ADVAUCINGCI.-NGT iF' ~~~~~~. ,,, ... ...... ...FOMV.- F.~~~~~~s 31 e -~ 2e -'½-01" sm - iA _,* -- VIETNAM1 ADVANCING RURAL DEVELOPMENT FROM VISION TO ACTION A Report for the Consultative Qjroup Meeting for Vietnam December 7-8, 1998 The World Bank, in collaboration with the Government of Vietnam, ADB, UNDE, FAO, and CIDA, and in consultation with international donors and NGOs Table of Contents Foreword v Acknowledgments vii Acronyms and Abbreviations ix Executive Summary xi Chapter 1 - The Rural Development Imperative 1 Chapter 2- IncreasingAgricultural Productivity and Farm Income 7 Chapter 3 - Generating Employment in Nonfarm Rural Activities 17 Chapter 4 - Managing Natural Resources and Conserving Important Ecosystems 25 Chapter 5 -Reforming Land and Financial Sectors 35 Chapter 6 - Ensuring Access to Rural Infrastructure and Social Services 43 Chapter 7-Special Challenges of Rural Development in Vietnam's Uplands 53 Chapter 8 - Reorienting Public Investment in the Rural Sector 63 Chapter 9 - The Role of Donors in Rural Development in Vietnam. 69 Bibliography 74 . . Foreword At the December 1997 Consultative Group (CG) as with other donors and NGOs. The draft strategy meeting in Tokyo, the Government of Vietnam an- has been revised in light ofthese discussions. nounced its intention to reinvigorate rural develop- ment and requested support from the international The current diraft has nine clapters. Chapter 1 estab- community in designing and implementing a nural de- lished the imperative ofrural development for Vietnam. velopment strategy. In response, the World Bank in Chapters 2, 3, and 4 discuss the three main objectives collaboration with the government and other donors, ofthe strategy: increasing agricultural pmductivity and including the Asian Development Bank, UNDP, and fam income, generating rural employment innonfarm FAO, formed a strategy team, commissioned a se- activities, ancd managing natural resources sustainably. ries of background papers, and drafted this report. Chapters 5 anid 6 identify means to achieve these ob- jectives: securingland-userightsandgettingthemarket At the June 1998 CG mid-term review meeting in in use rights working, refonring the rural credit system, Hue, the preliminary ideas were discussed, and it was providing ess-ntial public infrastucte, and investngin agreed that the rural development strategy would be rural people. The special challenge of Vietnam's up- the primary special topic at the December 1998 CG lands, where economy and sectorwide policies may have meeting in Paris. In July-August 1998, ajoint gov- more limited effects, is addressed in Chapter 7. Chap- einuent-donor team held discussions on a draft strat- ters 8 and 9 Eddress, respectively, the need to reorient egy with government officials, key advisors to the public expenditures to promote rural development, and Communist Party, and the National Assembly, as well the role of donors and NGOs. v Acknowledgments This report is based on field work conducted by an and academics. All these contributions are grate- international strategy team and on background pa- fillly acknowledged. pers specially commissioned byADB, the FAO In- vestment Center, the Canadian International Devel- Particular thanks are due to the Government ofViet- opment Agency (CIDA), and the World Bank. The nam, and especially the Ministry of Agriculture and work also benefited greatly from related materials Rural Development, whose leadership and senior staff made available by UNDP, bilateral donors, and contributed valuable time and commentary through- NGOs, as well as valuable inputs received from se- out the study period. nior government and party representatives, farmers vii Acronyms and Abbreviations ADB Asian Development Bank APEC Asia and Pacific Economic Co-operation ASEAN Association of Southeast Asian Nations BOT Build-Operate-Transfer CIDA Canadian International Development Agency DANIDA Danish Intemational Development Assistance FAO Food and Agriculture Organization FDI Foreign Direct Investment GDP Gross Domestic Product HCMC Ho Chi Minh City HEPR Hunger and Poverty Eradication Program HRS Household Responsibility System IDA International Development Association IFAD International Fund for Agricultural Development MARD Ministry of Agriculture and Rural Development MoSTE Ministry of Science, Technology and EnvirDnment MPI Ministry of Planning and Investment NGO Nongovernmental Organization ODA Overseas Development Assistance PA Protected Area PCF People's Credit Fund PIF Public Investment Program SBV State Bank of Vietnam SFE State Forest Enterprise SME Small and Medium Enterprises SOE State-owned Enterprise TVE Township and Village enterprise UNDP UnitedNations Development Programme VBARD Vietnam Bank forAgriculture and Rural Development VBP Vietnam Bank for the Poor ix Advancing Rural Development in Vietnam: From Vision to Action Executive Summary current trends continue, most of the more than one million people who enter Vietnam's labor force each Since itseconomictransitionbeganintheearly 1980s, year will be squeezed into poorly paid, part-time and especially since 1988, Vietnam's economic employment in the already overcrowded rural sec- progress has been dramatic. The economy, mea- tor or into low-incomejobs in services. Farms will sured by GDP, has grown by 8 to 10 percent annu- become even smaller, additional marginal lands will ally, industry by 12 to 14 percent annually, and agri- be brought into unsustainable cultivation, and envi- culture by 4 to 5 percent annually, largely the result ronmental degradation will wrorsen. of market-oriented reforms that recognized the farm household as the key unit of production, privatized But an altemalive vision is achievable if the govern- land-use rights, and liberalized decisionmaking on the ment holds to Ihe path of economic reform by adopt- purchase of agricultural inputs and sale of farm prod- ing the appropriate policies, blailding new institutions, ucts. Simultaneously, the number and proportion of and making sound public investments. It is a vision people living in poverty has been substantially reduced of balanced and sustainable growth in the rural'sec- despite continued population growth of about 2 per- tor, including a more diversified agriculture that brings cent annually. higher returns to farm labor, and industrial and ser- vice-sector growth in rural areas that creates full- Nonetheless, Vietnam is still one ofthe world's poorest and part-time jobs outside agriculture. Lowland farm countries, with a per capita income of about $300, productivitywould continue to grow, but the number halfthe population is still classified as poor. Some 80 of people dependent on farning would fall. Upland percent ofthe population lives in rural areas, and two- agriculture would be developed with cash crops in thirds ofthem remain dependent on agriculture for a favored areas and more sustainable subsistence living. Poverty is still mainly a rural problem that is crops in remote areas. Economic development would exacerbated by geographical remoteness and accen- be spread more evenly, and the rural/urban income tuated by periodic health crises and natural disasters. gap would close. Economic clevelopment would nei- The gap in income between rural and urban areas ther be overdependent on agriculture nor lead to the has widened, as has the income gap within rural creation of crowded and polluted megacities. The communities, the result of differences in age, gender, goal is to avoid the mistakes of others and achieve ethnicity, and assets. Non-farm rural employment has economic growth without rnassive environmental failed to grow, and the safety net formerly provided degradation. by the collective system - the system that stymied greater productivity and income growth- has disap- By building on the foundation of earlier reforms and peared, increasing the vulnerability ofthe rural poor. rejuvenating the reformn agernda, many gains are pos- sible at arelatively modest cost. Seizing such oppor- Two Visions of Rural Development tunities quickly is made more urgent by the Asian financial crisis. GDP growth and foreign investment Stagnating employment growth, widespread unem- have been halved, urban unemployment has risen, ployment and underemployment, and growing in- and drought Hit rural areas hard in 1998. These de- equality in rural areas are an undesirable vision. If velopments threaten to reverse progress in poverty xi reduction, reduce rural expenditures, and cut access of national income, the result of Vietnam's 18 per- to health and education services among the poor. By cent share of the world market. Public policy, how- reinvigoratingrural reforn without neglecting its safety ever, is still designed to achieve rice self-sufficiency net, Vietnam can ride out the crisis and be well placed rather than income growth in rural areas and a mod- to thrive when it ends. em infrastructure that would assure both food secu- rity and more vibrant exports. A Three-Part Challenge Agricultural production and marketing controls Vietnam confronts several key challenges as it at- should be removed. These controls were originally tempts to restore rural development: increasing agri- seen as the way to ensure staple supplies of food to cultural productivity and farm income, moving from urban areas. The Ministry of Agriculture and Rural food self-sufficiency to food security, stimulating non- Development (MARD) still sets "indicative" targets farm rural employment, and managing natural re- that strongly influence lower levels of government. sources sustainably. The targets become the basis for capital expendi- tures requirements, budget transfers, and input and Increasing Agricultural Productivity and Farm credit allocations. The communes respond to these Income directives from above by directing farrners and chan- neling inputs to meet the targets. By continuing to liberate the energy offarmers and the vitality offree markets, Vietnam could Farm and off-farm employment and income will restore agricultural growth to the earlier 4-S per- grow fastest if diversification of crop and live- cent level. stock production is allowed. The key to a productive and profitable agriculture is Restrictions on alternative uses of paddy land and to deepen the policies that have already benefited the dedication of irrigation systems to rice cultivation Vietnam so much. Each time the government has inhibit diversification into higher valued crops - in- given farmers more control over resources and a cluding vegetables, fruits, and horticultural crops - greater voice in agricultural decision making, there that would demand more agricultural labor and gen- has been a substantial supply response. Without re- erate higher farm incomes form, Vietnam could not have doubled rice output since 1980 and gone from a country where hunger Removing the rice export quota will raise national was widespread to the world's second largest rice income and allow exports to grow. exporter. Each time that market reforms created in- centives for producers, as they did for rice in 1988, The quota on rice exports has recently been in- farmers have responded by increasing production. creased, but it still lowers the price paid to farmers The income generated by increases in production has and thus transfers income from farmers to urban con- fueled consumption and savings that have stimulated sumers. It is estimated that national income would the rest ofthe economy. increase by US$225 million and exports would ex- ceed five million tons if the quota was abolished. Vietnam can feed its growing population best by focusing on the growth offarm income and the Vietnam could best meet domestic demand for creation of an efficient and diversified agricul- sugar through sugar imports and competition in tural sector. domestic production. Rice dominates Vietnam's agricultural production, Government policy regarding the sugar industry consumption, and exports. It accounts for one-sixth should be reconsidered. Excess investment in sugar xii factories, encouraged by high tariffs and preferences Large-scale resettlement offamilies from crowded for state-owned sugar enterprises not only expands lowland areas to upland and coastal regions production artificially but also discourages industries should be carefully reconsidered. that use sugar as an input. It is estimated that con- trols on sugar imports reduce national income by some Vietnam has few remaining opportunities for agricul- US$92 million annually. tural growth through expansion of the area under cultivation, and its agricultural land is already densely settled. Per capita availability of cultivable land is Opening the seed industry to imports and domes- barely more tCan one-tenth of a hectare. Expansion tic private sector production would make seeds , is only possible in unfavorable highland zones and cheaper and more plentiful, and important new fragile coastal areas, but large-scale resettlement on varieties would become available. "barren" uplands or "reclaimed" areas along the coast is not sustainable. Government control ofthe seed industry should be relaxed. For example, Vietnam bans imports of hy- Agricultural Research and Extension Services brid maize seeds to protect SOE producers. By do- Require Increased Investment ing so it denies farmers the opportunity to double maize yields. Preventing access to more productive During the era of collectivized agriculture providing varieties lowers maize output while raising the price agricultural extension services was the responsibility and thus inhibits livestock production because maize ofthe communes, backed by a large number of small is used as livestock feed. Since seed potential grows and poorly funded research institutes. Research is through genetic engineering, the absence of private still diffused and extension serves the needs of few sector firms in the seed industry will continue to dis- crops other than rice. A research and extension base advantage Vietnam's farmers. for diversified cropping and upland farming systems must be built Returns to investment in research would be higher frorn a smaller number of well-funded cen- The marketing of agricultural inputs and outpuits ters with well-prioritized programs. would become more efficient if the dominant ag- ricultural SOEs were equitized andprivate busi- Stimulating Nonfarm Rural Employment: nesses were allowed to compete with SOEs on an o equalfooting. ~~~~Avoiding Past Mistakes equal footing. Newprivate investments inagricultural marketing and Production and employment growth in the rural food processing should be encouraged. The prefer- private sector are hampered by a hostile legal and ences given to SOEs, particularly in exporting agri- regulatory framework, lack of access to finance, cultural products and importing agricultural inputs, and a systematic bias favoring SOEs. Aggres- result in lower prices and higher costs for farmers. sive action is needed to remove these constraints. Global experience has shown that SOEs everywhere are typically less efficient than private businesses in Industrial employment in Vietnam has fared poorly. carrying outthese activities. SOEs do not adopt cost- Over the past six years, the share ofthe labor force saving measures in transport, storage, marketing, and in wage employment in industry has fallen. Despite distribution as quickly as private enterprises do be- heavy state investment, the industrial sector lost cause they lackthe desire forprofitthatis found in 300,000 jobs (down fromt 3.8 to 3.5 million) be- prdivateenterprises. tween 1990 and 1998. Creation of private sector industrial employ,ment in rural areas has been par- ticularly weak. To stimulate growth in off-farm in- xiii dustrial employment, Vietnam has to learn from the Nam/Da Nang - should be revised to give greater mistakes of the past. Over-reliance on agriculture, priority to smaller centers and to reflect the contri- without the development of a flourishing small-scale bution that cities make to rural hinterlands. Rural industrial sector, will cause the rural/urban income employment often grows fastest on the edge of cit- gap to continue to widen, and there will be large- ies, where rural industry is a spillover from urban scale migration from the countryside to the cities. centers. Urban and rural development complement each other: when one grows rapidly, so does the other. Vietnam's rural business sector comprises some 4,500 SOEs, about 24,000 corporate enterprises, Managing Natural Resources Sustainably and about 2 million household enterprises. The pri- vate corporate enterprises are located mainly in the Vietnam must choose quickly which environmen- Mekong and Red River deltas and are engaged talpath it will take: the path of increasing degra- mainly in trade (50 percent), followed by industry dation or the path of sustainable use. and construction. Most are small and labor-inten- sive manufacturing orprocessing establishments that Natural resource issues in Vietnam are widespread should be helped to grow. This will require the cre- and complex. Continuing down the current path will ation of an environment that supports private sector lead to further unsustainable use of natural resources growth and the simplification of govermnent proce- and environmental degradation. In forestry, fisher- dures that make it hard for businesses to form, while ies, aquaculture, and biodiversity conservation, the allowing administrative discretion that produces op- story is the sarne: Vietnam's rich resource base - the portunities for corrupt practices by bureaucrats. key to rural development - is under tremendous pres- sure to satisfy imnmediate demands in ways that will Ending discrimination against nonstate rural en- prevent long-term sustainable use. terprises will stimulate job growth. Acombination of poverty, inappropriate resettlement, The labor/capital ratio of private enterprises is ten and unsustainable logging have denuded and de- times greater than that of SOEs but private enter- graded much ofthe uplands. Widespread clearing of prises are limited by lack of capital. Less than 15 forest for industrial and settlement purposes, and to percent have bank loans, although 70 percent say a lesser extent for short-cycle shifting cultivation, have they would like to borrow capital. Vietnam's local destroyed 100,000 hectares of forest annually for SOEs have been its weakest SOEs, and many have the past 50 years, with harmful effects downstream been closed down. Therefore, the government have in the form offlash floods and sedimentation. Over- even greater reason to nurture the private industrial fishing, mangrove destruction, and excessive devel- sector in rural areas. Unlike other developing coun- opment of aquaculture in unsuitable sites on the coast tries, where private small- and medium-sized indus- have seriously damaged potentially renewable re- tries (SMEs) have developed quickly, Vietnam's sources. SMEs suffer from a continuing bias against private enterprise and the preferences given to SOEs. Natural habitats that provide environmental services, watershed protection, and reservoirs ofbiodiversity, Rural industrialization and urban development are are also degraded. Vietnam's rich array of endemic complementary. species make it a biodiversity "hotspot." While much less is known about Vietnam's marine and aquatic The governnent's policy oftargeting industial invest- biodiversity, they too are believed to be significant. ment to Vietnam's three largest cities - Ho Chi Minh/ Decisions made now will influence the future pros- Dong Nai/Vung Tau - Hanoi/Haiphong and Quang pects for biodiversity conservation. xiv Restructuring State Forest Enterprises (SFEs) Detailed assessmentoffishstockpotential should would ensure sustainable harvests, biodiversity precede new investment in oceanfishing andport conservation, and reduced spending for timber development, imports. Overexploitaition ofthe near-shore fisheries is evi- Vietnam's state forest enterprises (SFEs) need to be dent in increasing fishing effort and a declining catch. reformed. They depend for their existence on high At the same time, the government is promoting ex- levels of commercial logging. Vietnam's forests are pansion of the fishery to offshore waters deeper than shrinking steadily, down from 14 million hectares in 50 meters and has committed itselfto significant ex- 1943 to about 9 million in 1997. A 1997 decree to penditures on port infrastructure in support of this ban logging in all natural forests has reduced the rate objective. However, the potential ofthe deepwater oftimber harvest from about one million cubic meters fishery has not been assessed. Unless an assessment to 350,000, and this figure is due to shrink further in is made, this fishery too will be overexploited and future years. However, Vietnam must import an in- the viability ofthe port investments will be under- creasing volume oftimber from neighboring coun- mined. tries, where timber harvests are also unsustainable. Without careful site assessment and better prac- New investment in forestry needs new models, tices, investments in aquaculture will be exces- accompanied by careful monitoring, auditing, and sively risky. transparent use offunds. Shrimp, crab, prawn, and fish faniing, although risky, To arrest the decline of forests, a major program can be highly profitable, and Vietnam may have a (Program 327 - "Greening the Barren Hills ") of high potential for aquaculture expansion if solutions reforestation was begun in 1992. The program pro- can be found for persistent disease and pollution vided a financial lifeline to state forest enterprises, problems. Further promotion of aquaculture must be but it has not stopped forests from shrining nor miti- preceded by enhanced knowledge of land use zon- gated the pressure placed on forests by poor house- ing procedures and aquaculture practices. Otherwise, holds in the uplands. A renewed effort is needed that mangrove forests, wetlands, and estuarine areas will gives long-term responsibility for forest management be put further at risk, and households practicing in- to government, promotes smallholder tree-crop pro- tensive aquaculture will continue to gamble on risky duction and other income earning opportunities on investments. faimers' land, and involves communities injoint man- agement forest perimeters. Without routine monitor- Clearer policies and management guidance can ing andtwnsparent accountability forthe use offunds, raise the effectiveness of Vietnam s conservation donors may be reluctant to support the clear priority programs. of forest restoration. The government has established an extensive system Related difficulties include lack ofclarity on land-use of protected areas to conserve natural habitats. It rights, conflicts between customary rights and use- includes 101 sites covering 1.3 million hectares, equal rights established under the new Land Law, and the to 4 percent of Vietnam's land surface. A proposal settling of in-migrants in upland areas already be- to expand protected areas to 2 million hectares is longing to ethnic minorities. Furthermore, while a under review, but most ofthese areas are occupied number ofinnovative pilot actions are beginning to and ways for poor people and protected areas to show how reforestation might be made to work, re- coexist have yet to be found. This challenge needs to medial measures that are applicable - either broadly be reflected in the decree that guides protected area or locally - have yet to be proven. management, in pilot actions to test new approaches xv to conservation, and in how resources dedicated to Extending the scope and duration of land use conservation are used. With limited resources for rights, and simplifying transfers and mortgaging conservation and growing demands, the government of use rights will improve farmers' access to must make tough choices. Thus, it is better to ad- credit. Enacting a decree that interprets the Land dress the highest priorities well than the full spectrum Law will allow a market in land-use rights to de- of demands poorly. velop. Assigning upland use rights is more prob- lematical and should be preceded by local con- Four Essential Ingredients for Rural Develop- sultation and participatory land use planning. ment: Land, Credit, Infrastructure, and Social Services When land use rights become household and enter- prise assets, they can be used as collateral to raise The role ofthe government should be to create and capital. Thus, the right to mortgage land is important. implement a policy framework that rewards hard The inability of foreign banks, in particular, to issue work and innovation, and that puts the interests of mortgages based on land use rights restricts their entry poor people at the center, allowing them to become into the rural credit market. Only SOEs are allowed an engine for sustainable development. This policy to use land use rights as collateral in joint ventures environment should, further, provide rural communi- with foreign partners, thus, limiting opportunities for ties with sufficient basic infrastructure and services. private investment in agriculture and rural industry. Even where land use rights are used as collateral, Land: Getting the Market in Land -Use Rights creditors are not allowed to exchange, transfer, or Working lease them. Thus, while the framework ofthe Land Law is in place, the limitations that restrain the growth Farm households and rural enterprises need se- of the market in use-rights should be removed and cure land-use rights and the right to assemble the law made operational. contiguous parcels of land. Restrictions on the conversion ofpaddy land to other uses should be Rural Credit: Making Saving and Borrowing lifted. Sustainable Empowering farm households and rural enterprises Reform of the ruralfinancial system is needed as begins with land security. Developing a functioning part of overall banking reform. Rural credit use market in land-use rights is a key recommendation will grow when distortions in the market are re- ofthis report. Farm households should also be en- moved, including the cap on lending rates. The abled to consolidate their holdings. The Land Laws bias in lending to SOEs should be ended. of 1988 and 1993 provide a framework-for security, and a revised Land Law and implementing decree Vietnam's rural financial sector is underdeveloped. are imminent. The 1993 Law gave land owners the The banking system has been used to channel finance rights to transfer, exchange, lease, inherit, and mort- in support of centrally determined production tar- gage land, but several factors impede the function- gets and to provide welfare payments. It is not yet ing of a market in use rights and should be removed. serving as an efficient mechanism to encourage pri- vate savings and to supply credit for to investments in accordance with their likely profitability. More than half of Vietnam's 12 million households do not have a bank or credit union account. Most rural house- holds use informal credit when they need credit. xvi Private domestic investment made up less than a heavily weighted in favor ofirrigated rice. Investments quarter of total investment in 1997. Domestic sav- in all-weather roads, electrification, drinking water, ings are barely tapped by the banking system for ru- and drainage and flood control can have very high ml development. People will only be encouraged to economic returns, often in the range of25 to 30 per- save when their savings earn real interest and they cent, plus many additional social benefits. have faith in the financial system. Credit should be available at market-determined interest rates, and Effective provision andfinancing of rural infra- investors should have confidence that the contracts structure can be expanded by devolving respon- they make will be honored. Foreign direct invest- sibility to the local level. ment (FDI) and overseas development assistance (ODA) play an important part in the growth of in- Since public funds are very scarce, the government vestment in Vietnam, but little FDI goes to the rural should only invest in infrstructure projects that need sector. Almost all of it goes to Vietnam's 10 largest large capital outlays, cut across provincial bound- cities. aries, benefit most ofthe population, and generate large external benefits. In addition, however, a bet- The rural finance system lacks resources for long- ter infrastructure is vitally needed to help people in term lending and serves remote areas poorly. Sig- Vietnam's remote and mountainous areas escape nificant institutions, such as the Vietnam Bank for the poverty. Ways to do this with modest capital outlays Poor (VBP), offer subsidized credit that is unsus- should be found. Greater autonomy should be granted tainable over the long run and provides unfair com- to local governments to determine their own infra- petition to potentially sustainable microfinance pro- structure needs, and opportunities for private sector gams inthe short run. Inappropriate loanterms (large investment in energy and highway projects should loans with a single lump-sum payment at the end) be sought. In irrigation and water supply, cost re- put poor borrowers at high risk of default. covery can be improved, accompanied by better water delivery, turnover of operations to water us- Public Infrastructure: Closing the Gaps ers, and clearer definition of water rights. Iifrastruc- ture services should be provided on the basis of full Improvements in ruralpublic infrastructure have or partial cost recovery, when appropriate. high return. Human Resources: Investing in People Vietnam's weak public infrastructure hampers rural development. Lessthan 10 percent of letnam's road Increased investment in education and health care network is rated in good condition, and nearly 20 is needed to give the rural poor the opportunity percent of rural communities are not connected to to participate fully in the economy. the district center by a motorable road. Many rural roads are impassable in the wet season. Less than a Education aid health indicators prove thatVietnam has third ofthe rural population has access to safe drink- been relatively successful at providing basic services- ing water, and only 5 percent have piped supplies. often betterihan countries with much higher incomes. While 91 percent of all districts and 62 percent of all Given its fast-growing populationandcompetitive eco- communes are connected to the national electricity nomicenvircnment, Velnamrmustenlaigeitsinvestments grid, only 35 percent of all households are connected. in people. Olherwise, gender and ethnic differences will In rural areas the proportion is often less than 20 widen, andhalfthe populationwill lackthe potential to percent. contribute tc economic and social development. Rural areas receive too small a share of public in- Investing in rural people makes economic sense. vestment in infiastructure, and rural investment is too Other things being equal, farmers with more educa- xvii tion outperform farners with less. But children in ru- based and sustainable growth across all sectors. Other ral areas, and especially in remote and mountainous findings are specific to the rural sector as a whole. areas, are less likely to go to school and their fami- However, three-quarters of Vietnam is composed of lies must spend a far higher proportion of their in- poorly serviced upland regions that are home to 30 come to enable them to attend school than better-off percent ofthe population, including many ethnic mi- families in the lowlands and urban areas. Mountain norities, and the uplands demand special attention. area literacy rates are commonly below 50 percent, A rural development strategy that does not address compared to 93 percent for Vietnam as a whole. the needs ofthe most vulnerable groups and poorest Overall, households fund some 44 percent ofthe total households will fall short of its goals. cost of primary schooling, but the financial burden these places on a rural family is twice that on an ur- New and additional investment is required on ban family. This financial burden constrains rural fami- agricultural research and extension services that lies from investing in their own productive activities. focus on conditions in the uplands. Despite past achievements, there is widespread con- Vietnam's uplands are agroecologically varied and cern that the quality of rural education and health care complex. The topography is uneven, often sloping, are falling. In education, there is a shortage of quali- and productivity is variable, with valley bottoms that fied teachers caused by poor working conditions, are fertile and extensive hilly areas that are not. Much low salaries, and attractive opportunities elsewhere. upland is degraded, having been repeatedly cleared. The transfer of responsibility for health care provi- Cleared land is easily eroded, making it irreversibly sion to People's Committees has resulted in funding unproductive and affecting downstream hydrology cuts and a more market-oriented approach to ser- and sedimentation. Low productivity and remoteness vice provision that put the poor at a disadvantage. In make the commodity value of much upland negli- both sectors, more investment is needed, existing gible. resources need to be more efficiently and cost-ef- fectively used, and opportunities to reduce the user Provide clear land-use rights through processes fees paid the poorest should be found. that emphasize consultation and participatory planning, not speed. Assessing the vocational and technical education needs of rural people shouldprecede the devel- Upland property rights are often different from those opment of appropriate responses. ofthe lowlands in that much land is managed by eth- nic minorities asjoint or common property. Vietnam's To meet the employment challenges ofthe new cen- ethnic minorities are culturally distinct, both from tury, Vietnam is investing more funds in vocational each other and from the kinh people of the low- and technical training. Technically trained people will lands. Many upland people do not speak Vietnam- be needed to manage and operate the increasingly ese and, with less formal education, lack the skills sophisticated plant and machinery that are integral needed to find off-farm employment in government parts of modem industry. Thus, vocational training or business. Overly rapid or insensitive implementa- must be matched to employment opportunities that tion of the Land Law could create more problems exist or are likely to develop. Detailed assessments than it solves. are necessary to identify these opportunities. Many upland areas lack essential infrastructure, The Special Challenge of the Uplands good education and health care systems, and ac- cess to market-priced microcredit. Many of the main findings of this report relate to economywide measures that are essential for broad- Upland communities are poorly served by an infra- xviii structure that keeps them isolated from markets Reallocate public investmentfrom SOEs to agri- and services, and limits their development poten- cultural diversification, private off-farm employ- tial. Upland areas often lack all-weather roads, ment, public infrastructure, and support services. safe drinking water, and electricity. Health and education indicators for the uplands fail to reach Vietnam's Public Investment Program (PIP) calls for the relatively high standards of the rural lowlands. total investment equivalernt to US$17.1 billion over Schools are often distant, teachers poorly moti- the period 1 996-2000. Sixty percent of the PIP is vated, and the costs of attending school too high. allocated to SOEs in production, processing, and Doing business in the uplands is also more costly, trade, and 40 percent to public goods and services. and financial services are poorly developed. The The PIP's largest item is the US$5 billion allocated lower ceiling on VBARD's lending rate in upland to industrial SOEs. While policy statements empha- areas is a disincentive to institutions that make size rural development, public expenditure plans do loans. Better provision of financial services needs not fully support those statements, and significant to be based on sound banking principles and best opportunities exist to reallocate public expenditure. practice implementation of micro-credit. For example, the PIP allocates some US$2.5 billion to the 4,500 agricultural SOEs, more than twice the Upland development requires higher levels of amountallocatedtoVietnarn'stenmillionfannhouse- community participation in project planning and holds. implementation. Actual public investment over the first three years of Conservative administration, limited local partici- the PIP was less than planned. The government has pation, and a history of subsidies have made up- reduced the PIP target for the rural sector by one- land communities overly dependent on government. third (from VND 60 trillion to VND 40 trillion), and Subsidies and lack of land ownership also lower annual disbursements under the reduced target are the probability that development can be sustain- also down by one-third (from VND 8 trillion to VND able. Changing this will take time, education, and 5.3 trillion). An increase in public investment in the institutional development. Meanwhile, however, rural sector will require a strong political commit- the social cohesion of upland communities has ment andfurther institutional developmentto improve been breaking down, negatively affecting the in- the sector's capacity to absorb and use funds effec- digenous institutions that enabled upland people tively. to live successfully in remote areas. Promising development activities, many ofthem catalyzed by Education, health care, and social services in ru- international NGOs and supported by bilateral ral areas warrant higher levels of investment and donors, have been required to invest heavily in better targeting at the poor participatory approaches before attempting to improve livelihoods. The rural areas with the greatest concentrations of poverty have the weakest social services and are least Reorienting Public Expenditures able to generate new revenues for social develop- ment. More than 90 percent of recurrent expendi- Faced with slowing growth and fiscal restraint caused tures on education is raised by local administrations; by the regional financial crisis, Vietnam must use its only 10 percent comes from the central government. development resources more efficiently and ensure The poor pay a disproportionate share of their in- that taxation and expenditure are biased in favor of, come for batsic services. For such reasons, greater rather than against, the poor. preferential assistance to poorer regions is justified. xix In addition, there are high returns to investment in cent) and rural infrastructure (14 percent). Most ru- education and health care in poor regions, especially ral sector ODA is implemented through the Ministry for women. A 10 percent reduction in public invest- of Agriculture and Rural Development (MARD), with ment in SOEs would allow public spending on edu- a large but unspecified share channeled to SOEs. cation, health, and social services to be doubled. Disbursements have grown slowly, a product ofcom- plex procedures and new relationships. Redistributing revenues promotes equity, and de- centralizing fiscal decisionmaking can improve Overall, there are more than 300 NGOs in Vietnam, beneficiary participation and transparency. providing additional millions of dollars in grant aid each year, making them the financial equivalent of a The government seeks to equalize the provision of very large donor. Most ofthese NGOs work in rural basic public services by redistributing revenues be- development across a wide range of sectors, includ- tween provinces according to standardized norms ing agriculture, forestry, microfinance, health, edu- that reflect population, geography, and level of de- cation, and disaster relief. NGOs are apowerful force velopment. While the government should retain for innovation, participation, and local institutional enough fiscal control to ensure equity in the provi- development. sion of basic social services and infrastructure, the process can be enhanced by further decentralizing Rural areas can only absorb more ODA if the ca- revenue and expenditure decisions, raising transpar- pacity to employ it effectively is increased. This ency, and enhancing beneficiary participation in would require institutional development and sim- decisionmaking. plifiedproject designs andprocedures. Decentral- izing decisionmaking will help, provided it is ac- Regressive taxes and contributions hamper rural companied by local-level capacity building and development. increased accountability. Urban residents pay less income tax than rural resi- If public investment is reoriented in line with the rec- dents, and the fee and contribution system, often lev- ommendations of this report, ODA for the rural sec- ied on a per capita basis, makes the tax system even tor will be redistributed. In particular, investments that more regressive. In particular, the wide array oftaxes, promote agricultural diversification, off-farmjob cre- fees, and contributions that farmers must pay should ation in rural areas, improved rural infrastructure, be reassessed. This report recommends that the re- and improved education and health care will receive gressive nature of rural taxation be ended, that the priority. government continue to make payments to promote interregional equity, and that the authority of local If slower economic growth in the near term reduces governments over fiscal decisions be raised. public investments further, the relative importance of ODA will increase and the need will arise to use exist- Ensuring International Support ingcomuitmentsevenmoreeffectivelyThiswouldmean less ODA for SOEs but increased support for the costs International financial support to Vietnam has been of SOE equitizations and closures. By simpliing project increasing. ODA committed to rural development designs and implementation procedures, current ODA over the last four years by the World Bank, the Asian commitments could be used more effectively. Efforts to Development Bank, and Vietnam's 12 largest do- decentalize the use ofODA andto disburse funds faster nors exceeds US$2.5 billion. Ofthis, the largest share should be accompanied by increased tansparency and is for irrigation and water management (31 percent) accountabilitY followed by natural resource management (25 per- xx Further donor synergy is possible through more tation and Vietnam's poorest communes will provide explicitpartnerships based on the experiences and an opportunity for this. Best practices could be shared capacities of banks, donors, and NGOs. and replicaited more often. Common ground rules could be adopted by donors working in similar ac- Development banks, donors, and international NGOs tivities in different areas. By creating more effective support a large number of diverse rural development partnerships through improved communications and activities across Vietnam. The level of cooperation earlier involvement, the complementary capacities of among these partners is good, but it could be even these different development actors could be more better. Support for government initiatives could be fully exploited. more systematic. Donor support for upland refores- xxi Chapter 1. The Rural Development Imperative The Government of Vietnam has an ambitious agenda in the most remote, least productive, and most eco- for development ofthe country, and in the early 1 980s logically fragile areas. initiated sweeping economic reforms in support of that agenda. Chiefamong its development objectives To meet these challenges, the government wants to are eliminating absolute poverty and ensuring food put in place a set of policy and institutional reforms security. Its goals also include reducing the substan- and investment programs that will lead to more bal- tial and growing gap between incomes in rural and anced development. It seeks development that mini- urban areas. The Government is concerned that eco- mizes the environmental and social ill effects of large, nomic development should be sustainable and avoid untmanageable urban agglomerations, and ensures that unbalanced growth which has resulted in poverty-at present largely a rural problem-is megacities-with all their attendant environmental and sharply reduced, not transferred by migration from social problems-in other rapidly developing coun- rural to urban areas or by r esettlement to other rural tries. Thus, rural development is inextricably at the areas. It also wants to extend rural development to center of Vietnam's overall development strategy. the more remote and less well-endowed upland re- gions that comprise three-quarters ofthe country's Vietnam has a window of opportunity-at this criti- land area and are home to nearly one-third of the cal juncture in its development-to minimize the so- total population. These areas, and the rural people cial and environmental costs of its inevitable evolu- who inhabit them, face particularly difficult develop- tion from a low-income rural society to a higher-in- ment challenges and will require special attention. come and more urban society. By drawing on the experience of countries that have already made this Impressive Post-Reform Growth Continues transition, Vietnam can proactively manage change and attain more balanced and equitable growth. Vietnam has made remarkable progress, in terms of economic growth and development, since beginning Nonetheless, achieving balanced, sustainable devel- its economic reforms inthe early 1980s. From 1988 opment will be challenging for Vietnam. The country to 1997, aggregate GDP increased on an annual began its economic reform program from a very low basis at an impressive 8 to 10 percent in real terms. income base, and with infrastructure, natural re- The industrial sector grew faster than the rest ofthe sources, and social institutions damaged by years of economy during this period, recording GDP in- war. Furthermore, its regionally heterogeneous re- creases of 12 to 14 percent annually. source endowments-ranging from highly fertile river deltas to less productive coastal lowlands and infer- This impressive economic transformation was made tile and erosion-prone hilly and mountainous hinter- possible by a macroeconomic framework that tamed lands-make for a very uneven development poten- inflation from hyperinflationary levels to only 3.6 per- tial among regions. Particularly in rural Vietnam, life cent in 1997. Foreign direct investment (FDI) ap- and livelihoods are subjectto high levels ofriskfrom provals grew from zero lbefore 1988 to US$ 31.9 frequent natural disasters, such as floods and ty- billion by 1997, demonstrating a great increase in phoons. Moreover, the country's most disadvantaged international investor confidence in the economic re- groups-ethnic minorities inparticular-tendto live forms. But FDI, which in 1997 represented 28 per- 1 cent of overall investment, will likely decrease sharply Widespread Rural Poverty Persists as a result ofAsia's financial crisis. Nonetheless, Viet- nam continues to show its commitment to the main- Despite the impressive first wave of post-reform tenance of policies that ensure closer integration with growth, Vietnam remains one of the poorest the global economy by active engagement in regional countries in the world. Starting from a much lower trade organizations such as ASEAN and APEC, base at the beginning ofthe reform period, per which itjoined in 1996 and 1997, respectively. capita income has grown to about US$300. While absolute poverty has been considerably reduced, Perhaps the most striking evidence of the effective- one-half ofthe country's population is still officially ness of the reforms has been in agriculture, which classified as poor.' Ninety percent ofthe poor are until recently has grown at an annual rate of 4 to 5 found among the three-quarters ofthe population percent. This is largely a consequence of market- living in rural areas, indicating disproportionate oriented policy reforms, including the assigrnent of rural impoverishment. land-use rights to farm households and the liberal- ization ofmarketing arrangements, which have led to As a result of continuing strong growth in farm pro- growth in exports of rice, coffee, and other agricul- duction and incomes since the 1992-93 Living Stan- tural commodities, such as cashews and rubber, as dards Survey, the proportion of the population be- well as aquatic products. Prior to the reforms, Viet- low the poverty line and the proportion of absolute nam was importing over I million tons of rice a year poor should both have declined. Up-to-date data and malnutrition was widespread. Rice production on poverty will shortly become available from the hasrisensharply sincethen, and Vietnamisnowthe 1997-98 Living Standards Survey.2 The second largest rice exporter after Thailand, with a Government's estimate ofthe absolute poverty rate projected exportvolume of 3.5 milliontons in 1998 in 1997 was 18.3 percent, down from 19.2 percent despite experiencingadroughtduringthemaingrow- in 1996 and 20.4 percent in 1995 (CIEM 1998). ing season. While overall GDP growth is expected The urban absolute poverty rate for 1996 was esti- to decline to 4 to 5 percent in 1998, agricultural mated at 8 percent, while for rural areas it was nearly performance is likely to remain positive. three times higher: 22.5 percent. Although the rate of economic growth and develop- Within rural areas, most Vietnamese are dependent on ment in post-reform Vietnam has been remarkably agriculture, forestiy, andfishingfortheirlivelihoods. The good, even by pre-crisis East Asian standards, there incidence of poverty is significantly higher among those are worrisome trends in the pattern and quality ofthis who derive their livelihoods solely from farming than growthL The concerns mainly relate to the limited em- those with more diverse sources of income. Poverty is ployment generated by this growth, as well as indica- particularly acute among ethnic mninorities and others tions that the growth has not been widely shared, as living in remote, hilly, or mountainous regions-such as evidenced by persistent poverty, particularly inrural and the Northern Uplands and the North Central regions- upland areas. These trends point to the need for further where land productivity is low and few opportunities policy reforms, improvements in existing institutions (or exist fordiversification oflivelihoods beyond subsistence the development of new institutions), and changes in agriculture. Ethnic minorities make up around 13 per- public investmentprograms, as well as enhancement of cent ofthe total population, but it is estimated that they the capacity to implement them. account for about 20 percent ofthe poor. 1. A Living Standards Survey carried out in 1992-93 estimated that 51 percent of the Vietnamese population are poor, in the sense of not having sufficient income to pay for essential food, clothig, and shelter. It was also estimated that about 25 percent of the population was in the category of absolute poor, i.e., unable to afford the daily basic calorie requirement for healthy living. The incidence of rural poverty was 57 percent, more than twice the incidence in urban areas, so that about 90 percent of the poor were believed to be in the rurat areas (World Bank 1995). The poorest region was the North Central region, followed by the Northem Uplands region. 2. Preliminary results from the 1997-98 Living Standards Survey indicate a significant decline in the incidence of poverty -from 50 percent down to 30-35 percent- since the previous survey in 1992-93. However, these results are based on data from about 3,000 households (40 percent of the sample households), which disproportionately represent urban and peri-urban areas. The results of the fiUI survey will be available in early 1999. 2 Rural-Urban Income Disparities Grow Off-Farm Employment Stagnates Although the absolute poverty rate is declining, pov- Vietnam's population of 77I million is growing at an erty continues to be much more pervasive in rural annual rate of 1.8 percent, and its labor force is in- than in urban areas, and income disparities between creasing by approximately 1 million persons annu- the rural and urban populations, as well as between ally. Despite high rates of growth in GDP, employ- upland and lowland areas, are seemingly on the rise. ment growth has been disappointing. During the pe- Government statistics showthat the gap between the riod 1990-97, employment in the industrial sector top and bottom 20 percent of income earners has only grew from 3.4 to 3.6 million, whereas employ- increased. In 1995, income earners in the top 20 ment in agriculture, forestry, and aquaculture in- percent earned 6.8 times more than those in the bot- creased from 21.6 to 24.5 million. More recently, tom 20 percent. By 1997 they were earning 7.3 times job creation has been negative in both agriculture and more (CIEM 1998). industry, and only modestly positive in the mostly in- formal services sector. Together with rising income inequality, an increase in landlessness has taken place in rural areas. More- In 1997, the official unemployment rates were 6.5 over, economic reforms and increased independence and 3.9 percent in urban and rural areas, respec- among farm families has meant the disappearance of tively (GSO 1997). But there was also substantial the safety net formerly provided by farm coopera- underemployment-1 6.2 percent in urban areas and tives, making the rural poor more vulnerable than they 25 percent in rural areas. T'hese figures imply that of were under the collective system. a total 30 million rural people of working age, 8.6 rnillion are either unemployed or underemployed. Another serious concern is that the quantity and quality of social service provision has shown signs of deterio- The Govermnent realizes that further reducing abso- ration since the late 1980s (World Bank 1995). Sec- lute poverty, reducing income inequality, and improv- ondary school enrollments and the quality of schooling ing access to social services will depend in large part have declined sharply in rural areas, and utilization of upon continuing to achieve good productivity gains health services has dropped, due in part to the intro- in agriculture and expanding the range of agricultural Figure 1 Rural Workforce 1997 Unemployed Underemployed Employed duction ofuser fees (often referred to as "socializatiorf). activities. Continued grovwth of agriculture and im- Since it is the healthy and the skilled who are most able provement of farm incomes are important not only to take advantage of Vletnam's rapid economic growth, for their direct contribution to rural living standards thesetrends, suggestinggrowinginequalityinaccessto but also because of strong linkages with nonfarm basic social services, run counter to the goal of more economic activities. Inconme from agriculture can be balanced and equitable development. spent on agricultural inputs or on food and nonfood 3 consumption items, which can stimulate the local The proportion of off-farm income earned by rural economy. Altematively, earnings from agriculture can households increases as an economy develops. In contribute significantly to rural domestic savings, China, for example, nonfarm income now makes up which can fund investments in nonfarm rural enter- around 35 percent of rural household incomes, prises. Also, outputs from agriculture are needed as whereas a decade earlier its share was only around inputs for nonfarm rural enterprises, such as 15 percent. In the Republic of Korea the share in- creased from 18 percent to 50 percent between 1975 and 1995. In Thailand the proportion rose from 46 percent in 1971-72 to 60 percent in 1997.3 Simi- lar changes in rural household income can be ex- pected to take place in Vietnam. The transfer of labor from agriculture to in- dustry or services in rural areas will mean itmmediate economic gains. During the period 1995-97, the av- erage value added per worker in Vietnam was VND 0.6 million in agriculture, VND 3.5 million in indus- try, and VND 2.5 million in services (Agrawal and Nga 1998). Such a transfer is also critical to reduc- Small investments in equipment will increase agriculturalproductivity mg rural-urban migration. Nonagricultural employ- and release laborfor higher valuejobs ment in rural areas is essential if Vietnam is to avoid the huge rural outmigration seen in other countries, agroprocessing industries. But even with expanding such as Thailand. agricultural opportunities, continued productivity growth in agriculture inevitably means that large num- bers of rural people will move out of agriculture and other primary industries if alternative employment Pattern of Industrial Growth Is Biased opportunities are available. The slow development of nonfarm employment in During the reform period, agriculture has had to ab- Vietnam points to several other problem areas. In- sorb most ofthe growth in population and labor force. dustrial development in Vietnam is carried out pri- This has reduced the increase in agricultral produc- marily by state-owned enterprises (SOEs), which are tivity and led to a growing income gap between rural heavily oriented towards capital-intensive activities and urban areas. The widening ofthe differential has and typically protected from international competi- occurred because people in farming and other pri- tion. And because of their privileged position in the mary pursuits have few opportunities to eam income economy, SOEs are the chief recipients of foreign off the farm. As seen in the development of other investrnent. Their privileges include exclusive entitle- primarily agricultural countries, off-farm income is a ment to offer landuse rights as equity injoint ven- major factor in allowing rural incomes to keep pace tures with foreign investors, priority access to bank with rising urban incomes. credit, and preferred access to government contracts and government agencies. 3. In the case of Thailand, where industrial development is extremely centralized in the Bangkok metropolitan area, off fam rural household income included significant remittances from family members working in Bangkok. Since the current crisis, the amount of these remittances has decreased substantially. 4 This bias in favor of urban, capital-intensive, and not occur, most of the 1.5 million people added to SOE-based industrial development results in poor the population each year will have to be supported generation of labor-intensive industrial and services bythe agricultural sector. In this undesirable scenario, activities, especially in rural areas. The situation is Vietnam's rural poverty will worsen as farmers are made worse by the poor infrastructure in rural areas forced to cultivate smaller and smaller areas and to and by the weak development and financial distress move into more marginal lands. If marginal lands are of the rural banking system. The problems arising farmed more intensively, environmental degradation from lack of off-farm employment and unavailability will worsen, with additonal adverse effects for down- of credit are magnified in Vietnam's remotest areas, stream populations. Agricultural incomes will decline which are home to many ethnic minorities. further, agricultural productivity growth will slow, and food security will be threatened. Uneven Development Potential An alternative and more desirable future is possible The agricultural potential of Vietnam is concentrated if the approp-riate policy changes, institutional devel- in its fertile lowland deltas and river valleys, as well opments, and public investments are implemented. as the (relatively limited) flat and fertile upland val- This would include a rural sector in which the ex- leys and plateaus. Most of the uplands, which com- panding development of labor-absorbing activities in prise a majority of the country, have soil and water the industrial and services sectors improves farm limitations that make them unfavorable locations for household incomes through full- and part-time off- annual crop cultivation and afford limited potential farn employment. In this scenario, lowland farm pro- for perennial crops. Moreover, the fragile natural ductivity would continue to increase but the number resource base of the uplands is seriously degraded. of people working on fanrms and completely depen- dent upon farming would decline as farms became Development of nonfarm activities in rural areas is larger and utilized more capital. Diversification into limited by inadequate infrastructure -transport, en- other crops and products would occur as farmers ergy, communications- and poor access to mar- freely responded to changes in market prices and kets. The problem, again, is particularly serious in unbiased incentives. Upland farming would be de- remote upland areas. Redressing these constraints veloped according to the differing potential of up- will be both difficult and expensive. Upland popula- land areas, with high-value cash crops in the more tions are dispersed over rugged and steep terrain, geographically favored areas and more sustainable making infrastructure investments very expensive and subsistence agriculture inthe remote areas. Rural maintenance costs high. These remote, resource- poverty wol dd be reduced, and agriculture and other poor upland areas present the most difficult challenges activities involving the use of natural resources would for rural development and poverty reduction. be more susltainable. Economic development would be more evenly spread throughout the country, and Two Visions of Rural Development the rural-urban income gap would decline. Despite the rapid GDP growth in recent years, stag- Moving from Vision to Action nant employment growt, particularly in industry, and thewidening rural-urban income gap are findamen- The realization of a more desirable vision of rural tal shortcomings. Moreover, they suggest a very un- development in Vietnam will require much more than desirable future if no corrective measures are taken. changes in policies that directly affect the shape of If population growth continues at just under 2 per- development in the farn sector. The nature of rural cent annually, and rapid growth in employment op- development will also be affected by policies that portunities in the industrial and services sectors does affect the whole economy, such as access to land for 5 nonfanm enterprises, availability of credit, economy- and thereby improves food security by raising house- wide industrial policies, and the way in which fiscal hold incomes and making food imports more acces- relationships between the national government and sible. provincial and district governments are managed. It will also require clear distinctions between the ac- Both the prospects for, and the challenges of, rural tivities and interventions appropriate to government development in Vietnam are addressed in this report, and the activities and interventions best left to the with an emphasis on the actions necessary to make private sector. the Government's rural development vision a reality. The complexity of rural development in Vietnam re- Stable, low-inflation macroeconomic policies will quires the use of policies, investments and institu- remain critical to strong economy-wide growth, and tional measures that affect not only agriculture, but the microeconomic reforms stressed in this report the broader base of rural activities. These include will enhance macroeconomic management. Reform those specific to the rural sector, such as natural re- of the banking sector and equitization of the SOEs sources management, rural industrialization, infra- will reduce pressure on the budget and thus reduce structure, health and education, as well as rural insti- the scope for inflation and improve prospects for in- tutions. In addition, policies which are fundamental vestment. Reduced pressure on the budget, in turn, to the economy as a whole, such as for land and the will also reduce pressure for overvaluation of the financial sector, also will have aprofound impacts on exchange rate. Maintenance of a competitive ex- rural development. change rate assists exports, both farm and nonfarin, 6 Chapter 2. Increasing Agricultural Productivity and Farm Income Topographically, Vietnam is a very diverse country, among the hig]hest in the world (see Table 1). Annual with seven well-defined agroecological zones. These growth rates in this range are about equal to those range from the remote and poorly endowed zones for China during the period 1980 to 1994, and are of the Northern Mountains area bordering China and higher than those for Indonesia, Malaysia, the Phil- the North and South Central Coast regions, through ippines, and Thailand during similar periods of rapid the Central Highlands, to the fertile, irrigated regions growth and development. By comparison, the ma- of the Red River Delta in the north and the Mekong ture economies of industrialized countries usually Delta in the south. The potential for agricultural de- achieve aboult 2 percent annual growth in agricul- velopment in these zones varies widely. Given such tural GDP. factors as topography, precipitation, and land qual- ity, the potential for annual crops is concentrated in Vietnam's the share of agriculture in GDP fell from the already heavily utilized lowland deltas and river 36 percent in 1986 to 27 jpercent in 1997, even valleys, and the relatively limited upland valleys and though the sector still accounted for 70 percent of plateaus. The more hilly upland areas, which cover total employrnent. This decline is not necessarily a overthree-quarters ofthe country, are suitable mainly sign of suboptimal growth, but rather is indicative of for perennial crops, such as tea, coffee, rubber, and the transition to a more diversified economy. Other Table 1: Comparative Annual Growth Rates Republic of Vietnam Korea China Thailand Period 1991 - 97 1970 - 92 1970 - 92 1970 - 92 GDP -Agriculture 5.0 3.1 5.4 4.2 -Industry 3.0 13.2 11.2 7.7 -Services 10.0 9.4 11.0 7.5 Total 9.0 9.5 9.1 7.7 Source: World Development Report, 1994; MPI. mulberry, as well as for forests. Subsistence agricul- East Asian countries have undergone a similar tran- ture of food crops persists in the more mountainous sition. In Thailand, for example, the agricultural areas despite steep terrain and poor, erosion-prone sector's share of GDP fell from 31 percent in 1974 soils. Market access and alternative livelihood op- to 16.5 percent in 1986 and 10 percent in 1996. portunities are extremely limited in these areas. Indonesia's agricultural share fell from 31 percent to 16 percent between 1974 and 1996, while China's Vietnam's agricultural growth, at 4 to 5 percent an- declinedfromn27percentto:20percentbetween 1986 nually in real terrns over the past decade, has been and 1996. 7 There is potential to maintain a positive rate of growth and 70 percent oftotal crop area sown. Nearly two- in agriculture in Vietnam. However, it is likely that thirds of both production and sown area of rice are growth will slow in the short term, because of the concentrated in the Mekong and Red River deltas (Fig- regional economic crisis. It is unlikely that the ure 2). Maize, sweet potato, and cassava are other food earlier high rates of growth will be restored over crops grown; increasingly, fruits andvegetables arejoin- the long term. ing these traditional crops. Figure 2 Distribution of Rice Production 1980-1997 1985 +. 0;; 00l 0. = 1 990 |''"(.'f0, ,8:US _Rest of Country >- 1995 lil f~X; 0 i ; ilwibka00000i0 *Red River Delta _M ekong River Delta 1996 XM_iE 1997 . . 0 5,000 10,000 15,000 20,000 25,000 30,000 Tons (1000) Distribution of Rice Sown Area 1980-1997 1995 r N a< Red River Delta 1996 . 3Mekong River Delta. 1997 ' 0 1,0002,000 3,0004,000 5,000 6,0007,0008,000 Hectares (1000) Food crops account for about 50 percent of agricul- Livestock has maintained a constant 22 percent share tural output. Rice, the main crop, provides two-thirds in the value of production, with industrial and "other" of the country's food energy and about one-sixthi of the crops accounting for a 26 to 27 percent share (Table national income. Rice production in 1997 was 27 mil- 2). This seems to indicate (within the limits of the lion tons, compared to 11.6 million tons in 1980, and data) that Vietnam's rapid agricultural growth is oc- acco_ted for nearly 90 percent ofRtotal grain output curng with limted diversificration. 8 Pork is the most important livestock product; annual as well as increasing production of other crops (both meat production is now over 1.5 million tons, ofwwhich annual and perennial), livestock, and aquaculture. 80 percent is pork. Coffee, rubber, tea, sugarcane, groundnuts, cotton, and cashews are industrial crops Rice yields are high and have been increasing at a that have increased in importance in recent years, rate of 4 percent per year, with yields marginally especially in upland areas. Within this group, higher in the Red River Delta (Figure 2). The coun- Table 2 - Value of Vietnam's Agricultural Production 1990 1994 1995 1996 Percentage (1989 VND billion) of Value Total Value 14.3 17.8 19.0 20.0 100 -Grains 7.4 8.9 9.4 9.9 50 -Other crops 3.7 4.9 5.3 5.5 26 -Livestock 3.2 4.1 4.2 4.5 22 Source: General Statistics Office treecrops-principally, mixed-sector coffee and trywide paddy yield of 3.8 tons/halcrop (average of SOE rubber-and protected sugarcane accounted irrigated and dryland) compares well with those of for most of the growth. Malaysia (3.1 tons/ha), Thailand (2.3 tons/ha), Myanmar (3.2 tons/ha), and Indonesia (4.5 tons/ha). Response to Early Reforms Cropping intensity is highest in the lower Mekong Vietnam beganto initiate key reforms in the agricul- Delta, at an average of 2.6 crops per year, com- tural sector in 1981 and enacted further reforms in pared to 2.2 for the whole Mekong Delta, 2.0 for 1988 with Resolution No. 10 NQ.TW ( "All-sided the Red River Delta, and the 1.6 for the country av- Renovation of Economic Management in Agricul- erage. Yield-adjusted cropping intensity gives an ture"). The New Land Law of 1993 also has had a annual output per ha of paddy farmland of 6.1 tons, major impact on the agricultural sector. The key fea- comparing favorably with Australia (6.8 tons/ha), tures ofthe decollectivization policies were: USA (6.8 tons,ha), Japan (6.1 tons/ha), and Republic of Korea (6.1 tons/ha) (FAO 1997). * Recognition ofthe farm household as the main unit of agricultural production Yields of other crops in Vietnam are generally low * Privatization of land use rights, with farmers (e.g., maize, 1. 8 tons/ha; soybeans, 1 ton/ha) but are granted 20-year rights to land used for rice and growing faster than those of rice. There appears to other annual crops, and 50-year rights to land be considerable scope for increases in productivity used for perennial crops; and for most crops. * Liberalization of farm decision making with re- spect to purchase of inputs and sale of outputs. The main shoit-term constraints on productivity are low fertilizer use and an incomplete irrigation infra- Vietnam's farmers have responded to the liberalized structure. Overall fertilizer use in irrigated paddy is environment by more than doubling rice output since low and grew about 1.5 percent annually during the 1980 (primarily through increased yields and crop- period that output grew 5 percent annually. Irriga- ping intensity rather than expansion of cropping area) tion head works have been constructed to irrigate 3 9 million ha but only 2 million are actually irrigated in a A downside of reform has been land fragmentation, given year because of the incomplete system. There which primarily resulted from land allocations made are opportunities for further gains in yields through after decollectivization, in an attempt to ensure eq- wider adoption of high-input hybrid rice (presently uity. On average, farms in the Red River Delta com- yielding two crops of 6 - 8 tons/ha/crop in the upper prise eight or nine noncontiguous plots often no larger Da River area), increased fertilizer use, and better than 200 to 500 square meters each. The conse- water control in the lower Mekong. quence of this fragmentation is reduced efficiency of labor and capital as farmers spend a significant An important element in the increase of rice produc- amounts oftime traveling to their fields and moving tion in both the 1981-87 period and from 1988 to supplies and equipment between plots. the present was the rise in total factor productivity. Total factor productivity, farmer effort, and output While farms vary in size from region to region, they increased in relation to the degree of liberalization of are mainly small. The average farm size inthe Mekong land laws, trade, and input and output markets (Che Delta is 1.2 hectares, but that is still four times larger Tuong Nhu 1997). than the average in the Red River Delta. In 1995 there were only 113,700 farms (1.1 percent of all China had a similar experience-a virtual explosion farm households) whose size was five hectares or in production of rice and other crops following the more. Ofthose, only 1,900 were larger than 10 hect- granting of long-term leases to farm households in ares. Of the farms larger than five hectares, 66 per- 1978 (McMillan, Whalley, and Zhu 1989). The im- cent were in the Mekong Delta (Tuong Lai 1997). portant lesson to be leamed from these examples The smallerfarmsinthenorthofthecountryaremuch are that given secure, long-term tenure to land, farm- more fragmented than those in the south. ers are prepared to make long-lived investments in land, such as water control and soil conservation Farm size limits the earning potential offarmers. For measures, and to invest in plants and machinery. When example, a rice-farming household that has an aver- farmers hold land as a long-term asset, they will take age size farm of 1.2 hectare and obtains an average better care of it than when they have only a short- yield of 6.1 tons per hectare will earn a yearly net term lease, as is the case with share-cropping. income of approximately VND 6.6 million (US$ Figure 3 Increasing Rice Yields 1980-1997 5,000 ____ ____ _____ ____ ___ 4---Red River Delta 4,000 3,000 ----X Mekong River ~~ 2,000 ~~~~~~~Delta 1,000 ~~~~~~~~~~~~~~~~Country o ur o ', co SAverage O LO 0) LO 0) 0) co 00 0) 0) 0) 0) Year 0'> 0i 0') CD 0Rest of Country Year _ __ __ __10 10 470).4 Those with smaller farms and lower than prises. SOEs rarely adopt cost-saving innovations average yields would be significantly worse off. Rea- as quickly as private businesses do. As a result, farm- sonable estimates of potential increases inrice yields ers do not receive as high a price for their products will not be enough to lift these farm households out as they would otherwise. Furthermore, SOEs usu- of poverty. ally make farmers bear the major part of the price risk involved in the sale of farm products. If there were competition in the marketing process, market- Remaining Market Controls ing firms would find it necessary to manage these risks in ways that give farners higher prices at less Although access to domestic wholesale and retail risk (Claessens and Duncan 1993). markets for most farm inputs and outputs has been liberalized, export markets for rice, sugar, seeds, and Prime Ministerial decision 12/TTg of January 1998 fertilizers are still subject to controls. authorizes private-sector participation in rice exports, provided thal export firns meet four criteria: previ- Rice. Rice exports, which are subject to quotas, ous experience in rice trading, rice mill ownership, have until recently only been allowed to be marketed ability to supply at least 5,000 tons per shipment, through state trading organizations. The export quota and proofoffinancial soundness. While a number of has been raised as export surpluses have become companies have applied for pernission to export, so available, so the quota's adverse effects have not been far none has been allowed to do so, mainly because as serious as they might have been. While arising from of restrictions imposed on rice exports due to drought. a well-intentioned concern for food security, the ex- Twice in 1998, export approvals have been sus- port quota is inequitable as well as inefficient. It lowers pended without notice. The resulting uncertainty has the price received by farmers on the domestic mar- led to loss of confidence in Vietnam as a reliable sup- ket andthus,in effect, transfers income fromfarmers plier of rice to the world market, and loss of pre- to urban and rural nonfarm consumers. The inequity mium rice prices. Nonetheless, the Government's of the policy has been magnified in recent years be- stated intention is to move forward in the liberaliza- cause income growth in urban centers has surpassed tion of rice marketing. income growth in rural areas. Studies by the Interna- tional Food Policy Research Institute (1996) and Sugar. Sugar production has grown rapidly (reach- Goletti and Minot (1997) estimate that removal of ing 600,000 tons in 1997) vvith the aid of subsidized the rice quota would increase national income byUS$ credit, protection from imports, and policies favor- 225 million, that exports would increase to over 5 ing the conversion of land to sugarcane production. million tons, and that farm incomes-including those Plans to build 52 sugar refineries have been drawn of the poor, who are most dependent on rice pro- up, and about one-third are already under construc- duction-would rise. Higher incomes would then tion. Goletti and Rich (1998) have estimated ihat the result in an increase in livestock and livestock feed ban on sugar imports, which has raised the domestic production and prices. wholesale price of sugar 25 percent above world price, is reducing national income by US$ 92 million Controls on rice (and tree crop) exports through annually. This is likely to be a considerable underes- SOEs also lower farm and national welfare. In other timate, since they could not take into account the countries, state control over the marketing of agri- food processing activities that have been foregone cultural and other products has proven to be inferior because high domestic sugar prices would make the to the use of private commnercial marketing enter- products uncompetitive with those of other produc- 4. This asswnes a 50% gross margin. 11 ers. Nonetheless, their study shows that while some Commodity Targets sugarcane regions would have difficulty being viable under any circumstances, other regions are economi- The Ministry of Agriculture and Rural Development cally efficient and would be profitable in the absence (MARD) sets annual and longer-run production goals ofthe import ban. in an "indicative plan", which is not intended to con- trol production. However, vestiges ofthe former cen- Seeds. Vietnam bans imports of hybrid maize seeds trally planned command system remain, and the plan in order to protect SOE seed producers. The yield is influential, especially at provincial and lower levels potential of local hybrid maize seed, however, is only of government and in sectoral ministries. i - i311 lii authorities, and inputs are estimated using input-out- ~ T,~ put coefficients (field interviews). These are aggre- gated at the district and province level, and then at the national level. Offficials at the various levels ne- gotiate budget transfers for current expenditures, physical inputs, and credit, depending on revenue availability and on their contribution to the plan. Up- per-level decisions are then passed down to the com- munes. A similar process seems to be followed for capital expenditures. The operation of factor (fertil- izer), product (rice, cashews), and financial markets (interest rates, financing nonviable SOE clients) is negatively affected, resulting in decreased expendi- ture efficiency. With rising real incomes, demandfor high value food, Food Security and Agricultural Diversification such as meat, will increase Vietnam has a strong comparative advantage in rice halfthat of imported seed. Restricting access to more production and has become a major rice exporter, productive varieties has suppressed maize produc- holding an 18 percent share of the world market. tion, thereby raising the cost of maize for livestock Rice self-sufficiency is seen by the Government as feed and placing domestic livestock producers at a important in providing food security and income- competitive disadvantage. earning opportunities (see Box 1: Food Security versus Food Self-Sufficiency). Ferilizers. Vietnam relies heavily on fertlizer imports. SOEs have been allocated import quotas on the premise Future agricultural development in Vietnam should thatthequotaswillensurethestabilityoffertilizerprices. continue to accord with the country's comparative However, these import restrictions effectively increase advantage. This will require that policymakers re- the average price of fertilizer by US$ 5 per ton, or a spond flexibly to changes in domestic and intema- total national cost ofUS$ 37.5 millionperyear (Goletti tional markets. Vietnam's comparative advantage in 1998). The quotas have also resulted in soil degrada- rice production will change substantially as popula- tion, since fertilizeruse is probably lowerthan itwould tion growth slows, per capita income continues to be without the quotas, and nutrient loss from soil con- tinues to be severe. 12 grow, and the domestic market for food substan- creases, however, have not been as large as those in tially changes. These changes will have implications comparable countries. Meat production increases in for agricultural and rural development policies, as well Indonesia since 1985 have been about double those as for supporting public investment. of Vietnam. As in other fast-growing countries of Southeast Asia, Production of higher-value food crops has been con- Vietnam's population growth rate will continue to strained in Vlietnam because important inputs, such decline as incomes increase. Population growth in as credit, fertilizers, and extension services, are given Vietnam slowed from an annual rate of 2.3 percent preferentially to rice producers and typically are not in 1990 to less than 2 percent in 1996. This decline as readily available for diversified crops, such as fruits is projected to continue, with the growth rate stabi- and vegetables, that require intensive labor input. lizing at about 1.4 percent per year by 2015. This means that food production will not need to grow as fast as it has in the past to meet domestic demand. Resettlement-Induced Agricultural Expansion Also,asinotherfast-growingcountries,foodconsump- Prospects for continued growth and employment tion patterns will change. Rising incomes will lead to through expansion of agricultural areas are limited. shrinking demand for staple foods, such as rice. Mir- There are few countries in the world where arable roring changes in the consumption patterns of other land is as scarce as in Vietnamn; per capita availabil- countries, there will be a move away from rice to wheat ity of cultivated land is 0.12 hectares. Ofthe 33 mil- products, and to increasedconsumption ofhigher value lion hectares of land in Vietnam, about 7 million are foods, such as meat, vegetables, fruits, and dairy prod- used for agriculture, and there is little scope for ex- ucts. For example, annual per capita wheat consump- pansion, except to less suitable agroecological zones tion in Thailand rose from 2 kilograms in 1961-65 to and environmentally fragile areas. Given the existing 8.1 kilograms in 1990-92; inlndonesia over the same ratio of people to land and the current population period, annual per capitalwheat consumption grew from growth rate, there are not prospects for overcoming 1.3 to 12.5 kilograms. income inequality by expanding the land devoted to agriculture. Hence, relatively modest growth in rice output-2 percent per year or less-will be sufficient to meet Nonetheless, the Government is moving inhabitants the growth in domestic demand. Beyond this, growth from the overcrowded lowlands to the "barrenf high- in demand for Vietnam's rice will be determined by lands and to wetland areas being "reclaimed" along growth in world demand for rice. Improving rice the coast. Large-scale efforts ofthis type are unsus- quality and supply reliability will also be critical to tainable. Thehighlands generallyhavepoor soils, steep the international competitiveness of Vietnam's rice slopes, and are ecologically fragile and erosion prone. exports. Increased population pressure and unsuitable culti- vation practices in these areas have led to further Thus, rice production will become less profitable over land degradation, erosion, and downstream sedimen- time, and fanners will begin to shift out of rice (as tation, with resulting negative impacts on lowland has been seen in Taiwan Province as well as main- agriculture. Similarly, the coastal wetlands (both man- land China and Thailand) into more highly valued grove and Malaleuca areas) are important natural crops, such as flowers, vegetables and fruits, live- habitats that should not be converted to agricultural stock, and livestock feed. Meat production has been uses to which they are typically not well-suited. increasing in Vietnam. Since 1985, pork output has increased by around 30 percent, beef by about 40 Inadequate research and extension support to up- percent, and poultry by about 55 percent. These in- land agriculture has exacerbated problems in both 13 the resettlement and "sedentarization" programs. duction, consumption, and trade, but this pat- Farmers bring with them fanning practices that were tern is changing and will continue to change as effective in the areas from which they moved but incomes grow, both in Vietnam and in other rice- cannot be successfully adapted to the highlands. The consuming nations. resettlement and sedentarization programs will invite disaster if the new settlers are not provided with the The future of agriculture in Vietnam will likely not necessary capital and skills to ensure success in their only be as a producer of agricultural products, new environment. but also as a provider follow-on activities, such as food processing, where Vietnamn's compara- Resettlement programs also create difficulties for the tive advantage in abundant labor can be effec- groups (often ethnic minorities) already living in the tively utilized. Diversification of farn household areas where the resettlement is taking place. In the activities is already taking place in both on-farm Central Highlands, for example, land that was fal- and off-farn activities, but restrictions on land lowed under shifting cultivation practices has been use, farm size, and credit availability are con- claimed for permanent settlement by the migrants. straining diversification and thus constraining in- This has destabilized the existing farming practices comes and the opportunities for farmers to hedge ofthe region. against phy sical and market risks. 0 Clarify, Publicize, and Enforce Land-Use Priority Actions to Increase Agricultural Pro- Rights. Clarifying the status of use rights to ag- ductivity and Farm Income ricultural land, helping rural people to become fully aware of their rights, and enforcing those The following priority actions are recommended to rights will lead to improved resource allocation, increase agricultural productivity and farm income, by allowing amalgamation of fragmented plots and thus stimulate rural development: of farmland, increased farm size consistent with farmers' labor and capital, improved adoption Decrease Restrictions on Agricultural Land of new farming technology, and better natural- Use. Vietnam is now more than self-sufficient in resource management practices. rice production, having become one of the world's leading rice exporters. Because of its . FurtherLiberalizeAgriculturalInputand Out- long history offood insecurity, however, there is put Markets. The export quota on rice and im- an understandable reluctance to move land out port restrictions on sugar, fertilizers, and seeds are of rice production. For older farmers and those costlyinterventionsthathurtfarmers, especiailypoor in remote, less food-secure areas, such attitudes farmers. Also of great concem is the prevalence of will be difficult to change even if their circum- SOEs inthe processing and marketing chain, par- stances change significantly. ticularly international marketing, and in the market- ing of farm inputs, such as fertilizer and seeds. The In general, however, there should be a loosening bias in favor of SOEs is reducing the marketability of restrictions on the use of agricultural land, par- of Vletnam's products, and thus reducing the share ticularly paddy land. The focus on rice self-suffi- of the world price that its farmers could receive. ciency, which has led to restrictions on the use of These areas of activity should be opened to private agricultural land and the setting of production businesses; the resulting competition will improve targets (at least at a local level), is ultimately con- farmers' retums. trary to the goal of food security because it re- stricts opportunities for income-generation. Rice The policy framework governing Vietnam's sugar currently dominates Vietnamese agricultural pro- industry should be reexamined. Protecting sugar 14 production and processing through tariffs has to pursue a policy of agricultural resettlement. failed in most countries to produce a viable in- Squeezing more and rnore people into agricul- dustry. Some argue that the protected activities ture, by moving them onto more marginal lands will become economically efficient after a period, and smaller holdings has meant that rural incomes and then tariff protection can be removed. But are growing much more slowly than urban in- this rarely happens. Once an industry is estab- comes. It has also resulted in significant social lished with public assistance, it has little incentive conflicts and degradation of natural resources. or pressure to become internationally competi- Agricultural resettlement programs should be tive. Takeuchi and Hagino (1998) argue that when critically reviewed, and unless socially and eco- similar protective policies were adopted in the nomicallyjustified, significantly cut back. Philippines for sugar and coconut, both the in- dustrial and agricultural sectors deteriorated as . Refocus Agriculture Research and Exten- a result of inefficient use of resources and unbal- sion. Vietnam's agricultural research and exten- anced income distribution. sion infiastructure also requires attention. There are too many small, underfunded research insti- * Move Away from Commodity-Based Tar- tutes. Rationalization lo achieve fewer, more co- gets. Vietnam's agricultural institutions, devel- hesive organizations would result in richer re- oped over a long period of central planning, have search output, contributing to continued produc- traditionally focused on commodity balances and tivity growth. Research priorities should take into input-output coefficients in planning. Despite re- account the likely changes in the structure of form, this focus persists; agricultural planning, Vietnarn's agricultur al sector. Such changes rural development expenditures, and measure- should influence the role and structure of MARD. ments of progress are still driven by commodity targets. Markets for factors, products, and fi- Extension services are particularly poor in up- nance, and their impact on resource allocation land areas, reflecting the policy bias towards low- are acknowledged, but are not central to current land rice production. Research and extension planning. Commodity targets should be phased should give increased attention to developing and out, and agricultural diversification should be al- disseminating more sustainable upland agricul- lowed to proceed in response to market signals tural practices. Particular research attention should be devoted to the extensive mountainous Reduce Agricultural Resettlement. Agricul- areas that are eroding heavily under sloping ag- ture is being asked to bear too great a share of riculture carried out by low-income, often ethnic the burden ofj ob creation and reduction ofpov- minority, groups. Research is needed to develop erty, and is doing so with "one hand tied behind farming systems based on crops and trees that its back" so to speak. Food security, which is will stabilize the soil while at the same time im- essentially a matter of having enough income to proving the incomes ofthe people living in these buy an adequate amount of food and shelter, is areas. attained by the creation of income-earning op- portunities in any sector, not only in agriculture. Generally, the link between research and exten- The poor performance ofthe industrial sector in sion is poor. Extension should be focused on new job creation has meant that agriculture has had technoLogy and farming practices based on re- to provide most of thejobs for new labor force search, and reflect back to researchers the prob- entrants. Further, it has encouraged Government lems being experienced by farmers. 15 Chapter 3. Generating Employment in Nonfarm Rural Activities Additional employment in the Vietnam's rural sec- Potential for Rural Industrialization tor will come from two agriculture-related sources. Some of it will be generated by diversification to Industrial poli cy has biased industrial development higher value crops, such as flowers, vegetables, in Vietnam toward the urban sector. The only role and fruits, as well as livestock, the production of seen for the rural economy has been the provision of which are more labor intensive than rice. Also, as cheap and stable food supplies and other raw mate- agricultural production increases there will be en- rials. The result has been a widening rural-urban in- hanced scope for full- or part-time off-farm rural come gap. In 1995, Vietnarn's exports mainly con- employment in allied sisted ofresource-related activities, such as the . products. Forty percent supplying of agricultural of exports were agricul- inputs and in enterprises ture-intensive goods, and devoted to the trans- 22 percent were mineral- port, storage, process- intensive goods. Labor- ing, marketing, and dis- intensive goods accounted tribution of farm for only 34 percent ofto- products. "Ytal exports, which was substantiallylowerthanin Though it is important China, where they ac- to capitalize on the po- counted for about 50 per- tential for productivity cent oftotal exports. growth and diversifica- tion in farming, the agri- Nonetheless, if the indus- cultural sector has lim- trial structure is allowed to ited capacity for em- - q align with the country's ployment generation in ~ factor endowments, Viet- the long run. As the ru- Labor-intensive industries are expected to provide vital nam is well-positioned for ral labor force continues employment opportunity in rural areas rapid growth of labor-in- to grow rapidly, the ru- tensive industries, such ral-urban income gap will only be reduced signifi- as textiles, clothing, footwear, travel bags, and toys, cantly by the creation of substantial off-farm em- following the pattern of its East Asian neighbors. ployment opportunities. Vietnam's most valuable economic resource is its abundant, relatively skilled, and competitively priced Labor-intensive industry holds a greater promise for labor. If labor productivity can be steadily increased employment generation in Vietnam than does agricul- through improved education and training, well-tar- ture. Therefore,ruralindustrializationshouldbeseenas geted research, and effective use of international a key part ofthe national development strategy, and technology made available through foreign invest- rral industiy should receive equitable policy treatnent ment, Vietnam's unit labor costs can remain much lower 17 than in most other countries and therefore remain China, moreover, has traditionally tended to save and competitive for a substantial period of time. invest at higher rates than those found in Vietnam. Even in the pre-reform period, domestic investment It is both desirable and possible for Vietnam to de- in China was about 30 percent of GDP. Chinese velop a strong rural enterprise sector, although the farmers experienced rapid income growth in the early factories and shops do not necessarily have to be 1 980s, making sizable surplus funds available for in- located in villages. Indeed, it is likely that they will vestment in TVEs. In Vietnam the investment ratio cluster near transportation routes and in smaller was around 10 percent of GDP before the reforms, population centers within easy reach of cities. The and rose only recently to 29 percent, thanks to in- the distances from anypointin Vietnamto majorroads creased domestic savings and foreign investment. or ports are not long. Even though infiastructure con- Rural per capita incomes in Vietnam only increased structionisdifficultandcostlyinsomeregions,espe- by 2.7 percent per year between 1991 and 1995, cially in mountainous areas, Vietnam has a better and farmers have accumulated very limited amounts chance of realizing a more balanced development of of investible surplus. Improvements in the financial its rural economy than China if its policies are well- system to provide better savings mobilization in rural designed. areas are critical. The critical role of policies in achieving geographi- The Vietnamese Government appears to subsidize cally balanced growth is demonstrated by Thailand. and protect the state sector more than did its Chi- The persistent problems caused by the concentra- nese counterpart. This is demonstrated both by the tion of industry in Bangkok and the limited develop- hostility of the regulatory and legal systems in Viet- ment of entrepreneurship in rural areas are well- nam toward the nonstate sectors, and the continued known, and have led to regional income inequality dominance of SOEs in receiving resources, includ- and severe urban congestion and pollution. This un- ing credit. Local governments in Vietnam appear even development reflects several factors. First, particularly antagonistic toward private business. political and administrative systems, such as the cus- Most see their main role as taxing and regulating busi- toms agency and regulatory bodies, have tradition- ness, not supporting it. ally been located in Bangkok. Second, Board of Investment policies and other government programs There are two reasons for this, aside from the linger- have provided strong incentives for urban industrial ing beliefthat SOEs are the cornerstone of a social- development. Moreover, credit for rural enterprise ist economy. Since local fiscal revenues do not de- has been extremely limited, and the rural infrastruc- pend on the size ofthe regional economy, local gov- ture has not been adequately developed. ernments have no direct interest in local economic development. Second, local governments often lack When compared to China at a similar stage of de- the economic clout they need (such as authority over velopment, Vietnam faces some additional difficul- resource allocation) to promote development. Be- ties in expanding rural enterprise (see Box 2, "China's cause of the large number of provinces, provincial Rural Industrialization"). The early development of governments have weak bargaining power vis-a-vis China's township and village enterprises (TVEs) ben- the central government. efited from a vacuum in domestic markets for du- rable consumption goods. In Vietnam today, goods produced by the urban private sector or imported Private Sector Participation from China or Thailand dominate these markets. The quality required for goods to be competitive in these In other countries, non-farm activities in the marketsinVietnamwillthereforebehigherthanwas rural sector are best handled by private busi- initiallynecessaryinChina. nesses (for example, see Box 3 on Ownership 18 Box 2 China's Ruraul dustrializatio- The rapid development of the township and villag en- gro n siificantly. Also. the government maintained a terprise (TVE) sector has been a key factor in the success strict household registration system. whereby residents of China's economic reforms, which began in 1978, and could not move to urban areas or across regions, Enter- offers useful lessons for rural development in Vietnam. prises were prohibited fron employing workers without Since 1978 the owtputofChina's TVE sector has grown at local househo ld registration and government permission. an average annual rate of 15 percent, and TVEs now em- The only option left was to start up nonfarm enterprises ploy 130 million people. This largely unexpected devel- in rural areas. These enterprises filled a market niche for opment has helped to keep wge numbers of what might highly sought-after consumer durables, since the state have become surplus of agricultural labor in rural areas industrial sector was oriented toward heavy industry. employed in off-furm jobs. Since it also greatly increased farners' incomes, it was one of the main forces narrowing The location of enterprises in the villages, however, only the rural-urban income gap over the period 1995-97. suited small businesses servicing the immediate suround- ing areas. Enterprises with distant material sources and Even successfu rural industrialization like China's failed: .-product markets quickly felt the high costs of their loca- to prevent massive labor migration, patly because of the tion, even in coastal areas where the infrastructure was geogrphical pattem ofTVE development. From the early relatively well-developed. Many moved to the cities or 1990s, as economic growth began to-accelerates more and close to the transportation network. Those which stayed more farmers left their homes in inland provinces and in the villages remained small or closed down as compe- moved to cities and coastal provinces. The total nnmber tition intensified (Huang 1998 -: of migrant laborers is nowabout 130 million. in the east- en coastal provinces, TVE employees often account for T he success of China's TVEs has more to do with the as much as one-half of the total rural labor force (Perkins physical infrastructure and market conditions than prox- 1998). Thtis has helped prevent massive migration into imiity o the large coastal cities. It is true that some TVEs the cities. developed as spin-off businesses from activities in the large cities. This was largely restricted tothe areas around The initial development ofthe TVEs was not the result of Shanghai (especially in Jiangsu and part of Zhejiang) in the deliberate policy decision but rather an unintended the early stage ofdevelopment. But this was not the main response to the postreform incentive structure. Soon af- reason for TVE development. The development of the - ter the reforms started the Chinese Government intro- urban economy in China generally lagged behind that of duces the household responsibility system (H RS) to the the TVEs, at least in the i 980s. The growth of Shanghai's agrcutural sector to resolve th incentive problem ofthe economy was very modest until 1992, while the TVE sec- existing commune system. This stimulawd agricultural tors in Zhejiangand Jiangsu experienced much more rapid growth, particularly between 1982 and 1984, resulting in growth. In Wezhou municipality ofZhejiang province - nationwide grain surpluses and allowing farmers to accu- one of the pioneers in TVE development -there was vir- mulate savings. tually no major urban industrial sector. The situation was similar in Fttjian and Guangdong, and to some extent, Economic reforms had not been introduced into the ur- Shangdong province ban sector at that time, and urban incomes had not yet of China's TVEs), among which small and me- . . . m diumsizd enerpises(SMs) pay n imor- Vietnam has experienced moderate growth in pri- tant-role. Attpresent, however,lprivatemSMEs vate non-farm activities since the reforms began. tantroe.pla only are mino rolevein Vrivatet a- According to a survey by the General Statistics Of- are playtng only a mbnor role in Vietnam, al- fice (DAFF-GSO 1996), some 2.2 million (18 per- though there ctivitie duenindlargpart, cent) rural households were engaged in industrial ing of their activities due in large part, it is craft, construction, commercial, service, or other claimed, to the distorted tax system (Riedel claimThed, tolthe distord taxs stedimi Risede a nonagricultural activities in 1994. Of the total rural 1997). Thbeirg rol dedma als bythe diminishe cs a labor force of around 30 million, 8 million have off- result of being crowded out by the preferences famepo en.Tebsessctrnrulaes given to SOEs. ~~~~~~farmn employment. The business sector in rural areas given to SOEs. now consists of 4,500 SOEs, 24,000 corporate pri- 19 vate enterprises, and 2 million household enterprises Rural private corporate enterprises are smaller than (McKenzie 1998). Most of the private and house- their urban counterparts in number of employees hold enterprises are small and are involved in activi- (McKenzie 1998). In 1997, the urban private sec- ties such as handicrafts, agroprocessing, tanning, tor employed an average of 78 workers per firm, paper production, brickmaking or production of while the average number in rural private firms was other construction materials, nonferrous metallurgy, 26 and nonfarm households averaged 3 workers. and provision of services to agriculture. Capital is Rural private enterprises are mostly located in the extremely limited (only 12 to 15 percent have loans Mekong River Delta, the North East, and the Red from banks, although about 70 percent say they RiverDelta. would like to borrow capital), and little of the ma- chinery used is of recent vintage. Private enterprises generally use labor-intensive tech- nology. The labor/capital ratio of nonstate enterprises Private corporate enterprises are concentrated mainly is about 10 times that of SOEs, while income per in the trade, industry, and construction. In 1995, one- worker in the former is roughly one-fifth that of the half were in businesses related to trade, 33 percent latter (O'Connor 1998). A survey by MARD in 1996 in industrial production, and another 8 percent in showed that the average net profit for nonfarm es- construction. Within the manufacturing sector, pri- tablishments was VND 53.2 million and VND 13.9 vate firms are chiefly involved in resource-based million for nonfarm households, yielding profit/capi- subsectors, such as food processing and beverages, tal ratios of2O percent and 17 percent, respectively. mineral and nonferrous products, wood processing, The comparable average ratio for SOEs in the same metal products, and rubber and plastic. year was 11 percent. Constraints to Private Business Box 3 Ownership of China's TVES The main constraints facing private business activi- Initially,many of Chiina'sTVE adopted collective own- ties in rural areas are lack of access to capital, a hos- ership. This was a tural response byP farm houeholds tile legal and regulatory framework, and systematic discrimination in favor of SOEs (McKenzie 1998). ingmuc ofChia'srefrn erid, on-ollctie pi- Difficulties in obtainig financing, particularly longer- lterm financing, are due to a number of factors, in- te f ai ledig raw material ) hAses and ta poliies Th colectvel-ownd TEs xperencd da.. cluding: tags oer he OEs Evn toug bohTVs ad SEs Regulations governing collateral requirements- had aguiy efind popety rght, te TV'S UpCVi.the single measure of creditworthiiness is whether sor (twnsip r illge uthrites cold ot upprtthe borrower can supp1 collateral worth 140 entrprses jont entres an soe o th moe efi-percent of the loan amnount constraint operating for the .rVEs, but not the SOEs * A preference for land-use rights as security; such (Perkins 1998). In the 1990s, as private tight inonetaiy rights have not been allocated for nonagricultural * Discretionary behavior on the part of loan offic- * Incentive structures within banks that mitigate 20d(o19)against lending to private firms 20 * Domestic commercial banks have no long-term * Are endowed with land--use rights and can ob- deposit instruments that would allow them to tain additional rights to land-use make long-term loans * Can use their land-use rights as equity to obtain * Rules that prohibit foreign banks accepting land- foreign investment use rights as collateral * Do not need to meet the same collateral require- * Rules that prohibit foreign investors from hold- ments as private businesses and therefore receive ing equity in private Vietnamese firms. virtually all ofthe limited longer-term credit avail- able in Vietnam As a result, private businesses in Vietnam do not benefit from the new skills and technology that ac- * Have preiFerential access to government con- company foreign investment. Nor can they obtain tracts, export and import quotas, and govern- access to the marketing and distribution links in for- ment contacts. eign markets thatjoint ventures would provide. This is especially important, since one ofthe most difficult One eligibility criterion for a firm seeking a license to hurdles to overcome for firms in countries opening engage in international trade from is that it have up to world trade is making their products known working capital equivalent to US$ 200,000. In ad- and accepted in other countries. dition, an enterprise not owned by the central gov- ernment has to have the support ofthe local People's The vast majority ofVietnam's rules and regulations Committee in order to obtain a license. These re- regarding private enterprise appear to be unneces- quirements discriminate against private SMEs in fa- sary. These regulations make the transaction costs vor of SOEs. of setting up business very high, and the costs are magnified because the regulations provide consider- SOE domination of industry in Vietnam is also bol- able discretion, thus allowing administrative officials stered by barriers against imports of the products to extract payoffs. Regulations are changed with little they produce. Such barriers hurt all export-oriented notice, and little consultation takes place with those enterprises, agricultural and nonagricultural, because affected by them. The business consultations allowed inputs are mo re costly than they otherwise would be in other countries are not allowed in Vietnam be- and because the exchange rate is higher than it would cause the Law on Association prevents firms from be in the absence of the trade barriers. forming groups to meet and discuss their common interests and to lobby the Govemmane for changes. Trade and induistrial policies are also distorting the irn- The generality ofthe regulations give local officials, pact of FDI in undesirable ways. FDI is attracted to resulting in uneven and unpredictable enforcement low-income countries like Vietnam for ftree reasons: and providing further scope for payoffs. Private busi- nesses, especially local businesses, do not receive * To secure access to low-cost natural resources full Government backing for their activities. More- that can be used as raw materials in manufactur- over, businesses are vulnerable to harassment by of- ing processes within the country or in another ficials, and there is no effective due process for busi- country nesses seeking to lodge a complaint. * To gain access to an elastic supply of low-cost Preferential Treatment for SOEs labor Vietnam's SOEs, on the other hand, have many ofthe * To obtain, a protected position within the domes- rights denied to private businesses. For example, SOEs: tic market. 21 Much ofthe FDI being attracted to Vietnam appears the end of 1994, accounting for about half of the to be coming for the third reason, which is a poor employment and 80 percent of the production ca- one as far as Vietnam's development is concerned. pacity of Vietnam's entire SOE sector (Le Dang The benefits of FDI (new capital, new technology, Doanh 1996). The Government's stated objectives new skills, and access to foreign markets) are not in forming these corporations were to: being realized in labor-intensive industries because the investments are being made in protected import- * Establish state controls over strategic industries substituting, capital-intensive industries. Mallon (1997) shows that foreign investors are being at- * Achieve economies of scale in production and tracted to relatively highly protected heavy manu- management facturing industries, such as shipping facilities/equip- ment, radio, TV, and telecommunications equipment, * Make it possible for Vietnamese enterprises to and assembly and repair of motor vehicles. As noted compete on a more equal basis with foreign mul- above, this investment is primarily in the fonr ofjoint tinational firms. ventures with SOEs. Arguments of this kind were used in the early post- Government policy to support push SOEs rather than World War II period to support the development of labor-intensive industries oriented toward export import-substitution activities in developing countries, markets suggests that labor-intensive activities will a policy that has long since been discredited. By form- not develop to the extent that they should. It is im- ing these corporations, many of which are not in stra- portant for Vietnam to note that FDI in China has tegic areas such as transport, telecommunications, been concentrated in labor-intensive, export-oriented and utilities, but rather in the production of paper, manufacturng activities. Worrisome indicators ofthe coffee, and tobacco, for example, the Government policy bias in Vietnam are: is creating enterprises that will be too large to be allowed to fail (Woo 1997). The budget payments • Manufactures are a relatively small part of required to cover SOE losses and nonperforming Vietnam's exports in comparison with other loans in 1997 attest to this. Even though rationaliza- countries at the same level of development tion has reduced SOEs from 12,000 to 6,000, the percentage of lossmaking SOEs rose from 8 per- * Employmentgenerationinmanufacturingis low cent in 1993 to 50 percent in 1997. These losses are leading to a sharply rising proportion of bad loans in * Manufacturing is concentrated in the major ur- state commercial banks, and are ultimately a liability ban centers. in the Governnent's budget. Macroeconomic stabilization and market liberaliza- As industrial development in Taiwan Province of tion since 1988, together with the cessation of direct China has shown, large enterprises are not neces- subsidies to SOEs, have led to the liquidation or sarilymoresuccessfulinintemationalcompetitionthan amalgamation of a large number of small, unprofit- SMEs. Making the industrial sector more competi- able SOEs. This rationalization has resulted in en- tive, preferably through equitization, is desirable-in hanced performance by the SOE sector as a whole particular, to remove the bias against the develop- (Gates 1996). However, the promotion of competi- ment of labor-intensive, nonurban, export-oriented tive markets in the industrial sector has languished. enterprises. Equitization of SOEs began in 1992, but The formation of 18 "general corporations" and 64 it has been a slow process. As of 1997, only 17 smaller "special corporations" (Decision 90/TTg and SOEs had been equitized. Vietnam's ambitious new Decision 91/TTg, 7 March, 1994) brought together goals call for equitization of 150-200 enterprises in some 1,000 ofthe 6,300 SOEs still in existence at 1998, 400-500 in 1999, and another 1,000 in the 22 year 2000 (MPDF 1998). These equitizations will of equity in the cooperative. In the event of a only be successful, however, if the business environ- major natural disaster or a sharp fall in the price ment in Vietnam becomes much more friendly to- of one or more primary commodities, a large ward private sector activity. This requires removing number of cooperatives might suffer severe the systematic discrimination in favor of SOEs. losses. According to Vietnam's legislation, co- operatives would be liable for such losses, or Priority Actions to Stimulate Nonfarm Rural the goverinment would have to assume responsi- Activities bility. This kind of guarantee is not available to other forrns of business enterprise. A key policymaking principle should be to create a "level playing-field" for all economic enterprises- Remove Preference for SOEs. The structure irrespective of type of ownership, size, area of in- of proteclion adopted for the industrial sector is dustrial activity, or location. Only enterprises able to of great concern for rural-sector development. earn profits should survive. Central to current indus- Tariff and. nontariffprotection for SOEs and for- trial policy, however, is the belief that the govern- eign-SOEIjoint ventures have the effect of rais- ment can "pick winners." This approach has failed in ing the costs of both agricultural and nonagricul- pre-reform Vietnam and other centrally planned tural rural activities by increasing the prices of economies, as well as in other developing countries, plant, machinery, and other purchased inputs. such as Thailand. The following reforms are recom- This makes it more difficult for private firmrs to mended as a means of furthering the development of compete. There is also an indirect cost effect the rural industrial and services sectors in Vietnam. because the exchange rate is higher than it oth- erwise would be in order to dampen exports and * Remove Regulatory and Legal Barriers. balance the current account. The hostile regulatory and legal system facing the nonstate sector must be changed. Complicated Private rural enterprises should be treated on an business registration procedures and regulations equal basis with SOEs in terms of credit alloca- should be simplified to make it easier for private tion and access to land-use rights. Since farmers businesses to be established and to reduce the have very limited investible surpluses, credit is scope for discretionary behavior by officials. The critical to the developnment of rural enterprises. government should be proactive in fostering an The formation of "giant corporations" is of con- environment in which private business activity is cern because it is difficult to create management seen as a positive force for improving living stan- and incentive structures for SOEs that will lead dards throughout the country. to efficient use of resources. This is especially true if such organizations can draw on govern- . Be Neutral toward All Forms of Business ment funds if they incur losses. The use of bud- Enterprise. It is recommended that the Gov- get funds to cover increasing losses incurred by einment adopt a more neutral approach toward SOEs in recent years means that there is less private business enterprises. The "new coop- available for investment in public infrastructure eratives" should be seen as one form of private and social services. activity, but not necessarily as preferable to other forms. Moreover, the Government should not . Enhance Environmental Management. The discriminate in favor of cooperatives. It is a mat- developrnent of rural industries also has major ter of great concern that members of coopera- resource management and environmental impli- tives are liable for any losses incurred by the cations. First, it will remove land from cultivation cooperative. In other countries, members of co- in favor of industrial development and related operatives are normally liable only for their share settlements and infrastnicture. The degree of this 23 impact will depend significantly on siting. Indi- "brown" environmental issues-which are more vidual decisions on industrial location are likely typical of urban areas. Although standards exist, to imply external costs. Sound land-use planning they are weak and not enforced unifornly. Envi- and zoning, based on reliable technical informa- ronmental assessments should be carried out for tion on land capability-rather than on political all major investments, which will also require considerations-will be needed to minimize the improved capabilities for environmental assess- potential adverse impacts. Second, depending ment preparation and screening. A combination on the type of industry, development will intro- of economic and regulatory instruments will also duce environmental issues-pollution and other be needed to address "brown" issues. 24 Chapter 4. Managing Natural Resources and Conserving Important Ecosystems Vietnam is richly endowed with an impressive range Forestry of natural habitats and ecosystems, including upland and coastal forests, brackish and freshwater wet- Forests are a major rural resource; about 19 mil- lands, and diverse riverine and marine ecosystems. lion of Vietnam's 33 million hectares are classified Natural resources play a key role in the country's as forest land. As a result of damage inflicted by economic and social development. The direct con- war, clearing for food and industrial crops, and tribution of these primary producing sectors is sig- unsustainable forms of logging, however, only nificant in terms of GDP, export earnings, and em- around half of the designated forest land is still ployment. Natural resources are particularly impor- covered by trees. In 1997, Vietnam's actual for- tant to rural people, since their livelihoods are di- est area was estimated at 9.3 million hectares. A rectly linked-and the social structure of rural com- 1975 estimate put the total forest area at 11 mil- munities is closely tied-to these resources. lion hectares, down from an estimated 14 million hectares identified in 1943. Natural habitats and ecosystems also provide environ- mental benefits, such as natural watershed protection, Until 1993, most timber for domestic use in Vietnam and are important habitats for globally significant came from the country's natural or plantation for- biodiversity. Vietnam has recently become known as ests. (Paper is the only wood product for which im- one ofthe world's biodiversity "hotspots," as its rich ports have traditionally comprised a high percentage array ofendemic species includes halfofthe large mam- oftotal consumption.) While demand for timber has mal species newly descnbed inthis century While much increased, Ihe supply from Vietnam's natural forests less is known about the country's marine, riverine, and has declined as a result of overexploitation of the wetland biodiversity, these are also thought to be im- high quality and accessible natural forest areas. portant. However, valuable natural habitats, such as the upland forests and coastal and inland wetlands, are Early in 1997, the Prime Minister issued a decree under tremendous pressure for conversion to agricul- banning all natural forest logging and instructing ture and aquaculture, and conversion often results in the Ministry of Agriculture and Rural Development majoroff-siteiimpacts. (MARD) to prepare a plan to 'close' all natural forests. The plan succeeded only in reducing the The manner in which Vienam'snatual resourcepoten- annual harvested volume, rather than eliminating it tialhasbeenexploitedismainlyaresultoftireefactors: altogether. The plan recognized that Vietnam could the policy framework for agriculture and other sectors not fund the timber imports that would be required ofthe economy, the institutional environment affecting to replace wood from its own forests, and that accessto keyresources, such as land, forests, andwater, stopping natural forest logging would lead to large- and the provision ofpublic infrastructure. Factors of scalejob losses in the logging and wood process- lesser importance include developments in agricultural ing sectors, particularly in rural areas. These sec- technology, changesintherelativeprices ofagricultural tors are dominated by State Forest Enterprises commodities, forestry products, and other natural re- (SFEs). Since the reforms were introduced, cen- sources, and opportunities for off-farm employment. tral govenument funding to SFEs has been signifi- These factors will also shape future prospects for sus- cantly reduced, but there is pressure to allow high tainable use of natural resources. levels of commercial logging by the SFEs. 25 In 1998 the annual harvested volume was reduced Program 327 has operated during a period of re- to 350,000 cubic meters per year from previous lev- duced central government funding to state enterprise elsofmorethan 1 millioncubic meters peryear. Under and provincial authorities. SFEs eligible for 327 the plan, subsequent years will see this figure reduced projects have little or no other capacity to generate to 300,000 cubic meters. As the volume of wood revenue. Project funding under Program 327, there- from Vietnam's natural forests has decreased, the fore, has provided a lifeline to many SFEs and pro- country has increased imports from its neighbors. vincial authorities. As such, projects are developed Since 1993 in particular, large volumes of logs have more for their capacity to pass the approval process come from Cambodia, and to a lesser extent Laos. and secure funds to pay salaries than for consider- Recently, imports from Myanmar have also in- ation ofwhether they can achieve results in the field. creased. Program 327 has never gotten strong research and Indonesia and Malaysia are the largest timber ex- extension support, which is a part ofthe more basic porters in the region. Timber from these countries is problem of underfunding agricultural research. In- priced on an internationally competitive basis, how- deed, projects have been formulated and approved ever, and timber imported into Vietnam from these without scientific knowledge about the suitability of sources is expensive compared to that from local tree species and appropriate husbandry. sources or from Cambodia, Laos, or Myanmar. Viet- nam must, however, compete for this wood with Even more importantly, projects have been identi- Thailand, which has already secured a significant pro- fied without considering how upland farrn households portion ofthe available volume. might see them. The urgency that poor households face in meeting their mimediate needs for food, shel- Reforestation Programs ter, and healthcare makes it highly unlikely that they would view planting trees as the best use of land or The decline in forest area and the resulting increase loans made available to them. It is hardly surprising, in what is seen as "bare and unproductive" land, as therefore, that they harvest trees well before full ro- well as the failure of past plantation programs, lack tation age has been achieved; graze animals on the of development in many remote, mountainous areas, assigned forest land, leading to poor seedling sur- and increasing costs and decreasing supplies of do- vival; and plant industrial tree crops where possible. mestic and imported wood, led in 1992 to the intro- duction of the Greening the Barren Hills Program Another critical problem has been disputes over use (Program 327). This program has largely focused rights to land. Again, this is not surprising in areas on reforesting cleared land and protecting the re- where complex customary rights have determined maining natural forests. However, funds available land use. Transferring new settlers into these areas under the program also have been used to plant in- and assigning them rights to 'bare' land creates con- dustrial tree crops, such as rubber, tea, and coffee. flicts. The reclaiming of land for forestry under the Barren Hills project has led in some areas to taking Program 327 has not been successful. The area of land out of food production-land that was vital to natural forest has continued to decline, and forest the food security of poor households. Tension exists plantation programs have mostly failed. Project ap- between the environmental sustainability ofthe up- praisals have generally been far too optimistic about land areas and the needs of poor households, which seedling survival, tree growth rates, market prospects hopefully can be resolved to the advantage of both. for harvested logs, and other components ofthe pro- jected revenue stream. Appraisals have also under- Program 327 has failed to allay Government con- estimated costs. cemns over deforestation, unsuccessful plantation pro- 26 grams, and slow rural development. A new program recur in the revised reforestation program, particu- approved at the Tenth National Assembly will come larly in the protection and special use components. into effect shortly. This new program seeks to refor- est 5 million hectares (2 million hectares of "protec- However, the issue at the heart ofthe ineffectiveness tion" forest and 3 million hectares of "production" of Program 327 has still not been confronted. Be- forest) and 'actively protect' existing forests, so that cause poor households focus on providing for their by 2010 the total forest area will reach 14.3 million immediate food needs, it is difficult to engage them in hectares-equal to Vietnam's forest area in 1943. activities with long-term payoffs. Therefore, activi- The total projected funding for this program is esti- ties that will riot realize an income for several years, mated at US$2.5 billion. such as forestry, or are inferior in income-generating potential, will not receive priority for investment by The plans for the new reforestation program are not farm households. Even in high-income countries, tree yet finalized, but its objectives are generally to speed planting is a low priority farm activity, except where up reforestation activities and improve forest pro- special circurnstances prevail-for example, where tection, establish raw materials for forest processing trees may be needed as wind breaks, or where trees industries, and provide employment and income-gen- are needed for soil or water conservation, or where erating opportunities for rural households. Prelimi- tree planting is subsidized. Therefore, in a low-in- nary plans indicate, however, that the new program come country such as Vietnam, where poor house- will not be substantially different from Program 327, holds have access to very limited land areas, for- which will be subsumed under the new program. The estry is an irrmprobable farn activity. Most donors 3 million hectares of production forests are to be al- and NGOs involved in reforestation activities recog- located to farmers, who will be given credit for tree nize this difficulty and are working through rural com- planting, and farmers are to be paid to look after munity development projects to help farmers pro- these "production" and "protection" forests. It is vide for their long-term food security prior to involv- likely, therefore, that production forest areas will end ing them in reforestation. However, achieving suc- up as industrial tree crop estates, while the problems cess in this wly, on a massive scale, will be difficult. of providing farmers with adequate incentives to care Therefore, it is desirable to consider alternative ap- for Protection forests will persist. Some ofthe prob- proaches to reforestation that ensure that the proper lems that arose with Program 327 have been ac- incentive framnework is in place for rural household knowledged, however, inthe future, households will participation. retain all revenue generated from plantation or pro- tection activities, restrictions on harvesting and tran- Given the cormplexity ofthe issues faced and the need port of project output will be reduced, and products for new technology, this report strongly supports may be tax-exempt, depending on Ministry of Plan- MPI's observation that if specific and effective mea- ning and Investment (MPI) decisions. However, the sures are not found to address reforestation, the re- project approval, financing, and monitoring processes sult will be a waste of state resources and a negative are unchanged, and the new law shows little recog- influence on peoples' lives. Specific recommenda- nition ofthe desirability of involving households and tions for the 2 million hectares of protection forests communities in project design and decision making. are: * Delay implementation until specific remedial mea- Incorporating Lessons from Experience in Re- sures are identified and tested forestation Programs * Contract an independert (external) technical and A number of problems were identified in the opera- financial audit ofthe ongoing program tion of Program 327. Many ofthese appear likely to 27 * Implement pilot planting (5,000 to 10,000 hect- * Complementary programs should be undertaken ares) on government land to test and develop to limit damage caused by pests, diseases, and technical recommendations, preferably with do- fire nor-funded technical assistance * Community- or village-based forest management * Establish a transparent monitoring system and options should be given consideration in ethnic provide full disclosure ofthe use offunds. minority areas as an alternative to a farm house- hold focus. Should the Government choose to proceed with the full 5 million hectare scheme, the following A good basis of knowledge has been developed in implementation changes are recommended: many of these areas, mainly as a result of donor ac- tivities in Vietnam. An impressive and growing body * Reforestationprogramsshouldbeincludedinthe of knowledge about appropriate species has been overall rural development framework supported by local research and donor funds. Simi- larly, there has been some research on pest and dis- * Farm households should be helped to address ease attacks. This work needs to be expanded and their immediate food needsbefore being expected the results adapted for use in different areas of the to divert scarce labor and capital resources to country. Advantage should be taken ofthis knowl- tree planting edge in the formulation and implementation of projects under the new program. * Program objectives should be held constant so that investors, whether farm households or tim- Reforming and Certifying State Forest Enter- ber-using enterprises, can make investment de- prises cisions with greater confidence The forestry sector is dominated by State Forest * Land allocation and project design processes Enterprises (SFEs). Since the reforms, central gov- should be participatory emnment funding to SFEs has been significantly re- duced, and there is pressure to retain high levels of * Project evaluation processes should be improved commercial logging to support the SFEs, as other- to ensure that project targets are realistic wise they would be a drain on the budget. The fol- lowing actions are recommended: * Technical training should be provided to forest- ers and all project participants * Restructure SFEs. SFEs should be restruc- tured to become financially self-supporting; fur- . Funding arrangements should be improved, so thermore, they should operate under contracts that funds are provided directly and on time to that provide incentives to optimize tree-yield farmn households, and leakage is reduced growth and conserve biodiversity within the for- ests. * Market studies should be undertaken before projects are approved * Certify SFE Practices. Harvesting practices of SFEs should be certified to ensure that they * Researchfundinganddirectionshouldbe improved are sustainable. to provide for improved seedling quality, better matching of species to the different ecological re- gions, and improved forestry management 28 Fisheries and Aquaculture cally analy2ed through a proper stock assessment. Current estimates of potential are based on prelimi- Capture fisheries and aquaculture have become im- nary fishing surveys performed several decades ago. portant components of rural sector activity, almost Managemert ofoffshore fisheries in Vietnam has not rivaling meat in output volume. While production of been very effective. Sea boundaries are poorly de- marine products has been growing rapidly, this growth marcated and subj ect to international dispute. None- has been in aquaculture, not capture fisheries. theless, the GJovernment has committed to substan- tial expenditure on infrastructure to support fishing Near-shore fisheries are already heavily exploited, activities, such as development of landing sites and as indicated by a declining catch per unit of effort. port facilities to provide fuel, ice, and fresh water. Also, there has been a switch from generalized fish- ing to targeting key species for export. These target Aquaculture in the form of shrimp, prawn, crab, and species are being heavily fished, and overfishing of fish farming has proven highly profitable as domestic species such as squid and shrimp is serious. Man- demand for marine products continues to grow and agement ofthe near-shore fisheries in Vietnam is not production Irom capture fishing has stabilized or de- yet effective. While regulations are on the books, there clined in many regions. Vietnam has significant po- is little enforcement. tential for expansion of aquaculture, through both in- tensification of production in existing areas and bring- The Government is promoting increased fishing in ing additional areas under production. It is estimated offshore waters deeper than 50 meters. However, that only half of the area suitable for aquaculture is the potential ofthese waters has not been systemati- being used. However, problems are becoming evi- dent because of deforestation of mangrove areas, pollution from the use of feed and chemicals, saline intrusion, and outbreaks of disease in the ponds. Some of these problems may be corrected by better definition ofproperty rights to land and water areas. Developme nt of improved management practices, or extension of good management practices where these already exist, also appears desirable. The fol] owing actions are recommended. Improve Analysis of Fish Stock Potential. Adequate assessment of fisheries stocks is an essential element to ensure the technical viability of the major investments being made in the cap- ture fisheries sector in the form of boats with off- shore capabilities, as well as in support for infra- structure, such as landing ports, processing fa- cilities, and ice plants. * Review Policy and Regulatory Framework. The management framework needs to be exam- ined with a view to develop effective measures The capture fishery is an important source of animal to monitor and manage fishing effort, reduce protein in rural Vietnam 29 overfishing already in evidence in near-shore Conservation of Natural Habitats and waters, and halt destructive fishing practices. Ecosystems * Strengthen Management Capacity. The ar- Natural habitats and ecosystems are the basis of eas of licensing, monitoring, enforcement, and Vietnam's primary producing sectors, provide envi- community-based management are particularly ronmental services (such as watershed regulation), important. and are important habitats for globally significant biodiversity. While conservation of natural habitats * Limit Expansion to New Areas. Expansion and ecosystems is receiving higher priority in Viet- to new areas must be undertaken with extreme nam then in the past, effective protection of officially care. Low-lying mangrove and other wetland protected areas is still quite weak. The chief con- areas are not good aquaculture sites, as they straints are weak institutional capacity, shortage of cannot be effectively drained for proper pond well-trained and appropriately motivated staff, insuf- management. Moreover, pond siting in these ar- ficient participation of local people, and limited fund- eas can have a negative environmental impact. ing. The Government should help to establish criteria for site selection and require the use of environ- The current protected area system comprises 101 mental assessment for large-scale aquaculture sites (1.3 million hectares, or 4 percent of total land development. area) and includes 10 national parks, 60 nature re- serves, and 31 cultural-historical areas. Government R Refrain from Picking Winners. In aquacul- and international donor support for conservation has ture, as in agriculture, the Government should not focused on land areas, often ignoring marine and riv- be in the business of picking winners. While re- erine resources. One reason is that forests have been search and extension should be refocused on al- viewed as a priority because ofthe perceived threats ternative species, the Governnent should not pick they have faced. Another is that environmental the species to be raised at any particular loca- awareness in Vietnam has for a long time been stron- tion. The responsibility for what aquatic species gest in terms of forest resources. to grow, how to grow them, and where to sell them should rest squarely with the growers, and Institutionally, as well, forests have received more they should bear the risks. attention. The structure of the former Ministry of Forestry remained strong after its integration into the * Focus on Research and Extension. World- more recently formed Ministry of Agriculture and wide experience has shown that the best retums Rural Development and has largely retained its tra- to public investment are in public goods, includ- ditional role. Marine resources have been the man- ing infrastructure, research, and low-cost exten- date ofthe Ministry of Fisheries, which also has had sion with very specialized messages, such as dis- a strong production orientation. Wetlands have not ease prevention and treatment. A prerequisite to had a clear institutional home, though it appears that successful intensification of aquatic production the Ministry of Science, Technology and Environ- will be effectively dealing with disease problems, ment (MoSTE) may want to take the lead on man- which are largely a result of reliance on wild agement and conservation ofthese areas. Responsi- stocks (as well as improper pond siting and inef- bility for coastal zones is shared by numerous agen- fective water management), which have devas- cies, while freshwater biodiversity lies with water tated the shrimp-culture industry. Development resources specialists at MARD, though little atten- of disease-free stocks will likely also need gov- tion is given to conservation issues. ernment support, at least initially. 30 A draft policy currently under review proposes to vision of a framework of incentives. Policies aimed expand the terrestrial protected area system to over at curbing peoople's use ofnatural resources have often 2 million hectares by the year 2000, but without suf- focused on restrictions on extraction without regard ficient commitment to building requisite institutional to the institltional capacity required to make the re- capacity or mechanisms for cost recovery. Many strictions effective. Fortunately, policymakers are national parks and protected areas are simply "pa- beginning to consider complementary approaches to per parks" that lack effective planning, trained per- conservation that focus orn providing an appropriate sonnel, and facilities to provide effective protection. incentive structure for local resource users and in- Financial sustainability is a significant problem, as most creased participation in management. Draft legisla- ofthese activities are chronically underfunded, and tion dealing with management, protection, and de- resources are used inefficiently. velopment of protected forest areas may provide support for integration of socioeconomic realities into The Government allocates funds annually for national conservation, and in this way modernize the ap- parks through the Forest Protection Department, proaches to protection.5 while nature reserves are funded by the Government through the Provincial People's Committee (excep- The draft dlecree includes three categories of Spe- tions being Cat Tien and Con Dao National Parks, cial Use Forest: National Parks, Protected Land- which receive their funds via the Provincial People's scapes, and Nature Conservation Areas (including Committee). The Provincial People's Committee is Natural Reserve Areas, and Species or Habitat Pro- free to add additional resources from its coffers if it tected Sites). Within any of these categories, there deems this a priority. Vietnam's ten national parks can be four types of management zones: Strictly Pro- seem to be subj ect to differing regulations as regards tected Zone, Regeneration Zone, Service-Adminis- budget allocations, the amount of revenue they can tration-Tourism Zone, and Buffer Zone (surrounding keep, and the amount returned to various levels of but not part of Protected Zone). government. For example, Cue Phuong National Park must pay a 10 percent tax to the Government and is The draft decree has several deficiencies and should allowed to keep about 40 percent of its tourism rev- be revised., It lacks stateiments of management ob- enue, while Ba Be National Park must pay 90 per- jectives for both the different types of Special Use cent of its revenue to the Provincial People's Com- Forests and the different management zones. With- mittee and can keep the remaining 1 0 percent. Cuc out such statements it is difficult to distinguish the Phuong has several money-earning projects, such as purpose o:fthe different areas and zones. Criteria a deer farm, tea plantation, and botanical gardens. and procedures for delineating the boundaries of These ventures receive money from government, and management zones, especially buffer zones, have not it may be that profits earned can remain with the park. been developed, which will cause problems in imple- Financial issues such as budget allocations, cost re- menting the management zones. Further, the draft covery, and revenue holders are complex, and are decree does not stipulate the need for a manage- not handled uniformly. Currently, there are no clear ment plan to be developed for the gazetted protected policies on sustainable financing of protected areas. areas. There are currently a significant number of gazetted protected areas without proper management In general, conservation policies focus on command plans. Finally, the draft decree lacks regulations vital and control regulations and centrally administered to tourism, protected area management, management investment programs, while ignoring core issues of of wild animals, and the status of residents living in institutional capacity, local involvement, and the pro- protected areas and buffer zones. 5. Draft decree of the Prime Minister on the Regulation on Management, Protection and Development of Protected Areas (Special Use Forests) in Vietnam. 31 The followingpriority actions are recommended: . Focus on Capacity Building. Efforts to in- crease coverage should be matched by capacity * Strengthen Policy and Regulatory Frame- building in priority areas. Otherwise, protected work. The draft decree on Special Use Forests areas will remain "paper parks." These efforts Policy is under review. It should be revised to should include all levels, from ministerial level to clarify the management objectives ofthe differ- protected area staff members. ent types of Special Use Forests and the differ- ent management zones, as well as specify the . Explore Mechanisms to Cover Recurrent process for the development, funding, implemen- Costs. Government plans to double the terres- tation, and monitoring of management plans for trial protected areas will result in overstretching these areas. already inadequate resources. Expansion of ca- pacity to meet these ambitious goals will have Separate regulations should be developed for significant recurrent cost implications. Mecha- wetland, coastal, and marine protected areas. nisms to cover recurrent costs should be ex- Similarly, further policy work is needed for pri- plored. ority topics related to protected areas, such as the status of buffer zones, and community involve- ment in protected areaplanning and manage- Water Resource Management and ment. Development D Clarify Institutional Roles and Responsibili- With the passage of the new Law on Water Re- ties. The management ofdifferent types ofnatu- sources, the organizational structures, financing ral habitats-terrestrial, wetland, freshwater, and mechanisms, information systems, accountability link- marine-is assigned to several different organi- ages, and humani resource capacity for its implemen- zations. The mandate for some of these is clear, tation will have to be developed. This will be a major for others it is less so. There is a need to clarify challenge, since there is little precedent in Vietnam roles and improve coordination among all orga- for cross-sectoral resource management. Adding to nmzations involved in various aspects of protected the challenge is the fact that an earlier effort to con- area and buffer zone management. solidate responsibility for water resource manage- ment and development within MARD was unsuc- - Increase Participation in Management. cessful, and several ministries and directorates retain uomplementary approaches to conservation, responsibility for various water-sector activities. The focusing on the provision of an appropriate in- new law gives management responsibility for waters centive structure for local resource users and in- within their boundaries to provinces; thus, provincial creased participation in management are needed govemtnents must also be involved in any program * Review Plans for Protected Area Expansion. of integrated resource planning and management. Plans to expand protected areas should be re- examined, and emphasis should be placed on the Integrated Re-source Management and Basin highest priority areas while ensuring that the pro- Planning tected area system is representative. The habitat gaps in the current protected area system should Under the new law, River Basin Organizations be addressed by developing clear criteria for in- (RBOs) will be set up for each of the major river corporating sufficient wetland, coastal, and ma- basins. RBOs can be expected to take over all of rine areas. the data-gathering and analysis functions needed for comprehensive and integrated planning and manage- 32 ment of water use in each basin. Deciding how these hydrologic, demographic, ecological, and eco- various functions will be carried out in practice will nomic databases; making water supply and de- take time. Bilateral and international agencies can mand projections; documenting point and assist by: nonpoint sources of water quality degradation; and exploring groundwater resources). This pro- * Describing international experience with alterna- cess will create valuable databases, experience, tive organizational structures and the experience and relationships that vvill facilitate the process ofthese models of integrated basin planning and management once implementation procedures and organiza- * Providing input on the types of information and tional structures have been defined. services needed in a water resource manage- ment system for effective planning of intemation- Donors have assisted in the development of imple- ally financed water projects menting regulations for the new Law on Water Re- sources. This support should be continued and aug- * Providingassistanceindevelopingandtestingkey mented by assistance in the design of integrated ba- components ofwater resource management sys- sin managennent, and water permitting, price, and tems in pilot basins (including development of allocation systems. 33 Chapter 5. Reforming Land and Financial Sectors In the previous chapters the specific actions needed Resolution 10 defined the farm household as an "au- to facilitate development of individual parts ofthe tonomouseconomicunit"andallowedfarmnhouseholds rural sector were discussed in detail. This chapter to have land-use rights to annual cropland for 10 to 15 focuses on two economywide actions that are criti- years, and longer periods for tree crops. But mortgag- cal to the development of the rural sector and to the ing, transferirig, and exchanging land were not allowed. economy as a whole. These are: The Land Law of 1993 granted "five rights" to those legallypossessing land: the nghts oftransfer, exchange, * Revising and implementing land policies lease, inheritance, and mortgage. * Reforming rural financial sector policies Land Allocation Secure land tenure and development of a commer- Before land-use rights can be exercised, title to land cial banking sector are fundamental to economic must be established. The process requires several se- development, and urgent action is needed to correct quential steps, including: mapping, deteminationof"ori- current deficiencies. The actions recommended in gins" and subsequent allocation, dispute settlement, and this chapter are aimed at creating an environment in issuance of certificates oftitle ("Red Paper"). which the most effective use possible will be made of resources in rural areas. Mapping of agricultural land in Vietnam is almost complete, and rights to 86 percent of the cropland Land Policy have been allocated. Issuance of certificates oftitle for agricultLral land is also well advanced. The allo- It was noted earlier how important secure land tenure cation of land-use rights is undertaken by the Gen- has been to Vietnam's revolution in agricultural pro- eral Departrment for Land Administration, while cer- duction. Security oftenure is also vital to the effective tificates of title are issued by the District People's management ofnatural resources. Many environmen- Councils (for agricultural land) and the Provincial tal problems are essentially problems ofproperty rights. People's Committees (for urban land). Directive 10- For example, if appropriate property rights to land and 1998/CT-7ITg (20/2/98) claims that 60 percent of water are assigned to individuals or groups, this creates rural households with rights to 65 percent of agricul- income-generating assets that the individual or groups tural land have been issued certificates of title. The will have an interest in protecting and indeed improv- processing of certificates of title for urban land has ing. Therefore, appropriate property rights internalize just begun. what would be external costs or benefits inthe absence ofthose rights. Mapping of upland and forest areas has been a much more difficult task because of the nature of the ter- By developing the system of Land Use Rights under rain, and allocation has been a complex process. Only the 1988 Land Law (Resolution 10) and the 1993 9.8 percent offorest land (ofwhich only I percent is Land Law, the Government created the conditions natural forest) has been allocated (Nguyen Ngo Hao under which farm households and private and public 1998). Local authorities are having to grapple with business enterprises gained security oftenure to land. the complex issues involved in marrying the terms of 35 the 1993 Land Law with customary land-use pat- Constraints on Land Markets terns and rights. The scope for disputes is large, since customary owners may vigorously contest the allo- Land markets provide a transparent mechanism for cation of individual rights. This is a process that should valuation of land. Several factors impede the frull func- be handled with great sensitivity, using the experi- tioning ofland markets inVietnam. These include: ceil- ences of other countries. In some areas where cus- ingsonmaximumlandholdings,relativelyshortduiation tomary ownership now prevails, it may be undesir- of rights with uncertain renewal, land-use restrictions, able at this stage to issue individual rights. Custom- constraints on transfer, and high land taxes. ary ownership and communal land management prac- tices should continue until the people are ready to Government decree 64/CP (27/9/93) imposes man- adopt individual tenure obligations or new forms of datory ceilings on agricultural landholdings, with the collective land-use rights are developed. aim of controlling landlessness and avoiding concen- tration of ownership. For annual crops the ceiling is Implementation of Land Use Rights three hectares in the South and two hectares in the North. For perennial crops the ceiling is 1 0 hectares To date, there has been little implementation ofthe land- for lowland communes and 30 hectares for moun- use rights oftransfer, exchange, lease, inheritance, and tainous and midland communes.6 Households culti- mortgage because no decree explaining howthe rights vating holdings that exceed the ceiling are allowed to are to be implemented has been issued. Any transac- have rights to the excess for only half of the normal tions involving these rights may, therefore, not be legal. duration. During the other half ofthe time they must However, a decree establishing guidelines for imple- pay rent to the state. mentation ofthe rights is has been drafted, and is ex- pected to be approved by the National Assembly in Because of its concerns for food security, the Gov- late 1998. As well as setting out in detail how rights can enment defines the use to which land may be put. In be exercised, the guidelines will establish the process of particular, the Government imposes restrictions on setting up centralized registers for the recording ofland the conversion of paddy land to other purposes. In rights certificates. At present, each commune maintains most cases the Prime Minister's approval is required its own land register. for conversion. Long-term land transfers require the perrnission of local authorities; this comes with strict conditions, such as legal proof of either moving out of the area or inability to cultivate the particular piece of land (Ar- ticle 75). Also, renting/leasing of agricultural land for annual crops or aquacuture for more than three years is not allowed, except with special permission of the Government (Article 78). All ofthose who use using land for agricultural pro- duction are subject to a land tax. Tax rates are fixed on the basis of classification ofthe land according to location and cultivation conditions (six categories for annual crop land and five categories for perennial 6. In a recent draft revision to the Land Law, this maximun allocation is Land-use restrictions keep most agricultural land in paddy. proposed to be reduced by half to 5 ha for lowlands and 15 ha for uplands. 36 crop land). Classifications are to remain unchanged ture with other Vietnamese organizations, but notwith for 10 years. Sales and exchanges of land are also foreignpartners. Only SOEs are allowedto use land- taxed. In Vietnam, where fragmentation of agricul- use rights as capital injoint ventures with foreign part- tural land is a significant problem, the taxes on sales ners. However, suchjoint ventures must have gov- and exchanges inhibit land amalgamation. einment approval. Projects involving more than 5 hectares of urban land or 50 hectares of rural land Moreover, the transfer of rice-growing land from one must have the approval of the Prime Minister. Oth- household to another for purposes other than rice- erwise, approval is granted by the Chairmnan of the growing is subject to a tax of 50 percent of the value Provincial People's Committee (Article 44, Decree of the land (for transfers for industrial construction 1 2-CP, 1997). the tax is 30 percent). Priority Actions for Land Land as Collateral The following priority actions are recommended to The nexus between land and credit markets is one of rationalize land allocation, stimulate the development the most important areas requiring policy reform and of land markets, and thus promote rural develop- institutional development The clarification ofland-use ment rights, particularly the right to mortgage, will be very significant for the development ofthe credit market in * Accelerate Completion of Mapping, Alloca- general, and rural areas in particular. Foreign banks are tion and Certification. Land mapping, alloca- not represented in the rural credit market, and lack of tion, and certification in lowland areas should be clarity about their right to hold mortgages on land is an accelerated. The institutional capacity to imple- important reason fortheir absence. ment the law should be expanded and put to work. In upland areas, allocation of use rights According to Article 77 of the 1993 Land Law, any should proceed cautiously in orderto avoid land- household or individual with rig,hts to agricultural land use conflicts between individual and collective for cropping or forestry land for the purposes of refor- land users, and between long-term residents and estation can utilize land-use rights as collateral in order new immigrants. New categories of collective to obtain credit from a state commercial bank or a credit land-use rights should be explored in consulta- organization. Foreign banks, however, are not allowed tion with upland communities. to take land-use rights as collateral. The value ofthe landascollateralislimitedtotheaamountoflandrent I lssue Guidelines for Implementation of already paid, as determined by the People's Commit- "Five Rights." The promulgation of irnplemen- tee ofthe province or city. The net effect is that only tation guidelines for land-use rights is extremely insignificant amounts can be borrowed against such importanit for the development of land and credit collateral. While the collateral value ofthe land-use right markets. as well as for the process of farm amal- increases over the period ofthe right, the closerto the gamation. These institutional developments, in end ofthe period the less willing a bank will be to ac- turn, are critical for the future growth ofproduc- cept the collateral, because there is no cerainty that the tivity in the agricultural sector. It has been esti- allocation will be renewed. If a borrower cannot repay mated that the productivity of some areas, cur- a debt, the mortgaged land-use right can be auctioned rently as little as 50 percent of potential, could by a state agency Creditors are not allowed to exchange, be expanided rapidly with greater land use secu- transfer, or lease land-use rights. rity (Nguyen Ngo Hao 1998). Individuals and private businesses are able to assign The guidelines are important for rural enterprise the value of land-use rights as capital in ajoint ven- development as well. One of the aims of the 37 new decree on land will be to remove differences conversion of paddy land will slow down the in treatment between nationals and foreigners in process of agricultural diversification and thus terms of land rights. This is important if Vietnam prevent rice farmers from diversifying to reduce is to gain maximum value from the capital and their vulnerability to price changes and weather technology from other countries. risks. Concern about food security can be ad- dressed by other measures, such as improving Clarify, Publicize, and Enforce Land-Use access to credit in rural areas, providing off-farm Rights. Because ofthe importance of maximiz- employment opportunities, and creating better ing benefits from the creation of individual land- food storage and distribution systems. use rights, it will be necessaiy to carTy out a public awareness program to educate people about their Rural Finance rights and responsibilities as holders of land titles. In addition, the Government has the important Since doimoi foreigndirectinvestment(FDI) andover- role of enforcing land-use rights and protecting seas development assistance (ODA) have played an those to whom such rights are granted. important part in the growth of investment and in eco- nomic growth, although very little FDI has gone to the * Extend Duration of Rights and Raise Ceil- rural sector. In 1997, FDI accounted for 28 percent of ing on Holdings. Lengthening the period of total investmentin Vietnan, almostallofwhichwasin land-use rights as has been proposed to 50 years, the 10 largest cities. FDI is aparticularly useful catalyst or making renewal automatic, are recommended. inthe early stages of development because it brings with The ceilings on land holdings should also be in- it access to new technology and new skills, as well as creased to permit land amalgamation and in- access to foreign markets. creased efficiency. While FDI is important, most of the investment Loosen Restrictions on Land Transfer and needed to create more than a million jobs each year Land Use. People should be free to sell or trade will have to come from domestic sources. In 1997, land assets if they believe that they will be better however, private domestic investment constituted less off by doing so. Indeed, free transfer land-use than one-quarter oftotal investment. Shortage of in- rights is an essential prerequisite for an efficient vestment funds is often cited as a major constraint to economy because it ensures that these assets are rural development in general, and to smallholder farm- not locked into unproductive uses. Concerns ers and rural business enterprises in particular. Con- about increasing landlessness as a result of land ditions must be created that encourage more people transfers can be mitigated by appropriate safe- to save and to ensure that their savings are efficiently guards. These could include measures to assure intermediated by the financial sector to profitable in- that people receive the full value oftheir land when vestments. In addition, domestic entrepreneurs must they sell it, and social safety nets for those few be able to borrow if the want to expand existing busi- who may loose all means of livelihood. nesses or create new ones. Some land-use restrictions for paddy land are People are encouraged to save when they are sure warranted because changes in use of individual of getting a positive real interest rate and have faith in plots may cause unintended negative impacts on the stability ofthe financial system. To create an in- surrounding paddy. However, paddy may not be vestor-friendly environment, credit should be avail- the most profitable use of land for some farmers, able at competitive, market-determined interest rates, either now or in the future as the role of rice in and investors should have confidence that contrac- the economy declines. Excessive restrictions on tual obligations will by honored. 38 Poor households also will participate in the growth a small number of credit cooperatives; and two fi- process if they can easily obtain financial services. nance companies (Johnson 1998). For rural house- For vulnerable households, deposits of small sums in holds there are three main institutions: the Vietnam profitable and secure savings vehicles can be an im- Bank for Agriculture ancl Rural Development portant means of coping with seasonal hardship and (VBARD), thLe Vietnam Bank for the Poor (VBP), unforeseen crises, as well as the basis for investment and the People's Credit Funds (PCFs). im on-farm or off-farm income opportunities. The VBARD is the largest provider of financial ser- In a recent Ministry of Agriculture and Rural Develop- vices in rural areas, with over 2,500 outlets. However, ment survey ofrural SMEs, 40 percent ofthe respon- many rural areas are not covered. At the end of 1997, dents cited lack of capital as their main constraint VBARD had loans outstanding to 3.66 million house- (Johnson 1998). One problem, as discussed above, is holds averaging around US$ 430. Most of the loans lack of clarity regarding the security of land-use rights (80 percent) were short-term and were concentrated for collateral in areas where land use certificates have in agriculture (67 percent). hnterest rate regulations dis- been issued, and another is the fact that land-use rights courage longer-term lending and lending in especially certificates have been issued for only a small proportion risky areas, such as the upland areas. ofnonagricultural land. Other problems are the imma- turityofthefinancialsectorandgovernmentinterven- The VBP is a government-owned, nonprofit bank tions that distort the credit markets. established in 1995 with a rmandate to provide credit to the poor. Its highly subsidized lending rate is 0.8 Underdeveloped Financial Sector percent per mnonth, as compared with VBARD rates of 1.2 percent per month for short-term loans and The importance ofthe government's supervisory and 1.4 percent per month for medium-term loans. regulatory role ofthe financial sector, as carried out by the central bank, is clear. The importance of this The network of commune-level PCFs reaches 51 of role has been further emphasized by the currency Vietnam's 61 provinces, with limited coverage inthe crisis in several Asian countries. What is less clear is mountainous Northern provinces. By the end of Sep- the extent to which government, or government- tember, 1997, PCFs had 497,000 shareholding mem- owned entities, should directly participate in finan- bers with VND 876 billion in savings and VND 1,200 cial-sector operations. At issue is whether the bank- billion in loans outstanding (an average savings ing system is to be a financial channel for support of equivalent tc US$ 126 and an average loan equiva- centrally-determined production targets and for pro- lent to US$ 1,72). The PCFs' interest rate structure viding welfare payments, or whether it is to be an comprises lending rates of 1.5 percent per month intermediation service, facilitating savings and invest- and deposit rates of between 0.4 percent per month ment based on the supply of, and demand for, money. (on demand) and 0.7 percent per month (six-month The Asian crisis has clearly demonstrated that any fixed-term). Almost all loans are short-term, how- banking system operated under the former assump- ever. The PCFs are situated close to their clients, tions is vulnerable to significant risks. have relative]Ly fast loan-approval processes, and have the potential to provide much-needed competition in The formal financial sector in Vietnam consists ofthe the rural financial sector. State Bank of Vietnam (SBV); four state-owned commercial banks; 68 foreign banks (29 of which Microfinance initiatives that supplement commercial have branch operations); four joint-venture banks; bank loans by reaching smaller clients have been 50 joint stock, or shareholder, banks (31 urban and activelypromoted by many ofthe internationalNGOs 19 rural); 928 People's Credit Funds (credit unions); operating irL Vietnam. The NGOs either provide 39 technical assistance to amass organization (such as cost-covering interest rate structures. A number of the Women's Union) that acts as an agent ofthe com- NGOs and donors have reported that participants mercial banks, or provide capital and technical as- are less willing to borrow from these schemes be- sistance to a mass organization that acts as a finan- cause they have heard that cheaper loans are avail- cial intermediary. The experience to date has been able at the VBP. Some NGO and donor schemes mixed, and no sustainable approach has yet been have apparently scaled back expansion plans found. The problems include uncertainty about policy (Johnson 1998). This is disappointingbecause is not and legislation, lack of clarity about accountability widely available to poor households. Capping inter- and institutional responsibilities, and the mass est rates reduces the ability of banks and other fi- organization's limited capacity for financial manage- nancial institutions to attract deposits, especially ment. On the sponsors' side, the situation is compli- longer-term deposits. This also raises a problem in cated by differences in principles and practices with rural areas, where longer-term credit is particularly respect to interest rate subsidies, treatment of loan scarce. Most ofthe savings in VBARD are actually losses, and differing arrangements with counterpart from urban residents. institutions. Third, giving preference to loans for SOEs and for ful- Distorting Interventions fillment ofproductiontargets adversely affects the avail- ability offunds for SMEs. Financial favoritism for SOEs In general, Vietnam's credit market is highly distorted has the effect of directing credit into capital-intensive as a result of subsidized and directed credit programs, activities, while making credit, especially long-term including the priority givento loans to SOEs and to vari- credit, scarce or nonexistent inthe rural sector. This, m ous commodity programs for the purchase of rice and turn, impedes the creation of ruraljobs. Freeing up capi- other crops for export (see Johnson 1998). Policies to tal, to allow more of it to be used in labor-intensive subsidize and direct credit have several shortcomings. activities would lead to the creation of a much larger number ofjobs in the rural sector. The first is that non-market interest rates for savings and loans seriously retard the development of the Fourth, because subsidized loan rates are generally financial sector. Because of Government controls over below the costs of mobilizing savings, the difference deposit and lending rates, banks are not able to set must be directly underwritten by the Government. interest rates that will cover their costs offunds, their Nonpayment of subsidized loans constitutes a sig- operating costs, and their risk. Thus, competitive- nificant risk to the Government. In many cases SOEs ness in the financial sector is severely limited. Banks have not been able to service their loans, and the will only operate in areas where they can be profit- bad loans accumulated by the banking system are able under these controlled circumstances. For ex- ultimately a liability on the Government's books. ample, the Government decision to lower the inter- estrateceilingonVBARDloansinuplandareasmay Structural and Operational Problems in the have had the unanticipated effect of inducing VBARD Banking System to reduce services in the very areas that the interest rate reduction was intended to help, thereby rein- There is no doubt that the central bank's regulatory forcing regional inequalities in the availability of fi- and supervisory role is important, but there is an nancial services. urgent need to improve its capacity to supervise the financial sector, even at the provincial and district Second, subsidized interest rates have had the unin- level. The lack of such capacity is already proving to tended effect of undermining NGO and donor be a constraint to the rapid growth of the People's microfinance schemes that are based on sustainable, Credit Funds system. 40 Anumber ofproblems relevantto the financial health . Decontrolling Interest Rates. Reform of the of state-owned commercial banks should also be credit merket is making slowprogress. The im- addressed, including: position of ceilings on deposit interest rates and lending rates is creating difficulties for the effec- * Poor quality portfolios, particularly the treatment tive operation of all banks and other financial in- of nonperforming loans stitutions by adversely affecting their costs and their services to consumers. Limits on deposit * Failure to contain arrears interest rates have two undesirable effects for the people they are intended to help. First, they re- * Weak capital bases duce the likelihood that banks or other savings institutions will find it profitable to operate in the * Overexposure to foreign currency loans more remote or risky areas. Second, even when the poor have access to a bank branch, they have * Noncommercial lending procedures, especially less incentive to save because capping interest with regard to SOEs. rates makes saving less worthwhile. Savings rates are thus lower than they would be otherwise. There are also a number of structural problems in Control of interest rates also means that credit the operations ofthe VBP. Its lending operations are has to be rationed, which, in turn, means that financially unsustainable, with negative implications banks have to allocate credit on some basis other for the budget. The current strategy of "low supervi- than market demand. There is thus no guarantee sion"three-year agricultural loans holds the potential that credLit will flow to those activities where it for substantial nonpayment when the loans fall due. will be most productive. On the contrary, where The VBP is also institutionally unsustainable, since it the supply of credit is rationed because of inter- relies on an agency agreement with VBARD to fulfill est rate controls, bankers will select those in- its mandate with negative implications for both insti- vestments that are the safest or most secure, not tutions. Finally, VBP loans are not really suited to necessarily those with the highest return. the needs of the poor. They are strongly biased to- ward traditional agricultural production credits rather Removing distortions in the credit market will than microfinance or microenterprise credit. considerably improve its performance. In par- ticular, interest rates should not be subject to controls, and caps on deposit and lending rates Priority Actions for Reform of the Rural Fi- shouldbe removed. Liberalization ofinterest rates nance Sector will improve savings performance, since finan- cial institutions will be able to develop long-term Reform of the financial sector, together with im- deposit instrumentsthat, inturn, will improvetheir proved clarity in the rules governing land-use rights ability to lend on a long-term basis. as collateral, will stimulate more competition for deposits and loans in rural areas and provide farm- * Dropping Preferential Access to Credit for ers and persons engaged in off-farm rural activi- SOEs. Fixing interest rates on loans and direct- ties with the improved access to credit. These ac- ing credit to SOEs has the effect of discriminat- tions will result in continued improvement in agri- ing in favor of capital-intensive activities, which cultural productivity and ongoing diversification of is contrary to the labor-intensive development farm household activities, both on and off the farm. that Vie1tnam needs. This reduces the number of Priority actions should include: rural jobs that can be created otherwise. 41 Discontinuing Interest Rate Subsidization. velopments needed to improve farm and non- The VBP's use of subsidized interest rates should farm rural development include allowing banks be reconsidered. Subsidized credit inhibits the and other credit organizations to have use-rights extension of commercial banking services to re- to mortgaged land so that they can transfer these mote areas and the development ofmicrofinance rights at market value. Furthermore, land-use operations based on market interest rates. A fo- rights should be allowed to be used as security cus on the development of good microfinance for loans at their full market value. operations is more likely to result in better credit provision for the nation's poor and ethnic minor- Treating foreign banks equally to domestic banks ity peoples in remote areas, who are poorly in terms of the forms of security available to them served by existing financial services. A major is also important. In particular, foreign banks advance would be the legalization and greater should be allowed to grant mortgages based on acceptance of international good practice in land-use rights. This should result in foreign microfinance by the formal financial sector. banks entering the rural credit market and com- peting with domestic banks and other financial * Proceed with Banking System Reforms. organizations. This, intum,wouldresultinbetter Needed reforms include increasing central bank financial services for people in rural areas. More capacity for oversight; increasing loan loss provi- generally, bank lending should be improved sioning; modernizing accounting, control and man- throughout Vietnam. The law regarding forms of agement information systems; publishing audited security should provide that all assets and rights accounts; andrecapitalizing state commercialbanks, commonly required as security as part of inter- alter other reforms have been completed. national financing transactions can be used as se- curity under the laws of Vietnam (IFC 1998). * Level the Playing Field. Other essential fi- nancial sector policy changes and institutional de- 42 Chapter 6. Ensuring Access to Rural Infrastructure andL Social Services Rural Infrastructure Roads Vietnam's rural infrastructure (roads, waterways, ir- Vietnam has about 105,000 kilometers of roads rigation and drainage, water supply facilities, ports, ranging from earth tracks to two-land highways. The power, and comnnunications) is underdeveloped, and official classification system has six categories: na- existing facilities are generally in poor condition. As tional roads (10,800 kilometers); provincial roads a result of decades of war, and fiscal constraint, much (15,500 kilomneters); district roads (25,300 kilome- ofthe infrastructure has been damaged or has dete- ters); village roads (46,200 kilometers); urban roads riorated because of lack of maintenance funds. (2,570 kilometers); and special roads (5,450 kilo- meters). Regardless of classification, the country's In an economy still heavily dependent upon rural roads are in poor condition and are deteriorating activities (particularly irrigated rice), transport and rapidly due to increasing truck traffic and inadequate irrigation are priority areas for public investment. maintenance. According to a 1996 survey, only 9 Flood control is also important, since floods cause percent of the national and provincial roads were great damage and result in the loss of life every year. considered in "good" condition, while 67 percent However, with modernization ofthe economy also were "poor" or "very poor." In the 1996-2000 Public a priority, there is strong competition for public fund- Investment Program (PIP), rural transport was bud- ing oftransport, power, water supplies, telecommu- geted to receive only 5 percent of the total expendi- nications, and other facilities in urban areas. Given ture on transport infrastructure. The bulk ofthe in- the bright prospects for economic growth in Viet- tended inveslment was to be in the three designated nam as a result of its reform policies, it is not sur- growth centers (Hanoi-Haiphong, HCMC/Dong prising that a review of recent donor-assisted Nai-VungTau, and Quang Nam-Danang). projects showed that the rates of return on rural in- frastructure could reach 20 to 35 percent. These In the past, central government financing for road high potential returns suggest that lack of infrastruc- transport mainly supported the national and provin- ture is a critical bottleneck to the exploitation of new cial transport networks, with only a small amount al- opportunities. Since public funds for infrastructure located to roads at the district level. Communal trans- investmnents are limited, private funding ofthe infra- port network s received virtually no funding from the structure may be the answer. budget. Although 88 percent of Vietnam's communes (containing 8:2 percent ofthe population) are reported Most rural Vietnamese do not have access to basic to be connected to the nearest district center by infrastructure services, such as all-weather roads, motorable roads, many ofthese roads are rough earth irrigation, drainage, and flood control facilities, clean tracks that cannot be used on a year-round basis. drinking water, permanent markets, and the national electric grid (Khan 1998). The poorest and most Based on World Bank estirnates, actual expenditure remote are even worse off. Specific parts of the in- on road maintenance is only 27 percent ofthe amount frastructure are discussed below. required. As a result, vehicle operating costs are 40 43 to 80 percent higher than they would be otherwise. where the sedimentation rate is especially high. Re- Economic rates of return to maintenance and reha- current expenditures on waterways have increased bilitation vary from 7 percent to 32 percent, depend- six-fold from US$ 1 84/km in 1991 to $1 ,169/km in ing ontraffic assumptions, maintenance and rehabili- 1995, but that is still only about halfofthe estimated tation costs, value of produce transported, and other US $2,000 per year per km needed for rehabilita- variables. Social benefits not captured in the calcu- tion and upgrading. In addition, insufficient naviga- lus mayjustify the inclusion of roads with low eco- tion aids, particularly for night traffic, make naviga- nomic returns inthe program. tion unsafe for barge convoys, as do sharp bends and obstacles above and below the water surface. These deficiencies lower fleet productivity by an es- timated 40 percent or more. In order to restore pro- ductivity, the three key components ofthe Mekong system- waterways, fleet, and cargo handling-re- quire attention. Increased budgetary allocations should be accompanied by privatization of the fleet, contracting operation of the waterways to private ~~~ ~~~~ ~~~~~~frmns, encouragement ofa competitive dredging in- dustry, and pricing that reflects the actual costs of operation and maintenance. Irrigation and Drainage Large investments have doubled the size ofthe irrigated area over thepast 20years. Ofthetotalirrigatedarea, 2.3 million hectares are covered by gravity schemes 2 and 1.4 million hectares by 3,000 electrical pumping i stations. There are 4,000 kilometers ofiinigation canals and 6,000 kilometers of combined iigation and trans- Investment in rural roads will have large payoffs port canals. The drainage system covers about 1 mil- lion hectares, mosly in the north and centlal parts ofthe country, particularly the Red River Delta. About 80 percent ofthe country's rice-growing area is irrigated, Inland Waterways including about 90 percent in the Mekong River Delta and 70 percent in the Red River Delta. In other regions Waterways are an important part of Vietnam's trans- the proportion of irrigated area is far lower, and less port system because of the long coastline and the than 50 percent oftotal annual cropland is irrigated. dense network of rivers (16 major river basins). The inigationfacilitiesforone-third ofthenearly4mil- Vietnam has 41,000 km of inland waterways, of lion hectares under irrigation are said to be incomplete, which 11,000 km are accessible to vessels above badly deteriorated, weakened by design deficiencies, 50 DWT. Some 65 percent of marketed agricul- or to have insufficient water flow during the dry sea- turalproducts (10.5 miUiontons/year) are transported son (World Bank 1998). Obviously, there is scope by inland waterways in the Mekong Delta. Like the for spending a considerable proportion oftotal pub- rest of the rural transport network, the waterways lic investment on water control and irrigation. Irriga- are in need of rehabilitation and upgrading. Depth tion already receives more than 65 percent of the and navigability have deteriorated because ofthe slow public investmnent in the agricultural sector, chiefly for pace of dredging, particularly in the Mekong Delta, paddy production (Cuddihy 1998). 44 Reform of irrigation and drainage management or- While demand fordrinkingwaterisincreasing, the quan- ganizations began in the late 1 980s under direc- tity and quality of water resources are declining. tives that created provincial Irrigation and Drain- UNICEF has been the primnary external donor in this age Management companies to operate and main- field, currentfyinvestingUS$ 2-2.5 nillionperyear. The tain large irrigation facilities. The Government's government is investing a similar amount. The private objective was to establish these enterprises as sector is more active, developing small, piped-water autonomous, financially self-supporting institutions, supply systens in rual areas, especially in the Mekong based on hydrologic boundaries. However, the River Delta. Tubewells and metered distribution sys- reforms have stalled, and unless changes in the tems are used. Such opportunities seemmostlikelyto ownership and management structure ofthese com- arise in areas lacking fresh shallow groundwater, such panies occur, it is unlikely that the goals of finan- as those paris ofthe Mekong River Delta where shal- cial autonomy, high-quality service, and sustained low groundwater is saline. Opportunities to replicate maintenance will be realized. A fundamental diffi- this process in other parts ofthe country should be ex- culty is that the companies are not independent plored. Howiever,therewilibeaneedforpublicmoni- entities but arms of Government. Profits are re- toringandregulationofwaterquality, includingthepo- mitted to the Government (as repayment for capi- tential for failures and consequent salt-water contarni- tal investment), and losses are absorbed by the nationoflowveraquifers. Government. This close tie with Government does DANIDA is supporting lthe development of a na- not promote efficiency. Management organizations tional rural water supply and sanitation strategy that should be held accountable to their farmer clients calls for the provision of safe water supplies to 90 and to independent financial auditors. percent ofthe population by the year2010, and sani- tation services to 80 percent of the population by the In light of the rapid changes expected in the struc- same year. The draft study projects investment of ture of agricultural production, especially diversi- US$ 1.7 billion to achieve these targets. Given the fication, the focus of irrigation development should importance- of the health of the population to eco- be broadened from its present focus on rice. nomic growvth and welfare, safe drinking water and Where circumstances justify investment in irriga- sanitation mnust rank high among public investrnent tion for rice, consideration should also be given to priorities. Once a national rural water supply and parallel investment that adapts existing or new ir- sanitation strategy is agreed upon, a coordinated rigation systems to producing other crops. This donor effort will be needed to fund its implementa- realignment will tend to shift production of rice and tion, with due consideration for opportunities for pri- nonrice crops to areas in which their comparative vate investment in small piped-water systems. advantage is greatest. Flood Conitrol Provision of Safe Drinking Water Flooding from rivers and storm-driven tidal flows is Currently, less than 32 percent ofthe rural popula- arecurrent problemin Vietnam, with annual economic tion has access to clean drinking water; only 5 per- losses in the range ofUS$ 50 million as well as heavy cent has access to piped supplies. Access is lower in loss of life. As population grows and economic ac- mountainous areas and in some parts ofthe Mekong tivity expands, people encroach further into flood- River Delta. Unsafe water and poor sanitation facili- prone areas, and economic and human losses due to ties, combined with inadequate hygiene, have been flooding increase. identified as the most important reasons for high in- fant mortality, accounting for 25 percent of child Extreme floods occur in the Mekong Delta approxi- deaths each year (about 40,000 children annually mately every sixth year, and they are usually prolonged under five years of age). and widespread due to the limited flood protection. 45 Extensive flood control works exist in the North, but As generating capacity increases, transmission and theyneedrehabilitationandupgrading. Some ofthese distribution lines will have to be rehabilitated. are currently being strengthened under internationally assisted programs. Because of the strong Levels of Government in Developing Rural In- complementarities between hydropower production frastructure and flood control, the new hydropower study produced with support from NORAD and SIDA will provide Responsibility for public mvestinent in rural infrastruc- useful guidance on where fiuure regulating stmctures a ture should be assigned to government at the level at needed andtheir effect onreducing riverine flooding in it will be most effective. The national government Vietnam's five main basins. Investments in this area focuses on the development of highways and the in- should be made within the overall framework ofwater terprovincial road network, construction of major resource management and development. water-control structures, and expansion of national electricity production and the high voltage distribu- Electricity Supply tion network. Provincial governments are responsible for roads and bridges linking major towns to the na- Almost all provinces and districts are connected to tional road network, secondary irrigation and drain- the national gnd, the exceptions being Lai Chau prov- age works, water supply and sanitation schemes for ince in the North and a number of remote districts in provincial capitals and major towns, and provincial the central and southern parts ofthe country. However, electricity transmission networks. District-level ad- connections below the district level are not well devel- ministrations are responsible for local roads and oped, and only about 60 percent ofthe communes and bridges, small irrigation and drainage works and ter- 3 5 percent of all households are connected to the na- tiary works associated with national or provincial ir- tional grid (Table 3). Many rural households not con- rigation schemes, district-level water supply and sani- nected to the national grid use small, fuel-powered gen- tation schemes, and electricity connections to villages. erators or, in mountainous areas, microhydroelectric generators. The amount of electricity supplied to these Planning and Approval Mechanisms households is often only enough for one or two light bulbs and a small electric appliance. Procedures for approving public investment projects and licensing private sector operations are, however, The transmission and distribution networks are old, unduly centralized. They often involve many layers of overstretched, and inefficient. Distribution losses administrative responsibility and several government in- range from 15 to 30 percent, and reliability is poor. stitutions, which inevitably slows the approval process. Table 3. Connections to the National Electricity Grid ( percent) North Central South Total Districts 92 79 100 91 Communes 62 52 73 62 Households 67 32 30 35 Source: FAO/IC, ADB 1998 46 Project preparation and design work is mainly un- Priority Act'ions for Rural Infrastructure dertaken by technical institutes at the national or pro- vincial level. Although these institutes are adrninis- The followirtg priority actions are recommended: tratively a part of line ministries or provincial depart- ments, they are technically independent. They gen- . Balance Infrastructure Investments. Invest- erally have good engineering know-how and well- ment decisions for infriastructure should be based developed technical standards for design and con- on both efficiency and equity criteria. A balanced struction. However, preparation and appraisal tech- distribution ofpublic irastructure throughout the niques often do not meet international standards. country appears preferable to the current model Some institutes are familiar with cost-benefit analy- of three metropolitan growth centers. This is sis techniques, but in general this knowledge plays especially true, considering the absence of care- only a small role in subproject selection. In addition, ful cost-benefit analysis that gives some weight although environmental assessments are carried out, to equity considerations. Although the develop- they are often inadequate. Social factors are seldom ment of the three growth centers might well lead analyzed systematically. Consequently, there is a need to industrial development in nearby rural areas to upgrade project preparation skills at both the na- and yield a high socia]L return, there are few ex- tional and provincial levels and to make intemation- amples in the world of successfuL management ally accepted techniques common practice. ofmegacities. Concentrating public investment in these three zones-two of which are already The quality of the skills at the provincial and district significant urban agglomrnerations-could result in levels is even weaker than at the national level. If unmanageable growth, including inadequate in- provincial and local administrations are to have greater frastructure and undesirable housing patterns. The responsibility for public investment decisions, as infrastricture in these three areas is already rela- seems desirable, then they need access to more highLy tively well-developed. Additional preferential skilled staff. The Asian Development Bank (ADB) treatment would further disadvantage enterprises has an ongoing capacity-building project in these ar- in the rest of the country. Over time, of course, eas, implemented by MPI. Recently, training has been some mrigration from rural to urban areas is in- extended to officials at provincial and district levels. evitable, but it should be kept within manage- Such capacity building will be a lengthy process. able boumds. The lack of standardized project proposal forms and . Decentralize Planning and Budgeting. De- uniform procedures for project appraisal and selec- centralization of fiscal, revenue, and expenditure tion slows down project selection and creates un- decisions should be continued to promote rural necessary work at the central level. MPI, in con- industrialization. Local governments and commu- junction with the UN Development Programme, is nities are in abetter position than the central gov- setting up common guidelines and standardized ernment to make decisions about the proper in- project proposal forms and appraisal methods based frastructure in their localities. on the ADB's Guidelinesfor the Economic Analy- sis of Projects (1997). However, these capacity- * Move 'roward Cost Recovery in Irrigation. building efforts will be of little use unless project se- Water control and irrigation have had a critical lection procedures are improved. The tendency to role in ithe development of agriculture, particu- share funds equally among the various agencies-to larly rice production. However, in view of ongo- avoid complaints ofunfair allocations-results in wide ing and expected changes in the structure of do- dispersal of funding, delays in project implementa- mestic demand for agricultural output and in the tion, and low rates of return on many projects. structure of agriculture itself, a reexamination of 47 the level of public investment in irrigation, and to ensure that facilities are run as a service, not the form and location ofthis investment, is desir- as a bureaucracy, and that incentives for good able. There is scope for large expenditures on management are in place. Therefore, the the rehabilitation of badly deteriorated irrigation Government's policy of equitization, which is structures, the completion of unfinished struc- currently being applied to SOEs, could be ex- tures, and the modernization of systems to in- tended to public utilities in charge of irrigation, crease their ability to regulate flows. However, drinking water, and electricity supply. Users of water has several other important uses, which infrastructure or local governments could become are growing rapidly. Therefore, setting priorities the owners ofthese facilities, ensuring transpar- for public investment in irrigation facilities should ency, stakeholder involvement, clear operational be carried out as part of an integrated review of rules, and well-defined financial targets. water management. Moreover, any irrigation in- vestment should be implemented on the basis of * Encourage Private Sector Participation. full cost recovery. Greaterprivate sector involvement in rural infra- structure development should be encouraged, * Review Water Needs of Emerging Non-rice both because ofthe scarcity of public investment Sector. A review of the water supply and con- funds and because operation and management trol needs of the emerging non-rice sector is of some facilities may be better left in private needed. It should include an assessment ofmod- hands. Outside Vietnam, the private sector is em irrigation technology, including potential de- playing an increasingly important role in provid- mand in Vietnam, its availability of equipment in ing essential infrastructure services. Vietnam has private supply markets, and any constraints to excellent potential for a greater private role, both equipment manufacture or importation. The study for foreign and local investors, in power genera- should also consider modifications in existing tion andtelecommunications. The mostpractical gravity irrigation systems, both technical and way of accomplishing this would be through managerial, which would better adapt them to "build-operate-transfer" (BOT) arrangements, crops other than rice. Another element of this whereby private firms construct and operate a study should be an overview ofthe use of ground- facility under franchise for a period of years be- water for crop production in the central high- fore transfening it to the government. lands to highlight problems and examine the ad- equacy of the current hydrologic database and Social Services monitoring system. Access to high-quality social services, such as educa- Streamline Procedures for Planning and tion and healthcare, is essential to rual development Approval. There is an urgent need to liberalize procedures for the planning and approval of pub- Rural Education lic infrastructure investments, and licensing of private sector operations. A simpler, more Educationisakeycomponent ofrural development. streamlined process should be developed. Assuring broad-based access to and high quality of rural education should be an integral component ofa * Equitization to Improve Management and strategy for rural development. Operation. Improved operation and manage- ment of infrastructure facilities would result in Education is linked to rural development in two prin- more efficient service to users and extended cipal ways. First, there is a link from formal school- physical life. Most rural infrastructure services ing to increased agricultural productivity. Second, are a government monopoly. The main issue is there is a more general link through literacy pro- 48 grams, especially functional literacy programs tar- cation. Not suiprisingly, this leads to high drop-out lev- geted on rural communities. Education helps people els and repeating ofthe sarne grade in rual areas, espe- build productive lives and cohesive societies, and ciallyintheMekongDelta,CentralHighlandandNorth- contributes to better health and nutrition in rural com- em Uplands (World Bank 1996). In Yen Bai and Lao munities and to the integration of remote and disad- Cai provinces, of every 100 pupils who enter Grade 1, vantaged rural areas into society. The ability ofpeople only 12 reach Grade 3. In 1997, 10 percent of stu- in rural areas to increase farm productivity and to dents repeated grades. participate in nonfarmn employment opportunities will depend largely on their level of education and skills. There is widespread concern that the quality of edu- cation is declining, not improving. In part, this de- Studies worldwide show that, other factors held con- cline is due to deficiencies in teacher training. Less stant, farmers with more educationproduce giaterfann than 72 percent of primary and secondary teachers yields. A recent study of paddy rice farming confimns possess the suggested minimum qualifications. Skilled thesefindingsforVietnam. Paddyyieldswereshown teachers are scarce because educated people seek to be 7 percent higher on farms headed by men or otherjob opportunities created by economic devel- women who had completed 3-4 years of education than opment andtbecause ofthe relativelylow salariespaid on other farms headed by individuals with less educa- to teachers. Low teacher salaries also partly explain tion. Yields were 11 percent larger on farms where the the fact that Vietnam's schools only provide 660 hours heads ofthe household had completed their primary of classroorm instruction per year, as compared to education. Additional education was found to increase the worldwide norm of 880 hours. Because of the significantly an individual's chance of finding off-farm low salaries, teachers shorten the school day in order to employment (World Bank 1996). take a second job. And overcrowding offacilities forces double or even triple classroom shifts, with consequent Vietnam has recognized the importance of education reductions in classroom hours for pupils. to economic development and has made good progress in providing access to education. Illiteracy Another of the reasons often cited for both insuffi- is reported to be only 7 percent, and net enrollment cient access and poor performance is the system's in primary education is estimated at 91 percent. This heavy reliarnce on household contributions to educa- performnance is well above that of many countries tion financing. There are no formal tuition fees for withhigherincome levels. public primary education in Vietnam but, given the long tradition of voluntary contributions to educa- However, access to different levels of schooling andthe tion, the official fee policy plays a minor role in de- quality of schooling varies across regions. A majority termining the full price that families face in sending ofthe students in the educational system at all but the their children to public schools. On average, house- highest levels are from rural areas; over 90 percent of holds fund approximately 44 percent ofthe total unit the pupils enrolled in primary school live in rural areas. costs of primary schooling. For primary schooling Nonetheless, access to basic education in rural areas is of equal quality, the financial burden on a rural family significantly lower than urban zones. Schools in rural is twice that on an urban family. areas seldom provide full-day schooling, and are rarely close to where children live. Consequently, children Beyond the direct cost of schooling to families, the walk long distances to school or attend schools which opportunity cost is also very high. Many parents do not offer the complete cycle of primary schooling. take their children out of school either to work or to Rural primary schools are often "satellite" schools that take care of their younger brothers and sisters while offer only the first two or three grades of instruction. their parents are working. Given the relatively high Students of such "satellite" schools often have to trans- rates of return (the opportunity cost for children is fertoamoredistantschooltofinishtheirprimaryedu- up to 5,000 VND/day) to this choice, the cost of 49 staying in school is higher than many rural families . Improve Incentives for Teachers in Rural feel they can afford (Nachuk and Fancy 1998). Schools. This would include increased salaries, improved housing, and enhanced career paths. The second link-that between literacy programs and rural development-appears relatively well devel- . Revise Literacy Programs. There is a need oped in Vietnam. Overall literacy rates are high- to renew the content of literacy programs and to 93 percent of the country's population, according to make them more relevant to rural communities. government statistics. However, this quantitative This could be done by moving from simple lit- success hides both distribution and qualitative prob- eracy courses to programs with greater functional lems. Ofthe 7 percent ofthe population considered content targeted at rural and agricultural com- illiterate, 80 percent are living in rural areas and over munities where literacy rates are low. 60 percent are female. The level of illiteracy is very high in mountainous areas: around 48 percent in Lai * Better Target Disadvantaged Groups. Ru- Chau, 30 percent in Cao Bang, 26 percent in moun- ral children who do not enroll or who drop out tainous areas of Thanh Hoa, 40 percent in Kon Tum, of school early tend to come from the most dis- and 37 percent in the Mekong Deltaregion. Distri- advantaged parts of society-the poor, ethnic bution problems are also evident when illiteracy is minorities, and girls. This can be counteracted analyzed by population group. Illiteracy among all by improving access to schooling in rural areas- ethnic minorities is 30 percent, and among some Tay more and better equipped schools located closer and Muong ethnic minorities reaches 90 percent. The to where children live- and training teachers to rate is also particularly high among Khmers. speak local languages. Enrollment in literacy programs is increasing, how- * Lower Costs of Attendance. School fees, ever, and the number of illiterate adults is reported to "voluntary contributions," and other costs are have decreased from 2 million in 1990 to less that excessive. These should be significantly reduced 1.4 million in 1996-97. However, the high literacy for all rural students, and even eliminated for the rates say little about the quality of the literacy. Na- poorest groups. Providing scholarships and tional literacy programs involve learning only the al- other, non-monetary incentives is recommended phabet and simple sentences, and often lack practi- for the most disadvantaged groups, such as Dao cal application and relevance to the lives of people in and Hmong girls. rural areas. Rural Healthcare Priority Actions for Rural Education As in education, Vietnam's health care coverage and The following actions in education are recommnended standards are better than the average for the region. as priorities in support ofrural development: Vietnam has 170 communityhealth centers per 1 mil- lion inhabitants, compared with China's 63, Indonesia's * Upgrade Rural Education. This can be ac- 32, andThailand's 141,andasimilarlyfavorablehos- complished by increasing investment in school pital bed ratio. Halfofthe country's 700 hospitals are in infrastructure, equipment, books and other sup- rural areas. Coverage is almost universal, and mea- plies, and improving the quality ofteacher train- sures of infant mortlity, life expectancy, population per ing (particularly the training ofteachers to speak physician, and population per bed all show improve- the local languages spoken by their pupils). ment. About 95 percent ofchildren are vaccinated. The School curriculums should be enhanced and private sector now provides some 80 percent of all should include topics of relevance to rural com- medical services, probably as a result of deterioration munities, such as agriculture, forestry, health and of public health facilities combined with introduction of nutrition, and environmental studies. user fees and the increased availability of private ser- 50 vices following the legalization of after-hours private lands. FAO esimates that 57 percent of all infants be- practice by Government physicians. low 6 years of age suffer from severe stunting. Total public expenditure on health is about 1 percent Vietnam's economic reforms have led to sharp changes of GDP, in line with regional neighbors. However, in healthcare provision, and appropriate adjustments recurrent expenditures are rnore than twice that of have not yet been made to the more market-oriented capital outlays by Government, and local government approach to healthcare. The problems are particularly expenditure is larger than that ofthe central govern- acute in rural areas. At the beginning of the reforms, ment. Expenditures on curative care are some four Vietnam had an impressive health services infrastruc- times those spent on preventive care, whereas a more ture as compared to other developing countries. Inru- desirable ratio would be about 2: 1, with more em- ral areas, health services were financed and organized phasis on pre ventive care. on a commune basis" Since the reforms, the commune health centers have been financed by the People's Corn- Priority Actions for Rural Healthcare mittees. As a result, funds for infrastructure, equipment, drugs, and training have been reduced, and the quality The following actions are recommended for rural of service has deteriorated substantially. As a large part healthcare in support of rural development: of the cost of health services now has to be paid by patients, the access ofthe poor has declined sharply. * Reinvigorate Network of Rural Clinics and Health Stations. This will require better data Even so, the effectiveness oftheprimaryhealthcare strat- on healthcare needs by region, more effective egy of disease prevention, health promotion, and early planning and public expenditure on healthcare treatment-administered through a nationwide net- facilities, as well as increased training in work of grassroots workers-has been maintained healthcare management. for the most part. This is evidenced by a steady de- cline in infant mortality rates, comparatively low rates . Re-emphasize Preventive Care. Renewed of maternal mortality, and sharp reductions in deaths emphasiis should be placed on public health ser- fromnmalaria vices and preventive care rather than treatment of illness. lTlhis is significantly more cost-effective. Nonetheless, the increase in private health care and the steep decline in the use ofpublic facilities requires a * Review Pricing of Healthcare. Pricing of major changeinpublichealthpolicies. Themajorprob- healthcare services should be examined with a lem facing the health sector i Vietnar-as inmost other view towards reducing fees for public health and countries-is to find the best combination of private preventive care, and developing more effective and public provision ofhealth services. What is needed targeting mechanisms for poorer households. is a combination that leads to an efficient allocation of resources,whileatthesametimeallowingpublicprovi- * Expand Access to Family Planning and sion of adequate healthcare services to the poor and Maternal and Infant Care. This is particu- those in less accessible areas. Expenditures will need to larly important for remote, upland areas, where concentrate on the efficiency of use offacilities; reorga- birth and infant mortality rates remain unaccept- nization ofthe public health system throughoutthe coun- ably high. try will be needed; and preventive health programs will need tobe strengthened. Above all, policy and expen- * Promote Private Sector Participation. Pri- diture programs will need to improve the access to ba- vate sector provision of health care should be sic health services ofthe rural poor. Priority attention allowed to develop, where appropriate. There also needs to be given to the stubbom problem of mal- is probably lirnited scope for this in more remote nutrition (due to lack of iron, iodine, and VitaminAin rural areas, and the Govermnent should remain rice), particularly among ethnic minorities in the high- actively engaged there. 51 Chapter 7. Special Challenges of Rural Development in Vietnam's Uplands This report presents a set ofrecommended actions, mately three quarters of Vletnam's land area can be including policy and institutional reforms and reori- classified as uplands. These physically diverse areas entation of public investments, designed to stimulate are home to 20 million people, the overwhelming growth in the rural sector by: increasing agricultural share of whom are from ethnic minority groups. There productivity and farm income, creating an environ- is strong statistical evidence that these upland areas ment conducive to the development of rural enter- are disadvantaged agriculturally, economically, and prises, and ensuring environmental sustainability. It socially. Without explicit recognition ofthe challenges is anticipated that the broad policy changes and public that arise in extending rural development to the up- investments recommended inthis report will not only land areas, th,ere is a real threat that some groups boost overall rural economic growth, but will also may be further marginalized. make it more sustainable and more sectorally and geographically balanced. If successful in these objec- Upland areas are distinguished from lowland areas tives, this strategy will also help to reduce poverty for in three broad categories: physical environment; the majority ofthe ruual population. The experiences of people, cultur es, and social and human capital; and other East Asian economies have shown clearly that institutional sirengths, capacities, and resources. This rapid growth helps to reduce absolute poverty. chapter examines the special circumstances of the uplands and proposes measures to overcome some The experience ofVietnam since the recent economic ofthe obstacles preventing full participation of up- reforms confirms this general relationship between land commuinities in the rural development process. growth and poverty reduction. Nonetheless, there has been differential access across households to the The Physiical Environment benefits of the reforms in rural Vietnam, particularly in the uplands, and most poor households have felt While the lovrland rural economy is dominated largely some adverse effects from the reforms. In light of by paddy rice production, upland land endowments Vietnam's recent experience, it is clear that a rural are more varied. Paddy land, sloping land, garden development strategy will fall far short of its goal of plots, and forest land may all be part of a single substantially reducing poverty if it does not include household's land endowment, and the composition actions which ensure that it reaches the most vulner- of the landholding is a strong determinant of the able groups and poorest households, and that the household's farming system. Across the northern poor are not disadvantaged by it. It is an explicit upland region, land endowments and farming sys- objective of this strategy, therefore, to see that as tems can vary dramatically from village to village, thus few people as possible are left behind by rural de- limiting the area for which particular technical rec- velopment, and that the most vulnerable are assured ommendations are appropriate. Until recently, agri- a basic standard of living. cultural development initiatives have focused on Upland areas are significant segment of rural Viet- paddy rice production in the lowlands and a limited npand inabothreasoure signifcand sgmatents ApruVie- range of caslh crops. Although some upland villages nam in bothi resource and human terms. Approxi- have access to paddy land and may benefit from the 53 resources put into promoting productivity increases shortening offallow periods, little in the way of new in paddy rice production,7 many upland villages technology has been offered to upland agricultural have no paddy land at all and others only have communities. Where research is taking place, it is small plots. poorly linked to the extension services, and there are no strong mechanisms to ensure that extension ex- The striking diversity in land endowment within small perience and farmers' views feed back into further administrative areas and the variability in socioeco- research. nomic and marketing conditions across the uplands as a whole, mean that the goals of improving agricul- Even if a wide range of technical options were avail- tural productivity and increasing diversification inthe able, the extension planning and funding structures mountainous regions are particularly challenging. The discourage the promotion of locally relevant options, high degree of socioeconomic differentiation between while emphasizing the fulfillment of centrally deter- the more accessible and less accessible parts of the mined quotas. Extension agents have yet to develop uplands demands that options be available to suit skills that can be matched with farm resources and farmers with different levels of livelihood security. marketing conditions. The need to foster sensitivity Some ofthe sloping land is within easy reach of large to different needs and environments is urgent. Ex- markets and is farmed by households with ready tension service capacity varies greatly across the access to loan capital, but there is also sloping land upland region, with government resources and pri- that is eight hours' drive (or one day's walk) from orities at the provincial and district levels determin- significant markets that is farmed by households ing the outreach of extension services to remote ar- whose livelihood is fragile. Agroecological condi- eas. An illustration of how much this outreach can tions may be similar in these two circumstances, but vary, is found in the staffing figures presented at a other factors should alert extension agents not to make recent seminar by the Provincial Agriculture Exten- the same technical recommendations. Where the sion Centers for a number of different provinces. range of options is constrained, it is likely to be the Tuyen Quang Province has 1,160 full-time and con- poorer and more remote regions that suffer most. tract staffworking in agricultural extension, Ha Giang The more accessible areas enjoy stronger linkages Province has only 59 staff at province and district to urban and lowland sectors, generally have a levels and Lao Cai has 70 staff members shared broader range of assets and resources at their dis- among 10 district stations and one province exten- posal, and have greater potential for diversifying their sion center (MARD 1997). farm bases even without input from extension agents. A number of development agencies have funded ini- Agricultural extension inthe uplands faces limitations tiatives in upland research and extension, and have in dealing with the challenge of diversity. Research experimented with various structures to link farmers on upland agriculture has been limited, and the range with district extension stations more effectively. The oftechnical choices available to farmers remains con- Vietnam/Sweden Mountain Rural Development Pro- strained and, for some households, inappropriate. gram (MRDP) in five northern upland provinces, and There is a definite lack of low-input technology suit- the CIDSE program in Thai Nguyen and Bac Kan able for poorer households, and efforts to fill the gap provinces, hav e established networks using village in farming systems left by the opium eradication pro- level groups. These networks allow for village-level gram have been limited. Although traditional prac- planning of certain activities so that extension agents tices of swidden agriculture have been undermined are able to tailor their activities more closely to the as a result of growing population pressures and a needs ofthe farmers, funding constraints and limited 7. Intensification of paddy fanning in upland areas through the implementation of micro-irrigation systems and the introduction of improved techniques can yield substantial benefits to those villages vith paddy land and should not be overlooked as part of an upland development strategy. 54 available technical solutions. The experience ofthese gram in the Song Da watershed. The use of village programs can be helpful in widening the outreach of meetings as part of the process minimizes disputes extension services. and ensures serious attention to such issues as man- agement of common lands and forestry land. This is Land Allocation and Land Use Planning in marked contrast to the traditional approach, which has usually been a top-down approach that trans- The uplands are distinguished from the lowlands not lates national targets for land allocation and forest only by topography. Land allocation is also impor- protection into local-level targets. That approach dif- tant. User rights to paddy land have been widely al- fers from a process that seeks to make a balanced located under terms ofthe 1993 Land Law, but large assessment of the claims of all stakeholders (Christ tracts of the uplands remain unallocated. There are and Kloss 1998). considerable difficulties associated with the alloca- tion of land in upland areas, and some attempts at Accessibility allocation have degenerated into disputes and con- flicts. Many problems surround the formalization of Vietnam's steep hills and the lack of a modem road traditional land use arrangements and the allocation infrastructure have a profound effect on the accessi- of communal, fallow, and grazing land. Agencies with bility of upland populations to social, financial, and experience in upland land use planning and land allo- extension services, and markets. This inaccessibility cation emphasize the need for adequate resources in prevents households from realizing the full potential order to do the job properly. If these resources are oftheir assets It prevents diversification ofthe agri- not made available and land use planning is not in- cultural base and limits participation in markets. Al- cluded as part of the process, it is possible that a though the construction of roads alone will not solve post-allocation situation may develop which would all the service supply problems (institutional and fund- be more conflictual than the pre-allocation situation. ing issues are also involved), carefully planned and managed projects would help to meet the challenge Allocation of some ofthe most remote land will not of integrating upland communities into the broader be a cheap or quick process. It is unlikely that this rural development process. land will have any market value for a very long time, and it is questionable whether land allocation in these There has been limited donor input into the develop- areas will lead to enhanced fanner investment in the ment ofthe rural road network in the uplands. IFAD land or will help farmers to obtain loans on grounds has funded road construction in Tuyen Quang Prov- that their land can serve as collateral. Perhaps the ince, and GTZ have funded the construction of rural most convincing argument put forward that this land roads in Son La Province under debt-swap arrange- should be allocated, and therefore allocatedprop- ments. Some upland road programs have experi- erly, is that there is a need to protect long-term rights. enced design-related problems by specifying con- Since future development may tun valueless (in mar- struction on a larger scale than was necessary or ket terms) remote land into valuable roadside land, it appropriate. As a result, some roads are too wide is important that households be able to demonstrate and the adjacent hillside has been destabilized. fonnal rights oftenure. Although improvement of the road network would Two agencies have addressed some of the problems undoubtedly bring many benefits, concerns have in allocating customary land. SIDA funded a pilot been raised about environmental damage. Experi- land allocation exercise in Hoa Binh Province, and ence elsewhere suggests that such damage may be a this was subsequently adopted by MARD as the consequence of opening up previously remote areas basis for the national model. GTZ firther refined the to markets. C>areful planning will be important. A process with its Social Forestry Development Pro- sensible app roach would be to look at the livelihood 55 systems of communities most likely to be affected by access of ethnic minorities to services, in the shorter road construction and to consider whether comple- term it will also be necessary to address other ob- mentary interventions might be appropriate. The stacles which local communities face in accessing package of activities would vary from location to lo- education, health, agricultural extension, financial, and cation and should take account of local community other services. strengths and resources. Different interventions will be appropriate under different circumstances, but it Priority Actions is likely that some supplementary activities will help to maxirmize the advantages of new roads. Interven- * Develop an extension service which can respond tions could include the following: to a wide range of different agroecological, so- cioeconomic, and marketing situations. This will * Investigation of new cash-generating options require the establishment of sound links between farmers and extension agents who have both * Complementary microfinance programs to en- technical skills and skills in listening to farmers courage savings and thus help households to sta- explain their needs. Applied research would also bilizetheir livelihoods and gainthe confidence to need to be upgraded to increase the range of invest in new activities technical solutions. Success will also depend on a reorientation of recommendations away from * Development of a Village Management Group centrally determined market-based targets to- or support for village community structures to ward locally determined marked-based solutions. promote sound land use planning, resolve land allocation issues, and pre-empt environmental * Proceed with upland land allocation, with an degradation by organizing joint management of emphasis on quality, participation, and consulta- local forest resources tion rather than speed. Land use planning should be included as part of the process in order to * Education activities to improve labor employabil- resolve conflicts over communally used plots of ity and so bring more cash to the village. land. Adequate resources should be made avail- able where necessary. There are also sound arguments to support the em- ployment of local unskilled labor in construction work . Improve physical access through the implemen- in order to maximize the returns to poor communi- tation of carefully planned rural road projects. ties. It might be useful to investigate local cycles in This should involve consultation with local com- the demand for agricultural labor to allow employ- munities to optimize benefits and minimize social ment opportunities on the roads to coincide with slack and environmental costs. periods in the fields. The People: Culture, Human and So- It is worth noting that it is not roads per se that are cial Capital desirable, but the access they provide to previously isolated communities to a broad range of services Culture and opportunities. Some of these services and op- portunities (for exarnple, new marketing opportuni- Although substantial numbers of Kinh households ties) may flow automatically into a newly opened-up have relocated to upland areas through resettlement area. Others, especially government-sponsored ser- programs that have been operating since the 1950s vices, will have to be directed to these areas. Al- (midlands) and 1960s (highlands), the uplands are though roads may help in the longer term to erode populated largely by Vietnam's many ethnic ninority cultural and linguistic barriers which also impede the groups. There is great variation across the ethnic 56 minority groups in their level of integration into Viet- which they participate in, benefit from, or are disad- namese society, but most retain distinct languages and vantaged by the developmernt process. It is possible cultural traditions. There is considerable ethnic in- to argue that gender sensitivity in planning for the termixing within administrative boundaries in the uplands is even more important than in lowland ar- northern uplands, and it is rare to find monocultural eas because wvomen's needs are less immediately communes there. One study investigated the ethnic apparent. Vielnamese language skills are more lim- mix of over one hundred northern upland districts ited among ethnic minority women than ethnic mi- and towns and found that over half had 10 or more nority men, making it a more complex and arduous ethnic groups (Donovan et al 997). This cultural di- process to incorporate their knowledge and ideas in versity within a small administrative area has clear planning. Because oflimited language skills and their implications for program planning. As a simple ex- reluctance to travel far from familiar territory, they ample, one development agency distributing health tend to participate less in training courses. Cultural information posters to ethnic minority groups found and linguistic barriers also cause them to have less that pictures which were entirely acceptable to one contact than ethnic men with outsiders and less ex- ethnic minority community were ripped up inaneigh- posure to nev techniques and information. They are boring community because they were viewed as of- less likely than their male relatives to be educated, fensive. For more complex activities, the pitfalls of literate, or numerate, and far less likely than lowland cultural insensitivity are more profound and numer- women to have these skills. Their access to formal ous. It is fundamental to sound development prac- loan capital and their ability to act on economic ini- tice that programs be aware of cultural norms in the tiatives oftheir own are severely constrained by these communities they are planning to assist There is room disadvantages. for more widespread use of ethnographic and an- thropological information as a background to pro- Gender-sensitive planning tools and careful anthro- gram design, even where programs are of a techni- pological work should be used to inform program cal nature. Participative researchtechniques are help- design. Monitoring and feedback systems should be ful in this regard. designed to reflect program impact on women so that remedial action can be taken if adverse effects The law supports ethnic minorities with official rec- are noted. ognition and respect, but their practices and tradi- tions may be regarded as backward and primitive. Human Capital Local service providers and planners may fail to in- corporate indigenous knowledge into program de- Ethnic minorities who account for 13 percent ofthe sign because ethnic minorities may be viewed as un- population and 20 percent of the poor, are poorer educated and superstitious. than the Kinh. Less than six percent of the house- holds in the wealthiest quartile are headed by ethnic Gender minorities. Human development indicators for up- land regions reveal the unfavorable position of ethnic Gender issues are of concern in both lowland and minority groups. Their life expectancy is lower than upland areas, but they may be more difficult to tackle that of the KCinh (Donovan et al, 1997). Children in in upland programs. Gender relations are shaped in the northern uplands show above-average levels of large part by, cultural and socioeconomic forces. The stunting for the 0-6 year and 7-12 year age groups socioeconomic and ethnic diversity of upland areas (World Bank, 1995). Immunization services are of- makes it difficult to generalize about the role and sta- ten limited. The population in the central highlands tus of women in any particular area. The strategic has the lowest average length of schooling and high- and practical needs of women vary across location est illiteracy rates in the country (World Bank, 1995). and cultural group, and this influences the extent to Poor school enrollment and literacy rates are also 57 observed for ethnic minority groups, especially irrigation projects'are particularly liable to cause con- H'mong, in the northern upland areas. Several mi- flicts if some households feel they have lost more tan cro-level studies also note gender imbalance in up- they have gained. Different means oftargeting assis- land areas in access to primary schooling. Observers tance within communities may vary in their accept- also report that the situation in ethnic minority education ability to local culture. Some agencies have found may be worsening. Enrollment rates are dropping in that exclusive targeting of poorer households can be some areas, and there is evidence that older adults have divisive and have tried to target poorer households higher literacyrates than younger adults. by designing activities that are of little interest to wealthier households. Continuing low levels of access to basic social ser- vices in upland areas undermines the policy of equi- Several development programs in the uplands, in- table rural development. Building a dynamic rural cluding CIDSE, MRDP, IFAD, and GTZ, have sector in upland areas will require a healthy popula- worked to create village level or sub-village level tion with good literacy, numeracy, and technical skills. groups to facilitate program implementation. Water 11l health, apart from being undesirable in its own right, users' associations are commonly set up under dis- is impoverishing because households lose income and trict decree to manage irrigation proj ects. Some pro- incur substantial health costs which constitute a con- grams suggest that the development of Village Man- siderable drain on their resources. Micro-level re- agement Groups has been particularly effective at search asserts that ill health actively prevents the pro- paving the way for village control over planning for cess of surplus generation and capital accumulation the future. Some also reported that many sub-village at the household level and thereby slows down the level groups have been established almost sponta- process of improving agricultural productivity. High neously, suggesting a strong will among farmers to infant mortality rates are a major disincentive to fam- cooperate. Where farmer interest groups have ily planning. Low education and skill levels prevent sprouted up with little outside input, they have usu- active participation in economic and political spheres ally had a specific purpose e.g. to become an infor- and constrain the development of the nonfarm sec- mal savings group or a group to exchange experi- tor and the adoption of new ideas and technology. ence on fish-raising. Documentation refers to ben- efits in building up social cohesion in a village, gener- A number of agencies have cooperated with the gov- ating greater farner confidence to take on new ini- einment on health and education initiatives in the up- tiatives and transferring important nontechnical skills lands. UNICEF has been at the forefront of much of in general planning and management. this work, but many smaller agencies have piloted interesting experiments which could be built on. Priority Actions Social capital and community structures * Strenuous efforts must be made to redress the crisis in social service delivery in upland areas in Recent observations suggest that social cohesion order to bring health and education indicators within ethnic minority communities may be breaking into line with those of the rest of the rural popu- down, with negative consequences for development lation. Specific interventions should be the sub- initiatives that are dependent on mutual cooperation. ject ofthorough investigation. While this is partly an inevitable result of increasing exposure to outside institutions and forces, it limits * The ability of planners and policymakers to re- the ability ofthe community to manage and imple- spond to a multicultural environment should be ment activities to the benefit ofall. It is important that strengthened by enhancing ethnographic and development interventions are planned with due care anthropological research and ensuring meaning- and attention to potential conflicts: land allocation and ful village participation in policy and program 58 development. Local authorities should be able land communities and may even plan to retire to those to demonstrate that adequate consultation has areas. This may lower their commitment to promot- been carried out. Particular attention should be ing long-term economic and social development in paid to understanding gender relations in differ- the region. ent communities so that policies and programs pay due regard to women's strategic and practi- Such bias may limit the input of etinic minorities into cal needs. local policy development and planning and, conse- quently, upwards into national policy discussions. The Development initiatives should be implemented recent Decree 29/1998/ND-CP on the implemen- in ways that resolve rather than generate con- tation of democracy at the commune level may help flict. Training should be provided that supports to improve the situation. Improving transparency in- community structures and encourages village- volves improving communication and information level groups to plan and manage development flows, and is crucially dependent on the develop- activities. ment of feedback mechanisms. In the mountainous areas, physical and linguistic barriers are likely to Institutional Strengths, Capacities and hinder progress, compounded by the limited Resources spread of the mass media into those areas. Ex- plaining the local budget with a view to encourag- Local input into policy ing meaningful feedback, for example, will take longer in a multicultural, multilingual environment The same structures of government and administra- where numeracy and literacy skills are low. The tion that prevail in lowland areas are found in ethnic Decree refers to issuing plans and policy circulars minority areas, with People's Councils responsible to househol(ds and encouraging feedback through for policymaking and People's Committees respon- the use of questionnaires. These activities are bet- sible for administration at each level of government ter suited to the literate lowlands than to moun- down to the commune. Many ofthe mass organiza- tainous areas, and alternative means of communi- tions active in lowland areas also operate in the up- cation should be explored. lands, though their outreach (with the possible ex- ception of the Women's Union) is often more lim- Policy approaches ited. There is a key difference between lowland and mountainous areas, however, in the degree to which Policy reforms become known in mountain areas local people are represented in local government more slowlf than in the lowlands. The continued structures. With a few notable exceptions, lowland dominance of state-owned enterprises slows the areas have a Kinh maj ority and the local government development ofa flourishing private enterprise sec- is staffed by Kinh. In many highland areas, however, tor and hampers the development of nonfrtm, in- the ethnic composition ofthe local administration is come-generating options. Local authorities are as- not fully representative ofthe population. One rea- sighned therole of investingineconomicventtres rather son for the underrepresentation of ethnic minorities than creating an environment where the private sec- in local government structures is that the Kinh usu- tor can take over. Policymakers also note that pro- ally enjoy higher levels of education, literacy, and grams for ethnic minorities require a high degree of technical skill levels than ethnic minority populations subsidy, either in the form of agricultural inputs, pay- and are therefore more obvious recruits for local ment for labor inputs in agricultural demonstrations, governnent positions. While the ethnic minority or nonmarket rates of credit. Distribution ofthese population in a particular upland area is often quite subsidies is patchy and, because resources are lim- settled, the Kinh often have ties to their formner low- ,is subject to informal rationing. 59 Underlying this view is the assumption that ethnic Development agencies operating programs in col- minorities do not respond to the same economic sig- laboration with upland districts and provinces often nals as the lowland population and that the upland remark on budgetary, personnel, and skill constraints areas cannot support self-sustaining, dynamic growth to implementing activities. Many ofthe government in the same way as the lowland areas. Many would departments have little funding at the local level other disagree with this position, suggesting that it is the than that earmarked for the implementation of na- paucity of basic services, infrastructure, and lack of tional programs. Very little is left for local initiatives, avoiceinpolicydevelopmentwhichmiligatesagainst especially in mountainous areas with low potential growth in these regions. Insistence on including sub- for local revenue-raising. Some funding issues could sidies in programs may be justified in some instances be solved by reorientation of existing budgets - look- (for example, the distribution of iodized salt), but may ing again at subsidies and who they are benefiting, work against longer term development in other in- reexamining local government investment in eco- stances (the lower ceiling placed on VBARD's lend- nomic ventures, cutting back on the construction ing rate in mountainous areas could act as a disin- of impressive governnent buildings. Some activi- centive to extending financial services in these ar- ties may require additional funding in order to be eas). Many agencies working in the upland areas effective, and this will require serious consider- with ethnic minorities argue that some ofthe subsi- ation of funding options. dies impede the achievement of development goals by creating a dependence on the state rather than Flexibility and decentralization stimulating self-help, solutions. Scarce resources could often go firther toward equalizing opportuni- Cultural and physical diversity requires, above all, ties between the uplands and the lowlands by being that local planners are able to respond flexibly to a used for improved services and infrastructure than broad range of situations. This flexibility is constrained as subsidies. It is necessary to clearly think through by rigid attitudes, limited information about different the respective roles ofthe state and nonstate sectors needs, and the allocation of funds and targets at the when implementing and financing development ac- central level. Even if local authorities had sound tivities in the uplands. mechanisms in place for ensuring full participation in policy and program development, they do not have Resource and capacity constraints the planning and fiscal freedom to respond to initia- tives that might emerge. Donor agencies funding Despite significant transfers offunds from the central development programs in ethnic minority areas echo budget, many upland areas face resource and ca- the viewthat decentralization ofdecision-making and pacity constraints in implementing a coherent rural resource management is crucial to making program development strategy. It is costly to deliver essential implementation locally relevant. A summary of ex- health, education, extension, and other services to perience in the IFAD-funded program in Tuyen remote villages. Traveling to upland villages takes a Quang (UNOPS 1997) asserts that by choosing an long time, especially in the rainy seasons, and ex- executing agency at the provincial rather than the tending services to remote areas involves a greater national level, the program was able to respond more input of stafftime than in the lowlands. Logistics can flexibly to needs voiced by Village Management be complex, as in the delivery of immunization ser- Boards. Placing responsibility for management and vices where vaccines must be kept cool for long resource control at that level gave the program stron- periods without access to electricity. Service de- ger local political commitment as well as allowing livery in ethnic minority areas requires specialized greater local input into the planning process. Simi- materials. Although these are nonstrategic, issues larly, UNDP has shifted responsibility for executing for which solutions can be found, the solutions are their ethnic minorityprogram from the national level not always cheap. to the People's Committees in the three provinces 60 where they work, with the result that implementation * Improve efforts to incorporate the views ofeth- is proceeding more smoothly now. This program in- nic minorities in the determination of policy and corporates a small amount offunding for local initia- program design. This will involve the develop- tives identified through participative methods and ment of consultative and feedback mechanisms approved at the province level. which are appropriate to the local area and local literacy skills. Monitor the irnplementation ofthe Flexibility in program planning requires sound infor- new decree on the implementation of democ- mation systems that feed back both quantitative data racy at the commune level carefully so that im- and qualitative infonnation about whether the inputs provements can be made where necessary. are leading to desired change. Many agencies who have responsibility for monitoring and evaluation * Reassess the package of subsidies made avail- have found gaps in information systems. Partners able to highland people to determine who is ben- may often be quite experienced in producing tables efiting and at what cost. Ensure that subsidies, of numbers but less experienced in following up where they are continued, do not generate long- with the kind of investigation that leads to sound termn dependency and that the overall approach program implementation. to development in ethnic minority areas is one of self-sufficiency. Priority Actions Decentralize planning and budgeting responsibil- Improve the representation of ethnic minori- ity so that local-level programmners have the flex- ties in local government through concerted ibility to respond to local needs and to modify training efforts. Expose local authorities to prograa components in response to community greater inclusiveness through study tours to feedback. Without this flexibility, the drive to other provinces and neighboring countries with improve participation in policy and program for- similar environments. mulation will lack credibility. 61 Chapter 8. Reorienting Public Investment in the Rural SectOr The actions recommended in this paper will need to suring equity in social services and providing au- be supported by public investments in priority areas. tonomy at the local level on decisions affecting local While the tight fiscal constraints resulting from the development. However, there is room for improve- Southeast Asia financial crisis preclude an overall ment through an even greater decentralization of rev-, increase in public expenditures, there is considerable enue and expenditure decisions, increased transpar- scope for increased efficiency and better prioritization ency and accountability, and enhanced participation of public investments. Resources exist that could be bybeneficiaries. freed and reallocated to the high priority actions rec- ommended in this report. It is clear from China's experience (see box 4, Fis- cal Decentralization in China) that enhanced pro- This chapter presents recommendations for decen- vincial and local government autonomy over tax rev- tralizing and reorienting public sector investment so enue and expenditures provides greater incentives that it is more supportive of rural development. Two to promote private business activity, which, in turn, key principles should guide the reallocation of pubic should provide more employment opportunities in sector resources. Preference should be given to ar- remote areas. Local government would have greater eas and sectors where the economic and social re- interest in economic development not only because turns are highest. In some cases this will require spe- it would be directly related to the tax base, but also cific adjustments to compensate for regional, ethnic, because the growth rate and income level would and other inequities. It will also require considerable become incdicators oftheir achievements. reallocation of public funds to human resources de- velopment to increase implementation capacity. In order to accomplish this goal, changes in the rev- enue sources assigned to local governments should Fiscal Decentralization reflect increased economic activity. Land taxes are very effecilive in this and other respects, since en- The government attempts to ensure "horizontal eq- hancemenis of economic activity are eventually re- uity" (the equal provision of basic public services flected in the value of land. Vietnam is fortunate in throughout the country) by using standardization that it alreatdy has a land tax that serves as a source norms to redistribute revenues between provinces. of revenue for provincial governments. There are These norms take into account such factors as popu- pressures to reduce the land tax levied on business lation, topography, and level of socioeconomic de- activities irn urban areas, especially as an inducement velopment. to foreign investors. Such pressures should be re- sisted. A value added tax (VAT) is being adopted in The design of Vietrnm's system for achieving of hori- place of the turnover tax. The VAT reflects the ex- zontal equity in the provision of social services is tent ofeconiomic activity in a region, and ifthe tax is basically sound. The process of developing of plans shared between the national and provincial govern- for public expenditure at the local level also is mov- ments in a fixed ratio it would also act as an incentive ing in the right direction. If used effectively, these two for provincial governments to encourage local busi- measures can achieve the right balance between en- ness activity. Alternatively, a formula-based, general 63 purpose transfer system could be adopted (World tures (including those for many social services deliv- Bank 1996). Any review of tax policy should take ered at the provincial and district level, and most into account the excessive array of taxes that con- types of infrastructure) would allow them to respond front farmers - as well as contributions of labor to better to local needs, improve efficiency, and decrease public works- with a view to rationalizing the tax their incentive to manipulate the information they pro- structure and removing its regressive effects. vide to higher authorities. On the other hand, less flex- ibility in allocating funds for basic services of national Another important lesson to be learned from China's importance (like health care, primary education and experience is that the central government should re- welfare relief) will help to ensure that all people have tain sufficient control over revenues to ensure equity access to a similar level of basic services. in the provision of basic social services. Because the targeting of central government revenue to poorer Therefore, while it should be the responsibility of lo- communes has not been very effective, stronger dis- cal implementing agencies to deliver basic services, cretion should be given to the provinces regarding the central level should hold them accountable for how centrally provided funds are to be allocated and demonstrating appropriate targeting of these activi- spent (World Bank 1996). Giving local administra- ties. Local government should be required to dem- tions greater flexibility to determine most expendi- onstrate an ability to: 64 * Develop mechanisms for identifying the poor Good goverrgnce, tight accountabilitymechanisms, and and, with active participation of local commu- trnsparency in local government finances are essential nities, investigate their needs elernents oflocal government effectiveness. Along with fiscal decentralization should come improved systems * Deliver services that meet their needs of accountability so that the credibility and integrity of lower levels of government are improved. * Monitor and report on the inclusion of local communities, particularly the poverty, in their activities Reorienting Public Investment * Evaluate and report on the impact of their ac- While govemamentpolicy dLocuments emphasize the tivities on local communities, particularly poor imnportance of rural development in Vietnam, public households. expenditure patterns have not yet been adjusted in accordance with the policy pronouncements. Gov- Fiscal decentralization heightens the profound effect emment resources are disproportionately allocated that local government has on the lives of rural house- to underwriting business risks-for example, by as- holds. The competence and integrity of local gov- sumring losses of SOEs, underwriting offinancial in- enment is therefore extremely important. Decen- stitutions, and promoting cooperatives. Sixty percent talization should be accompanied by serious capac- ofthe current Public Investrnent Program allocations ity-building activities at the lower levels, since the are to the SOEs, mostly for production, processing, capacities of local administrations vary widely. Un- and trade (Table 4). even capacity may exacerbate already uneven de-... even apacty my exaerbae aleady neve de- These activities could be considerably reduced, allow- velopment potential among regions, as there will be a tendency for the national government to favor the ing businesses and individuals-whetherpublic orpri- vatc- to assume the nonrmal risks of business. This more competent provinces, provincial government to favor the more competent districts, and district wouldallowifhegovemrnmenttosignificantlyreducecon- government to favor the more competent comnunes thngent liabilities in its budget and to concentrate more in terms ofresource allocation. The ability oflagging onthe provision ofsocial services, including publi ser- vices such as infrastructure, education, and health ser- regions to bridge the gap will be influenced by over- .. . .. all resource endowments. vices and social security provisions that assist people Table 4. Public Investment Structure (VND trillion) Current Allocation Percentage of in PIP 1996-2000 PIP Allocation Infrastructure and Services 96.8 40 (provision of public goods) Production and Marketing 142.4 60 (support for SOEs) TOTAL 239.2 100 65 generally (throughmechanisms such as unemployment growth zones centered in the major cities (Hanoi- benefits and pensions forthe aged or invalids, and emer- Haiphong, HCMC-Vung Tau, DaNang) is likely gency assistance fordealing with occasional events, such to lead to overcrowded mega cities. It is recom- as food crises). Currently, only some 40 percent of mended that investment allocations be more pro- public investment is for the provision of public goods portionally directed to rural areas, with rural be- and services. ing defined as those districts outside the three majorgrowthzones and associated cities. The The following changes in public investment are rec- justification for increasing the proportion to rural ommended to support enhanced rural development. areas is that the regional economic crisis will slow While this strategy recommnends a clear direction of down the realization of Vietnam's plan for indus- change in public investment-away from support of trialization, and rural investment will have to catch SOEs towards provision of public services-the up on past underinvestment as well as provide exact magnitude ofthe change is not specified be- for a longer future as an agrarian economy than cause that will depend on a number of factors not previously expected. This increase would include considered here. a relative shift toward rural industry, roads, wa- ter transport, electricity generation, and commu- * Reduce Allocations to SOEs. The largest single nications. item in the PIP is the US$ 5 billion equivalent allo- cated for (often noncompetitive) SOE industries.. Increase Allocations for Agricultural Infra- An additional US$ 3 billion equivalent is allocated structure. It is recommended to increase the to agricultural SOEs. This paper recommends a allocation to agricultural infrastructure and ser- sharp reallocation oftotal public investment from vices (irrigation, drainage, flood control, soil support of SOEs to the provision of public goods, conservation, research and integrated pest man- including funds forhealth, education, and social ser- agement) at the expense of agricultural SOEs. vices, rual infrastrue, agricultural infrastructure Increases would also be allocated to research and services, rural industry, research, and environ- and extension for continued diversification of mental protection. farming systems. While, in general, returns to research are known to be high -and in Vietnam * The net cost of switching from state credits to tesexcellent varie prgr have produced infrstrctur an sevice grntswoul no be the excellent varietal programs have produced infrastrcture and services grants would not be very large payoffs- investment in research is large. While state credits to SOEs are supposed only about US$ 50 per year per researcher, equal to be repaid, defaults are considerable causig to less than 1 percent ofthat in Singapore, India, severe damage to the banking system's ability to Jpn n ot oe,adls hn3pr moilz doesi caia. n ooeaecm Japan, and South Korea, and less than 3 per- mobilize domestic capital and to operate comn- cent ofthat in Thailand. mercially and some cost recovery of infrastruc- ture grants is obtained. Reductions in alloca- Major increases in support for rice production tions to SOEs should focus on chronic loss donotappearwarranted,otherthaninimproved makers, since these do not contribute to eco- water control for existing systems. Vietnam's own nomic growth and are a high-cost means of evaluation ofits large public expenditures on for- delivering welfare, and on those producing estry would not support a major increase in allo- goods that could be produced more efficiently cation to that sector without a basic review of by~~~~~~~~~~~~~cto priat thansctrerprisaes.crel o by private enterprises, the forestry strategy. The need for a stronger program in forest protection and reforestation is * Reduce Allocations toPriority Growth Zones obvious, but a more direct approach needs to In Favor of Rural Infrastructure. The con- bveoped. centration of infrastructure investment in three 66 * Increase Allocations to Health, Education, the ultimate solution to this problem is long- and Social Services. It is recommended that term-improving education levels. Preferential the allocations to health, education, and social assistance may indeed be justified on efficiency services, including social safety net activities, be grounds, as expenditures on education and health increased significantly. Social safety net activi- in the poorer regions, especially expenditures ties will remain important for the poorest of the favoring women, could have the highest returns. poor. Experience with recent government initia- Garcia Garcia and Soelistianingsih (1998) tives (VBP, HEPR), however, indicates the need showed ihat the most effective way to reduce to improve design, implementation, and moni- regional disparities in Indonesia was through such toring of these programs, which have generally expenditure preferences. been inefficient and deliver only a fraction ofthe intended benefits to the target group. Increased * Decentralize Budgeting, Planning, Selection, NGO involvement in the implementation and and Implementation. If provincial and local monitoring of these activities is recommended. governments had greater authority over revenue raising ard expenditures, public investrnent would Increase Allocations for Direct Targeting of undoubtedly be more efficiently allocated to pro- Lagging Regions and Vulnerable Groups. mote local development. However, decentrali- This would include, particularly, allocations for zation brings its own set of problems, since local rural infrastructure and social services to disad- capacity is weak and has been further diluted by vantaged regions, such as the Northern Moun- the crealion of additional provinces and would tains, the Central Highlands, and the Central need to be accompanied by targeted human re- Coast. In these areas, off-farm jobs will be of source development. relatively more importance in farm family income generation and poverty reduction than in the Reallocation of investment entails a reallocation of major deltas. Upgraded education and health recurrent expenditures and possibly also an increase services will be needed to provide an attractive and a shift in the fiscal burden between the national labor supply, together with a much-improved in- govermnent: and provinces and local levels. For ex- frastructure to reduce the costs of local busi- ample, the PIP document emphasizes that ofthe to- nesses. However, improved comrnercial activ- tal education budget, 95 percent is recurrent expen- ity will not benefit the most disadvantaged, due diture and only 5 percent is capital expenditure. Of to remoteness, age, illiteracy, and cultural and the capital expenditure, 50 percent comes from cen- other factors. tral government allocations and 50 percent from lo- cal authorities' budgets. More than 90 percent of Rural areas with the greatest concentration of recurrent expenditure on education is covered by poverty, which also have the poorest public ser- local administrations and less than 1 0 percent by vices (World Bank 1996), will have the most central government "norms." The implication is difficultyingeneratinghigherincomesinfarm=ng that unless this cost sharing arrangement is and mobilizing other rural industry because they changed, it will be very difficult to accelerate the have the poorest natural and human resources. rural education program and the poor will be dis- Even more preferential assistance than is pro- advantaged through unequal access. This situation vided through the present system of horizontal exists in other sectors but is worst in the social equalization may bejustified on equity grounds, sectors, where the need is greatest. especially for roads, education, and health, since 67 Chapter 9. The Role of Donors in Vietnam's Rural Development Vietnam's Public Investment Program (PIP) pro- The PIP allocates some US$8 billion of new invest- poses US$17.1 billion of new, economy-wide pub- ment to the various economic sectors. The largest lic investnent over the five year period 1996 - 2000. sectoral allocation is for energy (25 percent), fol- Of this, Official Development Assistance (ODA) is lowed by tran,sport (19 percent), structural adjust- expected to provide some US$7 billion, or 41 per- ment and credit (16 percent), agriculture, forestry, cent of the total. The PIP lists all major and me- and water resources (13 percent), health, education, dium-sized project proposals, with the smaller and social services (11 percent), urban water supply projects grouped under sectoral allocations, increas- (7 percent), and other (9 percent). ingly at the discretion of the concerned ministries: The major projects are to receive ODA support, ODA Funding for the Rural Sector while the smaller ones are to be fimanced from do- mestic sources. The PIP does not desegregate ODA-financed pub- lic investnents into rural and urban sector allocations, Table 6. Vietnam - Aggregate 1998 Commitments of Large-Donor ODA to Rural Sector Projects Committed Percentage Sector Number ODA of ODA Funding Committed (US $m) General agriculture 15 313.6 12.3 Irrigation and water 13 788.4 30.9 resources Rural industry 1 5.7 0.2 Natural resources and 33 621.5 24.4 environment Integrated rural 18 228.6 9.0 development Rural credit 5 207.5 8.1 Rural infrastructure 3 360.4 14.1 Other 1 22.8 0.9 Total 89 2,548.5 100 Based on a survey of multilateral development banks and Vietnam 's 12 major donors to the rural sector: The World Bank, Asia Development Bank Australia, Denmark, the European Union, France, Germany, Japan, The Netherlands, Norway, Sweden, the United Kingdom, UNICEF, and UNDP. Percentages may not add to 100 due to rounding. 69 but it does allocate US$1.5 billion to agriculture, for- equivalent annually, making the combined NGO con- estry, water resources, rural transport, and rural edu- tribution equivalent to that of a very large donor.9 A cation, or 19 percent of the sectoral total. small proportion ofNGO assistance is provided as products or in-kind assistance. A further 55 NGOs A survey of multilateral development banks and 12 are registered with the Hanoi-based NGO Resource of Vletnam's major donors shows that there are some Center, but their budgets are less than US $100,000 99 major projects currently under implementation in annually or not available. A substantial proportion of the rural sector, supported with the equivalent of international NGO budgets goes to rural areas, but US$2.55 billion in committed ODA, spread over the precise amount is unknown. various time frames (Table 6).8 Of the 96 largest international NGOs for which there Numerically, rural sector projects are most frequent are data, support is most frequently provided for in natural resources and environment (33 percent), healthcare and people with disabilities (69 NGOs) integrated rural development (21 percent), general and education (42 NGOs). These are followed by agriculture (16 percent), and irrigation and water re- agriculture and rural development (33 NGOs), in- sources (14 percent). Few large ODA-supported come-generating activities (25 NGOs), support tar- projects (only 10 of 99) support rural industry and geted at women and children (18 NGOs), credit and rural infrastructure (5 of 99) or rural credit (5 of 99). savings (15 NGOs), disaster relief (14 NGOs), so- In financial terms, irrigation and water resource cial welfare (13 NGOs), and water supply and sani- projects receive the largest share of ODA funding in tation (12 NGOs). In addition the number ofNGOs the rural sector (3 1 percent of the total), followed by that work in environment, forestry, and aquaculture natural resources and environment (24 percent), ru- number 10, 5, and 1, respectively. ral infrastructure (14 percent), and general agricul- ture (12 percent). InvestmentPerformance Most ODA-supported rural sector projects are With afew exceptions, Vietnam is arelatively newcli- implemented by MARD. Currently, MARD is imple- ent for ODA entities. Since each provider has some- menting 119 ODA-supported projects, and a fur- what differentpoliciesandprocedures,Vietnamhashad ther 33 projects are under preparation. Most ofthese an understandably difficult time making its own proce- projects are small-scale technical assistance grants; dures, financial practices, and evaluation methodolo- 14 large-scale projects (supported by IDA and the gies compatible with those of its donors. As a result, ADB) account for 64 percent of ODA commitments disbursements have been slower than expected. How- to the rural sector as a whole (Phuc, MPI, 1998). ever,modemizatonoflaws, sftrmlining ofprocedures, and training have improved the country's absorptive NGO Support for development capacity, and disbursements are beginning to acceler- ate. Preparation of resettlement plans, availability of Some 300 international nongovernmental organiza- counterpartfunds, and skilledprojectmanagementstaff tions (NGOs) and several international foundations remaindiflicultareas and arereceivingprioiityattention and trusts are active in Vietnam. Published data for under technical assistance programs. Nevertheless, the largest 96 of these organizations (those with an- cross-sectoral issues, recurrent cost financing, and other nual budgets in excess ofUS$100,000) indicate that fiscal responsibilities are a constraint on rapid expan- their contributions, total some US$58.1 million sionofdisbursement. 8.The rural sector is defined here to include agriculture, inigation and water resources, natural resources and environment, integrated rural development, rural credit, and rural infrastructure (highways, transport, and electrification). Rural health and education are not included. 9.Vietnam: NGO Directory, 1997/98. NGO Resource Center, Hanoi. May 1997 70 For the two multilateral development banks support- "ownership." A common difficulty in project ing Vietnam, 90 percent of disbursements in the rural preparation is the reluctance of Vietnamese agen- sector currently are devoted to three irrigation cies to state clearly what they can and cannot projects, a forestry project, and two farm credit op- implement. erations. Thus, the performance of a few large projects determines overall performance. The cur- . Use ODA to raise prodluctivity and support rent disbursement ratio is about 1 0 percent (disbursed agricultuiral diversification. In the short term, amount/nondisbursed amount), which is lower than the majority of VietnamL's poor will depend on the desired level, and lower than for all sectors com- agriculture and natural resource-based activities bined. In general, credit projects implemented for their livelihoods. But the rural sector is also through VBARD disburse fastest because of expected to fuel the diversification of rural in- VBARD's large, ongoing credit program. VBARD dustry by supplying raw imaterials and providing disburses about US$ I billion/year, mainly in small- markets for goods and services. Within agricul- sized agricultural loans and is readily reimbursable. ture, ODA should be employed to lessen the In addition, credit projects are not dependent on dependence of farm households on government government counterpart funds, and subloans are direction on what to grow and where and how quickly repaid and the funds reloaned. to grow it. Vietnam has been extremely success- ful in increasing its rice production, but the future Irrigation projects have been, delayed by incomplete focus of ODA should be on diversifying farm design, complex resettlement issues, weakly moti- production. Moving rice production into mar- vated staff (low salaries), low beneficiary ownership, ginal lands and thus increasing environmental unfamiliarity with procurement procedures, uneven costs (such as by draining the Plain of Reeds), at consultant performance, shortage of counterpart the expense of other crops, inland fisheries, and funds, and slow release of land by owners for con- associated activities is not recommended. struction works. - Increase Allocations to Infrastructure and Reorienting ODA Social Services in Rural Areas. ODA sup- The following actions perainirng to donor assistance port for rural infrastructure and social services should be substantially increased. ODA should are recommended to accelerate rural development. hudb usatal nrae.OAsol are r m tcfocus onprovision ofpublic goods, including in- * Increase ODA to the Rural Sector. In sup- frastructure, education, health care, agricultural port ofthe strategy for public investment advo- research and extension, and similar services. This cated in Chapter 8, the government should in- should be accompanied by support for recur- crease the proportion of ODA directed to the rent costs, means to prefinance expenditures and rural sector. This will require an increase in the disburse directly to provinces, and substantial number of viable proposals for rural develop- capacity building, especially in financial manage- ment projects. Most donors, including the multi- ment and control. Such investments are well- lateral banks, are required to appraise propos- suited to program lending and enhanced benefi- als prepared by the government. In practice, the ciary participation. preparation has often been done by donors them- selves. While this may accelerate preparation in * Reduce Support to State Commercial Ac- the short run, there are benefits to increasing the tivities. Most state enterprises and state farms local capacity to prepare projects, such as im- make losses and seek ODA fnmding to continue proved quality at entry and appropriate incen- their existence. But investment in SOEs that un- tives for better implementation through local dertake essentially commercial activities, in the 71 absenceof SOEcorporatizationorprivatization, involve several agencies-for example, the should be phased out. The experience of the past Women's Union, MARD, and the VBARD- five years has shown that SOEs are not good that do not work together easily. To resolve this intermediaries between farmers and markets. problem, donors have often placed all activities Donor assistance for equitization is available, but within a single institution, but this has generally rarely used. ODA should be made available to not been successfil either. help underwrite the social costs of SOE reform. Duplication and fragmentation of capacity build- Target Poverty. There is consensus among ing should be reduced by using program lending donors that a trickle-down approach to poverty for sequential operations by a particular donor reduction will not work in Vietnam and that fur- and in parallel operations being financed by do- thertargetingis essential. Depending onresource nors active in the same field. For example, the endowments and population characteristics, dif- resettlement requirements of different donors ferent mixes ofactivity and poverty targeting are require agencies implementing irrigation and required-for example, in mountain areas (such drainage projects to follow different procedures as the Northern Mountains and Central High- toachievesimilarendsinlargelyidenticalprojects. lands) and for vulnerable groups in the lowlands (such as the Central Coast). Targeted interven- tions are more costly and difficult to design, how- * Improve Disbursement Performance. The ever, have higher recurrent costs, and can be dif- first priority is to make optimal use of existing ficult to implement. Donors can assist the gov- funds by closing the gap between commnitments eminent by bringing international best practices and disbursements through more effective project toVietnam. management. There are three main constraints. One is institutional problems. Investment and Vietnam has demonstrated its willingness to tar- technical assistance are needed to modernize get the poor through the Hunger Eradication accounting procedures and financial manage- Project, the Bank for the Poor, and other initia- ment, adapt legislation to new circumstances, tives. But these programs have had mixed suc- improve project preparation and implementation, cess because they sought too many objectives and carry out evaluation and analysis of program simultaneously or gave too many responsibilities performance. to a single agency. The availability of local and international experience, capital from multilateral The second is the problem of recurrent costs and and bilateral agencies, and NGO assistance at fiscal responsibility. These may require changes the community level, are resources that can help in donor rules concerning recurrent cost finane- Vietnam design and execute sustainable programs ing, sharing of recurrent costs with local govern- to reduce poverty, ments, or direct disbursement of ODA at the lo- cal level. All these measures would need to be * Simplify Design for Effective Implementa- accompanied by capacity building. Without re- tion. Institutional complexity should be mini- forms such as these, it will be difficult to reorient mized. Many ODA-supported projects are ex- ODA to the rural sector without a reduction in cessively complex, particularly those designed to the size ofthe overall program. integrate responsibilities across institutions. For example, whole-farm investment developments The third, is the need for donors to simplify and may be simple in concept, but in practice they make more transparent their complex operational procedures for the handling of donor funds. 72 * Exploit Donor Synergy. There is scope to in- transfer. NGOs often have a better understand- crease the effectiveness of ODA through more ing of community and household circumstances, formal use of complementary programs and ex- thanks to first-hand experience. These roles are ploitation ofthe comparative advantages ofdo- potentially highly complementary. Financial nors. Donors bring different resources and per- complementarity also exists when bilateral grant spectives to development and operate under funds are used to complement multilateral loans varying constraints. For example, multilateral or credits. Another kind of potential synergy banks effect large capital transfers and are often would be increased involvement of NGOs in more active in policy and strategy dialogues with determning technical assistance for local project governments. Bilateral agencies are relatively implementation. more active in institution building and technology 73 Bibliography Asian Development Bank. 1997. Guidelines for the Economic Analysis of Projects, Manila. Agrawal, Nisha and Nguyen Nga, "Benefits of Growth for Workers in Vietnam." Presentation to the joint Vietnam Ministry of Agriculture and Rural Development and World Bank Workshop on Vietnam Rural Development Strategy, Vision to Action: Rural Development Trends and Priority Issues, Hanoi, April22,1998. Bunch, R., Dang Van Minh, Siep Littooy, and Tu Quang Hien. 1995 Mid-term Evaluation Reportfor CIDSE Project V-508, Bac Thai Extension Program for Mountainous Development Phase 2. CIDSE, Hanoi Cao Thang Binh. 1998. "Aquaculture for Sustainable Development in Vietnam." Unpublished. Central Institute for Economic Management (CIEM). 1988. "Vietnam's Economy in 1997: A Policy Analysis." Hanoi. Centre de Cooperation Internationale en Recherche Agronomique pour Le Development. 1997. Agriculture Et Development (Special Vietnam). Montpellier, France. Che Tuong Nhu. "The Effects of Internal and External Trade Liberalization on Agricultural Growth: A Case Study of Vietnam." 1997. Ph.D. dissertation, The Australian National University, Canberra. Christ, H. and D. Kloss. 1998. Land Use Planning and Land Allocation in Vietnam with Particular Refer- ence to Improvement of its Process in the Social Forestry Development Project Song Da GTZ/ MARD, Hanoi. CIDSE. Report on Participatory Assessment of Village Development Activities in the Primary Health Care Project in Phu Luong District, Bac Thai Province. Hanoi. Classens, Stijn and R.C. Duncan (eds.). 1993. Managing Commodity Price Risk in Developing Countries. Baltimore: The Johns Hopkins University Press. Cuddihy, W. 1998. Presentation on Public Expenditure to the joint Ministry of Agriculture and Rural Develop- ment and World Bank workshop on Vietnam Rural Development Strategy, Vision to Action: Rural Development Trends and Priority Issues. Hanoi, April,22, 1998. Cuddihy, W. 1998. "A Review of Public Expenditure in the Rural Sector.". Unpublished. Donovan, D., A. Terry, Rambo, J. Fox, Le Trong Cuc, and Tran Duc Vien, (eds). Development Trends in Vietnam s Northern Mountain Region (2 vols). Hanoi. Garcia Garcia, Jorge, and Lana Soelistianingsih. "Why Do Differences in Provincial Incomes Persist in Indone- sia?" Bulletin of Indonesian Economic Studies, 34(1): (95-120). 74 Gates, C.L. 1996. "Microeconomic Adjustment and the Transformation Process: A study of Vietnamese Indus- trial Enterprise Performance." in Duc-Tho Nguyen (ed.), Queensland, Australia and the Asia-Pacific Economy. Griffith University, Brisbane. Goletti, F. 1998. "Trade distortions and incentives in agricultural trade: the case of rice, sugar, fertilizer, and livestock-meat-feed sub-sectors in Viet Namn." Washington, D.C.: International Food Policy Research Institute. Goletti, F,. and N. Minot. 1997. "From Famine to Surplus: The Transformation of the Rice Sector in VietNam." Washington, D.C.: International Food Policy Research Institute. Goletti, F., and K. Rich. 1998. "Policy simulation for agricultural diversification." Washington, D.C.: Interna- tional Food Policy Research Institute. Government of Vietnam, Government Statistical Office (GSO). 1,997. Survey ojfLabor and Employment in Vietnam. Hanoi. Huang, Yiping. "China's Rural Industrialization Revisited." Paper presented at the conference Vietnam and the Region: Asia-Pacific Experiences and Vietnam 's Economic Policy Directions, Australian Na- tional University, Canberra, April 20-21, 1998. International Finance Corporation (IFC). 1998. "Recommendations by International Finance Corporation to the State Bank of the Socialist Republic of Vietnam on Security for Loans Provided by Foreign Lenders." International Food Policy Research Institute (IFPRI). 1996. "Rice Market Monitoring and Policy Options Study." Final report. Submitted to the Asian Development Bank under Project No. TA 2224-VIE. Washington, D.C. Johnson, Alan. 1998. Presentation on Rural Finance tojointVietnam Ministry of Agriculture and Rural Devel- opment and World Bank Workshop on Vietnam Rural Development Strategy, Vision to Action.: Rural Development Trends and Priority Issues. Hanoi, April 22, 1998. Khan, D. 1998. "Rural Infrastructure in Viet Nam: Improving the Planning and Financing of Rural Infrastruc- ture Development." Asian Development Bank and FAO Investment Centre. Unpublished. Le Dang Doanh. 1996. "State-owned Enterprise Reform and its Implications for Industrialization in Vietnam," Paper presented to Senior Policy Seminar on Industrialization and Integration: Vietnam and the World Economy. Hanoi, November, 20-22, 1996. Leonard, H.J., with M. Yudelman, J.D. Stryker, J.O. Browder, A.J. de Boer, T. Campbell, and J. Jolly. 1989. "Environment and the Poor: Development strategies for a Common Agenda." US-Third World Policy Perspectives, No.l1, Washington, D.C: Overseas Developrment Council. Le Trong Cuc, A. Terry Rambo, K. Fahmey, K., Tran Duc Vien, J. Romm, and Dang Thi Sy (eds). 1996. Red Books, Green Hills: The Impact of Economic Reformi on Restoration Ecology in the Midlands of Northern Vietnam. Honolulu, East-West Center. 1996 Mallon, Ray. 1997. "Mapping the Playing Field: Options for reducing private sector disincentives in Vietnam," Discussion paper prepared for the Swedish Embassy in Hanoi. 75 McKenzie, John. 1998. Presentation on Rural Industrialization to joint Vietnam Ministry of Agriculture and Rural Development and World Bank Workshop on Vietnam Rural Development Strategy, Vision to Action: Rural Development Trends and Priority Issues. Hanoi, April, 22, 1998. McMillan, J., Whalley and L. Zhu. 1987. "The Impact of China's Economic Reforms on Agricultural Produc- tivity Growth." J. of Political Economy, p.781 -807. Mekong Project Development Facility (MPDF). 1998. "Fine-tuning Equitization of Vietnam's State Enter- prises," Findings, No. 4, March. Ministry of Agriculture and Rural Development. 1997. The National Seminar on Agriculture and Forestry Extension. Hanoi. Ministry ofAgriculture and Rural Development/Vietnam Sweden Mountain Rural Development Program. 1998. 1996-2000 Annual Progress Report 1997. Program Board Office, Hanoi. MRDP (Vietnam Sweden Mountain Rural Development Program) 1998. Village Monitoring and Review, Summary Report to End of 1997. Hanoi. Minot, Nicholas. 1998. Presentation on Mapping Poverty in Vietnam, to the joint Ministry of Agriculture and Rural Development and World Bank workshop on Vietnam Rural Development Strategy, Vision to Action: Rural Development Trends and Priority Issues. Hanoi, April, 22, 1998. Nguyen Ngo Hao. 1998. "Report on Land Situation in Agriculture and Rural Area in Vietnam," UNDP VIE/ 96/006. Nguyen Tri Khiem. 1998. "Vietnamese Agricultural Research and Extension System." Unpublished. Nguyen Tuan Khai and Phem Dinh Lan. 1998. Presentation on Rural Industrialization to joint Vietnam Ministry of Agriculture and Rural Development and World Bank Workshop on Vietnam Rural Development Strategy, Vision to Action: Rural Development Trends and Priority Issues. Hanoi, April 22, 1998. O'Connor, David. 1998. "Rural Industrial Development in VietNam and China: A Study in Contrasts," Paper presented at the International Conference on Communist and Post-Communist Societies. Melbourne, July, 7-10,1998. Nachuk, S., and K. Fancy. 1997. "The Way to School in Duyen Hai," OXFAM. Perkins, D.H. 1998. "Rural Industrialization: Vietnam's Experience and Possible Lessons from China." Unpub- lished. Poynton, Scott. 1998. "Program 327 Review for the Vietnam Rural Development Strategy." Unpublished. Rambo, A. Terry, Neil L. Jamieson, and Le Trong Cuc. 1998. "Key Points for Designing a Rural Development Strategy for Vietnam's Upland Regions." Unpublished. Riedel, James. 1997. "The Vietnamese Economy in the 1990s," Asian-Pacific Economic Literature, 11(2): 58-65. Rosenthal, Shelagh Heard. 1998. "A Review of Nature Conservation in Vietnam," Paper prepared for The World Bank. Unpublished. 76 Silverman, J. 1998. "Vietnam Rural Water Supply and Sanitation,". Unpublished. Simpson, Robert. 1998. "Micro-credit in Vietnam: Lessons and Future D)irections," Paper prepared for CIDA. Unpublished. Svendsen, Mark. 1998. "Rural Development and Water Resources in Vietnam," Paper prepared for Asian Development Bank. Takeuchi, Fumihide, and Takehiko Hagino. 1998. "Intersectoral Resource Allocation and Its Impact on Eco- nomic Development in the Philippines," Policy Research Working Paper 1883. Washington, D.C.: The World Bank. Tran Thi Que. 1998. Microfinance Market Research Study, Main Report. MARD, Ministry of Agriculture and Rural Development. Hanoi. Tuong Lai. 1997. "Some Social Issues in Industrialization and Modemization of Agriculture and the Rural Sector," Paper presented at the National Seminar on Rural Industrialization and Modernization. Hanoi, December, 26-28,1997. Turk, C. Carrie. 1996. Findings on Poverty: ActionAid s Micro-level Research 1992-1996. ActionAid, Hanoi. Turk, Carrie. 1998. "Rural Development Strategy: Social dimensions,'. Unpublished. Turk, Carrie. 1998. "A Summary of Programme Experience in the Uplanads of Vietnam,". Unpublished.ULNOPS. Successfully Achieving Decentralization and Participation: A Case Study from Viet Nam, Tuyen Quang Province. Kuala Lumpur. 1997. Wing Thye Woo. 1998. "Macroeconomic Perfonnance and the Role of the State Sector in Vietnam,". Paper presented to the Conference on Understanding the Decline of China's State Sector: Refonn Experience and Future Directions, National Centre for Development Stud ies, The Australian National University, February 17-18, 1998. World Bank. 1995. Viet Nam: Poverty Assessment and Strategy. Report No. 13442-VN, Washington, D.C. World Bank. 1996. Jiexnam: Pjscal DecenIralijcjti)Jt and the Delivgry of Rural Servicss. RFpQrt No. 15745- VN. Washington, D.C. World Bank. 1996. Vietnam: Education Financing Sector Study. Report No. 1 5925-VN. Washington, D.C. World Bank. 1998. Vietnam: Agriculture for Sustainable Rural Development, Draft Report No. 17278 VN. Washington, D.C. 77 44 " 1-5, I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~44 ~~~~~~~~~~~~~~~~~~~~42~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ i~~~~~~~~~~~~~ 4 444 44~~~~~~~~~~~~~~~~ Ill III I I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.