structural reforms, it focused its actions mainly on developing infrastructures and poverty reduction. Secondly, instead of trying to win the Vietnamese over by means of direct negotiations, it prioritized working with key institutions that provide analyses and advisory services to the decision-makers (Rama, 2008).
27Lastly, rather than define conditionalities for the granting of loans, the Bank for once adopted a more flexible stance. The emphasis is on guidelines that define a certain number of strategic reforms negotiated with the authorities and intermediate goals to be met. Disbursement hence depends on an overarching assessment of the state of progress with the recommended reforms rather than the satisfaction of precise criteria. So the Bank has learnt to be less demanding about the speed of reform implementation. More generally, this flexibility stems from the fact that the institution’s actions today are no longer presented as assistance activities but as partnership activities, hence the title of the report: Vietnam and the World Bank a strong and enduring partnership (World Bank, 2012a).
28The institution’s more flexible position has to do with the large volume of credit granted to the country and the ambition to make it an example of success on an international scale. As it is a financial institution, the World Bank cannot afford to lose a client which has huge financing needs, knowing that its growth path and financial solvability induce low risks of default unlike many of other clients in the past. Moreover, the funding granted to the country must be proven to be well spent and for successful projects.
29More importantly, however, Vietnam has the particularity of an indomitable will and capacity to design and steer its nationwide reforms in total sovereignty. Yet the process takes time, and this does not meet with the recommended reform pace to the great despair of the international institutions’ experts. The question could therefore be raised as to whether the Bank’s atypical relationship with the Vietnamese authorities, which has in some ways been imposed by the circumstances, should be held up as a model in the other countries in which the institution works.
- 7 Engel (2010) focuses on the 1990s until the very beginning of the 2000s, whereas our analysis cover (...)
30In this context, the World Bank interventions in Vietnam differ slightly to the liberal doxa, as implemented in its most radical version within structural adjustment programs, especially in Africa (with many intrusive conditionalities). In this respect, we nuance here Engel (2010), who argues on the contrary that World Bank policies in Vietnam are similar to the ones promoted in other developing countries.7 Although they don’t question the main objectives, of the ‘Post-Washington Consensus’, principles guiding the interventions of the World Bank in Vietnam take into account some critiques from within the organization (World Bank, 2005).
31They especially accept the need to find a balance between market mechanisms and public policies, the mix between each of them having to be defined on a case basis. For example, the World Bank supports ongoing privatizations in Vietnam, but also promotes the gradual and partial approach adopted by the government, and recognizes the contribution of SOEs to the Vietnamese economy. In various areas and considering empirical data, the behavior and performances of SOEs compare well to the private sector. The Vietnam Development Report 2009 emphasizes that ’postulating the inefficiency of public enterprises is too simplistic to be useful’.
32Of course the huge scandal of Vinashin dockyards bankruptcy at the end of 2010 also confirms the management and corruption problems encountered with some SOEs, which allowed the Bank to be less cautious about this issue as the dysfunctioning of SOEs became so obvious publicly. Overall, the question of capital ownership (private or public), which is potentially the most contentious between the World Bank and Vietnamese authorities, is emblematic of the gentleman’s agreement behind the double paradox which this paper aims to study. On the one hand, the formidable expansion of the private sector, first with regards to agriculture following the de-collectivisation process, then industry and services, is put forward by the World Bank in order to explain the Vietnamese success story. On the other hand, the authorities do not put in question this partial and biased presentation, as far as it neglects the hidden side of the story, which is the determining weight of SOEs and State-Owned Commercial Banks (SOCBs) in the economy. The government wishes to keep this weight intact for strategic reasons. The share of public employment (State+SOEs) in total employment even increased between during the 2000s (from 9.3% to 10.5%). However, due to the dynamism of the private sector, SOEs’ share of employment in the enterprise sector steadily diminished during the last decade (from 59% of the jobs in the formal enterprise sector to 19% in 2009). In spite of this declining share, the State not only keeps control of all the critical sectors, but also still has considerable presence in various commercial activities (World Bank, 2011).
- 8 It will take 15 years after the Asian Crisis for the IMF to recognize the potential benefits of cap (...)
33Contrary to the standard recommendation for a flexible exchange rate as an ultimate objective to absorb short-run shocks and free up leeway for monetary and tax policies, the disadvantages of a flexible exchange rate are clearly condemned. Greater vulnerability to external shocks leads the Bank to conclude, ‘Whether the ultimate objective of the government is a fully flexible exchange rate is unclear at this point. And even if it were, there are understandable reasons why the transition may take some time.’ (World Bank, 2009) The same observation holds for the liberalisation of the capital account.8
34The motivations of such a less doctrinary approach in this country are mainly constrained: because of the nature of the Vietnamese regime and of its undeniable economic success, the World Bank is not in a position to impose liberal shock therapies, as it has been able to do in other countries with a weaker government and where economic results are not so bright. Furthermore, because of decentralization, the power and relative autonomy of local authorities limits the potential influence of World Bank policies, which deals with central government. Therefore, decentralization makes the decision process and policy implementation more complex.
35The IMF, on the other hand, did try to stick to a ‘hard’ line and came away with a bad taste in its mouth, stopping its disbursements in 2002 and winding up its last programme in 2004. The official reason given was the rejection of the IMF’s request to conduct an independent audit of the central bank. Yet beneath the surface was Vietnam’s decision to dispense with the IMF’s services due to a growing disagreement over privatizations (state-owned enterprises and banks), with the Vietnamese authorities resisting attempts to speed up the process underway. The IMF’s handling of the 1997 Asian crisis, widely criticized by many governments in the region, also came into play since it had left a dent in the IMF’s credibility (Rama, 2008).
36In the first place, the Bank has always scrupulously respected the basic principle of non intervention in the political arena, as laid down in its charter. Without going so far as to defend the concept of ‘Asian values’ promoted by the leaders of Singapore, the Bank remains oblivious to the political regime as long as the principles it defends are respected (ownership, empowerment, etc.). Like other donors the Bank has also avoided to formulate direct critiques on certain matters of governance and corruption (unlike what it did in Cambodia), just as it was making good governance a core element of its policies in the other developing countries. It preferred to adopt a practical approach on governance issues (reform of the custom and financial system) rather than a doctrinary one. At the same time, it tried to encourage the government’s effort to launch reform on this subject, while recognizing the complexity of their implementation. The VDR 2010 dedicated to corruption and institutions is a good illustration of this gradual approach. This attitude strengthens the Vietnamese authorities’ relationship of trust with the Bank, as it is not threatening their power and is not interfering with domestic policies. This is consistent with the World Bank presenting Vietnam as a model of liberalism but only to the outside world, without trying to promote it openly inside the country.
37Obviously, as elsewhere, the policies promoted by the Bank could change the domestic balances and eventually lead to political protest. For example, building up the non-state entities (private sector and local authorities) will necessarily make it harder and more complicated to maintain the current mode of political rule; not to mention the more general theory that economic development itself automatically puts pressure on for political liberalisation (Inglehart & Welzel, 2005; Acemoglu & Robinson, 2012, for the case of China).
38However, insofar as the authorities consider that the Bank’s purposes correspond to their own aims, these (potential) induced effects are a risk to be taken and it is their own responsibility to keep the lid on them. In some ways, by supporting the massive budget transfers between provinces and categories of population, the Bank is effectively an objective ally of the Vietnamese government in that it avoids a source of social unrest. This relationship of mutual interest is criticized by other donors who consider that the Bank is an unconditional supporter of Vietnam (its cheerleader) and serves as a guarantor for the country (for example, the signing of the Poverty Reduction Strategy Credit triggers other funds), when the international community’s duty should be to insist that certain principles are respected (human rights, governance, state-owned enterprise reform, etc.).
39In some way, one could say that the Bank managed to use to its own advantage the Vietnamese authorities’ extremely pragmatic approach to the reforms, rejecting a too sharply ideological attitude. This uncommon course of influence (from the country of intervention to the Bank) is obviously an accomplishment for Vietnam. Yet it is also to the Bank’s credit for taking more of a back seat and not always dictating. Although some convictions might explain part of this choice, tactical considerations and the powerful position of Vietnam have contributed mostly. The Vietnamese economy’s outstanding performance obviously went a long way to making the Bank more receptive and swinging the internal pendulum away from the proponents of a more radical attitude and towards the ‘moderates’.
40Although the Vietnamese authorities are very attentive to their relationship with the Bank (which is far from the case with China, for example), they only apply (or reject) its recommended policies after assessing them in detail. This ensures total policy effectiveness and justifies the application of ownership principles at the same time. It is because Vietnam is in good enough shape to take its future in its own hands and because it tries to define its own vision of its development that the Bank can play the role it plays. A cheeky assertion at this point would be, ‘It is the Bank that buys into Vietnam’s policies rather than vice versa.’
41Vietnam gains from this relationship through different channels. The country needs foreign funding: although it gets a lot of private (especially FDI) and public capital inflows (development aid from other sources), the World Bank funding has a signaling and leveraging effect. The credibility granted by the World Bank is all the more important as Vietnam has been isolated internationally for many decades, refuses IMF funding, and is still stigmatized in certain circles as a Communist and ‘non market’ economy (especially at the WTO). Because this status makes Vietnam’s access to the world’s leading markets shaky and more vulnerable to anti-dumping procedures, the Vietnamese authorities are fighting to get a ‘market economy status’. In this context, it is better for them to hide the specificities of the economy and to blend in among other developing countries.
42To sum it up, there is a win-win relationship between the World Bank and Vietnam. Rather than following the same policies and objectives, each of them has their own interests which appear to be compatible. Vietnam benefits from the World Bank’s support, in terms of (direct and indirect) funding, advice and increased credibility. The World Bank gains by claiming wrongly Vietnam’s success as its own, which reinforces its credibility among the international community, while it keeps conducting the same neo-liberal policies in other developing countries. But isn’t this balanced and fruitful relationship preferable to the asymmetric and domineering relationship conducted by the World Bank with most other developing countries?
43Poverty reduction is a long-standing priority in Vietnam. It predates the international community’s adoption of the poverty reduction strategies and Millennium Development Goals (MDGs). We look here at how these international initiatives may have influenced the content, directions and outcomes of the poverty reduction strategies conducted in Vietnam, and especially on the Bank’s role in this process. The main message drawn from our analysis is that Poverty Reduction Strategies Papers (PRSPs) have provided the World Bank with a golden opportunity on both levels: first it has allowed this institution to ‘plant its flag’ in Vietnam and to increase its funding to this country, which is especially important as the World Bank is constantly looking for new clients; second, by including Vietnam in these strategies while hailing Vietnam as ‘one of the most impressive histories of poverty reduction in modern times’ (World Bank, 2012b), the World Bank has managed to legitimize these strategies through claiming ownership of Vietnamese poverty reduction policies, even if these were conducted long before the launch of PRSPs.
44At the beginning of the 1990s, poverty remained endemic in Vietnam despite the end of the previous decade’s penury. The first household survey conducted in 1993 estimated that 58% of the population was poor. By 2008, this percentage had plunged to less than 15% and extreme (food) poverty had plummeted to 5% of the population (from 25% in 1993).
45The massive national drop in monetary poverty is due primarily to the Vietnamese economy’s rapid growth. Unlike many developing countries, this growth has been largely inclusive, avoiding the marginalization of a large proportion of the population and a sharp rise in inequalities. The Gini Index, the most widely used gauge of inequalities, posted an increase from 0.34 in 1993 to 0.37 in 2008. This is relatively low (especially compared to China’s increase), bearing in mind that the level of overall inequalities itself remains modest.
46Public policies have also played a role with ambitious budget transfers between rich and poor provinces and the targeting of poor populations:
47- the size of the budget transfer between rich and poor provinces is remarkable, which makes Vietnam’s transfer policy very specific among developing countries; through the equalization mechanism, the richest provinces (Ho-Chi-Minh City) transfer as much as three quarter of their budget resources to the poorest provinces; for the latter, financial transfers represent as much as half of their provincial GDP; these resources make political decentralization work as provinces have the financial means to conduct their own social and development policy since the Budget law of 2002, which came into effect in 2004 (World Bank, 2008);
48- two poverty reduction programmes have also played a less important part in this: the National Targeted Programme for Poverty Reduction (NTP-PR) and the P135 programme to assist people living in mountain areas. The first programme grants financial transfers to the poor (for health in particular), while the second has primarily helped village communities to build infrastructures (roads, schools, etc.). This second programme receives Bank funding.
49The immediate upshot of these massive infrastructure investments has been a sharp rise in access to public services and an extremely positive shift in the human development indicators. For several of these indicators (life expectancy, school enrollment, etc.), Vietnam is far ahead of all the countries with a comparable development level. All in all, Vietnam is ahead with most of the Millenium Development Goals (MDGs) from the point of view of the 2015 deadline, a fact of which few developing countries can boast (World Bank, 2008).
50In 2002, at the donors’ request, Vietnam prepared and adopted a Poverty Reduction Strategy Paper (PRSP) entitled the Comprehensive Poverty Reduction and Growth Strategy (CPRGS). Vietnam, like all the low-income countries, had to observe the PRSP initiative if it wanted to continue receiving funds from the Bank and the other aid agencies.
51Around one hundred million dollars in annual financing (150 million dollars assigned for 2012) has been allocated to the poverty reduction and growth strategy in the form of budget support every year since 2001. The Poverty Reduction Support Credit (PRSC) is the financial instrument designed by the World Bank to channel budget aid aimed at fighting poverty in Vietnam as in other developing countries following poverty reduction strategies.
52Even if the CPRGS was not drafted by the Bank’s office in Vietnam (Ohno quoted by World Bank, 2012a), contrarily to what happened in many African countries (Cling et al., 2003), it was written by the authorities in close coordination with the Bank. With the adoption of this strategy, the Bank granted a first PRSC in 2001-2002 (the tenth and last tranche of which was launched for 2012). Vietnam was the first developing country, alongside Uganda, to have a PRSP. Several donors followed the Bank’s lead and also granted budget support credits.
53Yet the CPRGS failed to really find its place in government policy, since the Vietnamese government continues to apply five-year planning. Once the CPRGS had been adopted, the government no longer referred to it and it was quickly forgotten. The Bank consequently decided that the five-year plan would be deemed Vietnam’s PRSP, and this decision was put into practice for the Socio-Economic Development Plan 2006-2010 (which makes no reference whatsoever to the CPRGS). The SEDP’s content is however largely different to a classic PRSP and very similar to the previous five-year plans. It prioritises macroeconomic policies and infrastructure projects, in keeping with the usual purposes of these plans. Surprisingly, reference to the MDGs is only found in the appendix and the poverty reduction goal is barely mentioned. Policy budgeting is presented for the projects only. And, despite the fact that the SEDP echoes the five-year Soviet plans by setting a number of highly specific targets for the level and annual growth rates of the main economic aggregates as well as for the period-end social and human development indicators, no policy monitoring and evaluation system is associated with these goals (whose inclusion is nonetheless one of the innovations introduced by the PRSPs).
54However, the SEDP does have the fundamental advantage of being drawn up by the government (whose ownership principle is respected) through some public consultation (see below), and of corresponding to its priorities which was not true of the CPRGS. Seeing as the SEDP is perceived as the benchmark document for the development and poverty reduction strategies, it makes sense to assess it using the analytic grid applied to the PRSP. We find that the macroeconomic policy does not link up with poverty reduction and there are no explicit trade-offs concerning the growth model chosen. Moreover, the SEDP mentions the economy’s international integration and sets trade growth and export upgrading targets without taking into account either the obstacles encountered or the impact of the international integration model chosen, especially from a social standpoint (what impact do FDI flows have on regional inequalities, for example?).
55All in all, the SEDP’s policies remain extremely broad-based (despite their sector and regional focuses) and interventionist. The document’s presentation tends to underpin the impression that the government determines all economic and social outcomes, which is not so true anymore in Vietnam where the government’s role is dwindling in an up-and-coming market economy. From the institutional point of view, in particular, the SEDP sidesteps the problems raised by the breakneck economic and social restructuring process underway in Vietnam.
56The Bank is aware of these shortcomings and addresses them in part in the Vietnam Development Reports (VDRs) prepared for the annual Consultative Group meetings between the government and donors. The VDRs take the government’s strategy such as it is presented in the SEDP and define economic policy guidelines (which are mainly the Bank’s) to implement it and achieve the goals set. These recommendations link the SEDP to the PRSC and incorporate the conditionalities associated with this programme. The VDRs hence also form a guide to measure progress made, in the absence of a specific monitoring and evaluation system for the SEDP.
57The PRSC, which is a budget-aid programme negotiated by the Bank with the government, plays a key role in the coordination between donors. It has become a tool for many donors to engage in dialogue on the policies they wish to promote. In this way, the PRSC helps smooth the way for multi-donor credits. A dozen countries (with the United Kingdom top of the list) hence co-finance the PRSC along with the European Commission and the Asian Development Bank, generating a total sum of nearly 1 billion dollars in 2006-2010, approximately doubling the amount offered by the World Bank. Even more donors have taken part in the discussions held in connection with this programme. The Bank’s programme has therefore gradually gained greater leverage and the PRSC’s total funds ultimately come to more than double the sum granted directly by the institution.
58The World Bank’s financial weight in Vietnam, combined with its capacities based on its locally available human resources (the staff comprises around 100 people), makes the institution the natural candidate for international community co-ordinator. This role has earned it praise, but also criticism from the other donors. The Vietnamese government appreciates the Bank’s co-ordination role since it means it can externalize among donors the transaction costs that are payable by the national authorities in most of the developing countries. The Bank therefore finds itself acting as a go-between for the other donors, if not deciding between their positions on behalf of the government.
59Co-ordinating all the donors’ actions while promoting its own aims and criteria inevitably gives the Bank a certain amount of power. So it is hard for it to escape gripes about its domination, especially since behind the statements on the harmonization of international development assistance lies the obvious fact: the World Bank’s main aim, just like the national and international development agencies, is to conduct its missions and step up its activity, influence and profile. This prompts competition among donors, although it does not rule out the possibility of mutually beneficial co-operation where fitting.
60Vietnam, unlike most of the other developing countries, does not have a civil society legally independent of the ruling political party in Vietnam. All the associations have to join the so called ‘mass organizations’ like the Vietnam Fatherland Front. However, these associations are allowed in practice some leeway, which is not precisely defined and which evolves permanently. Furthermore, there is no clear indication that the different functions promoted by the Bank via the participatory processes (participation, empowerment, ownership and accountability) are less well fulfilled than in many other developing countries with more liberal political systems. Also, Abrami, Maleski and Zheng (2008) argue that Vietnam’s political system empowers a larger group of citizens and accepts more accountability than China’s.
61Firstly and as previously stressed, despite the official principle of ‘democratic centralism’, the highly decentralized system affords real decision-making power to the local political levels in the form of people’s committees and councils working at the different levels (province, district and commune) of the administrative structure. Underpinned by a still weighty historical legitimacy derived from the war period (proliferation of grass-roots initiatives), these committees and councils enjoy a great deal of independence and the central authorities find it hard to impose their views and co-ordinate policies (public investment, taxation, etc.).
62Secondly, Vietnam is singular among countries with comparable development levels for its consultation of the people by these local authorities. Although an iron hand still looms, the people have many opportunities to voice their opinions. For example, over half of the households on the P135 poverty reduction programme for people in mountain areas and ethnic minorities say they were consulted about this programme and two-thirds were satisfied with the outcomes (Le Dang et al., 2008). In many other LDCs, the level of participation is far lower, in spite of being considered as formal democracies (Cling et al., 2004).
63More generally, the participatory process associated with the CPRGS co-ordinated by the Bank and a number of international NGOs comes across as a model of its kind (Shanks and Turk, 2002) in blatant contrast with the bogus exercises organized in most of the developing countries. Last but not least, the system’s decentralization and the success of the participatory processes sustain the Bank in its indifference to Vietnam’s political organization, which is anyway out of its mandate).
64The consultations held to define the CPRGS set the stage for a participatory process to develop the SEDP in 2005 in keeping with PRSP preparation principles. The National Assembly discussed and passed the Plan. Several foreign NGOs and donors helped organize consultations in the provinces. The Bank believes that these consultations gave the SEDP an even sharper poverty reduction focus by influencing it in at least three areas: scaling up the section on agricultural development and farmers’ organizations; prioritizing basic services to ethnic minorities (in particular, a commitment to waive tuition fees for these populations); and sharpening the focus on involving the people in the decision-making process, with the aim of introducing more participation, transparency and accountability into the poverty reduction programmes (World Bank, 2007).
65All in all, the PRSPs’ advocated principles have improved the way in which the SEDP is prepared and its content into the bargain, without imposing a development policy from the outside. But will this advance be lasting? One can doubt about it, judging by the way the SEDP 2011-2015 has been prepared. The principles advocated by the World Bank, which were followed by the previous SEDP, have already been dropped: this new SEDP hardly refers to poverty and even less to concrete poverty reduction policies; no reference is made to the Millenium Development Goals and to the question of monitoring; last of all, the SEDP has not been prepared – and this is a major difference with the previous SEDP – within a participatory process extended beyond government, provincial officials and Parliament circles (World Bank, 2012b). The changes of staff within the economic department of the World Bank office in Vietnam can explain partly less emphasis on the PRSP principles on behalf of the Bank, which is also consistent with the same trend implying less emphasis on participatory process in the new generation of PRSPs. But one can assume that Vietnam having become a middle income country since 2010 makes it even less dependent than before on World Bank funding.
66The Bank fulfils its three-pronged mission in Vietnam: its financial role (granting loans), its development agency role (assistance to poverty reduction policies, to implement reforms and infrastructure projects), and its knowledge production role (providing analyses in liaison with research bodies).
67As we have seen, the Bank may well play a prominent role among the donors in terms of both funds and economic policy advice. And it has piled on the economic policy advice at key moments (WTO accession and 2008 crisis). Yet its influence over Vietnam’s overall growth path is limited. Firstly, the sum of public and private funds from other sources, especially Japan (ODA, commercial loans and FDI), is infinitely higher. Secondly and more importantly, Vietnam does not have an exclusive tête-à-tête relationship with the Bank on the economic policy front, unlike many other developing countries. For historical, political and economic reasons, the Chinese model is inordinately more important to Vietnam than the Bank’s advice, often drawn from the experience of third countries.
68Vietnam has adopted many market economy principles at its own initiative in a fast-track international integration strategy. At the same time, it has held on to a dwindling number of particularities (see, especially, the role of the state-owned enterprises). So the Bank would find it hard to lay rightful claim to Vietnam’s economic successes, along with its poverty reduction achievements, even if it is sorely tempting to do so.
69It almost looks as if Vietnam were more important to the Bank than vice versa, on at least two counts: first, because the case of Vietnam is packed with development policy lessons; and second, because the Bank gains a political advantage image-wise from what it can hold up as the accomplishments of its work in the country. This singular situation has positive repercussions in that it makes the Bank more open and more receptive than in other developing countries. On their part, the Vietnamese authorities accept to be taken as a model because it suits them, especially in terms of funding and credibility which is all the more important as they refuse any IMF intervention. The result is a mutually beneficial win win relationship.
70The Bank’s approach in Vietnam, which consists of avoiding giving lessons, reinforces it relationship with the government and increases the effectiveness of its interventions. This approach allowed to establish a balanced partnership between equals, and increases the openness of the government to analysis and advice given by the Bank when it is needed. If the Bank only plays a marginal flanking role in Vietnam’s development process, rather than steering operations as it too often seeks to impose elsewhere, it is because the Vietnamese institutions are strong enough to be able to form an alter ego. The Bank’s flexible attitude to Vietnam is therefore a necessary, but insufficient condition for it to play a positive role in the country’s development.
71To conclude, we could look into the Bank’s prospects for action in Vietnam now that it has become a middle-income country. As we have seen, the form of financing will change and IDA’s no-interest loans will be replaced by IBRD loans at market rates. Vietnam’s development progress has also given it the ability to diversify its foreign financing sources. However, it would be jumping the gun to say that Vietnam will now be able to do without the Bank and the international institutions in general. In fact, at least three factors actually point to increased dependence on the Bank and the international institutions.
72Firstly, international integration has brought greater constraints on the economic policy as seen, for example, from WTO membership. The guarantee provided by the Bank and other international institutions will be needed for the WTO to grant Vietnam market economy status and for the country to secure the private capital market finances to which it can now aspire.
73Secondly, there is a risk that the international crisis could make the Vietnamese economy more vulnerable, at least in the short run. Even before the international crisis came into full fledge, the economy has been meeting serious difficulties since 2008. This could increase the need for more active intervention by international aid, especially the Bank (see, in particular, the granting of an international loan in 2009 to finance the fiscal slippage).
74Thirdly, and this factor was starting to raise its head even before the onset of the crisis, Vietnam has made it through the ‘easiest’ stages of the development process and is now arriving at a juncture where strategies become more complicated and mistakes probably also more costly. This is the well known ‘middle income trap’. Many emerging Asian countries have encountered this obstacle before Vietnam (often without managing to overcome it), and there is no denying that the Bank’s international experience in this area could prove invaluable. Indeed, it is not by chance that the latest World Bank publications on Vietnam started adopting a more nuanced stance in their policy recommendations. The World Bank clearly fears the potential risks of failure of the second generation of reforms that Vietnam has to launch in order to achieve the official objective aiming at becoming a developed country by 2020. It takes advantage to promote the market reform agenda stronger, and especially privatizations (World Bank, 2011). Still, these recommendations are put forward prudently, in order to avoid conflict with sensitive Vietnamese authorities.
75For all these reasons, if Vietnam stays on its development path in the next few years, and in spite of the lack of democracy and creeping corruption, it is most probable that it will keep being cherished by the World Bank, which will still be desperately looking for development models, so hard to find worldwide.