Thanh Nien Weekly spoke with Ayumi Konishi, the Vietnam country director for the Asian Development Bank about the country's "graduation" from development loans.
Thanh Nien Weekly: We heard that the Asian Development Bank (ADB) plans to close its office in Vietnam, in 2025. Is it true?
Ayumi Konishi: First of all, let me make it clear. I didn't say "close." I said that many economies, as they become richer, stop borrowing from us. In 1966, Singapore, Taiwan and Hong Kong were all borrowing funds from ADB. Korea was a borrower, just 20 years ago.
As the countries become wealthier, they begin to turn to their own capital markets to borrow money rather than coming to the ADB.
That's what we mean when we say that countries "graduate" from the bank.
Right now, Vietnam has a per capita GDP of around US$1,200. If the economy grows rapidly, we are really looking at a per capita GDP of $2,000 by 2015. As long as Vietnam doesn't fall into the middle income trap, the country should be able to reach a per capita GDP of $4,000 by 2020.
I usually say that's a "grown-up level." When the per capita GDP reaches around $4,000-5,000, those countries have a much easier time raising resources from their own financial markets.
That's why I said to my staff, half-serious, half-joking, that by 2020, we may give our last loan to Vietnam. That means that if the project takes five years to complete, by 2025, we may not have any projects"”if Vietnam keeps growing.
I told my colleagues in any sector, we may only have 10 more years to really work on new projects.
Because if we continue engaging in, let's say, rural infrastructure development, the work will be endless.
If ADB is directly involved in infrastructure development over the next 10 or 15 years, we have to really make sure the development process is going in a desirable direction, even without external support.
That's why I said we should be prepared to close our office in 2025. I really said that in a positive spirit.
I come from Japan. When I grew up, Japan was borrowing money from the world. As countries develop, it's very natural for them to graduate.
It seems like ADB has projected quite a bright scenario for Vietnam. What if things don't go so smoothly?
During the annual ADB meeting [last week, in Hanoi] there was a seminar on the "Asia 2050" study.
That study says that, in the next 40 years, if all countries keep growing and achieve their potential, Vietnam will become the 12th largest economy in the world.
It's up to the government and people of Vietnam to decide what will happen. Whether you can make it or not, is really up to you. Objectively, there's a lot of potential here.
What challenges will Vietnam face if it can no longer access low-interest loans?
The Consultancy Group (CG) pledged $8 billion in December 2009 and 2010.
The year before, they pledged $6 billion. The CG pledge has only been increasing.
Many people fear that since Vietnam has become a middle income country, Official Development Assistance (ODA) will decrease. That isn't true. But the terms of ODA are certainly changing and some of the grant donors (not necessarily immediately) will disappear.
The share of highly-concessional ADB or World Bank loans (at some 1 percent, 1.5 percent), will become smaller but the ADB, OCR and World Bank IBRD credits - which are still cheaper than commercial loans - will continue to be available.
The terms will become less concessional but they're not really becoming commercial. That's a wrong notion.
The pressure on Vietnam to access foreign loans used to be very high. But it has receded as the economy continued to get stronger; the cost of borrowing money from the international market also keeps coming down. That's why we say that 10 or 15 years from now, Vietnam will enter a period in which loans are far less concessional that what we're seeing now. The cost of loans will be much closer to international market rates.
The point is, Vietnam won't have less access to grant resources. There will be a gradual shift: from grants, to highly-concessional loans, to concessional loans.
The interest rates that Vietnam face might go up a little more. That's true.
But this only means Vietnam is becoming a stronger country. Vietnam should be able to bear larger interest payments than before. Around 58-60 percent of Vietnamese people were once considered to be poor. It was difficult for the government to support these people. That was why the grant money was coming in.
When the number of poor people reaches around 10 percent, it means 90 percent are no longer poor.
So, supporting poor people becomes the responsibility of Vietnamese people. They no longer need to rely on outside resources. It's a rather natural shift.
What do you think about the country's ability to repay its debts?
Total public debt is about 51-52 percent of Vietnam's GDP. I can probably name 40 countries easily with higher public debts.
Vietnam's level of public debt is not a problem.
The majority of Vietnam's debts were taken out in highly-concessional loans. Many of them have very low-interest payments. So it's not really an issue.
Efficiency in the use of borrowed funds will determine whether or not it will become an issue.
If you are running your own business, you may make a decision to borrow money. As long as the interest rates are smaller than the expected revenue, you can repay the loans.
I think Vietnam, as a whole, has a very clear idea of how efficiently it's using its loans.
If borrowed money is not effectively used, you can still have problems repaying, even when they're low-interest loans.
In the old days, Vietnam had to invest a lot in supporting the poor. Though that's a necessary social investment, no one expected a financial return.
Now, Vietnam has to invest in infrastructure, roads and bridges. At the same time, it has to make sure its roads and bridges give a good return on investment.