Institutions play a pivotal role in ascertaining the continuous development of a country particularly during the aftermath of a major catastrophe. Vietnam is an example of a country that despite the weak formal institution have managed to challenge the conventions of the popular economic theories in achieving growth. Furthermore, the undervaluation of the informal institutions has played an important role in the process of acquiring international debts and donations from foreign aid. In this discussion, the role of weak institutions in underdevelopment will be examined, highlighting Vietnam as an example. In addition, the role of foreign aid and international lending institutions will be investigated as to how they affect the decision-making process of the state leaders in terms of utilizing the foreign resources in ascertaining the advancement of Vietnam’s economy growth. The country of Vietnam was selected from this discussion because of its historic background of civil war during the 1970s.
The weak institutions in Vietnam and the difficult path to development
Fragmentation in the government system contributes to the difficulties in establishing the path for the country’s development. Several decades after the war, the effects of the fragmented government system where the party system and the communist regime struggle for power is still apparent in today’s political system in terms of improving the economic underdevelopment, or even after the Doi Moi reforms was introduced in the country (Tu Anh et al.). Vietnam has a long tradition of consensus when it comes to decision-making. With regards to the Doi Moi reforms, the Vietnamese scholars perceived it as a violation of the government’s regulations particularly in central planning. One of the grassroots of this perception towards the proposed reform is the fact that the reform contradicts the rules of centralized economic system. For example, the farmers and the agricultural sector will be engaged in market input that is being done outside of the state-controlled channels. The apparent fragmentation in terms of reform agreement encompasses the institutional weakness of the Vietnamese government to create consensus towards development improvement (Overseas Development Institute).
Leadership initiative in the use of foreign aid and international lending institutions
One of the remaining problems that Vietnam is continuously addressing is poverty. Although the country’s economic development is picking up to a positive pace, its economic strength is still not sufficient to totally alleviate the poverty problem. As a developing country, Vietnam’s underdevelopment can be observed on the rate of its real average income per capita of $170 and poverty rate of 16% (The World Bank). Vietnam’s leadership approached the problem differently because instead of receiving IDA resources, the country is still not recognizing itself as aid-dependent. The leadership initiatives of the Vietnamese government in utilizing the IDA it is receiving from the World Bank is to mobilize resources for central distribution on development programs (The World Bank). Such initiative is providing positive outcome towards policy reforms to further improve the economic situation of the country.
In terms of international loans, the leadership of Vietnam is optimizing its options when it comes to finances. For example, Japan is providing foreign aid to Vietnam, but not in the form of in-kind relief. Instead, Japan is aiding Vietnam to become an intellectual leader in economics and finance by providing expertise in loan policies and reform (Hatakeyama). In relation to addressing the problem of poverty, Japan’s aid to Vietnam is reflected in the country’s international consensus for poverty reduction strategies. Part of the strategic approach to poverty reduction is co-financing of the structural adjustment loans in partnership with the World Bank (Hatakeyama). To highlight the economic development aspect of Vietnam’s leadership initiative when it comes international loan utilization, the development programs created trough co-financing was renewed to adopt a more comprehensive approach.
Improvement initiatives of internal institutions in improving development
The important initiative of internal institutions in Vietnam to improve the country’s development condition is to widen the reach of the foundations of infrastructure. By definition, the term institution is a broad normative behavior that is both explicit and implicit with organizations composed of either formal or informal. Institutional initiative is not only important for the country as a while, but also essential in ascertaining the desirable developmental outcomes. After the war, Vietnam’s transition into a liberated State has witnessed a low flow of resources from the central government as a result of fragmentation. Such strategy had forced the local government institutions to mobilize their local resources in order to compensate for the deficits in funding the local development objectives (Nguyen and Nguyen). In today’s current state of developments in Vietnam, the local government institutions are able to establish a strong infrastructure for resource mobilization. This was a result of the improvement initiative to enhance the sense of accountability and ownership, which has greatly contributed to the local institution’s sustainability. In addition, the wealthy regions to ensure that the flow of resources will get to the less developed regions created a cross regional transfer system. Lastly, the decentralization of the government system also resulted to the wider distribution of services, infrastructure, and implementation of reform policies (Rama).
It is apparent that the role of weak institutions in underdeveloped countries is to ensure that the available resources in its disposal are being mobilized to create a local infrastructure for future development. Lastly, local institutions that are regarded as weak were able to create a network that enables the transfer of resources to foster development.
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