Bangladesh Bank

UNITED NATIONS ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC Regional High-Level Workshop on Strengthening the Response to the Global Financial Crisis in Asia-Pacific: The Role of Monetary, Fiscal and External Debt Policies 27-30 July 2009 Dhaka, Bangladesh

Breakout Session on External Debt Management

External debt management in Vietnam

By Mr. Anh Van Nguyen Deputy Director State Bank of Viet Nam July 2009

The views expressed in the paper are those of the author(s) and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. This paper has been issued without formal editing.

External debt management in Vietnam

During the past two decades of reforming, Vietnam has comprehensively and rapidly opened to the world economy. In that context, the foreign exchange transactions between Vietnam and the rest of the world develop strongly in a more liberalized and open manner. According to the Ordinance on Foreign Exchange passed by the Standing Committee of Vietnamese National Assembly in December 2005, Vietnam has liberalized the foreign currency exchange and payment for all current account transactions and continued managing and controlling some of transactions in capital account. Given the conditions of the economy along with the development and adaptability of the financial and banking system, exchange rate regime, capital account transactions including external borrowing will be relaxed selectively and cautiously. In conformity with that principle, external debt management policies and regulations have been gradually loosened, which generated an important fund mobilization channel attributing to the economic growth and helped the country to achieve keep external debt sustainability. Total external debt outstanding/GDP ratio in 1993 was more than 95 %, and then gradually decreased to less than 35% at present. Objectives of Vietnamese policy on mobilizing and using foreign loans are: - To supplement efficiently capital resource for socio-economic development investment and achieve advanced technology and management skills; - To attribute to promote growth, improve efficiency and competitiveness of the economy in the period 2005-2010; - To support the industrialization and modernization of Vietnam; - To ensure the loan repayment capacity and the independence and autonomy of the economy in the context of strengthening international and regional integration. Efficiency of projects financed from foreign loans is one of the most important criteria for deciding to borrow abroad. In order to improve the management quality and fund efficiency, direct and encourage proper and economical uses of the fund for appropriate objectives and remove subsidies in the management and use of foreign loans, we need: - To further improve policies and legal framework on foreign loans management; - To develop an organizational system appropriate with specific periods; and - To strengthen close cooperation linkages between foreign debt management and setting macroeconomic balance. In order to implement those objectives, Decree 134/2005/ND-CP on the foreign borrowing and repayment management was issued on 1/11/2005, replacing Decree 90/1998/ND-CP dated 7/11/1998 and this is the highest legislative prevailing regulation on the foreign borrowing and repayment management.

1. Scope of application of the Regulation on foreign borrowing and repayment management

This Regulation regulates foreign borrowing and repayment and foreign loans management of Vietnam, except the foreign loan of residents who are Vietnamese natural persons.

2. Classification of foreign loans of Vietnam

Foreign loans of Vietnam, as classified under international practices, are national debts, including foreign loans of public sector and private sector. Of which, foreign loans of public sector include foreign loans of the Government, (if any) provincial authorities and cities directly under the central, foreign loans of SOE, state-owned financial and credit institutions and economic entities which directly borrow foreign loans. Foreign loans of private sector are foreign loans of private enterprises and economic entities (herein called private enterprises).

3. Management objectives
- Meeting capital needs of economic sectors at the lowest costs for the country development investment and restructuring the economy in line with socio-economic development directions and strategies. - Ensuring the management, allocation and use of the fund in an efficient manner, minimizing risks and pressures over the national resources (state budget, national foreign exchange reserve), ensuring the national debt safety and financial security. - Enabling further international integration.

4. Management principles:
- Vietnamese Government shall exercise unified state management of national foreign loans, ranging from mobilizing, receiving, allocating, managing, monitoring and supervising by the following tools: + Strategy on long term loans, management program for mid-term loans, and annual plan on foreign borrowing and repayment. Total annual limit of national foreign debt is approved by the Prime Minister. + Appropriate policies, regimes and division of management responsibilities among regulators under the Regulation. Efficiency of the programs, projects financed from foreign loans is one of the most important criteria for deciding to borrow abroad. Ensuring the balance between borrowing and repayment capacity, foreign currency balance and other macroeconomic balances in long run. Unions, administrative agencies at all levels, political, social and professional organizations are not allowed to borrow abroad, except in special cases permitted under the prevailing regulations or as approved by the Prime Minister.

All foreign loans must be officially registered with Governments authorized agency after the loan agreement is entered. In case that in the draft foreign loan agreement or guarantee, there are some: (i) contents conflict with or uncovered in Vietnamese regulations; or (ii) institutional and policy commitments which are over the authorization, the lead negotiation agency must consult with relevant agencies and report to the Prime Minister for his consideration and approval. Entering into foreign loans agreements on behalf of the Government follows legal regulations on the signing, participating and conducting international treaties. In case there are different regulations as agreed between the Vietnamese competent level and the credit provider, such agreement will prevail.

5. Division of state management responsibilities for foreign borrowing and repayment 5.1 Ministry of Finance: is the Governments lead agency in charge of state management of the national foreign borrowing and repayment, responsible for:
- Leading and cooperating with Ministry of Planning and Investment and the State Bank of Vietnam to prepare and submit to the Prime Minister for approval of Mid-term Program of debt management, Annual plan of foreign borrowing and repayment on the basis of consolidating foreign borrowing and repayment plans of the Government, public organizations and total limit of foreign commercial debts of Vietnam. - Leading and cooperating with Ministry of Planning and Investment to prepare and submit to the Prime Minister for approval of Governments plans on mobilizing and using foreign commercial loans when the Government is in need; - Leading and cooperating with Ministry of Planning and Investment and the State Bank of Vietnam to prepare and submit to the Prime Minister to issue the system of national debt monitoring criteria, process of collecting, reporting, consolidating, sharing and making public data on foreign debts; - Negotiating, entering into international agreements on foreign loans and guarantees of the Government under the authorization or assignment given by the Prime Minister. - Officially representing the borrower on behalf of the State, the Government in specific foreign loan agreements; - Financially managing Governments foreign debts; - Managing Governments guarantees under the Regulation on providing and managing Governments guarantee for foreign borrowings; - Leading in developing and managing data base on the Governments foreign debts, national status of foreign borrowing and repayment; acting as focal agency to publish and provide information on national and governmental foreign borrowing and repayment under the law;

- Ensuring to implement all Governments obligations of foreign debts repayment in the most adequate, timely and efficient manner; - Undertaking responsibilities as given by the Government in the Regulation on managing and using official development assistance, issued by the Government; - Post reviewing projects and programs financed from foreign commercial loans borrowed or guaranteed by the Government.

5.2 Ministry of Planning and Investment:

- Leading and cooperating with Ministry of Finance and the State Bank of Vietnam to prepare and submit to the Prime Minister for approval of Strategy for long-term debt in line with the Overall strategy of fund mobilization for economic development investment; - Leading, in agreement with Ministry of Finance, to prepare and submit to Prime Minister for approval of list of programs, projects financed partly or fully or granted from the Governments foreign debts; - Cooperating with Ministry of Finance to develop the system of debt monitoring indicators, Mid-term debt management program, annual national plan on the foreign borrowing and repayment and monitoring macro indicators of national foreign debts; - Cooperating with Ministry of Finance to develop process of collecting, reporting, consolidating, sharing and publishing information on foreign debts to submit to the Prime Minister for approval; - Implementing responsibilities given by the Government in the Regulation on ODA management and use, issued by the Government.

5.3 State Bank of Vietnam:

- Conducting the state management on foreign borrowing and repayment of public enterprises, organizations; supervising and monitoring foreign borrowing and repayment of private sector; instructing and monitoring guarantees provided by commercial banks an other authorized agencies for foreign loans - Leading and cooperating with relevant agencies to set annual limit of foreign commercial borrowing of private sector, then sending to Ministry of Finance for incorporating with the limit of public sector in order to calculate the national limit for submission to the Prime Minister for approval; - Leading and cooperating with Ministry of Finance to regulate the annual limit of foreign commercial borrowing of enterprises, organizations as approved by the Prime Minister; - Consolidating data on annual foreign borrowing and repayment of enterprises and organizations of both public sector and private sector (including loans guaranteed by the Government);

- Monitoring monetary flows regarding to foreign borrowing and repayment in order to support the consolidation of international payment balance, conducting monetary and foreign exchange management policies; - Setting up an early warning system for the risks arising from enterprises debts; - Cooperating with Ministry of Finance to develop a system of debt monitoring indicators, Mid-term program of debt management and annual plan of foreign borrowing and repayment; - Cooperating with Ministry of Finance to develop a process of collecting, reporting, consolidating, sharing and publishing information on foreign debts to submit to the Prime Minister for approval; - Implementing responsibilities given by the Government in the Regulation on ODA management and use, issued by the Government.

5.4 Ministry of Justice:

- Contributing comments on legal aspects of foreign borrowing and repayment agreements entered into by the Government, agreements on Governments guarantee before the submission to the Prime Minister for approval; contributing comments, when necessary, on other legal issues relating to legal documents of foreign borrowing and repayment entered into by domestic enterprises and other economic entities at the request of the borrower and guarantee provider; - Appraising differences between the foreign loan agreement entered into by the Government and domestic regulations; monitoring the settlement of these issues in implementing commitments of foreign loan; - When necessary, issuing legal opinion to: (i) foreign loans agreements entered into by the Government; (ii) loan agreements guaranteed by the Government; and (iii) the legal status of the borrower and guarantee provider at their request.

6. Management of foreign borrowing and repayment of public sector 6.1 Management of foreign borrowing and repayment of the Government:
- The Government shall: (ii) not borrow abroad on commercial basis for projects which can not directly recover the capital; (ii) not borrow short-term commercial loans for development investment; - Implementing such measures as loan restructuring, rolling-over.... in order to minimize the risk; - Some local authorities are allowed to find the fund resource and negotiate to borrow by themselves.

- In case of Governments foreign commercial borrowing, Ministry of Finance shall cooperate with Ministry of Planning and Investment to prepare the fund mobilization and utilization plan.

6.2 Management of foreign borrowing and repayment of SOEs:

- SOEs are self-responsible for their own foreign borrowing and repayment; - The loan must be within the total limit of foreign commercial loans; - The loan must be registered with the State Bank of Vietnam; - In case those enterprises borrow foreign loans through international bond issuance, Ministry of Finance and State Bank of Vietnam must appraise the plan.

7. Management of foreign borrowing and repayment of private sector:

- Enterprises are self-responsible for their own foreign borrowing and repayment. - It is clearly provided that foreign loans of private sector must be monitored by the Government. The State Bank of Vietnam is the supervisor; - The loan must be registered with the State Bank of Vietnam;