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Informal Mid-Year Consultative Group Meeting – June 2010 Statement of the United Nations Country Team

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Kien Giang, 10 June 2010

Introduction
This year’s mid-year CG meeting comes at a critical time for Viet Nam as the Government finalises its next ten-year vision and first five-year plan for the next decade. Viet Nam has successfully weathered the economic crisis and is now moving ahead towards greater global and regional integration, as signalled by Viet Nam serving as ASEAN chair in 2010.  Viet Nam is also coming to grips with its dynamic transition to middle-income country (MIC) status and the many challenges associated with becoming an industrialized country by 2020.  Later this year in New York, the High-Level Segment of the UN General Assembly will review progress towards achieving the MDGs at the two-thirds point towards the 2015 deadline. Viet Nam has a great story to tell, given its strong progress towards achieving a majority of the MDGs, and it would be an even better story if every chapter is completed by 2015. 


An Assessment of the Macroeconomic Situation
As we approach the year’s midpoint, it seems that 2010 will mark the beginning of the post-crisis economic recovery in Viet Nam and, more generally, in the Asia-Pacific region. Macroeconomic data recently released by the General Statistics Office (GSO) and general market sentiments seems to indicate this is the case. The challenge now is to consolidate these gains, and ensure that the Vietnamese economy re-enters a path of sustainable economic recovery based on broad-based, inclusive and sustainable growth.

With GDP growth in the first quarter of 2010 reaching 5.83 percent and now estimated to reach over 6 percent for 2010, exports growing at double-digit levels and foreign investors flocking back into Viet Nam, the Vietnamese economy looks set to be, once again, one of the fastest growing economies in the world and a top performer in global trade and capital markets. Recent figures reporting a slowdown in inflation and a narrowing trade deficit suggest that growth is increasingly based on a return to normality.

The challenge, at this point, lies in maintaining the current macroeconomic policy stance, adjusting monetary, financial and foreign exchange policies to the evolving conditions of domestic and international markets, while gradually scaling down the crisis-stimulus support to the economy. In other words, balancing the developmental needs for robust and sustainable growth with those of macroeconomic stability. Maintaining this balance is often perceived as a trade-off between growth and stability demands, but this does not necessarily have to be the case. On the contrary, Viet Nam’s growth record in the past two decades has been largely driven by a combination of steady economic reforms, integration into the world economy and, crucially, a stable macroeconomic environment. All of these factors have made Viet Nam one of the most competitive economies in the world and a prime destination for international capital flows.

Maintaining macroeconomic stability is not only important for the sake of Viet Nam’s reputation and creditworthiness in international financial markets. It is also a key driver of competitiveness in global markets. We should not lose sight of this aspect, especially in the current global context of sluggish economic performance in OECD countries, and in a situation in which Viet Nam has ambitions to return to pre-crisis annual GDP growth levels of around 7.5 percent. In any case, we should not forget that the effects of macroeconomic instability are never evenly spread: the less well-off, and especially the poor, typically stand to lose most from high prices and general economic uncertainty.

All of this calls for a return to the pre-crisis policy mode of macroeconomic stability and broad-based growth. The Government has given clear indications that it intends to pursue this course. We at the United Nations strongly believe it should continue to do so.

Viet Nam’s Ten-Year Vision and Five-Year Plan

This year’s mid-year CG review will be dominated by discussions about Viet Nam’s two main strategic planning documents: the 2011-2020 Socio-Economic Development Strategy (SEDS) and the next five-year Socio-Economic Development Plan (SEDP) 2011-2015, which are both in the final stages of being drafted.

The UN welcomes the opportunity to be involved in the process of developing the vision for the next 10 years together with the 2011-2015 SEDP, and very much appreciates the openness to consultation and discussion on the part of the Government and the respective drafting teams.  We also congratulate the Government on the very frank and open assessment of the many and significant challenges facing Viet Nam in the coming period of the next SEDS and SEDP.  The SEDP is very honest and self-critical in this respect and this is most welcome. It is also very positive to see in the SEDS such a candid assessment of development progress over the past decade, and that the analysis set out in the SEDS goes well beyond a narrow economic view of development to also encompass issues such as participation, human development and international relations, which are critical for Viet Nam’s longer term socio-economic prospects.

In relation to the SEDP, the UN feels strongly that a greater balance between economic goals and targets and human and social development priorities is needed to achieve the ambitious development agenda set out in the SEDS and SEDP.  

Greater investment in social and human development is critical, as without a healthy and educated population it will be difficult to reach the goals set out in the SEDP.  Prioritising public investment and enhancing the efficiency of this investment will make more resources available for public expenditure in social sectors.  Investing in education and skills, and in preventative health and treatment, is critical to maximise human potential and human capabilities, increase productivity, and enhance Viet Nam’s overall competitiveness.   In this respect, we urge the Government to give greater consideration to health in the SEDP, including improving people’s health, ensuring greater equity in access to health care, improving the quality of services provided, reducing financial risks for patients and their families, and improving the efficiency and effectiveness of health services.  In particular, we urge the Government to give consideration to the impact of the socialisation policy in health and in education services, including the often adverse impacts on individuals and households, as well as the perverse incentives the socialisation policy is currently creating.

In this context it is worth noting that the MDGs where there is still an “unfinished social agenda” are health related, including MDG targets on nutrition, maternal mortality, water and sanitation, as well as MDG 6, which is currently not on track to be achieved by 2015.  Not only is HIV a development issue, it is increasingly a youth issue: a large proportion of people at high risk of HIV infection are young and more than 80 percent of people living with HIV are aged 20-39 years old.  Gender aspects of the HIV epidemic are also emerging as a challenge, with a rising ratio of women to men living with HIV reflecting the growing risk of transmission from male drug users and clients of sex workers to their partners and spouses. Greater alignment between the SEDP and sectoral plans in health and HIV is required to meet national and international goals and commitments in these areas.

Related to this is the need to address the rise in, and increasing impact of, lifestyle-related diseases and problems, such as alcohol and tobacco use, obesity in urban areas, and accidents and other injuries.  Harm minimisation, harm reduction and rehabilitation approaches have proven to be effective when tackling social problems such as drug and alcohol abuse and sex work, requiring a shift away from an outmoded concept of “social evils” which only compounds the stigma and discrimination experienced by marginalised groups and acts as a barrier to people accessing services and social protection.

Greater attention is also required to address emerging population and dynamic social and demographic trends, which are influencing Viet Nam’s development and patterns of economic growth.  Increasing mobility, rural to urban-migration and urbanisation are key features of the way Viet Nam is developing and should be recognised as such rather than viewed as “problems” in the development process.  For example, removing barriers to social services for migrant workers so that they are able to access social safety nets in times of crisis and difficulty would recognise the contribution migration is making to the economy and help prevent some of the negative impacts associated with labour mobility. Related changes include declining fertility and increased life expectancy, changing family structures and the rising sex ratio at birth, all of which will contribute to a different population profile, with significant implications for social services and social protection.  

In addition, the governance dimension is currently under-developed in the SEDP. Critical dimensions of governance, including effective and efficient decentralisation, civic engagement and participation, and strengthened rule of law should be much more strongly reflected.  The key role of the public sector in setting realistic targets and creating an enabling environment to achieve these objectives, while also improving living conditions and the capacities of citizens to thrive and prosper, also deserves greater attention.  Continued public administration reform is critical to support Viet Nam’s social and economic development goals and to build a prosperous democratic society and thriving market economy.  In this respect, the increased recognition in the SEDS of the importance of governance – including the need for greater participation, and the need to strengthen the public service and anti-corruption measures – is welcome.

Improved data collection, analysis and use of evidence in policy-making is needed to understand the experience of different social groups such as women, ethnic minorities, the near poor and urban poor, people with disabilities and so on. It is also critical to informing analysis of who is being left behind as Viet Nam develops and the impact of economic growth on vulnerability and inequality. We therefore urge the Government to ensure that the monitoring and evaluation framework for the SEDP, and broader indicators for the SEDS, include indicators to capture the quality and inclusiveness of growth and its impact on inequality and disparity. Indicators need to be disaggregated by sex, region, ethnicity and other key differences in order to effectively monitor implementation and assess the impact of Government intervention on different socio-economic groups.

Climate Change

Climate change is currently presented in the draft SEDP as one among many environmental challenges instead of the central challenge to sustainable development in Viet Nam that it is.  The UN calls on the Government to take the opportunity afforded by the development of the SEDP and SEDP to re-conceptualize the challenge of climate change. Climate change should be viewed as an opportunity as well as a threat to economic and human development. Specifically, climate change responses should be seen as an opportunity for strengthening socio-economic development, including through initiatives that target the poor and vulnerable, and ensure increased resilience of women, ethnic minorities and the urban poor.  

This requires that climate change be addressed as a cross-sectoral issue and suggests an urgent need for greater strategic prioritization of climate change responses, over time and between sectors and regions.  Secondly, a commitment to formulation of a long-term climate change strategy is required, which would include fully implementing the National Target Programme to Respond to Climate Change (NTP-RCC) and prioritising the associated action plans that sectors and provinces are currently developing under the NTP-RCC.  Such a climate change strategy will need to guide decision-making related to competing investment needs between sectors and localities, show how vulnerability reduction and greenhouse gas mitigation actions are to be rolled out over time, and build on existing strategies in areas such as disaster management and response, energy development, poverty reduction and social protection.  

Standing out among national priorities identified in the current SEDP draft is the need for shorter term strengthening of disaster risk mitigation measures as well as longer term adaptation actions that will include large scale infrastructure investment.  In the short term, key regions where climate change pressures and effects must be taken into account in area planning include the coastal areas, while in the longer term the Mekong Delta and Ho Chi Minh City are also important.  

New instruments for vulnerability reduction and increasing resilience of certain groups  –including through provision of social insurance, expanding and strengthening social protection, and changing migration and settlement-related policies and practices – are also required.  In addition, the SEDP should include improved indicators of vulnerability and resilience to natural disasters and climate stresses, as hazards are becoming more severe and frequent due to climate change.  Public awareness of climate change must be addressed, including through school curricula at different levels, through development of specialist tertiary education courses, and by strengthening the media’s role in understanding and reporting on climate change.

It is also critical that the country prepares now for a low-carbon, industrial economy, including planning for and investing in modern, energy-efficient and clean manufacturing, construction and power generation technologies.  Market-based incentives, such as targeted taxes and subsidies, are required to stimulate the transfer of clean, low carbon technology.  Implementation of the NTP-RCC and related action plans should promote public-private partnerships for investment in adaptive infrastructure and energy production, and facilitate Clean Development Mechanism (CDM) initiatives. In doing this, lessons learned from socio-economic development must be applied, including the recognition that technology is not neutral and that positive action is needed to ensure that the most vulnerable, including the poor, women and ethnic minorities, are involved in decision-making and benefit from practical actions to mitigate and adapt to climate change.  

There are major investment needs related to adaptation and greenhouse gas emissions mitigation, for which Viet Nam must start raising domestic capital.  At the same time, climate change financing provides clear opportunities for climate change adaptation in many sectors as well as opportunities for low-carbon development in sectors such as forestry, electricity production and in sectors where energy consumption is high.  However, there is a need for further strengthening of coordination efforts by donors and national agencies alike, including enhancing the practical roles of MPI and MOF in coordinating and managing overseas development assistance for climate change. 

SEDP 2011-2015: Economic Restructuring
Two decades of economic reform and integration have enabled Viet Nam to become one of the most dynamic and open economies in the world, and to enter the group of middle-income countries. Viet Nam has achieved this through a combination of ambition, hard work and a strong entrepreneurial spirit, which has enabled the creation of jobs for an expanding industrial workforce, generated new business opportunities and lifted millions of people out of poverty.

However, the current growth model, built on the foundations laid out during doi moi, will not be sufficient to take Viet Nam through the next stage of development.  A new agenda for economic renovation is therefore necessary if Viet Nam is to realize its ambition of becoming a modern industrialized nation by 2020. The SEDP reflects this, with a strong emphasis on restructuring the Vietnamese economy, increasing domestically generated value and the technological content of Vietnamese goods, and enhancing productivity.

In implementing this agenda it is important not to lose sight of the fundamental objective of creating good and decent jobs for all Vietnamese workers. This is particularly important as every year hundreds of thousands of people in Viet Nam leave agriculture in search of new opportunities in the manufacturing and services sectors, and over one million join the labour force for the first time.  With so many of these workers, in particular women, finding jobs in the informal sector, the challenge is not only to create decent jobs in the formal economy but also to extend social protection and services to those not covered by formal labour contracts.

It is also important that Viet Nam’s economic restructuring agenda does not come at the cost of greater macroeconomic instability. This would not only undermine the international credibility of the Vietnamese economy and its competitiveness in international markets, but would also place an unfair burden on Vietnamese families, who will have to pay for higher food, transport and housing costs.  Increasing the quality and efficiency of public and State-owned enterprise (SOE) investment is paramount to achieve this, as it will help ease pressures on aggregate demand, the budget deficit and the balance of payments. It will also contribute to increasing the availability of development financing for other purposes, including the implementation of the SEDP’s ambitious programme for social development.

As the development experience of other countries has shown, modernization and broad-based industrialization can only be achieved with the full participation and contribution of all actors in the process of development, including SOEs, the private sector and foreign investors. In this sense, it is important that the next SEDP ensures a level playing field that provides equal opportunities to all, and allows everyone to realize their full potential.

In addition, Viet Nam needs to improve technological capabilities and its ability to innovate if it is to succeed in modernizing the economy and broadening the industrial base, a point clearly acknowledged in the SEDP. However, efforts in this area need to be complemented by an agenda to deepen Viet Nam’s integration into the global economy. This will allow Viet Nam to reap the full benefits of participating in international markets for goods, capital and FDI, including the benefits of accessing international technology and know-how. Economic drivers of innovation and technology development also need to be taken into account, including market competition, industrial regulation and investment.

Above all, though, it is critical that Viet Nam continues with efforts to raise the quality of its education, technical training, vocational and higher education systems to ensure that the development of skills meets the country’s labour requirements.  If Viet Nam is to compete successfully in the global economy it must build a world-class higher education system supported by public investment, and one that is committed to ensuring access and promoting excellence. Raising productivity levels in the economy and ensuring good employment opportunities for all by investing in education and skills has historically proven to be the best way of avoiding the double trap of rising inequality and low-competitiveness that often besieges middle-income countries.

SEDP 2011-2015: Inclusive Growth

The SEDP recognises the importance of ensuring that all Vietnamese people are able to benefit from the country’s progress, stressing the need to link “economic growth with social progress and equality”.  

In order for growth to be inclusive it must be broad based across sectors and inclusive of the large part of the country’s labour force.  It must also ensure a level playing field for individuals and businesses alike.  This means broadening opportunities and access in the formal economy, since around 80 percent of workers are currently concentrated in the informal economy. It also means acknowledging the role that small and micro businesses play in generating jobs and contributing to GDP. 

The informal economy has been a driving force in the development process. At the same time, informality is linked to vulnerability: vulnerability in terms of type of employment; availability and quality of jobs; likelihood of losing work in times of economic crisis and transition; and lack of social protection and access to skill development.  Ensuring that employment and decent work targets are embedded in economic objectives is key to avoiding jobless growth and poverty traps.  Policies must also take into account the vast number of informal sector enterprises, and address the needs of these businesses where unprotected workers are over-represented. This can be done by formalizing small-scale businesses and their employees and extending social protection to those jobs that remain informal.   

Because women predominate in the informal sector and run many of the country’s micro-businesses, strategies to provide labour and social protection to informal workers and to create an enabling environment for micro-enterprises are particularly important to facilitate women’s economic participation. And while the SEDP clearly acknowledges the challenge relating to the rise in new labour market entrants, systematic constraints affecting young labour market entrants must be addressed to capitalise on this demographic opportunity and minimise labour market exclusion of young people.

The SEDP acknowledges that rising inequality and disparity have the potential to destabilise the development process, noting that:“it is critical not to allow the development gap between areas to become an urgent problem.” Tackling rising inequality and disparity requires increased investment in social services to maximize human potential and capacities, as well as greater attention to reducing poverty, vulnerability and disparity between different social groups. As a first step, the many inefficiencies in targeting and support under the various poverty and social protection programmes must be addressed.  Poverty still affects an estimated 15 percent of Vietnamese people and around 50 percent of the ethnic minority population.  Different and innovative approaches are now needed to tackle persistent poverty, including a multi-dimensional approach to poverty analysis and measurement, which is not solely monetary-based and which takes into account other forms of deprivation.

Ensuring that social protection and assistance is available to those who are most at risk, who live closest to the poverty line, and who are vulnerable to falling back into poverty for a range of reasons – including as a result of economic, social and environmental shocks and disasters – is also key.  The SEDP recognises the importance of “building a diverse social security system which is able to provide support for every member in society in overcoming risks, especially the vulnerable.”  In order to do this the changing nature of socio-economic risks and vulnerabilities must be taken into account.  For example, the shift from household-based farming activities to household businesses, own account and wage employment involves new forms of vulnerability, which require different approaches to provision of social security and protection.  

Gender inequality is persistent, exacerbates other forms of inequality and disparity and acts as an impediment to the development process. Discrimination against girls and women is deep-rooted, as evidenced by the rising sex ratio at birth, favouring of male children in response to increasing costs of social services and falling household spending on women’s health.  Progress on women’s participation in decision-making is positive compared to other countries in the region.  However, targets set by the Government for women’s participation are yet to be achieved: in particular, women’s participation in local level decision-making and planning remains limited. Gender-based violence is increasingly identified as a critical social problem with significant economic and social costs to households and communities.
Viet Nam cannot afford to allow these inequalities and disparities to persist if it is to engage all its citizens in the development process and capitalize on the human capital and skills of all its people.

SEDP 2011-2015: Human Resource Development

The SEDP’s emphasis on innovation and increasing the value added to Vietnamese products and services provides a clear recognition of the importance of human capital, and ultimately of people, to the next phase of Viet Nam’s socio-economic development.  The SEDP clearly demonstrates the intention to re-orient the quality of development towards a society whose comparative advantage will be based on human capital, employment and decent work, rather than on price competition.

Objectives for human resources development should combine access and inclusiveness with relevance and quality of the vocational education and training (VET) system. Increasing the adaptability of current and future generations to the profound economic transformations Viet Nam is undergoing will require a reform of the VET system to create stronger linkages between general education and labour market training, as well as an “active labour market policy” which promotes opportunities for “second chance” training and re-training.  These opportunities are particularly critical for vulnerable and at-risk groups, such as women in informal employment, the near poor and urban poor, and marginalised groups such as sex workers and drug users.

The demographic challenge related to the increase of new labour market entrants, and the restructuring of low productivity sectors and industries in rural and urban Viet Nam, will also have implications for the reform of the VET system.

Finally, the capacity and coverage of education and labour market training providers will have to adapt to socio-demographic trends brought about by economic transformations. In particular, schools and vocational training providers will need to mirror not only sectoral and occupational requirements, but also take into account internal migration trends.

In this context it will be critical for the Government of Viet Nam to ensure that the SEDP and SEDS clearly articulate how the VET system is to be reformed in order to meet the country’s needs and requirements in terms of skills and competencies, the sheer numbers of new labour market entrants and vulnerable workers, and the needs of the labour market. Reforms must ensure much greater coherence and “fit” between these requirements.  It will also be critical to articulate how the quality of education and vocational training is to be monitored and evaluated, specifically in the areas of skills and competencies. This includes assessment and accreditation of skills gained on the job; effectiveness and efficiency of contracting training and accreditation systems; and skills needs assessments at national and provincial levels.  

As in other sectors, corruption appears to be pervasive in education and strong accountability and transparency measures need to be put in place as a matter of priority.  Corruption in the education sector rightly receives special attention from society and the media.

The recent survey conducted by the Government Inspectorate with technical and financial support from the UN has provided important evidence about corruption risks in urban areas in the primary and secondary education system.  For example, parents recognise that they need to pay for help to get their children enrolled in school, and nearly 67 percent of parents view this as acceptable.  One in three parents are worried by enrolment processes, and one in four believe these processes are costly, which is of significant concern.  More than 40 percent of parents pay in excess of 10 percent of their income for private tutoring, and more than 25 percent of parents pay over a fourth of their income for this purpose.  

The survey thus provides clear evidence of the impact of informal payments in education, with predictable effects on those who cannot afford these costs. An effective fight against corruption is essential to long-term economic and social development.  It is the poor who can least afford to pay additional costs for services such as health and education, and the poor who suffer most when funds intended for development purposes are diverted.

Harmonization and Aid Effectiveness

The year 2010 is a milestone for the “One UN Initiative” in Viet Nam. The results of the country-led evaluations on “Delivering as One” conducted in most of the pilot countries will be shared and discussed at a high-level inter-governmental conference in Ha Noi next week (June 14-16) entitled “Delivering as One: Lessons from Country-Led Evaluations and Way Forward”.  Drawing on experiences and lessons learned from the “Delivering as One” pilots and “self starter” countries, the conference will bring together UN, government and donor representatives to identify and agree on further actions required to deepen and expand the “Delivering as One” approach. The conference objectives include communicating more broadly on progress and critical issues; informing the forthcoming intergovernmental processes concerning system-wide coherence; and identifying critical areas deserving attention to ensure more effective delivery “as one” by the UN system at the country level.

The preparation of the next One Plan for 2012-2016 is underway.  A Joint Country Analysis, undertaken in close collaboration with the Like-Minded Donor Group in Viet Nam, is now finalised and will help inform how the UN can best support the Government to address the national challenges and priorities laid out in the draft SEDP and SEDS. A strategic prioritisation process is currently underway in close consultation with the Government and other development partners. It will identify the key focus areas for UN support in 2012-2016, ensure alignment with national priorities and provide a robust assessment of the UN’s comparative advantage vis-à-vis other development partners.

Aid Effectiveness Forum
Government and development partners in Viet Nam have agreed to cooperate closely to maximize the contribution of aid to development effectiveness, with a focus on aid effectiveness policies in particular, and aid for development in general. A separate area of attention will be jointly identifying bottlenecks, opportunities and challenges in implementing aid policies and preparing for Viet Nam’s participation in the 4th High-Level Forum (HLF-4) in Seoul in 2011. The Government of Viet Nam, with the Ministry of Planning and Investment (MPI) as the focal point, along with development partners decided to transform the Partnership Group on Aid Effectiveness (PGAE) to an Aid Effectiveness Forum (AEF) linked to the Consultative Group (CG) discussions on aid and aid effectiveness.  Aid modalities and targets are evolving and the aid effectiveness agenda is changing as Viet Nam moves to MIC status, and the Government and development partners agreed that a more effective forum for dialogue was needed.

The UN actively supported MPI to transform the PGAE to the AEF by providing conceptual advice and examples of best practice from the region. To ensure that the aid effectiveness dialogue will be as inclusive as possible, greater representation from Government line ministries, the National Assembly and civil society is encouraged in line with the principles established at Accra. The UN is now an active member of the AEF Executive Committee (AEF-EXCOM), and provides support to the co-chairs, including technical expertise and policy advice. The UN also participated in the joint elaboration of the AEF 2010 work plan and will continue to provide technical support to ensure effective and coordinated implementation of 2010 activities.

Conclusion

This year marks a period of transition for the Government and people of Viet Nam with the finalisation of the SEDS and SEDP in the lead up to the Party Congress in early 2011.  Looking back from the mid-point of 2010, we see many gains made during the period of the current SEDP in human, social and economic development, not least being Viet Nam’s strong recovery from the economic crisis.  Looking forward to the next 5-10 years encompassing the next national Strategy and Plan, we see the need to consolidate the gains made to date, in order to ensure sustainable recovery, broad-based and inclusive growth, and greater social inclusion.  

Viet Nam’s global, regional and country context is changing rapidly, and it is likely that the socio-economic situation will be radically different by 2020, with new challenges brought about by changing social trends, the structural transformation of the Vietnamese economy and climate change.  If Viet Nam is to address these challenges and grasp the opportunities offered by the shift to MIC status, then social and human development, environmental sustainability and good governance must be at the centre of the Government’s planning efforts.   

The UN stands ready to continue its support to these critically important processes and to the people and Government of Viet Nam to meet these challenges and achieve their development vision and goals.  The UN will continue to support Viet Nam to meet its international commitments, and to support more effective policymaking through the use and analysis of evidence, sharing of best practices, and high-level, targeted policy advice and policy-oriented support. Together with our development partners we are committed to ensuring Viet Nam continues on a path of equitable and sustainable development, and that all the people of Viet Nam are able to participate in, and benefit from, the development process.

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