Vietnam Development Report 2000: Attacking Poverty

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Overview

Vietnam has made considerable progress in reducing poverty during 1993-98 and yet, poverty remains widespread and deep and much remains to be done in the next five to ten years. Chapters 1 and 2 highlight the multi-dimensional nature of poverty in Vietnam, extending from low levels of incomes and consumption, to poor health and lack of education, and to other "non-material" dimensions of well-being, including gender gaps, insecurity, powerlessness and social exclusion. Chapters 3, 4, and 5 lay out three broad imperatives in the fight against poverty:

First, opportunities for employment and productivity growth must be created, so that incomes rise and the poor are able to grow out of poverty;
Second, measures must be put in place to ensure that growth and access to services is fair and equitable, so that all citizens benefit from the fruits of development;
Third, special care must be taken to reduce the vulnerability of the poor to unforeseen events (sickness, poor harvests, loss of breadwinner, etc.).

Combined, these three elements define development policy. Every country should be able to articulate a clear strategy for each of these three elements as it seeks to improve the wellbeing of its citizens. Chapters 3-5 describe how the Government of Vietnam is seeking to clarify its own strategy in each of these areas.

These three imperatives also need to guide sectoral and economic policymaking. In allocating public resources among competing uses, and in establishing laws, regulations and incentives, it is the impact on human wellbeing (and especially that of the poor) that needs to drive decisions. For each sectoral and economic program, therefore, it is important to be able to explain how the design of the program contributes to creating opportunity, ensuring equity, and reducing vulnerability. Chapter 6 makes an attempt to point in the direction towards how such an exercise might be undertaken, and recommends that this be undertaken (with the assistance of the national and international development community) as part of the Government's medium-term planning exercise.

Box 1: At a glance

Poverty Reduction in Vietnam

Poverty, however measured, has declined in Vietnam during the last five years. This is represented quantitatively by rising per capita expenditures and improving social indicators and is also reflected by the perceptions of poor households that overall wellbeing has improved over the last five years.
Poverty remains a largely rural phenomenon, with 45% of the rural population living below the poverty line.
Although the incidence of poverty in urban areas is less than 10%, pockets of severe poverty persist in urban areas. Poor migrant groups may not be fully captured in the statistics. Urban poverty appears to be a particularly complex phenomenon.
The gains in poverty reduction have been widespread. Poverty has declined in all seven regions of Vietnam, though the rate of decline and incidence of poverty varies greatly across regions
The Northern Uplands, Central Highlands and North Central Coast are the three poorest regions. Poverty gap measures further suggest that poverty is deeper in the upland regions. The South East region, which include Ho Chi Minh City, is the wealthiest region by a considerable margin.
Three regions account for almost 70% of Vietnam's poverty: Northern Uplands (28%); Mekong Delta (21%); and the North Central Coast (18%).
The most dramatic reduction in poverty has occurred in the Red River Delta. The Mekong Delta, conversely, shows the smallest improvement.
The dramatic gains in poverty reduction in Vietnam during the last five years remain quite fragile. Poverty estimates are very sensitive to the exact positioning of the poverty line and the incidence of poverty might best be described as lying somewhere in the range between 30-45%.

Poverty, however measured, has declined in Vietnam during 1993-98

It is estimated that in the mid-1980's, seven out of every ten Vietnamese were living in poverty. A little more than a decade later – a decade of rapid economic growth – the incidence of poverty has halved. There have been very striking reductions in the incidence of poverty in Vietnam during 1993-98. This is reflected in rising per capita expenditure and in widespread reports of improvements in broad wellbeing. The proportion of people with per capita expenditures under the total poverty line has dropped dramatically from 58 percent in 1993 to 37 percent in 1998 (Figure 1). The number of people below a "food poverty line", which is lower, has also declined from 25 percent to 15 percent, indicating that even the very poorest segments of the population have experienced improvements in their living standards during 1993-98. While poverty incidence is still quite high in Vietnam, these declines in poverty and food poverty over a period of only five years are very impressive. In recent years, almost no other country has recorded such a sharp decline in poverty in such a short period of time (the possible exceptions being China and Indonesia in the 1980s).

Poverty, as measured by the adequacy of per capita expenditures, has declined in Vietnam during the last five years

This report tracks trends in poverty, broadly defined, from 1993 to 1998, drawing heavily and importantly on the lives of poor households in Vietnam. The trends presented are extracted from two main sources. Quantitative data comes from the two Vietnam Living Standards Surveys (VLSS) carried out by the General Statistics Office (GSO) in 1992/93 and again in 1997/98. This quantitative information is augmented by in-depth participatory poverty assessments (PPAs) in four provinces of Vietnam—Lao Cai (by Vietnam-Sweden Mountain Rural Development Program), Ha Tinh (by Action Aid Vietnam), Ho Chi Minh City (by save the Children, UK) and Tra Vinh (by Oxfam, GB).

The gains in poverty reduction have been broad and widespread

The big gains for poverty reduction have come from growth of per capita expenditures, which have increased on average by 41 percent during 1993-98. The achievements, however, are not limited to rising per capita expenditures. All indicators of human development, infrastructure access, and ownership of consumer durables confirm the story of a rise in living standards between 1993 and 1998:

Primary school enrollment rates were already high for both girls and boys, but have improved further—they have increased from 87% to 91% for girls and from 86% to 92% for boys;
Lower secondary enrollment rates have doubled for both girls and boys, and are now at 61 for girls and 62 for boys. The number of children enrolled in lower secondary school dipped to a low of 2.7 million in 1990, but this has now climbed to 5 million;
Upper secondary enrollment rates have increased dramatically for both girls and boys—they have gone up from 6% to 27% for girls and from 8% to 30% for boys. 1.6 million children were enrolled in upper secondary school in 1998, reversing the downturn in enrollments seen in the late 1980's and early 1990's (World Bank, 1995);
Malnutrition amongst boys and girls below the age of 5 years remains high, but has declined from about half the population to a third;
Access to infrastructure—such as public health centers, clean water, and electricity—have all increased;
Ownership of consumer durables—such as radios, television, and bicycles—have also all gone up. In 1998, 47% of households own a radio, 58% own a television, and 76% own a bicycle.

Research also suggests that there have been benefits in less tangible dimensions of poverty. Households report a greater sense of control over their livelihoods, reduced stress, fewer domestic and community disputes and express optimism that life will continue to get easier in the future.

These improvements in the material and non-material aspects of well-being are not limited to a few. The gains have been widespread—all regions and all groups have benefited, albeit at different rates. Both the incidence and depth of poverty has declined in rural and urban areas and in all seven geographic regions of Vietnam. However, while the Report conveys the message that poverty has declined during 1993-98, it also conveys another message—that poverty still remains very high and that almost 40 percent of the population lived below the poverty line in 1998.

But the gains in poverty reduction remain fragile

A note of caution, however, is needed in interpreting the gains in poverty reduction (Figure 2). Poverty measurement is not an exact science. In the case of Vietnam, poverty estimates are very sensitive to the exact positioning of the poverty line because much of the population lives in households with per capita expenditures that are close to the poverty line. Sensitivity analysis (in this case, adjusting the poverty line upwards and downwards by 10%) suggests that rather than thinking of the incidence of poverty as one simple number, the incidence of poverty might best be described as lying somewhere in the range between 30-45%. The diagram shows, secondly, that the dramatic gains in poverty reduction in Vietnam during the last five years remain quite fragile. Because many individuals were positioned close to the poverty line in 1993, modest improvements have been sufficient to pull them over the poverty line so that they are now bunched just above the poverty. It follows, therefore, that a relatively small deterioration in living standards would be sufficient to push them below the poverty line again.

Key Characteristics of poor Households

Box 2: At a glance:

Key Characteristics of Poor Households

The poor are predominantly farmers with low levels of educational attainment and limited access to information and functional skills. In 1998, nearly four-fifth of the poor worked mainly in agriculture.
Poor households have small landholdings and landlessness is becoming more widespread, especially in the Mekong Delta. Households who are unable to make a living from the land find few opportunities for stable income generation off the farm. There is an urgent need for reforms which will stimulate greater off-farm employment.
Households with many children or few laborers are disproportionately poor and are particularly vulnerable to high and variable health and education costs. Newly-formed households go through an initial phase of poverty, aggravated by limited access to land. Poor households are also frequently caught in a debt trap.
Poor households are vulnerable to seasonal hardship and household-specific and community-wide shocks. Poor households may be socially and physically isolated.
Poverty among ethnic minority groups has declined, but not as rapidly as for the majority population. Ethnic minorities face many specific disadvantages which should be addressed through an Ethnic Minority Development Program.
Migrants to urban areas who are poor and who have not secured permanent registration face difficulties in accessing public services and may also be socially marginalized. Further work is needed in identifying the best way to help these groups.
Children are over-represented in the poor population. Poor children are less able to attend school and are trapped in a cycle of inherited poverty and feel particularly insecure.

The incidence of poverty is higher in certain regions, and certain groups remain vulnerable

Poverty in Vietnam is largely a rural phenomenon and about 90 percent of the poor live in rural areas. The incidence of poverty is higher in rural areas (45 percent) than in urban ones (10-15 percent depending upon what estimate of unregistered migrants in poverty is used) and so is the depth of poverty. Among the regions, poverty is clearly higher and deeper in the uplands regions of the Northern Mountains and the Central Highlands. Vietnam needs to develop a strategy for promoting growth and reducing poverty in these upland regions.

The main characteristics of the poor in Vietnam—that they are farmers, they have relatively low levels of educational attainment, they have a relatively large number of children, they have less access to material resources such as land, and less access to social and physical infrastructure—are common characteristics of the poor in many developing countries. In addition, in Vietnam, the PPAs highlighted three groups of particularly vulnerable households which warrant attention: ethnic minority groups, unregistered migrants in urban areas, and children.

Despite active Government support and investment, certain ethnic minority groups face many specific disadvantages, which are underscored by physical and cultural isolation. These disadvantages are reflected in the slow rate of decline of material poverty for ethnic minority groups, which indicates that, certainly in economic terms, ethnic minority groups are now lagging some way behind the majority population. Although accounting for only 14% of the population, ethnic minority groups accounted for 29% of the poor in 1998. They live in the upland regions of Vietnam which, as discussed above, are the poorest regions in Vietnam. Developing and implementing a comprehensive strategy for reducing poverty amongst ethnic minority groups that deals with, among other things, issues of access to improved income-earning opportunities, to physical infrastructure, and to basic social services, is critically needed to prevent these groups from falling further behind.

Urban poverty was found in the research to be a particularly harsh and complex phenomenon. While it is not limited to migrants--indeed most of the migrants to urban areas fare well and add to the prosperity of urban areas—the plight of a particular group of poor migrants was highlighted by the PPAs. These are migrants to urban areas who have not secured permanent registration. The PPAs found that this group of the urban poor face difficulties in accessing public services and may also be socially marginalized. These migrants are probably not fully captured in the poverty statistics, with the result that urban poverty estimates may be underestimated by as much as five percentage points, so that urban poverty could be in the range of 10-15 percent. Migration is only likely to increase in the future as urbanization occurs and indeed, for some, it might be the only way out of poverty. The Government needs to develop a policy on migration so that migrants can also have access to government services and are not trapped into poverty in the future.

Children form a higher proportion of the poor than their share of the population as a whole. The research suggests that children are particularly vulnerable in poverty situations: poor children are less able to attend school and are trapped in a cycle of inherited poverty. Child labor is commonly used to help keep poor households afloat and is often relied upon during times of hardship. The Government needs to revisit its policy of financing basic social services, such as basic education and health so that the burden on the poor of financing such services for their children is reduced. Greater efforts also need to be made to reduce malnutrition among children. In the context of the upcoming Public Expenditure Review, the Government can design a pattern of public spending that is more pro-poor and more child friendly. This need not necessarily require more public expenditures—it may just be an issue of targeting existing expenditures better on the poor.

Creating Opportunity

The gains in poverty reduction have been largely due to rapid growth and agricultural diversification

Labor is commonly regarded as the poor's most abundant asset. In order to raise the living standards of the able-bodied poor, it is essential to provide them with the opportunities for productive and remunerative employment. Chapter 3 examines the contribution that growing employment and income generating opportunities have made to raising living standards in Vietnam. Since 80 percent of the poor are farmers, what happens to agriculture still dominates the effects on the lives of the poor.

Improvements in rural living standards during 1993-98 have been driven predominantly by a diversification of on-farm activities. To date, this diversification has been most dramatic within the agricultural sector, where average household incomes have grow by 60 percent in the five years to 1998. The Vietnamese rural non-farm sector has grown much more slowly than the agricultural sector, but incomes from non-farm self employment have still grown at 30 percent during these five years. Further liberalization of the production and trade of farm inputs and agricultural products, removal of the constraints (both actual and perceived) to the development of rural non-farm enterprises, and a reform of rural banking are essential if the dynamism of the rural sector is to continue.

In urban areas, living standards have risen faster than in rural areas, but the opportunities provided by economic growth have been less evenly distributed. The industrial state sector has grown rapidly, but created relatively few jobs as it remains dominated by capital-intensive industries. A dynamic private light manufacturing sector had been emerging rapidly prior to the onset on the East Asian crisis, with wage employment in the sector growing, albeit from a tiny base, by 50 percent per annum in the five years after 1993.

Looking to the future, the rural sector will continue to dominate employment in Vietnam over the short to medium term. Therefore, employment and income growth in agriculture, off-farm enterprises, and services in rural areas will continue to be critical for rapid poverty reduction in the future. However, gains in poverty reduction may not be as easy as they have been in the last five years. Landlessness appears to be a growing problem for some and scarcity of land is already appearing as a major issue for others. With some of the easy gains from the transition to a market economy now exhausted, Vietnam must focus on improving both the productivity of its existing cropland and providing opportunities for rural workers to diversify into other sectors (such as livestock and non-farm enterprises). Greater attention also needs to be paid to agricultural research and extension in upland and ethnic minority areas.

While the impact on poverty reduction of the nascent light industrial sector in urban areas has to date been limited (because of the small size of this sector), it is growing very rapidly and has the potential to play an increasingly important role in the future. This sector represents a significant opportunity for employment creation in the coming years. Vietnam's untapped export potential could represent around 25% of its current GDP and up to 1.6 million more jobs could be created in labor-intensive export manufacturing over the next three to five years. Getting both the infrastructure and policy environment right for Vietnam to capitalize on this untapped comparative advantage is another major challenge facing policy makers.

Ensuring Equity

The decline in poverty has been accompanied by a modest increase in inequality, largely due to the widening of rural-urban gaps

The promotion of "growth with equity" is a principle which is fundamental to the development path that Vietnam has chosen to follow. The reforms and the rapid growth which they have generated have led to very significant economic and social gains for nearly all groups in all regions. But growth has been more rapid and gains have been more substantial in some areas of the country than in other parts. Although Vietnam still remains a relatively equitable society by international standards, the 1993-1998 period did record a modest increase in inequality with the Gini Coefficient rising from 0.33 to 0.35.

The force behind this growth in inequality comes largely from widening rural-urban gaps. During 1993-98, while rural incomes grew by 30 percent, urban incomes grew by twice as much (61 percent). This has led to the ratio of urban to rural expenditures increasing from 1.8 to 2.2. What is noteworthy, however, is that this period, which followed some very significant policy changes in Vietnam—including distribution of land use back to farming households and liberalization of input and product markets—has seen no increase in inequality within rural areas. In fact, inequality within rural areas has actually declined somewhat during this period. While concern has been raised that the policy reforms initiated in agriculture would lead to rising inequalities, there is no evidence to indicate that this is the case.

There has also been some increase in inequality between the seven regions of Vietnam. Regions have grown at different rates: the fastest growing region has been the South East, which has been dominated by the fortunes of Ho Chi Minh City, and has grown by a spectacular 78 percent during 1993-98. In contrast, the slowest growing region has been the neighboring region of the Mekong Delta, which grew by only18 percent during the same period. However, the Mekong Delta was starting with a relatively higher base level of expenditures, and despite this poor performance during the last five years, its levels of expenditures are still higher than those of several other regions. The poorest region was and remains the Northern Mountains region and the richest region was and remains the Southeast. Since expenditures in the Northern Mountains Region grew by only 31 percent as compared with a 78 percent expenditure increase in the Southeast, the gap between the poorest and the richest region of Vietnam has widened. The ratio of expenditures in the Southeast to those in the Northern Mountains has gone up from 1.9 to 2.6.

This decomposition of inequality is important for policy reasons. The Government of Vietnam has expressed concern about the widening rural-urban gap and has reoriented its development strategy to really focus on rural development. These findings reinforce the significance of rural development in a strategy for continued equitable growth in Vietnam. The findings also further underline the importance of effective targeting of resources towards regions experiencing slower growth and higher incidences of poverty. Improved poverty mapping combined with better skills at the local level for the diagnosis of problems and the identification of solutions will be necessary to counteract the imbalance between the regions. The targeted program to assist the 1715 Poorest Communes shows the Government's commitment to assisting areas with special difficulties.

Gender equality remains an issue-while gains have been made in some areas, further actions are required in other, less visible areas

Chapter 4 also examines inequality at the household level. Gender analyses show inequality in the distribution of power within the household and highlights many problems which are specific to women. These problems include limited decision-making power within the household, extremely heavy workburdens, domestic violence, health problems, limited representation in institutions, limited access to education for some ethnic minority women, and unequal access to productive assets, such as land and credit. These problems will need to be addressed in the context of the preparation of the next National Action Plan for the Advancement of Women in Vietnam for the period 2000-2005 that is currently underway. What will be required is strong leadership at the top levels to change attitudes about existing gender roles and relations.

Increased participation of the poor in policymaking would help make public policies and programs more pro-poor

Chapter 4 also examines how issues of governance and equity are linked. The Report highlights the importance of information and social connections and networks in the access to resources. The poor are less likely to be informed about Government policies and programs and this prevents them from benefiting fully from them. They are also less likely to be able to feed their concerns, ideas and priorities into the design of such programs. The research suggests the importance of improving this two-way flow of information so as to maximize the impact of government policies and programs on poverty reduction.

The Government's Grassroots Democracy Decree is an exciting initiative for improving governance at local levels

The Report finds that although there are mechanisms in place to feed information on Government's policies, plans and decisions down to the village level, or back up to higher levels from the village level, they do not always function well. In many cases, the processes which are in place are not allowing the poor households, or the quieter members within households, to communicate their concerns and priorities back up through the system. In the announcement of Decree 29 on Grassroots Democracy, the Government has recognized the importance of involving households fully in decisions which affect their lives and of making local governments more transparent and accountable. This is an exciting initiative which has the potential for mainstreaming the participation of poor and disadvantaged people in decision-making processes and of improving governance in Vietnam.

Reducing Vulnerability

The poor remain extremely vulnerable to a variety of shocks

Poor households' livelihoods are extremely vulnerable to both household-specific and community-wide shocks. The fragility of the economic base of rural households means that these shocks are thoroughly destabilizing and can take many years before recovery is consolidated. Many households above the poverty line are not much over the poverty line and downward fluctuations in income or sudden demands for expenditure can easily lead to a slide into poverty.

Health shocks, which entail the loss of labor resources and significant costs for curative care and associated expenditure, are very commonly mentioned as a reason for a household's slide into poverty. Reducing the direct and indirect costs of curative health care for poor households could constitute an important safety net. The costs of treating illnesses is relatively a much greater burden for the poor. A single curative visit to a public hospital can cost a person in the poorest quintile the equivalent of 22 percent of his/her annual nonfood expenditure. Alleviating the impact of user charges on the poor requires much more than simply exempting the social categories of the disabled, victims of war, orphans and the indigent from payment of user fees. The evidence indicates that these exemptions are not offered adequately enough by public health facilities to the poor. Greater efforts will need to be made to provide adequate health care for the poor.

The risk of failure associated with on-farm investments can deter households from expanding their economic base in such a way as would improve their resilience to shocks. A narrow income base intensifies the problem, making a household less able to manage risks and so more likely to encounter difficulties. Agricultural extension and veterinary services, which could help reduce the risk of on-farm investments, do not currently reach the poor systematically. This is particularly the case in the upland areas which suffer particular problems of accessibility. Some also argue that options for sustainable upland agriculture have been under-researched, with greater emphasis and resources in agricultural research directed towards paddy farming systems.

Public safety nets and Government poverty programs are small and weakly targeted

Formal safety nets have low coverage and are only weakly targeted. As a result, households have to draw largely on their own resources to deal with crises and they fall back on a number of community or household level strategies to cope with the crises. The choice of strategy may determine to a large extent the speed and sustainability of a household's recovery from a shock. The expansion of facilities for cash savings could offer poor households an important mechanism for managing seasonal hardship and unexpected shocks. The formal financial sector is underdeveloped in this regard and providing mechanisms for savings to the poor remains an important priority.

The Government's National Target Program for Hunger Eradication and Poverty Reduction (HEPR), established in 1998 under Decree 133, provides a framework to address some of the most pressing needs of poor households. The framework incorporates many ongoing Government services and programs which are of benefit to the poor. The main focus to date, however, has been on the provision of subsidized credit and, more recently, health cost exemptions and school fee exemptions. A number of factors seem to constrain the access of the very poor to these benefits. And many of these programs have not been evaluated and their impact on poverty reduction is not clearly understood. Improved coverage and targeting of the HEPR program, and broadening it from providing credit alone, will be needed. Better coordination of the many different agencies and ministries that are responsible for poverty reduction policies and for the many different poverty reduction programs is also needed. And efforts need to be stepped up to improve the short-term monitoring of poverty so that faster action can be taken to reach the poor during times of hardship.

Moving Towards a Comprehensive Poverty Reduction Strategy (chapter 6)

Chapter 6 presents a framework for bringing these elements to the heart of development planning for the coming years. The time is right for the Government of Vietnam to put poverty reduction at the center of its policies and programs for the next decade and longer. The Government has just embarked upon a planning exercise from now until the end of the year 2000 to formulate the next Five Year plan for the years 2001-2005. Furthermore, in preparation for the Ninth Party Congress to be held in the year 2001, the Authorities will be reviewing the long-term prospects of the country. A new 10 year Socio-Economic Development strategy for Vietnam to the year 2010 will be prepared, and this will be embedded within a longer-term vision up to the year 2020. These plans for Vietnam could become instruments for putting Vietnam on a path of development that is equitable and sustainable and one which continues to give it the kind of success in poverty reduction that it has seen in the last five years.

Five broad sectoral areas will require attention from policymakers

Chapter 6 groups the areas requiring attention from policy-makers into five broad categories:

Human and social development;
Physical infrastructure;
Economic management;
Regional (rural and urban) development;
Good governance.

The Government has clearly recognized that continued poverty reduction will require firm actions in each of these broad areas, and in the many sub-components of them. But a balanced attack across all fronts does not imply that everything can be done at once. What is needed to prioritize actions is an identification of the bottlenecks—the hard to solve problems that are impediments to success—and to begin by attacking these first. And to ensure that the priorities that emerge reflect the concerns of the poor, they need to be engaged through a participatory planning process.

How can Vietnamese policymakers come up with the right package of polices and programs that will combine what is essential in the five broad areas to maximize the impact on poverty reduction? These are not easy choices and there is no one correct way of making these decisions. One approach would be set some overall targets for poverty reduction and to design a program of action that is necessary to achieve these targets. As part of its Five Year Planning process, Vietnam sets economic, social and environmental goals for itself. As part of the preparation of the next Five Year Plan, a detailed evaluation is undertaken of the successes and failures of the previous Plan and revised targets are set for the coming period. These targets are then monitored closely during the period of implementation of the Five Year Plan.

The level and pattern of growth in the future will determine the pace of poverty reduction

If, for example, Vietnam was to adopt one of the International Development Goals—that of reducing poverty by half by the year 2015--could it attain this goal? Whether or not Vietnam can replicate its past success at poverty reduction during the next 15 years will depends critically on two factors:

The level of growth it can attain during the next 15 years; and
The pattern of growth (equitable or inequitable) it can attain during the next 15 years.

The importance of economic growth for raising the living standards of the poor in Vietnam cannot be overestimated. But both the level of growth and its pattern (or how the benefits of growth have been distributed) matter for poverty reduction. We can decompose the poverty reduction in Vietnam into two components: one for economic growth and one for distributional changes. The results for Vietnam show that poverty has declined substantially in Vietnam due to the high growth of the 1993-98 period, and despite the rise in inequality that occurred during this period. If inequality had not increased, Vietnam would have been able to reduce poverty by another 8 percentage points: i.e., poverty could have come down from 58 percent to around 30 percent instead of 37 percent. Vietnam's pattern of growth and poverty reduction during 1993-98 is different from the patterns observed in Malaysia (1973-89), Indonesia (1978-84) and the Philippines (1991-94), where the growth and redistributional effects reinforced each other and led to an even stronger impact on poverty reduction.

Two factors underlie Vietnam's success in reducing poverty during 1993-98: the high growth rate of this period; and the high impact of this growth on poverty. As a result, despite the rise in inequality, Vietnam was able to get a big bang for its growth in terms of poverty reduction. But both these factors are now under threat. During the crisis years of 1998 and 1999, Vietnam's growth rate has already fallen by half (to around 4 percent). And in the future, the past relationship between the level of growth and the impact on poverty might not hold, as Vietnam might not be able to replicate the land-based, agricultural diversification success story of the last five year period, which is now reaching its constraints. Hence, the sources of growth are likely to be different in the next five years as compared with the last five. Greater reliance will need to be placed on two other areas of growth in the future: rural off-farm employment and urban employment. But for both these, accelerated and urgent reforms are necessary on a broad range of structural issues.

Economic reforms will be essential for growth and poverty reduction

Continued progress in poverty reduction will, of course, require sound economic management. This involves the promotion of increased domestic savings and foreign capital inflows. It will also require that these savings are channeled towards investments that will maximize employment growth and poverty reduction. The Government has recognized that a number of special issues will need to be addressed if growth is to be restored and greater opportunities provided for Vietnam's citizens to obtain productive jobs. Some of the key issues that the Government will need to consider are:

How to improve the climate for enterprise so that more jobs can be created?
How to provide better financial services and to have a healthy banking system?
How to address and mitigate the social costs of policy change?

There is currently too little recognition as to why the reform measures are essential for restoring growth and reducing poverty. But there is a strong link between the nature and pace of reforms, the level and pattern of growth, and the poverty reduction that has been achieved during the 1993-98 period. As discussed earlier, in the five years prior to the East Asia crisis, Vietnam was able to achieve growth rates of around 8 percent per annum. These high growth rates, and the resulting gains in poverty reduction, were driven by the doi moi reforms undertaken during the late 1980s/early 1990s. Key elements of the reform program included sound macroeconomic management, combined with dramatic reforms in the agricultural sector. They also included the first steps towards integration into the international economy, towards making the state enterprise sector more viable, and towards having a sustainable banking and financial system.

A new phase of reforms is now needed to restore the momentum of growth and to improve the quality of development. These economic reforms are necessary not just for creating opportunities for higher employment and income growth, but also to address issues of equity and vulnerability. The access of the poor to financial services—both credit and savings—is constrained under the present financial system. If credit constraints prevent the poor from availing some of the new opportunities that are being created, future growth in Vietnam is likely to be less pro-poor and less equitable. Similarly, lack of access to financial savings instruments exacerbates the vulnerability of the poor and makes them less able to cope with shocks. It can also trap them in a vicious circle of poverty if they resort to selling off other assets like land or livestock to cope with the shocks.

Vietnam's development partners can assist in designing and implementing a comprehensive poverty reduction strategy

This report has been produced by a Poverty Working Group with representatives from eight Government agencies and mass organizations, three international NGOs (working in partnership with local government officials, local NGOs and research organizations), one government-donor project, and four multilateral and bilateral donors. It has also involved provincial authorities in four provinces—Lao Cai, Ha Tinh, Tra Vinh and Ho Chi Minh City. It is an example of what an effective partnership can accomplish. The process of producing this report has led to a shared perspective among the members of the working group on the nature and causes of poverty in Vietnam. For example, by working together, there has been a better understanding—and a shared concern—between the authorities, the international agencies, and the NGOs on complex and sensitive issues such as ethnic minorities, unregistered urban migrants, and gender relations. By working together, GSO and the World Bank have been able to adopt a common methodology for measuring poverty and now have a common poverty line and a common set of poverty estimates that they can both use to track changes in poverty and help design anti-poverty policies.

While the process of working on this Report has led to a shared perspective on the nature of poverty-related problems and their causes, there has yet to emerge a shared view on the strategy needed to move forward. While commonalities exist in many areas, in some areas there are significant differences in opinion between the Government of Vietnam and its development partners. For example, one area where they differ is the appropriate role of the Government versus households themselves in financing basic social services. The Government believes that self-reliance is important and that co-financing of these services is essential to reduce dependency. It chooses to assist the poor primarily through subsidized credit. The donors and NGOs believe that a better way to assist the poor would be to channel state subsidies through basic social services and to allow credit to be provided at market rates to ensure an efficient use of scarce resources.

This report raises a numbers of other, more specific, questions and issues which will also demand more research and discussion before consensus can be reached on solutions. Important topics which have been raised but left unresolved in the process of producing this poverty assessment include:

How can agricultural productivity be raised? What role does rice policy have to play in Vietnam's future growth and poverty reduction strategy? What can be done to promote the further diversification of agriculture?
How can the off-farm rural sector be stimulated to provide the employment and income-generating opportunities which the rural population will increasingly need?
What is needed to make urban planning more pro-poor and growing cities more "livable"? What changes are needed to allow migrants to contribute more to the prosperity of cities and how can their basic needs be better protected?
What is the role of targeting versus broad-based growth in a poverty reduction strategy for Vietnam? What is the right balance between the two in terms of resource allocation/policy emphasis?
What can be done to help the upland regions – and their ethnic minority population – catch up with the rest of the country so that the poverty-reducing effects of growth are spread more evenly?
How can basic social services be made more affordable to the poor? Can the severe financial burden of ill-health be lifted? Can existing social safety-net expenditures be more effectively targeted towards the poor?
What is the Government's role in addressing equity issues at an intra-household level? How can these issues be tackled most effectively? Who else can play a role in addressing these issues?
What help does the Government need to implement the Grassroots Democracy Decree so that local decision-making processes can be made more participatory and transparent and local authorities can be made more accountable?
What institutional arrangements might improve the Government's capacity to develop and monitor policies for poverty alleviation? What is needed to improve coordination across Ministries and agencies involved in anti-poverty programming? How could short-term poverty monitoring be improved?
What has been the impact of some of the major components of the HEPR Program which have been operating for some years? How can their impact on poverty reduction be enhanced?

More progress will need to be made during the coming year in these and other areas—through joint work in many areas such as public expenditure reviews, banking reform, and through further research. The task now is to arrive at a common approach to these issues and to a common poverty reduction strategy for Vietnam during the next year as the next Five Year plan is finalized by the end of the year 2000.