Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop)
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Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop)

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How to finance households for face to climate change?

How to finance households for face to climate change?

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Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop) Final draft nghieu's presentation on disaster mitigation in vn (in tokyo's workshop) Presentation Transcript

  • Dr. Bui Duong Nghieu Institute of Financial Science Vietnam Ministry of Finance Tokyo, April 2009November 10, 2012 1
  • According to a 2005World Bank report,approximately 89percent of Vietnam’sGDP is located inareas at risk due to Sea-level rise of 30impacts of at least centimeters to onetwo types of natural meter over the nexthazards (Flood and 100 years isStorm). expected, which is projected to cause capital value loss every year of up to US$17 billion if no protective measures are taken. [In the year of research, 1998, VNse’ s GDP is 27,8 billion of USD]November 10, 2012 2
  • Contents  Background  Actual measures for natural disaster mitigation in Vietnam  Fund for Flood and Storm Prevention  Self Reliance Fund for Natural Disaster Mitigation for Households  ConclusionsNovember 10, 2012 3
  • November 10, 2012 4
  • Damage in Vietnam 2008 Unit Total Only in losses 2008 Hanoi floodHuman deaths person person 474 20Human missing 64Human injured 404Houses collapsed and washed away house 5,180Houses flooded and damaged 338,476School collapsed and washed away school 138Schools damaged 1646Hospitals collapsed and washed way center 6Hospital damaged 151Agriculture (areas of crops flooded) ha 473,403Total estimated losses million 775 175 USDNovember 10, 2012 5
  • Economic impacts  Direct losses: the value of capital destroyed (much of this damage is public infrastructure) or damaged value of loss of life.  Indirect losses: the loss of outputs and earnings, including the value of agricultural crops destroyed.  Secondary impacts: the cost imputed to disruption of development plans, loss due to foregone new investment as damaged infrastructure is replaced, increased indebtedness, etc.November 10, 2012 6
  • Disaster Impacts  Natural disasters and climate change have:  negative consequences for economic growth, both in the short term and the long term.  cause significant fiscal pressure.  Produce very negative effects to households, especially to the poor (loss of house, assets, crops, livestock, income, etc.).  Economic and fiscal costs may not be easily visible. Normally, only the direct losses are counted.November 10, 2012 7
  • Actual measures for natural disastermitigation  State budget, including center and local government levels.  Expenditures by Annual Budget Plan  Expenditures by Contingent Liability: the maximum amount is 5% of total annual budget, normally is lower than that.  Fund for Flood and Storm Preventions (FFSP)  Urgent money Aid is also re-allocated for households, but it is:  Charity, random, irregular,  Lower than loss level  Tardy (the collection and the distributions take much time)  Credit  Formal credit (via banks, especially Agriculture Bank and Social Policy Bank)  Semi-credit (via civil institutions such as Woman’s Organization, etc.)  Informal credit (with terrible rate)  Insurance.November 10, 2012 8
  • State Budget  Budget expenditures allocate to the ministries and local authorities  For public infrastructure (before and after natural disasters),  For non-infrastructure solutions (Weather forecast, disaster ‘s map.),  For disaster prevention (training, rehearsal, purchasing equipment for relief.)  or for support for losses (urgent relief).  Contingent Liability (a budget line) takes around 5% of total annual budget expenditures.  Remarks:  All money allocated by State Budget for disaster mitigation does not go directly to the households, excluding the money for support for losses as urgent relief.  And always lower than the actual loss.November 10, 2012 9
  • Relief  Charity money is from organizational and individual donors, domestic and foreign.  It is:  very good for the households  very random  lower than loss level  always late.November 10, 2012 10
  • Credit  Commercial banks don’t loan the money due to high risk.  Several non-commercial banks do lend money directly, but, the amount is very small.  Currently, the highest possible loan is less than 300 US dollars.  Informal credit is terrible in terms of interest rate.November 10, 2012 11
  • Insurance  Vietnamese insurance company “Bao Viet” piloted an agriculture insurance policy in 1982, 1997  French insurance company “Groupama” offered an agriculture insurance in 2002 – 2003.  Both companies suffered losses.November 10, 2012 12
  • Fund for Flood &Storm Prevention(the FFSP)  Legal framework:  Created in 1993 by an Ordinance (by the Standing Committee of National Assembly).  Activated in 1997 by a Government Decree for establishment the FFSP  Independent of the State Budget  Non-profit.  Model organization  Administrated at the provincial and district levels,  Not at the community and central levels.November 10, 2012 13
  • Central Executive Board ofCentral level : No FFSP FSPProvince-level FFSP FFSP FFSP FFSP District-level FFSPCommunity-level: No FFSP Current organization structure of FFSP in Vietnam November 10, 2012 14
  • Contributions  Compulsory:  Enterprises and economic organizations located at the areas (domestic and foreign)  Citizens  All Vietnamese citizens (males from 18 to 60 years old, and females from 18 to 55 years old).  Voluntary:  Voluntary contributions of international, domestic organizations and individuals (AID).November 10, 2012 15
  • How much is the compulsorycontributions?  Citizens:  0.5 US dollar: Members of agricultural households.  1 US dollar: Members of non-agricultural households.  Enterprises:  0.02% of their total production and business capital but not exceeding VND 5 million (USD280) per year.  Unnoticeable amount for the households and the enterprises.November 10, 2012 16
  • Exemptions  Who is exempted to contribute for the FFSP?  The members of the poor households.  The public interest enterprises.  The agricultural cooperatives.  The exemption policy of FFSP contributions are irrational, unfair:  The FFSP covers all beneficiaries relating the natural disasters or climate change. It’s irrational and unfair if there are someone exempted to contribute for this fund.  Some have benefited from another policy (for exp. Health insurance). So, it’s unfair to give them the exemption.  Due to the exemptions for the poor, there are many localities that are not able to form FFSP (as most of them are poor communities – for example Laichau province)November 10, 2012 17
  • Activities  Patrolling, guarding dykes in flood and storm seasons.  Public awareness course on safety measures and reactions during floods and storms.  Purchasing necessary equipments for relief and rescue to victims of floods and storms.November 10, 2012 18
  • FFSP’s problems  No community representation;  Low contribution;  Not self sufficient;  No investment (unspent money unused);  No insurance;  No full time staff (the fund managed only by a part-time staff).November 10, 2012 19
  • Self Reliance Fund for Natural Disaster Mitigation for Households (the SRF)November 10, 2012 20
  • Research contributors  Contributing to the research are:  Mr. Landis Mackeller (UNDP consultant)  Mr. MacShall Silver (UNDP senior expert/disaster mitigation)  Professor Jerry R. Skees (U. of Kentucky)  Mr. Luzi Hitz (Director, Dept. of Natural Disasters Insurance Technique – Swiss Re)November 10, 2012 21
  • Self Reliance Fund (SRF)  Communal;  Self financed;  Not-for-profit;  Self sufficient;  Correlates with market economy rules;  Households insured;  Specialization.November 10, 2012 22
  • Central-level SRF Central SRF Provincial Provincial Provincial Province –level SRF SRF SRF SRF District –levelCommunity –level SRF Proposed structure of SRF for natural disaster mitigationNovember 10, 2012 23
  • Insurance, Re- insurance, Multual- Capacity insurance building for managing disaster risk Govt. & Donors 5. Premiums 5. Compensations 1. Start-up capital Financial The SRF Investment Aid, 4.Urgent 6. Ivest. & relief, money Revenues charity, 2. Compulsory 2. Items-based 3. Govt. subsidy for contributions reimbursements poorest householdsAwareness raising &loans for strengthening Households Enterprisescapacity against disaster November 10, 2012 24
  • Govt. &Donors 1. Start-up capital The SRF Aid, 4.Urgent relief, money charity, 2. Compulsory 2. Items-based contributions reimbursements 3. Govt. subsidy for poorest households Households EnterprisesNovember 10, 2012 25
  • Insurance, Re- insurance, Multual- insuranceGovt. &Donors 5. Premiums 5. Compensations 1. Start-up capital The SRF Aid, 4.Urgent relief, money charity, 2. Compulsory 2. Items-based 3. Govt. subsidy for contributions reimbursements poorest households Households EnterprisesNovember 10, 2012 26
  • Insurance, Re- insurance, Multual- insuranceGovt. &Donors 5. Premiums 5. Compensations 1. Start-up capital Financial The SRF Investment Aid, rel 4.Urgent 6. Ivest. & ief, cha money Revenues rity, 2. Compulsory 2. Items-based 3. Govt. subsidy for contributions reimbursements poorest households Households EnterprisesNovember 10, 2012 27
  • Insurance, Re- insurance, Multual- Capacity insurance building for managing disaster risk 5. Premiums 5. Compensations The SRF 2. Compulsory 2. Items-based contributions reimbursementsAwareness raising &loans for strengthening Households Enterprisescapacity against disaster November 10, 2012 28
  • Insurance, Re- insurance, Multual- Capacity insurance building for managing disaster risk Govt. & Donors 5. Premiums 5. Compensations 1. Start-up capital Financial The SRF Investment Aid, 4.Urgent 6. Ivest. & relief, money Revenues charity, 2. Compulsory 2. Items-based 3. Govt. subsidy for contributions reimbursements poorest householdsAwareness raising &loans for strengthening Households Enterprisescapacity against disaster November 10, 2012 29
  • Representative system Re-insurance market Multual Insurance House- Insurance holds market SRF Agriculture Insurance schemes. Baoviet and Groupama FAILED (1997, 2003-2004)November 10, 2012 30
  • Financial sources  Start-up capital  VNse Government: 50% of seed money  Donors: 50% of seed money  Compulsory contributions:  Households  Enterprises  Voluntary contributions:  Aid  Relief  Government subsidy for poorest households  Revenues from financial investments  Insurance compensationsNovember 10, 2012 31
  • Compulsory contributions SRF FFSPEnterprises : 0.05% (uncapped) 0.02% Not over 280 USD per Tax deductable yearHouseholds :For the employed: One day of salary 0.5 USDFor street merchants and two USD per person per 0.5 USDsuch yearFor others (farm one USD per person per 0.5 USDworkers/unemployed) year Subsidy from VNse-Govt Exemption for poor
  • Why to set-up the SRF?  The SRF can:  Strengthen capacity for households to respond any natural disaster or climate change events (ex-ante);  Finance ex ante for reduction of vulnerability faced to natural disasters or climate change hazards (ex-ante);  Provide modest but timely and crucial supports to re- establish the household’s livelihoods (ex-post).  Compensate for the households loss with insurance.  In doing this, the fund will significantly reduce poverty.November 10, 2012 33
  • Efficient management  Random aid (avoid any type of overlap and possible fraud).  Item-based assistance.  Insurance compensation.  Secure and low risk (e.g. CAT bonds, governments bonds) investments.November 10, 2012 34
  • Supreme guarantee  Agreement of SRF solvency in time of extreme catastrophe (from Vietnamese Government and donors).  There are two cases:  Catastrophes come in the setting up period (3 to 5 years).  Catastrophes come after setting up period.November 10, 2012 35
  • Conclusion  As climate change exacerbates the frequency and impact of natural disasters, governments must learn to adapt and be self sufficient. The SRF would be isolated, ensuring relief and security to households. This, in turn, would lessen the government’s workload during natural disasters.  Our slogan:  You can give a man a fish, but it’s better to give him fishing equipment.November 10, 2012 36
  • Th a n k y ou for y our a t t en ti on !November 10, 2012 37
  • SRF - 3 levels SRF Central SRF SRF SRF Province Province Province Community Community Community Community Community Community Community Community SRF SRF SRF SRF SRF SRF SRF SRF
  • Central budget State budget Local budget Province-level budget Budget of Budget of Budget of province B province C province A District-level budget Community-level budget Current model of State budget system in VietnamNovember 10, 2012 39
  • Central Steering Board of FFSP Central Steering board of FFSP Province-level steering board of FFSP Steering Steering Steering board of board of board of FFSP FFSP FFSP District –level steering board of FFSP Community-level steering board of FFSP Organization structure of current Steering board of Flood and Storm prevention (FSP )November 10, 2012 40