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VN considers allowing private investors to access ODA

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Economists agree that private investors should also be allowed access to ODA (official development assistance) capital, but warn that credit may be used improperly. 

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Private investors should also be allowed to access ODA

The Ministry of Planning and Investment (MPI) has compiled a draft decree on managing and using ODA and preferential loans from foreign donors. The decree says the private sector also has the right to access and use ODA and preferential capital.

The draft decree mentions four ways for the private sector to access ODA. First, accessing ODA capital within credit programs set by domestic finance and credit institutions for activities in line with international treaties on ODA capital. Second, acting as a capital contributor to projects developed under the Public Private Partnership (PPP) mode using ODA/preferential capital.

Third, borrowing ODA capital through the banking system and commercial banks, as lenders that bear credit risks. Finally, joining governing bodies’ programs on supporting the development of the private sector.

Loans from ODA capital to be provided to private businesses may have relatively high interest rates, because commercial banks, which borrow money for re-lending, have to take into account the risks as lenders. They would set strict requirements on ODA borrowers like any other borrower. 

The same proposal 10 years was rejected as economists argued that it is the government which borrows capital and uses it. Three or four years ago, state management agencies issued documents giving the private sector the right to access ODA capital.

However, the documents had general content and did not mention specific ways of approaching the capital.

The draft decree compiled by MPI is the first legal document legalizing the issue. Dinh Trong Thinh from the Finance Academy said that loans from ODA capital to be provided to private businesses may have relatively high interest rates, because commercial banks, which borrow money for re-lending, have to take into account the risks as lenders. They would set strict requirements on ODA borrowers like any other borrower. 

However, despite relatively high interest rates, the loans would still be attractive to private investors who find it difficult to access official capital sources. An analyst said that many technical issues need to be settled to be sure that the capital can go to the right addresses.

Many questions need to be clarified: which banks can borrow ODA capital for relending? What will happen if the capital is ‘deviated’ and goes to the real estate sector? According to MPI, 2,591 projects received ODA capital in the 1993-2017 period, including 1,279 programs and projects invested in by ministries and branches, and 1,197 projects developed by local authorities. The others were from commercial banks and the Vietnam National Television.

The lending interest rates of ODA loan packages were 1-2 percent on average.

Thanh Mai

Source: VietNamNet

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